Nicaragua: New wave of opportunity

Author: | Published: 1 Sep 2010
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Although real estate transactions in Nicaragua have been decreasing in the last couple of years on account of the global financial situation, it is also true that real estate sector remains a strong element in the economics of Nicaragua.

Since the turn of the century, the tourism industry has been one of the most exciting sectors of the Nicaraguan economy, showing steady and continuous growth. Between 2005 and 2009, tourism arrivals grew at an average rate of 8.7% per year and tourism receipts also experienced a 16% annual growth rate during that period. Furthermore, the World Bank has positioned Nicaragua as the country in Central America that best protects investors, and where you can most rapidly start a business.

Registration process: slow but efficient

In a country like Nicaragua, even when real estate is a key point for investment, the registration system is like any other civil law country: very slow and rustic. This poses a difficulty for the liveliness of the market; even when transactions are completed and public deeds are executed by the parties, the registration process is required for publicity purposes (implying that no other purchase over the same properties can be executed by the sellers).

Every province capital in Nicaragua has a Public Registry in charge of the records of the assets and interest of the property owners. Before you are able to file the public deeds for recording, however, you have to comply with some requirements in a couple of other governmental institutions.

After the deed has been executed, the registration process starts by taking the information pertaining to the property to an office called the Cadastral Office (Catastro Físico). The staff of this office is responsible for keeping an updated record of the exact location and measurements of properties according to a survey describing the boundaries and global position points of the lots. They will register in their file the change of the owner and any changes in the dimensions of the property as a result of the transaction by issuing a document called a cadastral certificate. Nicaragua is working very hard to have every inch of the country systematised, however to this date, we cannot really say that this is the case – especially in rural areas, where the process takes a lot of investment from the governmental authorities.

Later on, the new deed and the cadastral certificate obtained are filed in the General Revenue Office (Administración de Renta) in order to get the tax authorities to visit the property object of the transaction and perform an inspection. After such inspection takes place, they will issue an appraisal that is going to be the base to pay what people call the transfer tax (which is really a withholding on income tax) to the government and the recordation fee for the deed at the Public Registry.

The transfer tax is between 1% and 3% of the value of the property. The indicator of the percentage applied is based on the purchase price that appears on the deed, and the results of the appraisal performed by the tax authorities. The General Revenue Office will charge the highest amount between the appraisal and the purchase price stated on the deed. The rule is to charge 1% when the purchase price and appraisal issued are below an amount equal to $50,000; 2% when the amount is above $50,000 and below $100,000; and 3% if the amount is higher than $100,000.

Some municipalities in Nicaragua decide to charge the municipal income tax as well and the receipt of payment of said tax becomes another requirement to adjoin to the main deed in order to get the registration completed. The municipal tax is equal to 1% of the purchase price shown on the deed of transfer.

After all these steps have been fulfilled, the deed can be taken to the Public Registry for recordation. All documents obtained (appraisal and cadastral certificate) along with a certificate of municipal tax currency that must be provided by the seller at closing are all transcribed in the deed and presented in originals before the registration authorities.

In the Public Registry, all the information contained in the deed will be reviewed and recorded in the Books of Properties (the data base of real estate in Nicaragua). If the information contained is correct, the Registrar will assign, depending on the case, a property number and/or entry to the lot and the deed will be delivered to the purchaser with a recordation note at the end of the title. This completes the registration process.

Other interests that may be shown on records

Another one of the advantages of the real estate public records is that any interests executed in public documents may be recorded. Whether is a mortgage (in this case, it must be recorded to be valid), easement, claim, promissory sales agreement, or any other type of interest that affects the property can be recorded. This can be used to protect your interest on a property, or if you are looking into investing in real estate, you can perform a due diligence in the public records, which are open to the public, and find out every detail of the property that can help you make an educated business decision. Nicaraguan law protects the persons who, trusting the veracity of the public records and what they contain, complete a transaction.

Letter of no objection

In the last couple of years, the government of Nicaragua established a new condition for the registration of certain properties; this is the Letter of No Objection (Constancia de No Objeción), which is issued by the Attorney General of the Republic. The Attorney General's Office reviews the title precedents of the properties in order to determine if the state of Nicaragua holds an interest over the property. This usually happens with properties that have an agrarian reform history. It is also necessary where the property has, at any time, belonged to the state of Nicaragua or is in a specific strip near a water body (lakes, oceans, etc.).

The Letter of No Objection is a document signed by the Attorney General of Nicaragua that contains an opinion stating that the state of Nicaragua does not have any objection to the transfer of the property. This letter is sent to the Cadastral Delegate and the General Revenue Office authorities in order for them to issue the paperwork needed to complete the registration. If the Attorney General finds that the state of Nicaragua has interest over the property the letter is issued stating that the Nicaraguan Government has objected to the transaction and the registration process cannot be completed.

New coastal zone law

In the spirit of securing legally acquired title, legislators have also issued a new coastal law: Law 690 or Law for the Development of Coastal Zone (Ley para el Desarrollo de las Zonas Costeras). It replaces the law from 1917 and establishes free access within the state of Nicaragua on the public coastal zone (up to 50 m from the medium high tide for oceans, and 05 m for lakes and rivers). Those who have title of properties within the coastal zone, from a chain of title that dates back to before the 1917 law, or by reason of any governmental order that granted fee simple interest, will have their ownership recognised by the government. Furthermore, for the land that is government owned, the State (through the municipalities) may grant concessions for a yearly fee over the property for up to 20 years, and if it´s for tourism development, it can be for up to 59 years. Both terms are eligible for extension. Any building within this area must be previously approved by the Municipality, which also costs a small fee.

Attracting tourists and investors

Taking into consideration the effect that the natural beauty of the country has made on many tourists, the government and legislators of Nicaragua have made it their goal to attract as many investors as possible through different mechanisms. One of them is aimed directly at those interested in living and/or retiring in this beautiful country. For that matter, legislators have created the Decree 268 or Law of Residents with Pensions and/or Income of Nicaragua (Ley de Residentes, Pensionados y Rentistas de Nicaragua). The intention is that retirees with a retirement plan of at least $600 monthly, and people with a foreign steady income of at least $750 per month, would receive benefits in the form of tax exemptions to the following: imports up to US$20,000 worth of household goods for your own home, duty-free; imports or purchases of a new car of up to US$ 25,000, for personal or general use and exemption from import and sales tax (if used, the car has to be seven years old at the most); imports of an additional vehicle every four years under the same tax exemptions; imports and or purchases of construction materials for up to $50,000, tax free, for the construction of a house; and, exoneration of the sales tax on rental cars for tourism purposes.

In addition, they will be granted a Nicaraguan residency card, and their families and codependents would also be covered by this status by proving they earn $150 for each member. We have personally handled many of these applications and this saves people the trouble of ever having to leave Nicaragua when their visa expires. Residents grow with the communities and have many wonderful, fulfilling experiences.

Another great example of the country's interest in developing tourism investment is Law 306 or Law of Incentives for the Tourism Industry (Ley de Incentivo para la Industria Turística). The name practically speaks for itself, but as we go into detail you will be pleased to know that projects such as hotels, condominium hotels, apartment Hotels and time-shared housings are all benefited by this law. To investments of those kinds, the following benefits – in the form of tax exemptions – are granted: exemption from 80 to 90% income tax for a period of 10 years; exemption from property tax (IBI) for a period of 10 years; exemption from Sales tax applicable to design services, engineering and construction; exemption from import duties and value added tax (VAT) on the purchase of equipment and fixtures of the building for a period of 10 years. In the case of re-investment, if upon completing the 10-year incentive period the investor decides to invest an additional 35 % of the original amount, the investor may receive all the applicable benefits and exemptions for an additional 10 years.

To apply for these benefits you must surrender a project profile with the investment plan and an environmental impact study, among other topics of interest, to the Tourism Incentives Board. For the purpose of having all interested parties involved, the Board is formed by the President of the Nicaraguan Tourism Institute (INTUR), a representative of the President of the Republic of Nicaragua, a representative of the Ministry of Economy (MHCP), Director of the General Revenue Office (DGI), Director of the Customs Services Office (DGA), President of the Municipal Development Institute (INIFOM), a representative of the Association of Municipalities (AMUNIC), President of Tourism Commission of the National Assembly, and representatives of all chambers of the tourism sector (CANATUR, CANTUR y CANIMET) . The representatives of the chambers of tourism will be heard but do not have a vote on the board. After taking into consideration the general information of the projects, the Board will determine if the benefits will be granted, and to what extent. We have acted as counsels to many projects which have applied for these benefits, and the results are always greatly appreciated by the investors.

Other ways of securing investments

The real estate movement in Nicaragua has not been overlooked by title insurance companies. For years now, title insurance companies such as First American Title, Stuart Title, and Fidelity have been working on policies to protect the interests of buyers in land all over the country. Even though all international policies have standard exemptions, we can say that we have insured many properties all around Nicaragua for our clients. It is a great marketing tool for future buyers if you plan to develop your property into a small community. For this policy, we perform a title search of the public records – as explained before – that leads to a Title Opinion, which covers the chain of title, and any real property right that may affect the title, its enjoyment or the value. The insurance company issues a commitment to insure the property, based on requirements that the Attorney needs to satisfy after reviewing the Title Opinion and any other document that may be used to support the legality of the Title. Once we have completed satisfaction of such requirements, including, but not limited to, a fully recorded deed, we obtain a Title Policy. This policy protects the beneficiary from any claim that may arise from an issue that took place from the date of policy and back, unless an exemption on a policy was established. The title company then reviews the issue and has the right to defend the Title or indemnify for the loss, which covers for a minimum of $200,000. Considering the investment made on a property, obtaining title insurance is a safe bet.

Investment vehicles

Nicaraguan laws do not differentiate between foreigners and citizens; both are equally entitled to own land without any restrictions. However, some investors choose to protect themselves even more by using a corporation to purchase real estate property. There are different types of corporations, but in practice people are more inclined to use a Sociedad Anónima. This type of corporation can be started by two shareholders, and must register the incorporation documents and by-laws to complete its existence as a legal entity. It needs to keep four company books for the minutes, a registry of shares, and two accounting books. With this corporation, the shareholder is obligated up to the amount of their contribution to the company´s capital. Since the corporation consists of shares, these can be easily transferred to other parties; this is also helpful whenever a company owns a property and only that, since transferring shares is much quicker than transferring real estate. Furthermore, if your property invested in title insurance, the company, and the property, would not lose the policy since the owner of the Land remains the same.

Nicaragua provides a new wave of investment opportunities. Other countries in the region have experienced development that has caused the prices of real estate to skyrocket, and the investments have deteriorated the natural scene that once existed. This country still has that, and has legal bodies that encourage eco-friendly developments so that investors can grow together with the community and maintain the nation's beauty, with a registration service that, even though it is slow, is accurate and entitled to public faith. Also, as we have said before, it welcomes foreign investment and embraces them as its own, extending incentives that are not often seen. We expect that the real estate market will soon be on the rise again, and many people will start creating or executing projects with a tourism approach, but there still are lots of opportunities of investment in this country that must be taken into consideration, with the right legal counsel.

Author biography
Eduardo Cabrales Cuadra
García & Bodán


Eduardo Cabrales Cuadra is an Associate Attorney of García & Bodán. His main areas of practice are real estate transactions and developments, and corporate law.  He advises national and international clients.

He graduated from the Central American University of Nicaragua in 2007. He was awarded a post-graduate degree in corporate law from his alma mater in 2008. He was an underwriter for First American Title Insurance Company from 2008 to 2009, before joining García & Bodán.

Email: eduardo.cabrales@garciabodan.com

Author biography
Ramiro Rodríguez Urcuyo
García & Bodán

Ramiro Rodríguez is an Associate Attorney and Notary Public and has been in the firm since 2007. He advises national and international clients in real estate transactions and corporate law and  is also familiar with labour law and civil matters.

He graduated from the American University of Managua in 2007 and was admitted to practice before the Supreme Court of Justice on 2008.

Email: ramiro.rodríguez@garciabodan.com