El Salvador passes a ‘Zero Tax’ Law for Tech Start Ups
Last week, El Salvador made history by passing a new law that grants zero taxes for tech start-ups in the country. This move is part of a larger effort to attract more investment, promote innovation and position El Salvador as a tech hub in the region.
Financial Incentives for the new Tax Law in El Salvador
The new law grants 5 tax incentives for tech start-ups and will be valid for up to 15 years. Upon agreement, those incentives are:
- Total exemption from income tax
- Exemption from all types of withholdings of income tax
- Total exemption for municipality taxes on the net assets presented by the beneficiaries
- Exemption on capital gains payments
- Total exemptions from import and export duties for goods and equipment needed for the development of tech projects
Requirements for eligibility
You may be asking yourself, “Can I move my tech start up to El Salvador? I’m a foreigner and I already have a tech business settled in El Salvador, does this law apply to me as well? What are the requirements for this law?”
According to Lexincorp (Central American Law Firm) any national, international, legal or natural person is eligible for this law. In order for the law to be valid, you must:
- Be natural or legal persons, national or foreign
- Have a NIT (Numero de Identificación Tributaria) and be registered in the Salvadoran Tributary Office
- Prove that the activities are included within those established by the law
- Have a valid Qualification Agreement issued by the Ministry of Economy
Image via Christopher Gower on Unsplash
Who is eligible for the ‘Zero Tax’ Law in El Salvador?
If you are in the tech industry, how do I know if you are eligible for this law?
According to the Ministry of Economy, there are 3 pillars in the industry that are eligible for the law:
- Any natural or legal persons engaged in:
Software Analysis
Computer Systems Analysis
Consultancy
Programming
Management
Maintenance - Any natural or legal person engaged in the development and commercialization of:
Cloud Services
Artificial Intelligence
Massive Data Analysis
Cybersecurity Solutions - Any natural or legal person involved in manufacturing or those that are dedicated to:
Manufacture of parts, materials and equipment or facilities
Assembly
Production of technological equipment or hardware
Semiconductors
Robotics
Nanotechnology
Aircraft and unmanned vehicles
Benefits Of The ‘Zero Tax’ Law in El Salvador
And last but not least, there are 5 benefits of this law:
- Greater production, development and export of services and technology goods
- Positioning of El Salvador as a regional hub in innovation and technology
- Growth of the skilled labor force
- Creation of more and better jobs
- Strengthening the supply chains of the technology industry
This law is a significant step forward for El Salvador, as it aims to create a more favorable environment for tech start-ups to grow and thrive. It is a positive development for the country and the region as a whole; as well as to potentially attract more investment, create jobs, and spur economic growth, while also promoting technological innovation and development. It is also a clear signal to the rest of the world that El Salvador is open for business and ready to compete in the global market for innovation and entrepreneurship.
