Nicaragua: Tax effects in share transfer operations

Written by: Jean Paul Aguirre


Stock transfer transactions are a common way of acquiring and capitalizing businesses. This type of transaction can materialize through onerous legal acts (E.g., Purchase and sale) or free (E.g., Donation). The importance of the subject transcends the commercial sphere and extends to the fiscal impact that derives from this type of operation; being the latter on which we will focus in this article.


Tax applicable to the transfer of shares


According to what is contemplated in article 15 of Law No. 822 “Tax Concertation Law” (TCL) and its reforms, the disposal of shares, whether for consideration or free of charge, can generate a capital gain; this would be taxed by the Capital Gains Income Tax.


In other words, whenever a transfer of shares is intended to be carried out, it is essential to confirm whether or not, according to the parameters regulated in the tax legislation, a capital gain has been generated. For such purposes, we must remember that capital gains consist of those positive variations in the value of the taxpayer’s assets, because of the alienation of assets, assignment, or transfer of his rights.


From the above, the following question arises: How can I calculate the capital gain that will be subject to Income Tax? Next, we briefly explain the applicable procedure:


First, we must determine the taxable base of the tax; this varies according to the type of transaction:


  1. Onerous acts: The difference between the acquisition cost of the action and the transmission value. Note: The transfer value must be at least equal to the market value of the shares being transferred. If the agreed value is higher than the market value, the higher of these two values will be applicable.


  1. Free acts: The capital gain corresponds to the total value of the transmission. Note: The value of the transfer will be equal to the market value of the shares.


Once we have defined the value of the capital gain, a definitive withholding with an aliquot of 15% will be applied to it. The withholding must be made by the buyer to the seller of the shares, or, in the case of foreigners, it must be carried out by the company issuing the titles under a degree of joint and several liability.


What is the market value of the shares for tax purposes?


Unfortunately, our legislation does not establish a specific mechanism to calculate the market value in this type of transaction, therefore, it is necessary to fill this gap through calculation mechanisms typical of commercial practice.


In the absence of regulations on how to determine the market value, we use the accounting equity of the company (Assets – Liabilities) as a reference. For the purposes of this exercise, we will use the last General Balance of the company, to identify the assets, liabilities, and current equity of the commercial entity; This allows us to calculate the equity value of each of the shares. It is important to note that this is only one of the various existing methods, ergo, before an audit it is not possible to guarantee that the administrative authority will use the same criteria, since there is no clear regulation on this subject.


Fiscal supports for this type of transactions


In accordance with current commercial and tax legislation, share transfer transactions are supported by the following documents and legal acts:


  1. The signing of the sale or donation agreement (This can be in a public instrument or private contract).
  2. The endorsement of the share certificates object of the transaction.
  3. The registration of the new owners of the shares in the Shares Registry Book of the company issuing the certificates.
  4. If applicable, according to the articles of incorporation and the bylaws of the company, the waiver of the right of preference by the rest of the shareholders.
  5. Documents supporting payment.
  6. Tax withholdings have been duly made, paid and declared before the treasury.


In short, share transfer operations must always be duly analyzed by the taxpayer’s tax advisors, to determine the tax effects of each of these operations. Otherwise, the taxpayer would be exposing himself to adjustments for omitted taxes, fines for tax violations and late payment surcharges.

Scroll to Top