National taxes, fees, and other contributions on all types of goods, services, and income in El Salvador are levied by the National Congress. Local governments (municipalities) may suggest contribution rates and propose their approval to the National Congress by way of a specific law.
The Ministry of Finance (Ministerio de Hacienda) controls the state’s finances and defines and guides the government’s financial policy. It also harmonises, directs, and implements its policies on taxation through its agencies.
In El Salvador, the fiscal year is from 1 January to 31 December.
CIT annual returns must be filed each year no later than 30 April, following the end of the year under taxation.
Payment of tax
Taxes are due on the date established for filing the tax returns. In El Salvador, tax payments are made together with the filing of tax returns, and payments must be made at the banks of the local financial system.
In addition, public and private legal entities resident in the country for tax purposes, other than farm and cattle concerns, are required to make advance income tax payments at 1.75% of gross revenues. These advance payments are due, together with the corresponding return, within ten working days following the corresponding calendar month and are ultimately applied against the CIT at the end of the year.
Tax audit process
In El Salvador, the audit cycle is constituted by the following steps:
- The tax administration issues a resolution of an auditor designation.
- The requirement of financial information of the company.
- The requirement of complimentary documentation to verify possible issues.
- The tax administration issues an audit report where the issues are expressed.
- A resolution hearing is issued by the tax administration, which gives the taxpayer the right to provide evidence to refute the issues made by the mentioned authority.
- Final resolution is determined regarding the complimentary tax or the penalties to be paid.
Statute of limitations
In El Salvador, the statute of limitations for the compliance of the payment of tax debts is ten years.
The tax administration's power to perform a tax audit is for three years in the case of tax returns presented on time by the taxpayer; five years in the case of tax returns presented in a delayed way, but this time is going to start from the day after the extemporary presentation; and five years in cases where the taxpayer has not presented the tax return.
Topics of focus for tax authorities
In El Salvador, when the tax administration performs a tax audit, it focuses on the following topics:
- Compliance of the transfer pricing rules, this can be considered as the main element for the tax authorities.
- Compliance of the obligations held with non-domiciled subjects, especially those domiciled in tax havens.
- VAT issues.