The corporate income tax (CIT) rate is 30%, and this rate is applicable on the total amount of the company’s revenues.
CIT is based on the principle of territoriality, and, by general rule, taxes are paid on goods located, activities realised, and capital invested in El Salvador as well as on services rendered or utilised in the country. Nevertheless, there is a special rule regarding securities and financial instruments, since such income is considered to be obtained in El Salvador if the issuing entity is domiciled in El Salvador.
Taxable income is equal to gross income net of costs and expenses considered necessary for generating and maintaining the related source of income and other deductions allowed by law. Gross income is comprised of income or profits collected or accrued, either in cash or in kind, from any sources in El Salvador.
Corporations are required to follow the accrual method of accounting.
Minimum payment of income tax
Minimum payment of income tax was declared unconstitutional in April 2015.
Income tax advance payment
A 1.75% tax is applied to gross revenues accrued. This tax is paid monthly as an advance payment that is applied against the CIT at the end of the year.
Special Contribution of Large Taxpayers for the Public Safety Plan
The Special Contribution of Large Taxpayers for the Public Safety Plan taxes domestic and foreign legal entities with net earnings greater than 500,000 United States dollars (USD) within a fiscal year through a special contribution of 5% of the total amount thereof, which must be filed by a return within the first four months of the following year.
Entities that benefit from tax incentives under special regimes, such as the free zone program and the international services program, are also subject to the contribution tax.
The 5% contribution tax is in addition to the 30% CIT and the 5% withholding tax (WHT) applicable to dividend distributions (25% if the parent company resides in a tax haven). The special contribution tax is not deductible for CIT purposes.
The taxable base consists of ‘net gains’ obtained during the tax year (1 January to 31 December). Income partially or totally exempt from CIT is still subject to the special contribution. ‘Net gains’ means net income subject to CIT plus excluded or exempt income reduced by expenses related to that excluded or exempt income.
Taxpayers must inform the Salvadoran tax administration of the total amount of gains subject to this tax and the corresponding tax liability by means of a specific tax return that must be filed within the first four months of the following year (i.e. 1 January to 30 April of the following year).
Local income taxes
There is a municipal tax related to taxpayers' income. This tax depends on the location of the operations where the taxpayer performs its activity.