Industrial Free Zones Create Framework for Export

May 18, 2007

Industrial Free Zones for Export are defined as areas of national territory, with no residential population, that are under control of the General Customs Administration and subject to the special control of Customs.

The main objective of these zones is to promote investment and exports through the establishment of companies that are dedicated to those ends.

Industrial free zones can be either publicly or privately held companies. Zones falling under private domain fall under the administration of a company constituted as a mercantile corporation (known as sociedad anónima), with the specific purpose of administering the industrial free zone.

Nicaragua’s laws establish three types of private “Free Zone Companies”: 1) Operating Company of Free Zones. 2) Company User of Free Zone. 3) Administered Free Zone Company.

The corporations that administer these privately owned zones are known as the “Operating Company of the Free Zone,” which must be qualified and approved by the National Commission of Free Zones.

The companies known as “Free Zone User Companies” are authorized to operate inside an industrial free-zone park by the National Commission of Free Zones. There are two different types of free-zone user companies: 1) Producers of goods. 2) Service Provider.

Another type of free-zone company is the “Administered Free Zone Company” which is basically a free-zone user company, which, by the nature of its production process, the origin of its raw material, or the characteristics of the company itself, is authorized to act outside the industrial free zone park.

Once a company has been authorized by the National Commission of Free Zones to act under the Free Zone Law, it will be eligible for tax benefits such as exemption from income tax, exemption from inscription taxes, and exemption of municipal taxes, among others. The type and number of exemptions will depend on the type of Free Zone Company established.

In addition to the Private Free Zone Companies, there are also “Governmental Zones” that are administrated by the Corporation of Free Zones (CFZ), a body that was created entirely for the administration of such zones.

The CFZ will have its own assets and legal entity. The CFZ will be entitled to the same fiscal benefits as those granted to the “Operating Company of the privately owned Free Zone.”

The Industrial Free Zones for Export are a very important sector of the Nicaraguan economy as they contribute to the country’s total export volume.With a responsible and serious administration of the Free Zones Regime, the benefits will be felt by the population.

Fernando Sánchez is a junior attorney with the law firm García & Bodán in Managua.

 

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