El Salvador

All business expenses considered necessary to produce taxable income and/or maintain income sources (e.g. freight, marketing, power, telecommunications, water, salaries, lease contracts, merchandise and transport insurance, fuel, and interest paid on loans used by income generating sources) are deductible for income tax purposes.

Depreciation and amortisation

Depreciation is calculated using the straight-line method, which results in the following maximum annual rates for determining depreciation deductions.

Depreciation of new software is permitted at a rate of 25% of purchase or production costs.

Amortisation of goodwill, trademarks, and other similar intangible assets are not deductible for income tax purposes.

Start-up expenses

In El Salvador, there is not a special regulation for expenses related to the starting up of a company.

Interest expenses

Interest expenses are deductible if the amount of the loan is invested in a source that generates taxable income.

Bad debt

In El Salvador, bad debt is deductible if the following requirements are presented:

• The debt is generated from the business activity.
• The debt had been registered as taxable income.
• The debt is registered in the accounting system.
• The debt has been expired for 12 months.

Charitable contributions

The deductibility of charitable donations is limited to 20% of the donor's net income after deducting the donation amount.

Fines and penalties

In general, penalties, late payment charges, and fines of that type are not deductible.

Taxes

Taxes paid are not deductible.

Net operating losses

Operating losses cannot be carried forward to future years or carried back. Capital losses, however, may be carried forward to offset capital gains for five years.

Payments to foreign affiliates

Remittance of royalties, interest income, and service fees to foreign affiliates are deductible, provided proper contracts are in place, the corresponding withholdings are applied (i.e. 20% WHT for non-domiciled entities, 25% for entities domiciled in tax havens), and there is sufficient evidence that these services have actually been received.