Legislation for Foreign Investment Statutes in Countries in the Americas
Comparative Study
1. Legal bases for foreign investment
Objective: Indicate if there is a Foreign Investment Statute and describe it. In the paragraphs below, indicate the legal rank of the norms contained in the Statute, i.e., regulations for expropriation fall under which rank?
1.1 Constitutional
The Constitution of the Republic of Nicaragua, reformed in June 1995, provides for economic freedom, equal rights, respect for property, and restrictions on expropriation.
1.2 Legal
The Foreign Investment Law And Its Regulations.
1.3 Administrative
The Foreign Investment Committee And The Executive Secretariat.
2. Concept and subject of foreign investment
Objective: It is essential that both the investor and the nature of the investment be identified, so as to determine to which activity and to whom the regulations will be applied. This is also essential at the international level, especially in case of dispute and arbitration.
2.1 Is foreign investment in your country legally defined or conceptualized?
Yes, it the Articles 2 and 3 of the Foreign Investment Law. Foreign investment, within the legal framework of this law, is construed as investments made by the transfer of foreign capital to Nicaragua, and by extension, investment from abroad regardless of the nationality or legal residence of the investor. Article 3 of the Foreign Investment Law defines what is accepted as investment.
2.2 Are there registered records or mechanisms to clearly identify both the foreign investor and the nature of the investment?
Yes
Registries in the Central Bank of Nicaragua and in the Ministry of Economy and Development, but it is not compulsory.
2.3 Is it possible for a natural person to resort to the foreign investment legislation?
Yes
Article 4 of the Foreign Investment Law states: The authorization for foreign investments which shall enjoy the advantages granted by this law, shall be formalized in an Investment Contract between the Foreign Investment Committee representing the Government of Nicaragua and the natural or juridical person making the investment, hereinafter referred to as "the foreign investor" for all purposes of this law.
2.4 Is it possible for a citizen or resident to resort to the foreign investment regime?
Yes, with foreign capital.
Article 2 of the Foreign Investment Regulation states: Within the legal framework of the law, foreign investments shall be construed as investments made in Nicaragua by:
a) Foreign persons or entities who bring capital into Nicaragua in any of the forms indicated in Article 3 of the Foreign Investment Law.
b) Nicaraguan persons who bring capital into Nicaragua in any of the forms mentioned in Article 3 of the Foreign Investment Law.
2.5 Can a recipient company funded with both domestic and foreign capital resort to foreign investment regulations? Is this subject to restrictions?
Yes
Article 6 of the Foreign Investment Law states:
In the case of joint investment consisting of foreign capital and capital existing in the country, the latter shall also have the rights to the benefits granted by the present law with the exception of clauses a) and b) of the following article.
Article 7 - Foreign investors shall enjoy the following guarantees, which shall constitute obligations of the State to them:
a) Repatriation of net foreign capital, less any losses incurred, which may not occur prior to three years beginning on the date on which the capital to be repatriated entered the country.
b) Remittance abroad of net profits generated by registered capital.
2.6 Is there a time limit for a foreign investor to be considered as such?
No. the law is permanent in nature.
2.7 Are restrictions imposed on the executive body or other staff of an enterprise. Are there nationality quotas? Under what conditions can the executives or other staff hired abroad send their earnings to their country of residence?
Nicaragua’s labor code states that 75% of employees must be nicaraguans, not including management posts.
Article 10 of Chapter 1 of the Labor Code of Nicaragua - "In every company, the employer must employ at least 75% Nicaraguan staff."
For that purpose, the following persons shall be considered to be Nicaraguans: foreigners whose spouses are Nicaraguans or widows/widowers of Nicaraguans, and foreigners residing in Nicaragua for more than 10 years without regard to accidental absences.
The provision of the first paragraph does not apply to managers, directors, administrators, supervisors, heads of companies and other technical staff.
Executives or staff must pay individual income tax (30%) and may make remittances abroad without exchange restriction. There is a 5% tax on remittances of corporate dividends.
3. Scope of foreign investment activities
Objective: Define the legal scope of foreign investment in your country, as well as their conditions and limitations.
3.1 Describe the regulating principles of economic activity in your country.
a) Describe how economic freedom is guaranteed.
It is guaranteed by the constitution.
In Article 99 of the Law on the Partial Reform of the Political Constitution of the Republic of Nicaragua. "The State is responsible for the promotion of the integral development of the country and as the agent of public welfare shall guarantee the interests and the individual, social, sectoral and regional needs of the country. It is the responsibility of the State to protect, develop and promote different types of property and economic, private, state, cooperative, associate, community and mixed management to ensure economic and social democracy."
Article 104: The companies organized under any of the forms of property established in this Constitution, enjoy equality under the law and the economic policies of the State. There is economic freedom. Economic activities are guaranteed except for the limitations imposed by law for social interest or national purpose.
b) Is the principle of economic nondiscrimination guaranteed? Describe how.
Yes. In the foreign investment law, the constitution, and investment protection agreements.
c) Public and private enterprises (local and foreign): do they compete on equal terms, or does the State have higher benefits?
Yes. They compete on equal terms.
Law on Administrative Procurement of the Central Government, Decentralized or Autonomous and Municipal Agencies.
3.2 Indicate the scope of foreign investment, i.e., does it include movable and immovable property, assets, concessions, claims to money, intellectual property, industrial property, leasing, technology, etc.
There are no limitations except real property in border areas.
3.3 Reserved sectors
a) Indicate the sectors or economic activities reserved exclusively for the state in your country. Explain the regulations pertinent to these areas.
Electric power transmission and distribution; old age pensions from the Nicaraguan Social Security Institute, which is a state entity.
Until a law or regulation is passed permitting the private sector to install transmission lines and distribution networks, the State through the Power Company is the owner of the installations, although it is possible to pay a toll to market the power produced by private companies.
b) Indicate the sectors or economic activities in which only foreign investment is excluded, restricted or limited in your country. Explain in what consists said exclusion, restriction or limitation.
There is none. Foreign and national investments receive equal treatment.
c) Does the Principle of International Reciprocity exist in the legislation of your country?
It is not considered in the foreign investment law but it is in the BITs.
d) Is foreign investment subject to performance requirements?
No, but there are performance requirements under the export promotion law, the free zone law, and other laws granting benefits or special incentives.
e) Can foreign investors take part in the privatization processes of your country?
Yes
Privatization laws, Decree No. 7-90 establishing the National Public Enterprise Corporation.
Entry into force: May 17, 1990.
4. Rights and protection of foreign investment
Objective: Identify the type of treatment granted foreign investment i.e.: its rights, protection and incentives.
4.1 Treatment granted to the foreign investor and the investment.
a) National treatment or Most-Favored-Nation clause ? (Refer to paragraphs 3.1 and 3.3).
The foreign investment law offers equal treatment to foreigners and nationals.
Bilateral treaties offer most favored nation treatment.
4.2 Protection of Property
a) Constitutional or legal grounds that may lead to expropriation of, or limitations to property.
On grounds of public utility or social interest, with prior just compensation. Confiscation is prohibited.
b) How is compensation determined? Which value is it based on? How is it settled?
Market value prior to expropriation. Rapid, adequate and effective compensation, in freely convertible currency.
c) Can the authorities take possession of expropriated assets prior to paying compensation?
On grounds of national security.
d) Is property of both corporal and incorporeal assets equally guaranteed?
Yes. The intellectual property law is being updated.
Trademarks: governed by the Central American Agreement on Protection of Industrial Property.
Patents: Patents and Inventions Law and amendments, attached to the Buenos Aires Convention.
Copyright: Civil Code, Title IV, Articles 724 to 867.
4.3 Transfers of investment, remittances of capital and benefits.
a) Under what conditions may investments in the form of foreign exchange, capital goods, technology, associated credits, etc., be brought into the country? Are there specific regulations for each item?
Equal treatment after registration in the Central Bank of Nicaragua if they are to be covered by the foreign investment law.
Outside the foreign investment law, there are specific laws such as exchange, customs, intellectual property laws, and so forth.
b) Are there restrictions to the remittances of capital, benefits, debt service, or other remittances derived from foreign investment?
No, with the exception of exchange regulations of the Central Bank of Nicaragua.
c) Are there different kinds of exchange ratets? To which does the foreign investor have access?
Yes. Official, bank, and parallel rates.
The investor has access to the bank and parallel rates.
4.4 Taxes and incentives to foreign investment.
a) Explain briefly the taxes that foreign investments are subject to.
Depending on the scope of the investment, there are tariffs, sales and municipal taxes, tax on income and on repatriation of dividends.
Tariffs according to classification:
Import duty - 1%
Fiscal stamp tax - 5%
General sales tax - 15%
Municipal sales tax - 2%
Income tax - 30%
Repatriation of dividends - 5%
Reinvestment of profits: not taxed
Interest on foreign loans: not taxed.
Royalties - 3%.
Investments in capital goods: not taxed.
b) Are there special tax rules for foreign investment?
No
c) Has your country signed agreements with other countries in the Americas to avoid double taxation? If yes, list those countries.
With none
d) Are there other incentives to foreign investment, such as access to domestic credit, investment insurance, industrial parks, customs exemptions, etc.?
Taxes and tariffs: foreign investment is generally subject to the fiscal regime in effect on the date on which the contract is signed and may only be modified where it benefits the foreign investor.
Access to loans: foreign investors have access to external financing sources within the debt limits authorized by the Central Bank. Access to domestic financing is for short-term credit to be used as working capital and does not receive preferential treatment.
Industrial parks: no special incentives.
Insurance: the foreign investor may obtain insurance against inconvertibility and political risk in OPIC and/or MIGA.
Personnel training: no special incentives.
5. Dispute settlement
Objective: Because Bilateral Investment Treaties (BITs) will be part of another study, only an overview of the subject is required here.
5.1 Domestic settlements: Can the foreign investor resort to the same procedures as the national investor? Are there special forms of appeal available to foreign investors? Please describe.
Yes, foreign investors have the same access as local investors.
Yes, Article 53 of the foreign investment law.
Arbitration procedures must be specified in the contract between the foreign investor and the State.
5.2 International settlements: Is your country a member of ICSID or other international arbitration mechanisms on the subject of investment?
Yes, signed in April 1994.
5.3 Has your country signed BITs with other countries in the Americas? What is the present status of said agreements, i.e., approved, ratified, in effect?
Taiwan, Republic of China, signed on June 29, 1992 and ratified by decree No. 65-92 of December 14, 1992
Spain, signed on March 16, 1994
Denmark, signed on March 13, 1995
United States, signed on July 1, 1995
The Netherlands, agreement approved, October 31, 1994, and pending signature
Chile, signed on November 10, 1996
5.4 Where in the juridical hierarchy of your country are international treaties and specifically the Investment Protection Agreements? Analyze your response in relation to the Constitution and domestic laws.
The Constitution of Nicaragua takes precedence over all national and international laws. International agreements approved by the legislative branch are next in order of importance.
5.5 Do said agreements have "direct effect", that is to say, can they be invoked by the parties directly before the Courts and then applied to the case in question? If not, under what circumstances can they be invoked and applied?
Yes, they may be invoked directly before the courts but they must comply with the terms of the said agreements.
6. National authorities
Objective: To identify the agencies in charge of foreign investment, their organization and functions.
6.1 Is foreign investment handled by specially appointed offices in your country? What is their hierarchical status? How are their actions integrated? What are their main attributions?
a) General Directorate Of Investments And Export Promotion (Governmental)
Management and coordination
Advisory services to investors and exporters
Bilateral negotiations between governments
Facilitation of export formalities
Supervision of the operation of the Export Center
Evaluation, formalization, registration and follow-up of Investment and Export Contracts.
Specific technical assistance to the export and financial sectors.
b) Foreign Investment Committee (Article 16 Of The Foreign Investment Law)
The Foreign Investment Committee shall be the entity in charge of qualifying and authorizing, on behalf of the State, the entry of foreign capital within the legal framework of this law, stipulating the terms and conditions of the corresponding Investment Contracts, and monitoring compliance with the pertinent legal and contractual provisions.
Composed of the Ministries of Economy and Development, Finance, and External Cooperation, the Central Bank of Nicaragua, the political party receiving the second highest number of votes, and private enterprise.
c) Executive Secretary Of The Foreign Investment Committee (Article 21 of the Foreign Investment Law):
Receives, studies and informs the Committee on applications for foreign investment and other petitions or matters presented to it with respect to the same.
Prepares any necessary documentation and studies.
Keeps the Registry of Investments and a Directory in which all the investments registered and in operation must be kept.
Supervises foreign investments.
Obtains and processes information and results of the supervision which public institutions must execute in respect of the obligations of foreign investors.
Negotiates before the different public institutions the reports and authorizations required prior to the approval of the applications.
Investigates the qualifications and suitability of potential foreign investors.
Promotes and coordinates investment promotion when the committee deems it necessary.
d) Export and Investment Center (private and public)
Provides specialized technical assistance to exporters and investors to develop their proposals.
Promotes the creation of autonomous private sector agencies aimed at export promotion.
Provides training on exports and investments to the private sector and the national banking system.
Stimulates national and foreign investment, coordinating with the government actions necessary for its attainment.