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October 29, 2024
2024-1982

El Salvador's Tax Authority publishes list of tax havens for 2025

  • El Salvador's annual (2025) list of low- and no-tax jurisdictions totals 101 jurisdictions.
  • Transactions with individuals or entities incorporated, domiciled or located in tax havens must comply with the arm's-length principle.
  • Payments or amounts from taxpayers domiciled in El Salvador and credited to individuals or entities located in tax havens are generally subject to an increased withholding tax rate of 25%.
 

El Salvador's Tax Authority has issued its annual guide on transactions with tax havens, which sets out a list of countries, states and territories that are considered to be preferential tax regimes, low- or no-tax jurisdictions, or tax havens for Salvadoran tax purposes (Tax Havens).1

This list will be effective for tax year 2025 (i.e., from 1 January through 31 December 2025).

Tax implications

Payments or credits made from El Salvador to individuals or legal entities incorporated, domiciled or located in Tax Havens are subject to an increased income tax withholding tax rate of 25%.2

List of tax havens

Tax Havens in the low-tax category total 61 jurisdictions, including: Andorra, Ireland, Hong Kong, Iceland, Luxembourg, Netherlands, Poland, Puerto Rico, Qatar, Kingdom of Saudi Arabia, Republic of Paraguay, Singapore, Switzerland, Taiwan and Vietnam. In comparison to last year's list, the latest list includes the following changes:

  • Eight jurisdictions were added: Armenia, Azerbaijan, Barbados, Cambodia, Croatia, Kosovo, Nauru and Ukraine.
  • Two jurisdictions were removed: Jamaica and the Republic of Turkiye.
  • In the 2024 list, "Malaysia" appears, while in the list applicable to 2025, "Labuan, Malaysia" appears. Also, the Democratic Republic of West Timor is now referred to as Timor-Leste.

Tax Havens in the no-tax category total 40 jurisdictions, including: Aruba, Bahamas, Belize, Bermuda, Curaçao, Cayman Islands, Isle of Man, US Virgin Islands, Monaco, South Dakota, Delaware, Florida, Nevada, Texas, Washington State and Wyoming. In comparison to last year's list, the following changes were made this year:

  • The jurisdiction Antigua and Barbuda was removed from the list.
  • Barbados and Nauru were moved to the low-tax category.
  • Samoa is now referred to as Western Samoa.

The guide also establishes that any entity of a country, state or territory not expressly mentioned in the list will be considered a Tax Haven if: (1) exemptions from income tax or similar taxes have been granted; (2) the income tax rate over net income is less than 80% of the applicable Salvadoran average corporate income tax rate; or (3) the entity operates under a preferential tax regime of low or no taxation established in a law or administrative provision. These entities include holding companies, parent companies, auxiliary or mixed companies, service companies, financial subsidiary or financial power, private asset management companies, multinational company headquarters, international trusts, entities with which international financial lease agreements are held, trusts, limited liability companies (LLCs), Private Interest Foundations and international business companies.

Additionally, the guide emphasizes that the list of Tax Havens is not comprehensive and refers to Section 62-A of the Salvadoran Tax Code, which sets forth the Tax Haven criteria.3

According to the guide, a jurisdiction that meets the statutory definition of a Tax Haven but is not included in the list will be treated as a Tax Haven. Conversely, a taxpayer has the right to submit any relevant documents evidencing that a jurisdiction listed in the guide as a Tax Haven does not meet the statutory definition.

List of countries that have signed tax agreements or tax treaties with El Salvador

The guide lists the Kingdom of Spain as a jurisdiction with which El Salvador has signed a double taxation treaty. The Republics of Costa Rica, Guatemala, Honduras and Nicaragua are listed as countries that have signed the Convention on Mutual Assistance and Technical Cooperation between the tax and customs administrations in Central America.

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Endnotes

1 The guide distinguishes between preferential tax regimes, low- or no-tax jurisdictions, and tax havens, although the tax implications are the same for El Salvador transactions with tax havens.

2 Exceptions apply for the acquisition/transfer of certain tangible assets, international transportation services, insurance and related services, interest payments or income derived from capital invested or transactions related to securities, participations and other investment in Salvadoran primary or secondary stock market through the Salvadoran Stock Exchange.

3 According to Section 62-A of the Salvadoran Tax Code, Tax Havens are jurisdictions in the following situations: (1) jurisdictions where there is no income tax or where the income tax rate over net income is less than 80% of the applicable Salvadoran income tax rate (currently, for legal entities, formal joint ventures, irregular or de facto associations, the corporate income tax rate is 30% and 25%, with an average of 27.5%), and (2) jurisdictions classified as such by the Organisation for Economic Co-operation and Development and the Financial Action Task Force.

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Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young, El Salvador

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

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