Marco Conde
I- Introduction
In 2007, as part of the Salvadoran government’s efforts to boost the real estate sector and strengthen the capital market, the Legislative Assembly enacted the Asset Securitization Law (LTA). This regulation laid the foundation for assets capable of generating periodic cash flows to be transformed into negotiable financial instruments, thus facilitating access to long-term financing.
The Law regulates both securitization transactions and the parties involved—originators, securitizers, administrators, among others—and establishes that assets capable of generating predictable future income, such as loans, rights to cash flows, and real estate assets, may be securitized.
This article will specifically address the securitization of real estate investments as an efficient tool for making urban projects viable, highlighting not only its advantages as an alternative means of financing, but also the tax efficiency that this scheme can offer within the Salvadoran legal framework.
II- Legal and technical requirements for the securitization of real estate
The Asset Securitization Law (LTA) expressly provides for the possibility of securitization funds being set up and integrated with existing or future real estate assets, provided that the purpose of the process is the financing, development, construction, performance, or expansion of real estate projects.
To this end, Article 46 of the law establishes minimum mandatory requirements that seek to guarantee transparency, security, and viability for the creation of these funds. Among these requirements, the first is the obligation that the property be appraised by experts registered with the Superintendency of the Financial System or by entities whose registration has been recognized by the Superintendency.
Appraisals must be carried out using methods of recognized technical value approved by the Superintendency, which ensures that the registered value of the asset reasonably reflects its market value.
Likewise, the property must be covered by insurance against risks such as fire, earthquake, and flood while it is part of the fund. This condition protects both the value of the underlying asset and the integrity of the expected cash flow for investors.
The securitization company is also legally required to verify the existence of all permits and solvency necessary to carry out the real estate project. This includes building permits, municipal licenses, environmental permits, and proof of payment of fees and taxes. The property must also be free of encumbrances and duly registered under Article 22(a) of the same law.
III- Tax regime and withholding on returns: tax efficiency
One of the most attractive aspects of real estate securitization in El Salvador is its preferential tax treatment. Article 86 of the LTA establishes that Securitization Funds are exempt from all types of taxes and fiscal contributions. This exemption includes not only general taxes but also fees associated with transfers, assignments, registrations, and marginalizations of the assets that make up the fund. This means that the transfer of the real estate property made by the originator to the fund for its constitution is exempt from the payment of the Real Estate Transfer Tax (ITBR).
In addition, the regulation states that regarding the Tax on the Transfer of Movable Property and the Provision of Services (VAT), the assets, rights, and flows transferred to the fund will retain the same tax treatment they had while they were part of the originator’s estate. This provision prevents double taxation or the creation of new taxable events solely due to a change in ownership.
From a practical perspective, this comprehensive exemption represents a significant reduction in the costs associated with structuring the vehicle, which improves the project’s profitability and makes the instrument more attractive to potential institutional investors.
Added to this favorable framework is the withholding regime applicable to income generated by investments in securities. Under the Tax Code, amounts paid or credited to individuals or legal entities as income or return on capital invested in securities—whether on the primary or secondary market, through the Stock Exchange—are subject to a 3% withholding tax.
This percentage contrasts favorably with traditional real estate investment schemes, where profits are taxed at the general rate of 5%. Under the securitization model, the tax treatment implies a direct reduction of 2 percentage points in the tax burden, which can represent significant savings for investors.
IV- Conclusion
Real estate securitization, under the Salvadoran regulatory framework, is a legally robust, financially efficient, and fiscally favorable tool for enabling urban development. In addition to facilitating access to financing through the issuance of securities backed by real assets, this mechanism ensures transparency through demanding technical requirements and supervision by the Superintendency of the Financial System.
Its comprehensive tax exemptions, the constitution of the fund, and the transfer of assets—together with a reduced withholding regime– make securitization an alternative with clear advantages over traditional investment mechanisms. Thus, beyond being a financing tool, securitization represents a strategic incentive to structure real estate projects in a more competitive, sustainable, and fiscally efficient manner.