El Salvador

Value-added tax (VAT)

VAT (i.e. Impuesto al Valor Agregado or IVA) is levied at a rate of 13% over the taxable amount. As a general rule, the taxable amount is the price or remuneration agreed upon by the parties. For imports, the taxable amount is the customs value.

The following transactions are subject to VAT when performed within the Salvadoran territory:

• Transfer/sale of tangible movable goods.
• Withdrawal of tangible movable goods from the inventory made by the company for self-consumption by its partners, directors, or personnel.
• Import of goods and services.
• The supply of services of any type, whether permanent, regular, continuous, or periodic, including technical advice and project designs; lease and sublease agreements over tangible goods; lease and sublease agreements over real estate for commercial purposes; lease of services in general; construction of real estate properties or building contracts; auctions; freight, whether inland, air, or maritime; and lease, sublease, and any form of use regarding trademarks.

The following imports are exempt from VAT:

• Imports made by diplomats and consulate representatives of foreign nations with presence in the country according to international agreements adopted by El Salvador.
• Imports made by international organisations to which El Salvador is a party.
• Traveller’s luggage according to customs regulations.
• Donations to non-profit organisations.
• Imports made by municipalities if the goods imported are for the public benefit of the community.
• Imports of machinery by taxpayers duly registered for this purpose, which will be part of the taxpayer’s fixed assets.
• Vehicles for public transportation, which can only be transferred after five years.
• Drugs or other medicines dedicated exclusively to the treatment of Human Immunodeficiency Virus (HIV) and Acquired Immunodeficiency Syndrome (AIDS) carried out by the Ministry of Health, the Salvadoran Social Security Institute, or any public institution providing health services according to the powers delegated in their corresponding Laws, regardless of whether they have been acquired or imported through the private sector.

The following services are exempt from VAT:

• Health services rendered by public institutions.
• Lease and sublease of real estate properties for housing.
• Services rendered under a labour relationship, as well as those rendered by public and municipal employees.
• Cultural public performances authorised by competent authorities.
• Educational services rendered by authorised entities, i.e. Ministerio de Educación (the Ministry of Education).
• Interest on deposits and loans provided by local financial institutions or entities registered at the Salvadoran Central Bank (BCR).
• Interest on securities issued by the government and/or private entities traded through a stock exchange.
• Water supply by public institutions.
• Public transportation.
• Insurance premiums covering individuals, and reinsurance in general.
• The contributions made by the employer to the administrators of pension funds, with respect to the commissions to administrate the accounts of the workers.
• Businesses developed by the national charity lottery in accordance with its law and regulations.
• The supply of drinking water for domestic and non-profit purposes in rural sectors provided by drinking water management boards, communal drinking water administrators, community development associations, non-profit associations and foundations, and drinking water committees following certain rules.

VAT is levied on exports at a rate of 0%. Foreign-source income is not subject to VAT.

VAT paid by a registered taxpayer company on its purchases (tax credits) is credited against VAT charged to its customers (tax debits) on a monthly basis.

VAT returns are filed on a monthly basis within the first ten working days of each month following the period under taxation.

Customs duties

In El Salvador, the Arancel Centroamericano de Importación (Central America Import Duty) is applied, which is constituted in the Sistema Arancelario Centroamericano (SAC) (Duty Central American System) and its correspondent duties for import.

All duties for import are ad valorem and are applied at the cost, insurance, and freight (CIF) value of the merchandise. The duty is common for all the countries in Central America.

Excise taxes

Tax on simple or sweetened soft drinks

An ad valorem tax on simple or sweetened soft drinks is levied at the rate of 10% over the selling price to the public as suggested by the manufacturer, importer, or distributor, excluding VAT and returnable bottle taxes.

Tax on the production and importation of alcohol and spirits

A tax is levied on domestically produced or imported alcohol and spirits at rates ranging from USD 0.09 to USD 0.16 for each 1% of alcohol volume per litre or in proportion thereof. Spirits and alcohol also have an ad valorem tax levied at the rate of 8% over the suggested selling price to the public, excluding VAT.

Tax on tobacco products

A tax is levied at USD 0.005 per cigarette, cigar, little cigarette, or other tobacco product. Also, an ad valorem tax is levied at the rate of 39% over the suggested consumer selling price to the public, excluding VAT.

Tax on stimulated beverages

A specific tax of USD 0.20 per litre of stimulated or energy drinks will be applied. In case the aforementioned beverages are packaged in volumes greater or less than one litre, the calculation of the tax will be applied in proportion to its volume. In addition, a 5% ad-valorem tax will be applied on the suggested price of retail sale.

Tax on transfer of real estate property

A 3% tax is applied to transfers of real estate property. This tax is applied to the amount by which the value of the real estate exceeds USD 28,571.43.

Stamp taxes

No stamp taxes are assessed as the pertinent law was abrogated in 1992.

Capital gains tax

Capital gains are taxed at a flat rate of 10% of net profits, except when gains are realised within 12 months following the purchase date, in which case they are taxed as ordinary income. Capital gains for securities are also subject to capitals gains tax; however, the 12-months rule described above does not apply for securities.

Capital losses can only be offset against capital gains. Whenever capital losses exceed capital gains, the remaining balance may be carried forward to future capital gains within a five-year period.

According to the Bitcoin Law, exchanges in bitcoins will not be subject to capital gains tax or any legal tender. The Bitcoin Law is in effect as of 7 September 2021.

Annual business tax

Companies are required to register themselves with the Registry of Commerce and pay an annual business licence fee assessed on the company’s assets, as follows:

If the assets exceed the amount of USD 228,572, there is an additional duty of USD 11.43 for each additional USD 100,000 in assets or fraction thereof. In any case, the relevant duties are limited to USD 11,428.57.

Payroll taxes

Entities with more than ten employees must pay a payroll tax that is destined to the National Training and Formation Institute (INCAF), which promotes professional development through courses and complementary studies. The percentages are summarised below:

Social security contributions

Social security contributions (ISSS) are mandatory for both employee and employer and are destined to public health services. The employee’s contributions are withheld from the employee’s monthly salary and are transferred by the employer to the Salvadorian Institute of Social Security through monthly payrolls. The contribution amounts are summarised in the table below:

Note: For individuals who have salaries above USD 1,000, the social security contribution applicable is USD 30.00 for the employee and USD 75.00 for the employer.

Contributions to the pension fund (AFP) are mandatory for both employee and employer. The employee’s contributions are withheld from the employee’s monthly salary and are transferred by the employer. The employer’s contributions are paid to the AFP. Both contributions are reported to the Pension Fund Administrator through a monthly payroll. The percentages are summarised below:

Municipal taxes

Municipal taxes are assessed according to a progressive tariff list issued by each municipality. The taxes are applicable to the company’s assets located in each municipality and are paid on a monthly basis. The tariff lists are applied separately to commercial, industrial, and financial sectors.