El Salvador

Income is understood to cover the taxpayer's overall income collected during the tax period in question, either in cash or in-kind, from sources such as labour, business activities, capital, and generally all types of income, gains, benefits, or profits, whatever their origin might be, as well as condoned debt.

Employment income

Taxable compensation of employees, resident or non-resident, covers all types of income whether in cash or in-kind (e.g. salaries, bonuses, overtime, paid vacations, housing and car allowances, reimbursement for tax and children's educational expenses, benefits-in-kind).

Non-resident aliens are taxed on salary earned for work done in El Salvador, regardless of where payment is made and regardless of whether it is remitted. No separate treatment is afforded to foreigners.

Capital gains

Capital gains are taxed at a flat 10% rate, except when the asset is realised within the 12 months following the date of acquisition, in which case capital gains are taxed as ordinary income. Capital losses can be offset by capital gains only. Whenever capital losses exceed capital gains, the balance may be offset against future capital gains for up to five years.

Exempt income

Non-taxable income includes:

• Interest, prizes, and other benefits directly earned on deposits maintained with banks and financial associations.
• Profits or dividends paid to partners or stockholders, provided the corporation distributing them reports them and pays the corresponding income taxes.
• Profits, dividends, prizes, income, capital gains, or any other reward obtained by individuals or generated by investments on purchase-sale of stocks and other instruments, provided the latter pertains to issuances registered and authorised by the Stock Exchange and the Superintendence of Securities, and they are traded in legally authorised exchange bureaus.
• The Christmas bonuses by the workers under the Labour Code, up to an amount not exceeding two monthly minimum wages, in the commerce and services sector is exempt. Therefore, said income will not be subject to withholding.