The Legislative Assembly of El Salvador approved the exemption of Income Tax for international capital entering the country. According to the reform of the Income Tax Law, the main objective is to “stimulate both national and foreign investment in the financial sector.”

“Capital income” is added to the income exclusions established in article 3, defined as “all values received in any concept, obtained abroad or any movement of capital, remuneration or emolument, in money or kind, generated or not by national or foreign capital investment.”

This exemption will benefit natural persons, legal entities, or entities without legal personality, both domiciled and non-domiciled in the country, who receive income abroad derived from:

• Credits.
• Custody funds.
• Repatriation of capital from deposits in foreign financial institutions.
• Repatriation of capital invested abroad.
• Income generated by investment in securities and other financial instruments.
• Income derived from loans or financing.
• Family remittances.
• Funds destined for working capital.
• Funds directed to investments in instruments placed in the country.
• Other monetary incomes towards the country.

“The sixth, seventh, and eighth paragraphs of article 14-A referring to gains derived from securities and other financial instruments abroad have been revoked,” explains Adalicia Torres, our tax and compliance expert.

Likewise, the literal c) of the fourth, fifth, and seventh paragraphs of article 16 has been modified regarding the returns or results from securities, financial instruments, and derivative contracts when the assumed risk is located in Salvadoran territory. “The provisions on non-taxable, exempt, or non-subject incomes obtained in another country by Salvadoran taxpayers domiciled in El Salvador have also been adjusted due to credits or financing granted to subjects abroad,” adds our expert.

In addition, the second, third, and fourth paragraphs of article 27 related to incomes obtained by passive subjects domiciled in El Salvador from deposits in foreign financial institutions have been modified, all within the framework of the Income Tax Law.