Nicaragua: property ownership, taxes, financing

The most difficult thing regarding real estate in Nicaragua is usually the title. When inquiring about a property the first question to ask is does the seller actually own the property. It has happened that people have sold or tried to sell land that they didn't actually own. This is where a good attorney comes in. Before you even give a deposit, you should have an attorney check the title of the property. Sometimes it is even a good idea to have a couple attorneys check the title…a local attorney and a firm in Managua. Title registers are maintained locally so a local attorney should know of any properties in the area with title issues.

1. OWNERSHIP

Property ownership in Nicaragua is Fee Simple/Freehold, with title issued and registered in your name. If you are familiar with real estate affairs in Nicaragua (and speak fluent Spanish) you could buy directly from the local farmer or property owner.

However, it is strongly recommended that you enlist the help of a reputable local attorney. Property titles all over the country are in dispute. An experienced attorney can trace title of the property that interests you to ensure it is not contested.

Real estate transactions are usually overseen by a notary. (The position of notary is the highest level of attorney qualification in Nicaragua, and is awarded by the State). Once you have agreed a purchase price with the seller, the notary will prepare a promesa de venta (promise to sell). This is a three-party agreement, signed by the buyer, seller and notary. Upon its execution, the notary will prepare a testimonio. This is an exact copy of the promesa and is placed in the public records to advise other prospective buyers that the property is under contract.

Once all conditions of the promesa have been met, the notary will prepare an escritura (deed) to be executed by the buyer, seller and notary. Once again a testimonio is prepared. This is taken to the property registry and an appraisal of the property is done. An appraisal certificate is issued and submitted to the IRS, along with the testimonio. Once the transfer taxes have been paid (see tax details below), the testimonio is recorded in the Public Registry office at the local municipal.

2. TRANSACTION COSTS & TAXES

In practise, the notary is chosen by the purchaser and paid by the seller. The amount charged varies depending on the value of the property. An additional fee applies for recording deeds with the Public Registry. Again, this charge varies in accordance with property value, but is capped at about $345.

Property transfers are subject to a 4% transfer tax on the purchase price.

Nicaragua taxes its citizens, residents, and non-residents on all income originating in the country. Capital gains and earnings from rental properties are treated as ordinary taxable income. You will be liable for tax on such earnings, up to a maximum of 35.5%.

3. PROPERTY TAXES

The annual property taxes are approximately 1% of the assessed value of the property.

4. FOREIGN OWNERSHIP RESTRICTIONS

There are no restrictions. The same rights of ownership applying to Nicaraguan citizens apply to you as a foreigner.

5. FINANCING

Like most Central American countries, local financing in Nicaragua is almost unheard of. And where available, it is on less than appealing terms. Depending on your situation, you might choose to take advantage of developer financing, or arrange a loan through your U.S. bank.