El Salvador

In April 2026, the Legislative Assembly of El Salvador approved Legislative Decree No. 544, which amended Article 158 of the Tax Code. The reform eliminates the 3% withholding tax previously applicable to income and returns derived from securities traded on the Salvadoran stock exchange by non-resident investors, establishing instead a full exemption (0% WHT) for such income. 

The Legislative Assembly approved on May 7, 2026 the legislative decree number 568 that contains a new authentic interpretation of article 28 of the Income Tax Law. This aimed at clarifying the scope of deductible costs and expenses for corporate income tax purposes. The interpretation explicitly confirms that losses and expenses incurred in the ordinary course of business (including sectors such as industry, commerce and services) may qualify as deductible, provided that they are duly supported.

To be accepted for tax purposes, they must (i) relate to events inherent to and arising from the nature of the business activity, (ii) they represent a real and reasonable cost within the operation, and (iii) they are properly supported and recorded in the accounting records or in the corresponding registries. Additionally, the rules clarify that expenses may be recognized as deductible even in fiscal years where no income tax is payable, which may be particularly relevant for loss/making entities or early/stage operations. 

As of January 14, 2026, the Legislative Assembly of El Salvador approved the ‘Quincena 25’ Law, which establishes a supplementary payment equivalent to 50% of the monthly salary, applicable to employees earning up to USD 1,500. This payment must be made in January of each year, does not replace the regular salary, is not subject to income tax, does not generate social security or pension fund contributions, and cannot be subject to garnishment.