The Legislative Assembly approved the Law for the Promotion of Investment Expansion, an initiative that introduces tax incentives exclusively for companies already established in El Salvador that decide to expand their operations.
The law will enter into force eight days after its publication in the Official Gazette, from which point interested companies may begin the qualification process to access the benefits.
What types of investments qualify?
The regime applies to investment expansions starting at US $1 million, with no maximum cap, provided they constitute genuine expansions of existing operations. The law recognizes as expansion, among others:
- New production lines.
- Construction of infrastructure for production, processing, or logistics.
- Acquisition of machinery or industrial equipment.
- Addition of transportation fleets.
- Industrial or technological process research centers.
These incentives are not intended for new companies, but rather for incremental growth of already established operations.
Tax incentives
The main incentive is a tax credit creditable against Income Tax (IRS), usable for a period of up to 10 years, with the percentage determined by the amount invested:
- Investment from US $1,000,000 to US $10,000,000: IRS credit equal to 10% of the investment.
- Investment from US $10,000,000.01 to US $20,000,000: IRS credit equal to 20% of the investment.
- Investment from US $20,000,000.01 onward: IRS credit equal to 30% of the investment.
Additionally, companies will be exempt from the Real Estate Transfer Tax on the acquisition of real estate used for the expansion, provided the property is used for at least five years.
Eligible sectors
The law limits the regime to expansion projects in specific sectors, including:
- Textiles and apparel.
- Agribusiness.
- Food and beverages.
- Auto parts.
- Electronics.
- Plastics.
- Footwear.
- Chemical and pharmaceutical.
- Construction materials.
- Paper manufacturing and paper products.
Companies outside these sectors will not be eligible for the regime.
Who is excluded?
The following entities may not access the benefits:
- Companies already benefiting from tax incentives under other laws.
- Companies whose incentive regimes were previously revoked due to non-compliance.
- Companies with outstanding tax or customs obligations.
Qualification process and timelines
To access the incentives, the company must obtain an “Investment Expansion Qualification Agreement” issued by the Ministry of Economy.
The procedure includes the following timelines:
- The Ministry of Economy has five business days to review the application.
- It may request corrections, granting a maximum of 10 business days to cure deficiencies.
- Once the application is admitted and the opinion of the Ministry of Finance is requested, a decision must be issued within 10 business days.
The Investment and Export Promotion Agency of El Salvador (INVEST) is responsible for qualifying the investor’s profile.
Recommendations
Before the law enters into force, companies considering expansion in El Salvador should:
- Confirm whether the project qualifies before executing the investment.
- Validate the amount and structure of the investment.
- Assess the actual tax impact of the tax credit.
- Prepare financial and technical documentation in advance.
- Verify tax and customs compliance.
- Analyze non-compliance and revocation risks.
