El Salvador

El Salvador offers a wide range of incentives to attract foreign investment and drive new commercial and industrial developments. There are also no restrictions on foreign ownership or on mergers, acquisitions, or joint ventures.

There are five specific laws in El Salvador that seek to encourage foreign investment by improving the country’s competitiveness in all areas involving the granting of tax incentives. These laws are the Industrial and Commercial Free Zone Law, the Law of International Services, the Renewable Energy Incentives Law, the Tourism Law, and the Law for the promotion of Manufacturing and Technological Innovation.

The Industrial and Commercial Free Zone Law

The Industrial and Commercial Free Zone Law No. 405, dated 3 September 1998, grants companies the following incentives:

• CIT exemption.
• VAT exemption.
• Municipal tax exemption.
• Exemption from real estate transfer taxes when land is intended to be used for productive activities.
• Exemption from duties for imports on machinery, raw materials, equipment, and intermediate goods used for production.
• An option to sell merchandise or services linked to international trade produced in the free zone in the Salvadoran market as long as the corresponding import taxes, CIT, VAT, and municipal taxes are paid on the final goods or services.

Any foreign company may establish and function in a free zone or bonded warehouse and benefit from these incentives if they are engaged in production, assembly, manufacturing, processing, transformation, or commercialisation of goods and services and/or rendering of services linked to international or regional trade, such as gathering, packaging and repackaging, cargo consolidation, distribution of merchandise, and other activities connected or complementary to them.

The Law of International Services

The Law of International Services No. 431, dated 11 October 2007, grants the same benefits as the Free Zone Law, but the beneficiaries are companies operating in Service Centres specially created according to this law and dedicated to international services as defined therein.

The Renewable Energy Incentives Law

The Renewable Energy Incentives Law provides customs duties exemption on imports of machinery, equipment, and materials for up to ten years, income tax exemption for a period of five to ten years, and total tax exemption on revenues from the sale of Certified Emission Reductions, when certain requirements are met.

The Law for the Promotion of Technological and Manufacturing Innovation

The Law for the Promotion of Technological and Manufacturing Innovation was recently approved and entered into force on 5 June 2023. This Law grants benefits of exemption from income tax and municipal taxes to income obtained from certain activities, which include:

• Programming, management, maintenance, consultancy, and analysis of computer systems or software.
• Development and marketing of cloud computing and data flow services, artificial intelligence, big data analysis, distributed ledger technology, and cybersecurity solutions.
• Technologies based on the manufacture of parts, materials, and equipment or facilities, or assembly, including manufacturing plants for technological equipment or hardware, semiconductors, communications technology, robotics, nanotechnology, aircraft, and unmanned vehicles.
• Engineering and systems technologies necessary to integrate basic industrial technologies into global production chains.

The beneficiaries of this Law may opt for the following tax incentives for a period of 15 years:

• Total exemption from income tax with respect to the benefited activities.
• Exemption from all types of withholdings of income tax with respect to the benefited activities.
• Total exemption from municipal taxes on the net assets filed by the beneficiaries.
• Exemption from the payment of the capital gain tax, stipulated in articles 14 and 42 of the Income Tax Law.
• Total exemption from the payment of import tariff duties and taxes levied on the importation of goods, supplies, machinery, equipment, and tools necessary for the development of the benefited activities.

Law for the Issuance of Digital Assets

The Digital Assets Issuance Law establishes a regulatory framework to promote public offerings of digital assets, covering activities such as issuance, trading, intermediation, and the provision of related digital services. In this context, the regime benefits issuers (public and private), digital asset service providers, certifiers, and investors participating in such transactions.  

From a tax perspective, incomes, returns, nominal value, and capital gains derived from digital assets are fully exempt from all taxes, including Income Tax, VAT and municipal taxes. Additionally, these exemptions extend to entities and their shareholders with respect to dividends or profits generated from such activities; however, they do not apply when digital assets are used to acquire goods or services outside the regulated ecosystem. Finally, the tax incentives are granted on an indefinite basis, subject to compliance with the requirements set forth in the law. 

Law for the Creation of the Planning Authority of the Historic Center of San Salvador 

Investments carried out within the Historic Center of San Salvador in activities such as food services, accommodation, recreation, transportation, real estate development, cultural activities, and the rehabilitation or restoration of properties fall within the scope of this law.  From a tax perspective, qualifying investments may benefit from a targeted incentive regime to support economic growth, including: 

• Income tax exemption for up to 10 years.  

• 100% deduction of qualifying expenses and donations for income tax purposes.  

• 100% municipal tax exemption for up to 10 years.  

Eligibility requires that the investments be executed within a 10-year period from the law’s entry into force 

Tax incentives for hign-rise real estate projects 

This Law provides incentive for individuals, legal entities, and corporations, whether domiciled or not, that make new investments in high-rise real estate projects, specifically those buildings of at least 35 stories.  

Profits generated from the initial sale of real estate, rentals for tourism or commercial purposes, hospitality services, and construction will be exempt from Income Tax for a period of 15 years. The exemption also extends to dividends distributed to partners or shareholders, although it does not include buyers or tenants of the properties. 

Foreign tax credit

There is no foreign tax credit available in El Salvador.