Employment income. Tax is imposed on salary, remuneration, fees and other compensation received for services rendered or used in El Salvador.
Self-employment and business income. Income derived from selfemployment services rendered or used in El Salvador or from a trade or business is subject to tax in El Salvador (Article 2 Income Tax Law).
Investment income. Individuals are subject to tax on interest income, premiums and other yields, derived from savings and time deposits with banks and financial institutions domiciled in El Salvador. Tax is imposed at a flat rate of 10% if the monthly average deposits equal or exceed USD25,000 (Article 4 Number 5) Income Tax Law).
Resident legal entities that pay or register dividends or profits with respect to resident or nonresident individuals must withhold income tax at a flat 5% rate, which is considered as a definitive and final tax. Taxation occurs on actual or constructive receipt of the dividend (Article 72 Income Tax Law).
If the company distributing the dividends does not withhold the 5% tax, the individual must report the income and pay the corresponding tax through the filing of an annual income tax return (Article 72 Paragraph 2nd Income Tax Law).
If the nonresident individual is domiciled or resides in a taxhaven jurisdiction for Salvadoran tax purposes, the applicable dividend withholding tax rate is 25% (Article 158-A Tax Code).
Loans granted by resident legal entities to their partners, shareholders, associates, trustees, beneficiaries, and spouses or family within the fourth consanguinity degree and second affinity degree of the abovementioned individuals is subject to the flat 5% withholding tax on the total amount loaned (that is the principal amount), unless the agreed interest rate is in accordance with or above market rates. In addition, if the term of the loan exceeds one year and if the repayment is in arrears for more than six quotas, a taxable cancellation of debt to the borrower is deemed to occur (Article 74-A Letter a) Income Tax Law).
Directors’ fees. Directors’ fees paid to resident and nonresident individuals who are not employees of the company are subject to withholding tax at a rate of 10% for resident individuals and 20% for nonresident individuals. This tax is a final tax for nonresident individuals. However, if the director is an employee, the fee is subject to progressive rates (see Rates) (Articles 156, 158 and 158-A Tax Code and Art. 37 Income Tax Law).
Special rules for payments to tax-haven jurisdictions. A 25% final withholding tax is imposed on amounts paid to or through non-domiciled individuals or legal entities resident or domiciled in tax-haven jurisdictions if the payment has a tax effect in El Salvador (for example, it is regarded as a deductible expense for the payer). Exemptions apply in the following circumstances:
• The payments are made for the acquisition or transfer of tangible assets.
• The tax-haven jurisdiction is a Central American country that has entered into a cooperation agreement with the Salvadoran tax and customs authorities.
income tax returns if their annual earnings are less than USD60,000. However, they must file annual income tax returns if the income was not subject to withholding or if the withholding was not in accordance with the tax due based on the progressive tax rate table (Article 38 Income Tax Law).
In June and December of each year, a half-year and end-of-year withholding recalculation is required. To determine withholding as of June and December, the employer must recalculate based on accumulated taxable wages at the end of each period.
In principle, nonresidents are required to file tax returns. However, if all El Salvador-source income was subject to withholding at source, the withholding tax is considered a final tax and the filing of a tax return is not required (Article 158 Tax Code).
Individuals who are taxpayers in El Salvador are required to file a Personal Real Estate Statement, which is filed together with the annual income tax return. Taxpayers who satisfy any of the following conditions are exempt from the filing of a Personal Real Estate Statement (Article 91 Paragraph 6th Tax Code):
• They have annual income equal to or less than 362 minimum monthly salaries (USD130,320 in a tax year.
• They own real estate in El Salvador with a value equal to or less than 1,446 minimum monthly salaries (USD520,560).
• They do not own real estate in El Salvador.
E. Foreign tax relief and double tax treaties
In general, Salvadoran law does not provide relief for foreign taxes paid. El Salvador has entered into a tax treaty with Spain to avoid double taxation and prevent evasion of income tax and net worth tax.
F. Temporary visas
Depending on their country of citizenship, individuals may be required to apply for and obtain an entry visa before traveling to El Salvador. A Salvadoran consulate overseas grants the visa. Because the rules indicating the countries of citizenship of individuals who are required to obtain an entry visa before entering El Salvador and requirements for obtaining a visa often vary, it is necessary to check the entry visa requirements on a case-by-case basis.
G. Work permits
Foreigners must apply for a work permit to work in El Salvador, regardless of where the compensation is paid. The government of El Salvador grants work authorization to foreign employees, under the option of temporary residency. This is subject to certain rules that have to be checked on a case-by-case basis because these rules vary among employees and by country of citizenship. The application must be filed once the foreigner arrives in El Salvador.
The approximate time for obtaining a work permit after all documents are filed with the immigration authorities ranges from
three months to four months. Work permits are valid for one year and are renewable for similar periods of time.
H. Residence permits
The government of El Salvador may grant residencies to foreigners who are interested in residing in El Salvador as foreign workers as well as to the dependents of foreign workers. Dependents must prove that they receive income from the foreign worker or that the foreign worker covers their living expenses. However, immigration requirements generally are amended frequently in El Salvador, and applicable requirements may vary among workers. As a result, the rules should be checked on a case-by-case basis.
Foreigners may apply for local residency with the General Direction of Immigration and Foreigner Issues (Dirección General de Migración y Extranjería) if certain requirements are met. Residency is granted for a renewable one- to two-year period.
I. Family and personal considerations
Family members. El Salvador law does not grant an automatic work authorization to family members of a foreign worker. Family members wanting to work must apply independently to obtain a work authorization.
Children of expatriates must have student visas or dependent visas to attend schools and/or universities in El Salvador. The rules should be checked on a case-by-case basis. After the children become adults (turn 18 years old), they must apply separately for a residency in El Salvador.
Marital property regime. If the two spouses do not establish one of the three patrimonial regimes contemplated in the Family Code of the Republic of El Salvador (Separation of Assets, Profit Sharing and Deferred Compensation), the regime of Deferred Compensation is automatically applied. Such regime is applied as the supplementary regime under which all assets obtained by any means, except by donation, after the commencement of the marriage are considered to be marital property.
Forced heirship. If an individual dies without leaving a will, the beneficiaries of his or her assets and patrimony according to the law are in the following order:
• 1: Descendants, parents and spouse
• 2: Grandparents and other ascendants and grandchildren
• 3: Brothers
• 4: Nephews
• 5: Uncles
• 6: Cousins
• 7: University of El Salvador and national hospitals
Amounts for the following are deducted, paid and/or removed from the mortuary estate before the estate is distributed to the beneficiaries:
• Mortuary procedures
• Debts
• Taxes
• Maintenance obligations of the deceased
Driver’s permits. Foreigners entering El Salvador are authorized to drive vehicles with a current driver’s permit from their country, subject to the following:
• Reciprocity principle and provisions of international conventions and treaties ratified by El Salvador
• The validity of the authorization under which the visitor remains in El Salvador
• Validation of the foreign driver’s permit issued by the country of origin
After the entrance visa has elapsed, driver’s permits can be acquired from a private entity authorized by the government to issue the permits. When a foreigner obtains a migratory status that allows him or her to reside in El Salvador, he or she is required to obtain a local driver’s permit. This applies only if the temporary residency granted to the foreigner is for a term longer than four months.