April 18, 2023
El Salvador's Bill for the Promotion of Innovation and Technological Manufacturing encourages investment in tech companies, includes tax benefits
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:
It is important to note that the following cases are not eligible for these benefits:
(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):
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