The United States Department of State has prepared a new report called "Investment Climate Statements 2024.
The document published this week recommends caution when investing in new projects in Nicaragua.
This was confirmed by economist and presidential pre-candidate Juan Sebastián Chamorro , who in recent days described the business environment in the Nicaraguan market as "extremely hostile for investors."
The situation would not be new, but an ambiguity between "openness and restrictions to foreign investment" has been accentuated in recent times.
According to the United States report, "Nicaraguan authorities are seeking foreign direct investment to project normality and signal international support.
Specifically, regarding industrial policies linked to renewable energies, a series of benefits would be in effect.
According to the report, there would be tax breaks that would be very attractive to players who are expanding their project portfolio.
Among the benefits mentioned are the Hydropower Promotion Act (amended in 2005/531) and the Electricity Generation Promotion Act (2005/532).
Industrial policies that offer incentives to invest in electricity generation, including tax-free imports of capital goods and exemptions from income and property taxes.
However, they indicate that "regulatory concerns limit investment despite these incentives."
As an additional consideration, they point out that the National Assembly must approve all projects larger than 30 MW, which would give a degree of discretion rather than technical grounds for authorizing new investments in the sector.
In addition, it is mentioned that the law promoting renewable energy offers tax exemptions to investors in the renewable energy sector and that Nicaragua has even amended the law several times to expand the exemptions, most recently in September 2020.
"The law includes exemptions, each valid for two to five years, from the following taxes: import duties; value-added tax; income tax; municipal tax; natural resource exploitation tax; and fiscal stamp," the American document lists.
In fact, the United States notes that the country has occasionally granted broad tax incentives to promote large one-off investments, such as the one made in 2020 for a foreign-owned power plant.
However, Nicaragua has a long history of government expropriation lawsuits without due process that put any investor at risk.
"There remains considerable uncertainty regarding the protection of property rights."
Contentious claims over property titles abound, and court appeals are slow and cumbersome.
"Since 2018, numerous landowners have reported land invasions by actors affiliated with the regime," warns the U.S. State Department, which also points out that investor-state dispute settlement mechanisms are not usually applied due to the high cost and the likelihood of retaliation by Nicaraguan authorities.