Profits and returns from abroad will be non-taxable income in El Salvador

On March 12, 2024, the Legislative Assembly of El Salvador approved an amendment to the Income Tax Law (LISR), by adding a numeral 4) to Article 3 of the Law. The amended article regulates the cases of non-taxable income, and to this effect, the new numeral establishes the following:

“Income for this Law does not include:

All amounts received in any form, obtained abroad or any capital movement, remuneration, or emolument, in cash or in kind, generated or not by the investment of national or foreign capital, nominally obtained or received by natural persons, legal entities, or entities without legal personality, domiciled or not in the country, from any kind of source abroad.”

Likewise, a final clause was added to the, excluding the income not subject to this new numeral 4) from the obligation to apply proportionality in the determination of costs and expenses established in art. 28 of the LISR.

On the other hand, the reform decree provides, in its art. 2, that, as of the entry into force of this, the following provisions are expressly repealed:

    • Sixth, seventh, and eighth paragraphs of 14-A.
    • Literal c) of the fourth paragraph and fifth and seventh paragraphs of 16.
    • Second, third, and fourth paragraphs of 27.

All of the aforementioned legal provisions currently regulate income obtained by subjects domiciled in El Salvador from deposits abroad, securities, financial instruments, and derivative contracts. These incomes, to date, are considered taxable incomes and, moreover, have a procedure that allows for the accreditation before the Salvadoran tax authority, of the tax paid in the country in which said incomes were obtained.

However, with the recent approval of the reform, these incomes will become non-taxable incomes for taxpayers domiciled in El Salvador, which is expected to result in an increase in capital investment located in Salvadoran territory in the coming months.

As a result of the reform, the following profits and returns will be non-taxable:

    1. Receipt of dividends and profits from investments in foreign stock corporations, foreign stock exchanges, financial instruments such as international loans or leases, when those interests, profits, or benefits from such capital are received by a beneficiary in El Salvador.
    2. Receiving interest payments on loans granted to individuals or entities abroad. Example: a Salvadoran company that lent money to a third party in another country, Guatemala, Panama, or the United States. Those interest on the loan granted from El Salvador, abroad, were taxed by literal c) of the fourth paragraph and fifth and seventh paragraphs of art. 16 of the LISR.
    3. Receiving interest payments on deposits or deposit certificates from banks abroad. Example: a Salvadoran company that has a bank account or deposit in another country, Switzerland, Bahamas, Panama, or the United States, among others. Those interest on deposits in foreign banks were taxed by art. 27 of the LISR.

For any additional inquiries, please contact Diego Martín (, William Escobar ( or by email (