Nicaragua is becoming more attractive as the
legal market becomes more open and stable. For investors
looking for an entry point into Latin America, the country
offers plenty of opportunities
Located in the heart of the Americas, Nicaragua has emerged as
a fast-paced growing economy in the Central American isthmus.
Its vastness in natural resources, privileged geographical
location, variety of business opportunities and a strong
legal-institutional framework, makes it an attractive country
to do business.
In recent years, as a result of both direct and indirect
foreign investment projects, Nicaragua has witnessed the
development and growth of some economy sectors, such as mining,
energy, telecommunications, free trade zones, tourism, finance,
real estate and others. This has helped with the
diversification and expansion, not only of businesses and
economy dealings, but also of the legal, regulatory and
institutional bodies providing the legal certainty required to
create an adequate investment climate.
The Nicaraguan economy has been evolving alongside the
globalisation phenomenon, giving rise to a number of different
opportunities with an increasing presence of multinational
companies, foreign investors and entrepreneurs devoted to a
wide range of businesses, projects and enterprises, which have
experienced the achievement of higher goals by investing in
How to do business in Nicaragua
Nicaragua has a solid legal platform upon which investors
can design and develop different business structures and adjust
them to fit their specific needs and purposes. Conducting
research and obtaining advice in advance on the law and
requirements applicable to a specific project, is a key step
that should be taken early on to consider business alternatives
in an efficient manner.
Setting up a legal entity
Most investors do business by setting up corporations,
limited liability companies or branches of foreign entities.
When choosing the type of entity, certain matters should be
considered, such as the timing, requirements, management,
transferability of ownership, the specific type of entity the
law requires, approvals, national capital percentage and other
conditions or restrictions.
As a general rule, both foreign legal entities and
individuals can be shareholders in a corporation and partners
in limited liability companies. Foreign entities can also be
parent companies of branches in Nicaragua. Despite certain
differences among each form of entity, there are some general
rules that apply to all of them:
- They should be incorporated in a public deed before a
notary and recorded with the mercantile registry, tax and
- Some further registrations and obtainment of approvals,
permits, licences or concessions, depending on the business
sector involved, may also apply.
- Legal representatives before governmental agencies and
before certain third parties should be Nicaraguan or foreign
with residency in the country.
In most cases, the incorporation and registration processes
are completed in approximately 30 days, though further
registrations with regulators and other specific governmental
agencies may take additional time, depending on the agency
involved and the type of permit required.
There are no minimum or maximum limits for the capital stock
of these entities, save for some rules on the incorporation
capital and further capital adjustments for the banking and
financial sector. However, it is important to consider that
certain official registration fees are calculated on the
capital stock amount, and capital increases involve the
amendment of articles of incorporation and by-laws. This
process, depending on the type of entity (eg corporations) may
require a judicial approval besides its further registration
with the mercantile registry.
For corporations, the board of directors may comprise legal
entities and/or individuals, whether foreign and/or national,
which should also be shareholders. If they are legal entities,
they exercise their authority through individuals appointed as
representatives for the board. The different positions on the
board of directors are typically a president, secretary and
treasurer, though the parties may decide to organise the board
in the form that best suits their needs, including in any event
a president and secretary. A comptroller should also be
For limited liability companies, partners may appoint
administrators, whether they are partners or not, to legally
represent the company according to the powers and authorities
granted in the administration mandate; otherwise, any partner
is lawfully entitled to act on behalf of the company. Branches
of foreign entities are managed by their parent
companies´ directors, administrators or shareholders, as
the case may be, though the branch should be legally
represented by Nicaraguan individuals or foreign residents
granted with a full power of attorney to act on behalf of the
branch in the country.
Disregarding the form of entity chosen, once the entity is
set-up, recorded, and applicable permits are obtained, then
investors are ready to continue with the enterprising project
of investing in the heart of the Americas.
Business and law at a glance
Business opportunities in Nicaragua are diverse and ample.
That being said, it is important to know and understand the
legal regime applicable to a determined business sector or
project. This includes the requirements to be met, terms and
conditions to comply with and, in general, the legal aspects
necessary to make well-informed decisions, conduct an
appropriate risk assessment and to do business according to
Given the recent increase in the development of real
estate-related projects in the country, the following
highlights some of the legal aspects related to this business
sector in Nicaragua.
Nicaragua has been sought by real estate developers for a
variety of projects, including hotel, condominium/housing
development, tourism infrastructure; and by investors in
different sectors such as energy, mining, forestry, livestock,
agribusiness and others. Nicaragua is the largest country in
Central America, with land and water sources that make it
attractive for such projects. It also has a legal regime
regulating ownership rights, title, transfer and other related
A key starting point for real estate projects is to
determine the geographical location of the land or properties
involved. There are special laws and regulations establishing
certain conditions that may apply, depending on the location of
the properties and their legal background, among which are the
Act No 749 Law on the Borders Legal Regime (Act
In effect since the year 2010, Act 749 classifies the border
territory in three zones: (i) Border Integration and
Development Zone (BID), (ii) Border Security Zone (BS) and,
(iii) Border Protection Especial Zone (BPE). BID and BPE
comprise the 15 kilometres from borders inwards, and BS is
located within the five kilometres from borders inwards.
According to Act 749, foreign individuals and foreign legal
entities cannot acquire, by any title, real property within BS,
providing an exception for concessions or lease authorisations
granted by means of a presidential agreement for reasons of
public or social interest. BS property may only be transferred
to Nicaraguan individuals in accordance with legally acquired
and recorded title. Nicaraguan legal entities, with Nicaraguan
partners whose nominative shares cannot be transferred or
endorsed to foreign parties, may also acquire property within
BS for sustainable development productive investments.
Nonetheless, concessions or lease authorisations for land
within BID may be granted to foreign individuals and foreign
entities. The maximum concession period is, for individuals, 99
years, and for legal entities 25 years; in the case of lease
authorisations, the maximum period is 10 years.
Act No 690 Law for the Development of Coastal
Zones (Act 690)
Nicaragua has developed a legal framework governing the use
and exploitation of coastal zones in both the Pacific Ocean and
the Caribbean Sea aimed at guaranteeing people's access to
these zones and to regulate their use and ownership.
The main law on coastal zones is Act 690, in effect since
the year 2009, which, amongst other matters, determines and
delimits the areas for both the public and the regulated use in
The state holds the exclusive ownership rights on areas for
public use, including (i) the uncovered area between the high
tide and low tide plus 50 metres from the maximum average
tidemark on-shore; (ii) for natural lakes and lagoons, five
metres from the historical maximum average mark on-shore; (iii)
for islands greater than two square kilometres with permanent
population, five metres from the historical average of the
winter maximum water level, or tides, on-shore; and, (iv) for
artificial lakes created or acquired by the state, the one
determined by the original boundary markers.
Certain activities are restricted in the areas designated
for public use, such as housing construction, construction of
transportation routes, installation of aerial high power lines
and permanent commercial advertisement by any means, as well as
any others that may interrupt or prevent people from accessing
and circulating freely in coastal zones, excepting cases
subject to special laws.
An important highlight is that Act 690 establishes that
those rights legally acquired and permits (eg, use of soil,
environmental permits) obtained before Act 690, in those areas
considered of public use under Act 690, should be respected,
providing more legal support for the development of projects
and legal relationships commenced before Act 690.
On the other hand, the regulated area (also known as
restricted area), comprehends the area where the zone for
public use ends plus 200 metres on-shore, and is oriented to
(i) the construction and functioning of touristic services with
permanent work; (ii) the construction of wharfs for touristic
marines in permissible areas; (iii) development of housing
projects for recreational and family use; and, (iv) cultivation
and plantations for subsistence purposes. Zones legally
declared as protected areas are not subject these
With the exception of those rights legally acquired before
Act 690 (which are respected under Act 690), there is a general
restriction prohibiting the transfer of ownership within the
restricted areas, being possible, however, to obtain
concessions from the corresponding governmental authorities (eg
municipal or regional authorities, depending on the location of
coasts) by following the applicable procedures.
Concessions may be granted to national individuals or legal
entities, or to foreign residents in Nicaragua, for a period of
20 years, extendable, or up to 59 years, the latter contingent
on whether the National Commission for the Development of
Coastal Zones considers that the project's investment amount,
economic impact and employment generation potential, may
require a long-term contractual relationship.
Indigenous communal property
The Nicaraguan people are multiethnic, and the political
constitution recognises the existence of native and
afro-descendent people, as well as the different forms of
property, among which is communal property.
There are several laws and regulations setting forth the
legal regime on this type of property, such as Law No 28
Statute for the Autonomy of the Atlantic Coast Regions (Act 28)
and its regulations; Law No 445 Law on the Communal Property
Regime of Indigenous Peoples and Ethnic Communities of the
Atlantic Coast Regions, and of the Bocay, Coco, Indio and
Maíz Rivers; and others. These laws establish, among
other things, that the communal property is constituted by the
land, water and forests that traditionally have belonged to the
Atlantic (Caribbean) coast communities, and this property
cannot be alienated, donated, sold, seized, attached or subject
to embargoes, nor to encumbrances, and are imprescriptible.
Despite the above characteristics and restrictions,
businesses and projects involving this type of property have
been successfully developed by investors. Certain projects,
related to activities of exploration or exploitation of natural
resources, infrastructure, energy, mining, agribusiness and
others, are executed, total or partially, in communal
properties; and the use of the land becomes feasible by means
of lease agreements executed among the indigenous
communities´ authorities and investors, besides obtaining
any other necessary permits for the project.
There are also indigenous communities established in
different zones of the Pacific coast of Nicaragua, in different
departments or municipalities, and the communal property regime
has very similar characteristics as the above mentioned; being
important for investors to determine whether a project would
require the use of this form of property.
Agrarian reformed property and
During the 1980s, profound changes were implemented in the
legal regime for real property in Nicaragua. A process known as
agrarian reform was undertaken, affecting many properties on a
large scale throughout the country.
Certain laws were passed during the 1980s and early and
mid-1990s, such as the Agrarian Reform Law (Decree 782) and its
amendments (Law 14), and others, which, together with some
regulations and administrative norms, established a special
legal framework for properties affected by the agrarian reform
During this stage of Nicaraguan history, the political
climate of the country was unstable and volatile, a revolution
was in course, and many properties were confiscated and
transferred to the state, and turned into reformed properties
under the agrarian reform program. The state further issued a
type of title known as the agrarian reform title, under which
the confiscated property was conveyed to third parties
identified as agrarian reform beneficiaries, and those titles
were recorded with the corresponding land registries.
During the years following the revolution and the agrarian
reform, many of those beneficiaries transferred their
properties to third parties, mainly by means of purchase/sale
deeds; but also, many of the confiscated owners filed claims
demanding compensation, and legal issues were raised even among
the same beneficiaries which, in some cases, argued to have
title and rights over the same property.
In light of the unsteadiness caused by these events, in
recent years the Attorney General Office established certain
administrative measures meant to restrain any illicit
trafficking of real estate properties and to contribute to the
celerity of the registration process and legal
commercialisation of the same.
These measures included obtaining certification from the
Attorney General for the transfer of properties derived from
agrarian reform titles, up to the second registration entry,
upon request of any of the main governmental agencies involved
in the transfer of properties process, such as the physical and
tax cadastral offices, and the land registries. When dealing
with reformed property, it is possible that other agencies will
be involved, such as the Intendancy of Property.
The Attorney General´s certification is also required
for properties (i) located in coastal zones, reserve and border
areas, according to applicable law; (ii) whose immediate
precedent is derived from the extinguished banking
institutions; and (iii) derived from title by adverse
possession and acquisitive prescription.
Key highlights to keep in mind
Geographical location of the
Determine the geographical location of the property,
confirming whether it is within a restricted zone, such as
reserve or border areas, coastal zones, or within a communal
regime property, which is usually confirmed by conducting
proper due diligence.
Conduct due diligence in advance to determine the legal
status of the property, including the review of title, land
surveys, cadastral certificates and documents and records at
certain governmental agencies such as the land registry,
physical cadastral office, municipal authorities, and others
that may be required or recommended on a case-by-case basis.
Others that might apply are the Attorney General Office,
Intendancy of Property, judicial and tax authorities,
Environmental Ministry, and others.
Due diligence goals
Due diligence should confirm, among other things, title
status, ownership, any restrictions, whether any special law
affects or may affect the property or title, transfer of
ownership, any impending litigation or encumbrances, real
estate tax payment status, as well as the status at the
physical cadastral office.
Acquisition and registration of real estate
After the due diligence exercise, if investors decide to
acquire the property involved, the next step is the execution
of the purchase/sale deed, before public notary, and its
further registration with the corresponding land registry. The
latter requires the clearance of certain procedures, such as
registering the change of ownership with the physical cadastral
office, and payment of the corresponding transfer taxes. The
relevant municipal authorities should also be informed of the
change of ownership for the update of records.
Many investors choose to insure titles through a title
insurance company, seeking more protection of their financial
interest in case of losses derived, mainly, from title defects.
Title insurance companies conduct their own and independent due
diligence over the property to determine coverage and
Land registry system
The land registry system in Nicaragua is not centralised.
There is one land registry for each of the departments and
autonomous regions into which the Republic of Nicaragua is
politically and administratively divided. Each land registry is
located in the main or principal city of each department, and
titles should be recorded with the land registry for the
jurisdiction of the property involved.
The transfer tax is calculated over the greater amount
between the price in the purchase/sale deed and the tax
appraisal established by the cadastral tax authority. The tax
rate ranges from 1% to 4% depending on the amounts
Real estate municipal tax
The real estate municipal tax is paid on an annual basis in
arrears, within the first six months following the taxed year.
The tax rate is 1% over the taxable basis, according to the
municipal cadastral appraisal.
Depending on the nature of the project (for instance, if
associated with industries such as energy, mining,
agribusiness), some other permits may be required, and
procedures should be cleared with the relevant governmental
offices in advance. The most common required permits are those
granted by the municipal authorities for use of soil and
construction, environmental permits issued by the Environmental
Ministry and licences and/or concessions granted by ministries
for the specific sector.
The Nicaraguan legal system allows the creation of security
interests over real property by means of mortgage granted
before a public notary and further recorded with the land
registry. Many important projects and businesses in Nicaragua
in different sectors of the economy, such as, energy, mining,
hydrocarbons, tourism, agribusiness and others, are conducted
through financing and loans secured with real property.
Conducting due diligence is likewise recommended for lenders
before entering into financial arrangements to be secured with
Gloria Maria de Alvarado
Managing partner, Alvarado y Asociados
T: +505 2278 7708
Gloria Maria de Alvarado is the founding partner of
Alvarado y Asociados. Her practice includes: corporate
and mercantile law; banking and finance law; due
diligence; mergers and acquisitions; foreign investment
and international transactions; copyright law and
industrial property; administrative, telecommunications
and natural resources law; private and public bid
process; and advice on franchise and joint venture
Previously, she was a representative and foreign
associate at Bentata Hoet & Associates, Steel
Hector & Davis and Pennie & Edmonds. She also
worked in the legal department of the United Nations.
She is a member of the Bar Association of Venezuela and
She graduated from Universidad Católica
Andrés Bello in Venezuela 1979, with a Bachelor
of Laws Degree (JD equivalent). She went on to study
Introduction to the US Legal System at Georgetown
University; and then graduated from Harvard University
with a Master of Laws degree in 1981.
Favio Josué Batres P
Senior associate, Alvarado y Asociados
T: +505 2278 7708
Favio Josué Batres P joined Alvarado y
Asociados in 2009 as an associate. His practice areas
include: real estate; security interests and guarantee;
corporate and business; banking and finance;
securities; due diligence; mergers and acquisitions;
competition and antitrust; foreign investment and
international transactions; administrative law; labour;
financial structure; mining, energy and
telecommunications; advice on contracts; and
Previously, from 2005, he worked as an associate for
various prestigious law firms, focusing on corporate
and business law. He has also served in government
positions in the Judicial Branch and the District