El Salvador has taken a bold step toward the future. On April 18, 2023, the Legislative Assembly approved the Law for the Promotion of Innovation and Technological Manufacturing, a regulation designed to attract new investments in key sectors for the country’s development: technology and innovation.
This law is not only a bet on economic growth but also a unique opportunity for both local and international companies to become part of El Salvador’s growing tech ecosystem. The best part? It comes with attractive tax incentives.
What is the purpose of this law?
The main goal is clear: to boost technological and innovative projects within the country, generating jobs, encouraging knowledge transfer, and positioning El Salvador as a regional tech hub.
I- Who can benefit?
Any individual or legal entity, whether Salvadoran or foreign, that makes a new investment in tech or innovation projects in the country may apply. However, they must meet certain requirements, such as:
- Being registered with the Salvadoran Tax Administration.
- Demonstrating that their activities fall within the incentivized categories.
- Obtaining a Qualification Agreement issued by the Ministry of Economy.
Important: Investments made before the law came into effect, or those resulting from mergers or corporate restructurings, do not qualify. Nor can companies that already benefit from other special tax regimes, such as free zones or international service parks.
II- What activities are incentivized?
The law covers a wide range of tech-related sectors. Some examples include:
- Software development, consulting, and IT systems maintenance.
- Cloud computing services, artificial intelligence, big data analytics, and cybersecurity.
- Manufacturing of hardware, semiconductors, robotics, nanotechnology, and drones.
- Integration of industrial technologies into global supply chains.
- New sources of energy generation and storage not currently part of the national energy matrix.
- Research and development of new technologies.
III- What tax benefits are offered?
Approved projects may enjoy tax exemptions for 15 years, including:
- Full exemption from Income Tax.
- Exemption from income tax withholdings on incentivized activities.
- Exemption from municipal taxes on net assets.
- Exemption from capital gains tax.
- Exemption from import duties and taxes on machinery, equipment, and essential inputs.
Note: Imported goods must be essential to the approved activity and properly identified. The law does not allow exemptions for firearms, personal consumption goods, or current assets.
IV- What happens if the law is violated?
The law also outlines clear penalties for non-compliance:
- Very serious offense: Using benefits for unauthorized activities. Fine: 15 to 20 monthly minimum wages.
- Serious offense: Operating without required permits. Fine: 6 to 15 monthly minimum wages.
- Minor offense: Failing to respond to official requests. Fine: 2 to 5 monthly minimum wages.
V- When did the law take effect?
The law was published on May 4, 2023, in the Official Gazette and came into force on August 4, 2023.
VI- Why is this law important?
Because it marks a turning point in how El Salvador positions itself globally. It’s an open invitation to visionaries, entrepreneurs, and tech companies to bet on a country that wants to innovate, grow, and lead in the region.