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Attractive Tax Incentives

El Salvador is committed to promoting investment and developing long-term relationships with investors. The country’s legal framework provides attractive tax incentives and gives equal treatment to local and foreign investors.

 

 

International Services Law

 

Provides tax incentives to companies dedicated to providing services to foreign customers. To enjoy these benefits companies may establish in:

 

  • Service Parks: Limited areas considered to be outside of the national customs territory, where exporters of services are installed and operate under the benefits of this law.

  • Service Centers: When a company – in an eligible activity specified in this law – for physical or technical reasons is unable to operate inside a service park, it can be authorized to operate outside as a Service Center and enjoy all the benefits of this law.

 

Benefits:

 

  • Full exemption from customs duties and other taxes on the import of machinery, equipment, tools, replacement parts, accessories, furniture and office equipment, and other goods required for the execution of the incentivized activity.
  • Total exemption from income tax, exclusively for income deriving from the incentivized activity during the period of operation in the country
  • Total exemption from municipal taxes on company assets during the period of operation in the country

 

Eligible activities

 

 

Free Zones Law

 

 

 

Offers generous tax incentives to export-oriented manufacturing companies located in Free Zones or Warehouses for Inward Processing (DPA, for its acronym in Spanish).

 

Free Zones are industrial parks considered outside the national territory for fiscal purposes. Raw material or merchandise required by companies are imported free of taxes and tariffs. If a company – for technical reasons – is unable to operate inside a free zone, it can be authorized to operate as a Warehouse for Inward Processing (DPA) and enjoy all the benefits of this law.

 

Eligible activities

 

  • The production, assembly or maquila, manufacture, processing, transformation or commercialization of industrial goods included in Chapter 3 and Chapters 25 onwards of the Harmonized System
  • Fishing of maritime species to undergo industrial transformation- including preparation, canning, derivatives or sub products, as well as their respective processing and commercialization
  • Cultivation, processing and commercialization of flora species grown in protected structures- greenhouses and laboratories
  • Breeding and commercialization of amphibian and reptile species in captivity
  • Ethyl alcohol dehydration

 

Benefits

 

  • Full exemption from customs duties and other taxes on the import of machinery and equipment used for production
  • Full exemption from customs duties and other taxes on the import of raw materials and other goods used for production
  • Full exemption from customs duties and other taxes on lubricants, fuel and other substances used for production
  • Full exemption from taxes on the transfer of real-estate property, for the acquisition of real-estate that will be used in the incentivized activity

 

Income tax exemption according to the following table*

 

 

Location of the Free Zone or DPA

Percentage of exemption

Period of Exemption for

Companies in a Free Zone

Period of Exemption for

Companies Operating as DPA

San Salvador Metropolitan Area

100%

For 15 years

For 10 years

60%

For the following 10 years

For the following 5 years

40%

For the following 10 years

For the following 10 years

Outside San Salvador Metropolitan Area

100%

For 20 years

For 15 years

60%

For the following 15 years

For the following 10 years

40%

For the following 10 years

For the following 10 years

 

*Shareholders also benefit with full exemption from income tax on the distribution of profits and dividends – originating from the incentivized activity – during the first 12 years.

·         Exemption from municipal taxes, according to the following table:

 

 

Location of the Free Zone or DPA

Percentage of exemption

Period of Exemption for

Companies in a Free Zone

Period of Exemption for

Companies Operating as DPA

San Salvador Metropolitan Area

100%

For 15 years

For 10 years

90%

For the following 10 years

For the following 5 years

75%

Hereinafter

Hereinafter

Outside San Salvador Metropolitan Area

100%

For 20 years

For 15 years

90%

For the following 15 years

For the following 10 years

75%

Hereinafter

Hereinafter

 

Municipal councils, with the purpose of promoting the development of their municipalities, have the legal power of granting additional benefits to investors.

 

Upon the expiration of the full exemptions period, investors established in free zones can benefit of an additional five years of total exemptions if they have increased their investment (in relation to their initial investment) by 100 % in the last five years.

 

Tourism Law

 

 

 

 

Tourism projects with a minimum investment of USD 25,000 are eligible to be declared as “national touristic interest”, and enjoy the following benefits:

 

  • Full exemption from taxes on the transfer of real-estate property, for the acquisition of real estate intended for the project
  • Full exemption from customs duties on the import of goods, equipment and accessories, machinery, vehicles, aircrafts or maritime vessels and construction materials used for buildings until the completion of the project
  • Full exemption from income tax for a period of 10 years
  • Partial exemption from municipal taxes (up to 50%) for a period of 5 years, beginning in the fiscal year in which the business begins operations

 

Renewable Energy Incentive’s Law

 

 

 

 

 

 

This law aims to promote investment in renewable energy sources (hydraulic, geothermal, wind, solar and biomass) to generate electricity; fostering research, exploration and project development activities.

 

Benefits

  • Full exemption (during the first 10 years) from customs duties on imports of machinery, equipment, materials and supplies intended exclusively for pre-investment and investment activities in the construction of the electrical power generation centrals
  • Full exemption from income tax for a period of five years, for projects between 10 and 20 megawatts (MW), and for ten years, for projects under 10 megawatts (MW)
  • Total exemption from taxes on revenues originated from
  • The sale of Certified Emissions Reductions (CER) in the framework of the Clean Development Mechanism (CDM) or similar carbon markets

 

In addition, projects in excess of 20 megawatts (MW) of capacity may deduct from income tax (for a maximum period of 10 years), all expenses or costs on research, exploration and preparation of projects to generate electricity based on renewable energy sources, as well as geothermal reinjection projects.

 

Actualizado 06/30/2016
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