Labor Income Tax- What is it and What Income Does it Affect?

Posted by: Carlos Navarro| Senior Associate at Alvarado y Asociados

The Labor income Tax, created by article 11 of the Tax Concertation Law, is income derived from all kinds of consideration, remuneration or income, regardless of its denomination either in money or in kind and deriving from the personal work provided by the employee.

In summary, the Labor Income Tax are those received by all employees in Nicaragua, paid by employers, whether in terms of wages, salaries, bonuses, salaries, commissions and any other form or concept of remuneration for the performance of a job In favor of an employer, provided that the work is performed by the worker, in Nicaraguan territory.

Likewise, the Law establishes that the remuneration of the administrators and members of the administrative organs and other members of other representative bodies of corporations and other legal entities, such as, for example, allowances, are to be considered Labor income Tax as well.

 

ECONOMIC LINKS

The Law makers have been responsible for including in the law some scenarios in which labor income tax is generated, even if the consideration has been provided outside the national territory. Among these scenarios are the following:

 

  1. Work performed outside the national territory by a Nicaraguan resident or a non-resident who is paid by another Nicaraguan resident or by a permanent establishment of a non-resident located in the country.

 

  1. Salaries, bonuses, and other remuneration paid by the State, its institutions and other state agencies to its representatives, officials or employees abroad, including diplomatic and consular personnel;

 

  1. Salaries, bonuses and other remuneration that do not entail reimbursement of expenses of crew members of air or sea vessels and of land vehicles, provided that such ships or vehicles have their home port in Nicaragua or are registered in Nicaragua.

 

  1. The remuneration, salaries, commissions, gratuities or remuneration paid or credited by legal entities, trusts, investment funds, entities or collectivities residing in the country to members of its directories, boards of directors, councils or governing bodies, or Consultative and other councils or similar bodies, regardless of the territory in which these collegiate bodies act or meet.

 

WHAT INCOMEs ARE EXEMPTED?

 

The following are exempt from income tax:

 

  1. Up to the first hundred thousand cordobas (C $ 100,000.00) of net income accrued or received by the taxpayer;

 

  1. The thirteenth month, or Christmas bonus;

 

  1. Compensation up to five months of wages and salaries received by workers or their beneficiaries under the Labor Code, other labor laws or collective agreement. The additional indemnities to these five months will also be exempt up to an amount of five hundred thousand cordobas (C $ 500,000.00);

 

  1. The benefits in kind derived from the collective workers convention;

 

  1. Pensions paid by the Nicaraguan Social Security Institute;

 

  1. Benefits paid by savings and / or pension funds other than those of social security, which are endorsed by the competent authority;

 

  1. The indemnities paid as a result of civil liability for damages; As well as indemnities arising from insurance contracts;

 

  1. The amount perceived for use or allocation of means and services necessary to perform the functions of the charge, such as: per diem, telephony, vehicles, fuel, vehicle depreciation and maintenance expenses, representation expenses and reimbursements of expenses, provided Do not constitute income or a simulation or concealment of it;

 

  1. Other

 

HOW MUCH IS PAID?

 

To determine the Tax to be paid for Labor Income, it will be certified according to the Table of Progressive Rate indicated in article 23 of the Law, which is the following:

 

Net Anual Income

Base Tax C$

Tax Amount

from C$

to C$

 

Applicable Porcentaje

Over the excess of C$

1.00

100,000.00

-

0.00%

-

100,000.01

200,000.00

-

15.00%

100,000.00

200,000.01

350,000.00

15,000.00

20.00%

200,000.00

350,000.01

500,000.00

45,000.00

25.00%

350,000.00

500,000.01

a más

82,500.00

30.00%

500,000.00

 

 

DEFINITIVE WITHHOLDINGS TO ALLOWANCESS AND NON RESIDENTS

 

Persons receiving Labor Income, who are NON RESIDENTS of Nicaragua, will be taxed in the following way, through Definitive Withholdings of:

 

1.  10% WHT

2. 12.5% WHT

3. 15% WHT

Ten percent (10%) to the indemnities stipulated in number 3 of article 19 of the Law;

Of the twelve point five percent (12.5%) to the allowances received in meetings or sessions of members of directories, boards of directors, councils or directing or consultative organisms and other councils or similar organisms;

Fifteen percent (15%) to non-resident taxpayers.

 

 

For more information please contact Carlos Navarro at cnavarro@alvaradoyasociados.com.ni

Bookmark and Share

Sign up to receive our monthly newsletter and legal updates

Name :
Email :