The new Law for high-rise real estate projects establishes significant tax incentives for developers and operators of properties exceeding 35 stories. This legal framework seeks to stimulate investments in large-scale projects, offering income tax benefits for the owners of these developments. With an income tax exemption of up to 15 years. This law opens opportunities for growth in sectors such as hotel, commercial and services, although it also presents certain limitations and conditions that interested parties must take into account.
I- Requirements and conditions
High-rise real estate projects wishing to access these benefits must comply with the following criteria:
- Incentivized Subjects: Natural persons, legal entities and unions of persons, national or foreign, that invest in new high-rise projects are eligible. This includes both the initial sales of real estate (apartments or offices) and their rental, as long as the owner is the original developer.
- Incentivized activities: The incentives apply to the first sale of specific areas (such as apartments or commercial space), to the rental of real estate for tourism or commercial purposes, and to the provision of hospitality services and construction of the project.
II- Tax incentive
The main benefit consists of an exemption in the payment of Income Tax for 15 years for the income generated by the aforementioned activities. In addition:
- The income obtained will be exempt from Income Tax withholdings and advances;
- The exemption also applies to dividends of partners or shareholders of legal entities involved in these projects, as long as these dividends come from incentivized activities and are not transferred to other partners.
It is important to note that the exemption will not apply to those who acquire space in the property without being original developers or to lessors or sublessors who are not the initial investors.
III. Violations and Penalties
In order to obtain and maintain the tax benefit, developers must notify the General Directorate of Internal Taxes before starting construction and comply with transparency and registration requirements. The law establishes that in case of abuses in the application of this incentive, the tax administration may revoke the benefit granted.
IV- Unresolved issues
The law raises some questions, especially with respect to the conversion of the use of the projects (such as the change from offices to hotel) and the application of the incentive in such cases, since it does not provide any procedure or deadlines for doing so. Likewise, doubts remain regarding the possibility of incorporating new partners or shareholders during the development of the project.
This context may require future clarifications to avoid possible misunderstandings. In this regard, Art. 5 grants powers to the General Directorate of Internal Taxes, the General Directorate of Customs and the General Directorate of Treasury to, if necessary, issue resolutions and essential clarifications on the application of these provisions and other aspects related to the regulations.
V- Conclusion
These regulations represent a significant step forward in attracting investment and boosting urban development in El Salvador. However, developers should analyze in detail the requirements and restrictions to ensure compliance and maximize the benefits of this law. Consulting with experts in tax law and tax planning is key to optimize the investment in these projects. If you have any questions or doubts, please contact us at taxelsalvador@consortiumlegal.com.