Payments or amounts credited to non-residents arising from income obtained in El Salvador are subject to a 20% WHT. Income earned in El Salvador covers income from assets located in the country, from any activities performed or capital invested in the land, and from services rendered or used in the national territory, regardless of whether they are provided or paid outside the country. Income from services used in the country is income earned in El Salvador by the service provider, irrespective of whether the relevant income generating activities are performed abroad. Note that payments to foreign entities located in tax haven regimes are subject to a 25% WHT. Guidelines issued by the Salvadoran tax administration list the territories and countries considered as tax havens for El Salvador tax purposes.
In September 2017, the tax administration issued guideline DG-001/2017 by which it is updating previous criteria regarding the consideration of a jurisdiction as a preferential tax regime or a low or no-tax jurisdiction by indicating that any jurisdiction not specifically named in the guide that grants an exemption on income tax (or other taxes with a similar or identical nature) or has such a tax that is inferior by more than 80% of the income tax that would be due in El Salvador will be considered a preferential tax regime or a low or no-tax jurisdiction, as well as holding companies, principal companies, auxiliary or mixed companies, service companies, finance branches, family wealth management companies, headquarters of multinational companies (SEM for its acronym in Spanish), international trust, companies with which international financial lease contracts are celebrated, and international business corporations, among others.
Payments to resident individuals with respect to services rendered, other than under a labour relationship, are subject to a 10% WHT.
Income received from securities listed on the Salvadoran stock exchange by entities not resident in El Salvador is subject to a reduced WHT rate of 3%.
The acquisition of intangible goods among resident entities in the country is subject to a 10% WHT.
Certain transactions are subject to a reduced WHT rate of 5%, such as the following:
- Dividends (see Dividend income in the Income determination section for a description of the WHT on dividends).
- International transport services paid to non-residents.
- Insurance services, re-insurances, and bondings paid to non-residents.
- Payments for transfer of intangible assets or use of the rights to intangibles and tangible assets related to films, movies, music records, cable TV, satellite, etc.
See Foreign income in the Income determination section for a description of the WHT on interest.
Moreover, a treaty to avoid double taxation exists between El Salvador and Spain, this treaty established reduced WHT, such as the following:
- 12% WHT (or 5% since the local rate is more favourable to the taxpayer) made to dividend payments. Note that the payment is exempt from WHT if the dividend is paid by a local entity to a Spanish company that owns 50% or more of the capital of the local entity.
- 10% WHT made to interest payments.
- 10% WHT made to rent and royalties payments.
- 10% WHT made to payments for services.