‘Law 306’ Helps Open Door for Tourism Investment

August 10, 2007

The World Tourism Organization defines the tourism industry as “all activities carried out by people during their travels and stays in places different than their habitual surroundings.”

Such activities can be done for the purpose of recreation, business or other reasons. But regardless of the motives for travel, it is clear that tourism has a lot of advantages to the growth of a country’s economy.

And in Nicaragua, tourism has become the number-one economic motor in recent years and has been identified by the government and private sector as a developmental priority for the country.

Countries must prepare themselves to be tourism destinations in order to attract more  visitors and investors and to convince them to extend their stays once they are here. In order to accomplish this goal, it is necessary for governments to develop new policies to  stimulate tourism investment and growth and to establish clear “rules of the game” for investors.

Nicaragua first responded to this new challenge eight years ago with the creation of Law 306, “The Tourism Incentives Law,” which answered the need in the tourism sector – and the country in general – for a legal framework that grants benefits and incentives to persons and corporations who invest in tourism.

The law entered into force June 21, 1999, when it was published in the official daily La Gaceta No. 117.

Article 2 of Law 306 states that the law’s main purpose is to grant incentives and benefits  to national or foreign persons or corporations that invest in tourism activities. Law 306 also establishes that tourism is of “national interest.”

In 2006, Law 575 was passed as an “Amendment to Law 306.” This amendment looks to extend the benefits of Law 306 to include small- and medium-sized tourism companies, known in Nicaragua as a “PYME”.

To apply for the benefits established under Law 306, is necessary to be engaged in one of the following “tourist activities,” as established under Article 3: a) Hotel Services (hotels, hostels, guest houses, condo-hotels); b) Aerial Transport; c) Aquatic Transport; d) Internal and receptive tourism, terrestrial collective transport; e) Food, drinks and  recreational services; f) Movie filming; g) Car and water vehicles rental; h) Investment in tourism infrastructure; i) Nicaraguan handicrafts, typical music, folklore dance.

To apply for benefits, tourism-related businesses or investments must first be approved by The Nicaraguan Tourism Institute (INTUR). Following approval from INTUR, construction of the project must start within an established period of six months, and the project should be fully operation within a period of three years following initial approval.

Additional requirements vary depending on the particular category of investment. For example, for a hotel project to qualify under Law 306, the law requires minimal project investments of $500,000.00 for hotels located in Managua, and $150,000.00 for hotel projects located outside of the capital.

If the tourist project accredits itself as a small- or medium-sized company under the  amended Law 575, the minimum-investment requirements are reduced 40%.

It is important to note that the value of the terrain purchased for the tourism project is included in the total amount of investment.

The minimum-investment requirement also applies to other tourism-related business  activities such as restaurant services, investments in natural reservoirs, investments in public or private projects directed toward the improvement and promotion of tourist activities.

The minimum investment amounts for other activities vary depending on the category of investment.

Law 306 and its amendment Law 575 establish different tax benefits for qualifying and approved projects. In general terms, the most important tax benefits are:

_Exemption on import duties and taxes.

_Exemption on sales tax on the local purchase of construction materials and equipment.

_Exemption on property taxes for 10 years, for properties designated for the development of the tourist activity.

_Partial exoneration of income tax.

Nicaragua is a country whose tourism potential has not yet been completely taken advantage of. But thanks to Law 306, which has already approved more than $2.9 billion in projects, we are confident that Nicaragua will soon become a major tourism destination in both the Americas and the world.

Diana Zelaya and Amilcar Navarro are junior attorneys at Garcia & Bodan law firm.

 

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