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April 18, 2023

El Salvador's Bill for the Promotion of Innovation and Technological Manufacturing encourages investment in tech companies, includes tax benefits

  • A bill introduced in the El Salvador Legislature aims to strengthen the country's competitiveness and sustainable economic development by promoting innovation and technology manufacturing in the national territory.
  • The bill provides tax incentives for specific types of investment in the technology sector.

On 30 March 2023, the Legislative Assembly of El Salvador received the Bill for the Promotion of Innovation and Technological Manufacturing (Bill), which now is being analyzed by the Economic Commission of the Salvadoran Legislative Assembly.

If adopted into law, the Bill would provide tax benefits for individuals and legal entities, national or foreign, that invest in certain innovation projects or technological manufacturing within the national territory, provided these investments are made after the new law enters into force and comply with its requirements.

Commercial activities that are developed in at least one of the following areas may qualify for the benefits proposed in the Bill:

  • Programming, management, maintenance, consulting and analysis of computer systems or software
  • Development and commercialization of cloud computing and data flow services, artificial intelligence, massive data analysis, distributed log technology, cybersecurity solutions
  • Technologies based on manufacturing of parts, materials and equipment or facilities, assembly, including manufacturing plants for technology equipment or hardware, semiconductors, communications technology, robotics, nanotechnology, aircraft and unmanned vehicles
  • Engineering and systems technologies necessary for the integration of basic industrial technologies into global production chains

It is important to note that the following cases are not eligible for these benefits:

(1) Investments

  1. Made before the law enters into force
  2. Related to operations already established in the national territory
  3. Under a special regime that have increased their equity as a result of a merger, absorption or any type of operational and administrative restructuring of asset

(2) Individuals or legal entities that are already enjoying another special tax regime, such as the Industrial and Commercialization Free Zones Law or the International Services Law

Beneficiaries will be eligible for exemption from the following taxes for a 15-year term, beginning the day after receiving the agreement approving their eligibility (Qualification Agreement):

  • Income Tax with respect to incentivized activities
  • Income Withholdings Tax with respect to the incentivized activities
  • Municipal taxes on the beneficiaries' declared net assets
  • Capital gains tax established in Articles 14 and 42 of the Income Tax Law
  • Customs Duties and taxes levied on the importation of goods, inputs, machinery, equipment and tools necessary for the development of the incentivized activities

The Ministry of Economy will serve as the governing entity for the operation and application of the law and, therefore, responsible for issuing Qualification Agreements for the applicable projects and granting of the related tax incentives. The Ministry of Finance also will be responsible for surveillance and effective control of the customs and tax regime.

Regulations issued under the new law will establish the procedure for obtaining and maintaining the Qualification Agreement; for the time being, the Bill does not include minimum investment requirements.

The Bill includes a sanctioning regime and a regime of international cooperation with multinational companies to carry out joint investments in research and industrial development in innovation and manufacturing.

It is important to note that Bill's provisions may undergo changes during the parliamentary process, discussion and approval of the National Assembly. Taxpayers and the general audience will want to closely follow the bill to determine if they can apply for the tax incentives.


For additional information with respect to this Alert, please contact the following:

Ernst & Young El Salvador

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor


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