El Salvador
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Please direct all inquiries regarding El Salvador to the persons listed below in the San José, Costa Rica, office. All engagements are coordinated by the San José, Costa Rica, office.
San Salvador GMT -6
EY
Torre Futura
Complejo World Trade Center
87 Av. Norte y Calle El Mirador Nivel 11-5
San Salvador
El Salvador
Principal Tax Contact
Rafael Sayagués
+503 2248-7000
Fax: +503 2248-7070
+506 2208-9880 (resident in San José,
New York: +1 (212) 773-4761 Costa Rica)
Costa Rica Mobile: +506 8830-5043
US Mobile: +1 (646) 283-3979
Efax: +1 (866) 366-7167
Email: rafael.sayagues@cr.ey.com
Business Tax Services
Lisa María Gattulli
+506 2208-9861 (resident in San José,
Mobile: +506 8844-6778 Costa Rica)
Email: lisa.gattulli@cr.ey.com
International Tax and Transaction Services – International Corporate Tax Advisory
Juan Carlos Chavarría
+506 2208-9844 (resident in San José,
Mobile: +506 8913-6686 Costa Rica)
Héctor Mancía
International Mobile: +1 (239) 961-5947
Email: juan-carlos.chavarria@cr.ey.com
+503 2248-7006
Mobile: +503 7797-8282
Email: hector.mancia@cr.ey.com
International Tax and Transaction Services – Transfer Pricing
Luis Eduardo Ocando B. +507 208-0144 (resident in Panama)
Panama Mobile: +507 6747-1221
US Mobile: +1 (305) 924-2115
Fax: +507 214-4300
Email: luis.ocando@pa.ey.com
Paul de Haan (resident in +506 2208-9800 San José, Costa Rica)
Email: paul.dehaan@cr.ey.com
Business Tax Advisory
Juan Carlos Chavarría
+506 2208-9844 (resident in San José, Mobile: +506 8913-6686
Costa Rica)
Tax Policy and Controversy
Rafael Sayagués
International Mobile: +1 (239) 961-5947
Email: juan-carlos.chavarria@cr.ey.com
+506 2208-9880 (resident in San José, New York: +1 (212) 773-4761
Costa Rica)
Costa Rica Mobile: +506 8830-5043
US Mobile: +1 (646) 283-3979
Efax: +1 (866) 366-7167
Email: rafael.sayagues@cr.ey.com
is not registered with the Central Reserve Bank of El Salvador and domiciled in a tax-haven jurisdiction, a 25% withholding tax applies. Amounts paid or credited to non-domiciled legal entities or individuals who are resident, domiciled or incorporated in tax-haven jurisdictions (or paid through legal entities resident, domiciled or incorporated in such jurisdictions) are subject to a 25% withholding tax. Exceptions apply to the following types of payments:
• Payments for acquisitions or transfers of tangible assets
• Payments to taxpayers in tax-haven jurisdictions located in Central America that have signed cooperation agreements with Salvadoran tax and customs authorities
• Payments to taxpayers in tax-haven jurisdictions that have signed with El Salvador information exchange agreements or double tax treaties
• Payments under circumstances in which reduced withholding tax rates apply If the recipient does not file an annual income tax return, the withholding tax is presumed to be a payment in full of the income tax on the interest income.
(e) The withholding tax is imposed on payments to foreign companies and individuals for services rendered or used in El Salvador, as well as on payments for the transfer of intangible assets. If the recipient does not file an annual income tax return, the withholding tax is presumed to be a final tax. Amounts paid or credited to non-domiciled legal entities or individuals who are resident, domiciled or incorporated in tax-haven jurisdictions (or paid through legal entities resident, domiciled or incorporated in such jurisdictions) are subject to a 25% withholding tax. Exceptions apply to the following types of payments:
• Payments for acquisitions or transfers of tangible assets
• Payments to taxpayers in tax-haven jurisdictions located in Central America that have signed cooperation agreements with Salvadoran tax and customs authorities
• Payments to taxpayers in tax-haven jurisdictions that have signed with El Salvador information exchange agreements or double tax treaties
• Payments under circumstances in which reduced withholding tax rates apply
The 20% rate applies to royalties from know-how and technical services paid to non-domiciled entities that are not domiciled in tax-haven jurisdictions.
(f) The withholding tax is imposed on payments to non-domiciled persons or entities for transfers of intangible assets or for the use, or grant of use, of rights over tangible and intangible assets related to cinematographic movies, video tapes, phonographic discs, radio serials, television serials, serials and strips reproduced by any means, video and track records, and television programs transmitted by cable, satellite or other similar media. If the recipient does not file an annual income tax return, the withholding tax is presumed to be a final tax.
(g) The withholding tax is imposed on payments to foreign companies and individuals for international transportation services. If the recipient does not file an annual income tax return, the withholding tax is presumed to be a final tax.
(h) The withholding tax is imposed on payments to non-domiciled insurance and reinsurance companies and reinsurance brokers, authorized by the Superintendent of the Financial System. If the recipient does not file an annual income tax return, the withholding tax is presumed to be a final tax.
(i) A withholding tax rate of 3% applies to income derived from capital invested in securities, or transactions in securities, shares and other investments in the Salvadoran securities market (primary or secondary).
(j) A withholding tax rate of 5% applies to amounts paid or credited in capital or equity reductions, in the portion corresponding to capitalization or reinvestment of profits. For this purpose, the amounts paid or credited by the decrease of equity or capital corresponds to previously capitalized amounts.
(k) Capital losses can be carried forward to offset capital gains for a period of five years, provided that the losses have been reported in previously filed tax returns.
B. Taxes on corporate income and gains
Corporate income tax. Resident corporations are subject to tax on Salvadoran-source income. Nonresident corporations are also subject to tax on Salvadoran-source income only. This is based on amendments introduced to the Income Tax Law by Legislative Decree No. 969, which was effectively published in the Official Gazette on 22 March 2024. As a result, resident and nonresident
certification of their tax obligations. This certificate is issued by an external certified public accountant (CPA) who is authorized by the CPA Surveillance Council.
Dividends. Domiciled entities in El Salvador that pay to, or register profits for, domiciled or non-domiciled entities or individuals must withhold income tax at a 5% rate. This serves as a definite income tax payment. Payment or registration of profits can be made in various forms, including, among others, payments in cash or securities and in-kind payments, regardless of whether they are considered dividends, quotas, excess payments, legal reserves, profits or earnings.
The above obligation also applies to representatives of parent companies, affiliates, branches, agencies and other permanent establishments that pay or credit profits to domiciled entities or individuals abroad.
Notwithstanding the above, if payments are made to an entity or individual domiciled or resident in a tax-haven jurisdiction, a 25% withholding tax rate applies.
No withholding should apply on dividends paid out of income or profits that were previously subject to withholding income tax on dividends.
Withholding tax on loans. Legal entities or entities without legal capacity domiciled in El Salvador that remit cash or in-kind assets as loans or advance remittances or engage in other types of loan operations must withhold tax at a rate of 5% of such amounts if the amounts are remitted to any of the following:
• Partners, shareholders, associates, beneficiaries, and other related parties according to Section 25 of the Income Tax Law (for example, spouses and relatives in the fourth degree of consanguinity or second degree of kinship)
• Entities or individuals domiciled or resident in a tax-haven jurisdiction
• Parent companies or branches domiciled abroad
Certain exceptions apply, such as to loans with a market value interest rate or a one-year term and to supervised financial institutions.
Foreign tax relief. No general tax relief rules apply in El Salvador. Also, see Section F.
C. Determination of trading income
General. Taxable income is computed in accordance with adopted Financial Information Standards in El Salvador (International Financial Reporting Standards), subject to adjustments required by the Salvadoran income tax law. The Salvadoran income tax law requires the use of the accrual method of accounting.
Taxable income includes all income derived from the following:
• Assets located in El Salvador
• Activities or transactions carried out in El Salvador
• Capital invested in El Salvador
• Services rendered in El Salvador and services rendered outside El Salvador that are used in El Salvador
• Certain types of investment income (see Section B)
In general, all costs and expenses necessary to produce and preserve taxable income are deductible for income tax purposes, provided all legal deductibility requirements are met.
Imputed income. The Salvadoran income tax law does not contain rates and formulas for calculating imputed income. However, the tax authorities may determine taxable income based on certain information, including the following:
• Investments made during the tax year
• Equity fluctuations
• Transactions and profits recorded in previous tax years
• Purchases and sales
• Value of imported goods
• Value of inventories
• Purchases not recorded
• Performance of similar businesses
• General expenses
Inventories. Salvadoran income tax regulations provide that inventories may be valued at acquisition cost. The cost may be calculated using certain methods, such as first-in, first-out (FIFO), last purchase cost and average cost, as well as special methods established for agricultural products and cattle. The income tax law provides that inventories can be valued by other methods if authorization from the tax authorities is obtained before the method is implemented.
Provisions. Provisions for contingent liabilities, such as severance payments and labor costs, are not deductible expenses. However, payments of such liabilities are deductible expenses. Amounts for doubtful accounts may be deducted if certain legal requirements are satisfied.
Tax depreciation and amortization
Depreciation. The acquisition cost of products with a useful life of 12 months or less may be fully deducted from taxable income in the year of acquisition. Property with a useful life of more than 12 months may be depreciated using the following straight-line rates.
Only a portion of the acquisition cost of used machinery and movable property may be deducted for tax purposes. The deductible percentages, which are based on the asset’s life, are shown in the following table.