The Legislative Assembly of El Salvador approved amendments to the Law for the Promotion of Investment Expansion to broaden access to the tax incentives established under the law by relaxing certain requirements and allowing business groups to benefit from this regime.
The law will now allow companies linked through control relationships to apply for incentives as a Business Group, treating the group as a single economic unit for purposes of the tax benefits.
The group must be represented by a parent company domiciled and operating in El Salvador. Control will be deemed to exist when a company directly or indirectly owns more than 50% of another company's voting shares. In addition, the group must undertake an investment expansion of at least US $75 million, with each company contributing a minimum of US $1 million.
INVEST must verify that the companies are part of the same production and logistics chain and that their operations are complementary.
Key amendments
The minimum operating history requirement is reduced, from 10 years to 5 years of operations in El Salvador.
- The required financial track record is relaxed, reducing:
- The requirement from 10 to 4 fiscal years with filed income tax (ISR) returns.
- The requirement from 10 to 5 years of audited financial statements.
- The exclusion of companies that have previously received tax incentives is eliminated, allowing compatibility with certain benefits granted under other legal regimes.
- The acquisition of machinery and equipment is recognized as an eligible investment when made after INVEST grants the corresponding qualification.
- Transitional provisions are included to allow companies that have already used the regime to access new benefits resulting from the amendments.
Tax incentives maintained under the law
The law continues to provide tax credits applicable to income tax (ISR) equivalent to:
- 10% of the expanded investment for investments between US $1 million and US $10 million.
- 20% for investments exceeding US $10 million and up to US $20 million.
- 30% for investments exceeding US $20 million.
Expected impact
According to the Ministry of Economy and INVEST, the amendments seek to expand the pool of eligible beneficiaries, facilitate productive expansion projects, and promote new investment and job creation in strategic sectors such as manufacturing, agribusiness, food and beverages, automotive parts, electronics, plastics, footwear, and pharmaceuticals.
According to INVEST, companies in the country have expanded their investments by US $502 million, with a commitment to generate 2,246 new jobs.
The amendments represent an opportunity for domestic and foreign companies to review their growth plans in El Salvador and assess whether new investments could be structured under this incentive regime. Likewise, companies that previously did not qualify due to their operating history or because they had previously benefited from tax incentives may now be in a position to access these benefits.
