Managing Corporate Taxation in Latin American Countries - El Salvador

  1. Income Tax

    1.1. General Aspects

    1.1.1. Income Tax Rate

    The general statutory corporate income tax rate for Salvadoran entities including Salvadoran branches of foreign companies is 25% on net income.

    In the case of individuals, the law determines the tax brackets as follows:

    The income tax resulting according to the table shown cannot in any case be superior

    to 25% of the taxable income obtained by the contributor in each tax year.

    1.1.2. Taxable Base

    All revenues are subject to income tax unless otherwise excluded by law from the taxable base.

    1.1.3. Deductions

    As a general rule all costs and expenses are deductible provided that they are related, proportional and necessary to the income producing activity. Any costs or expenses related to Excluded and/or Exempted Items of Income are not deductible, the apportionment must be properly detailed and calculated in order to prevent from having a proportional rejection on overall deductible costs and expenses. Some costs and expenses are limited to quantitative ceilings, e.g. royalties and technical fees between a branch and foreign headquarters.

    1.1.4. Depreciation

    Tangible fixed assets' depreciation is deductible. Depreciation term varies depending on the nature of the asset. The accepted method of depreciation is straight-line method, any other method must be duly authorised by the proper authorities.

    1.1.5. Transfer Pricing

    Salvadoran legislation included recently with the 2010 tax reform, general rules for transfer pricing requiring that all transactions among related parties be recorded and effected at market price. The tax authority even has the power to set a price for a transaction for tax purposes, if it thinks the price is not within market terms for similar transactions.

    1.1.6. Inflation Adjustments

    El Salvador does not have inflation adjustment mechanisms.

    1.1.7. Tax Losses Carry-forward / Carry-back

    Each financial period is independent of any other; therefore Tax Losses Carry-forward and Carry-back are not applicable in El Salvador, except for capital gain losses against future capital gain earnings.

    1.1.8. Financial Leasing Tax Treatment

    Income from financial leasing is taxable with income tax, and it can be deducted as a cost for the lessee.

    1.2. Payment and Filing.

    Income tax must be paid through a Sworn Declaration that must be elaborated on a form legally established by the General Direction of Internal Taxes and which must be filed anytime during the term of four months following the end of the tax year.

    1.3. Interest and Penalties on Unpaid Tax or Tax Paid Belatedly.

    Not filing a tax return form before the proper authorities, the late...

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