Law to promote investment expansion in El Salvador

El Salvador has established itself as a strategic destination for domestic and foreign investment, strengthening already established productive sectors and generating synergies that drive the opening of new markets. To this end, the Legislative Assembly, through Legislative Decree No. 498, dated January 14, 2026, published in Official Gazette No. 10, Volume 450 dated January 16, 2026, approved the “Law for the Promotion of Investment Expansion”, whose objective is to promote the expansion of existing investments, especially in those sectors that are not covered by special regimes but have high potential to boost the economy through new investment projects.

I- Who are the beneficiaries?

This Law applies to national or foreign individuals or legal entities that have been operating in the country for at least ten years and whose investment or operations expansion is aimed at consolidating and strengthening productive operations within the diverse manufacturing sector, including the following areas:

• • Textiles and clothing.
  • Agro-industry.
  • Food and beverages.
  • Auto parts.
  • Electronics
  • Plastic products.
  • Footwear
  • Chemical and pharmaceutical products.
  • Construction products.
  • Manufacture of paper and paper products.

It does not apply to individuals or legal entities that are enjoying other tax incentives provided for in other general or special laws; nor does it apply to legal entities whose partners or shareholders are or have been part of a company or legal entities that have had any type of tax benefit revoked due to non-compliance with legal requirements and obligations.

II- What activities are considered investment expansion?

The Law defines expansion activities as investments intended for:

1. 1. New production lines within existing facilities or in new locations.
   2. Acquisition or construction of infrastructure for new production, manufacturing, or processing centers.
   3. Logistics, storage, or distribution infrastructure directly linked to the production process, supply chain, or delivery of final products.
   4. Acquisition of machinery, industrial equipment, technological equipment, or transportation fleets by the beneficiary.
   5. Research, development, and innovation centers associated with industrial or technological processes.
   6. Infrastructure for processing raw materials or transforming intermediate goods, understood as inputs not intended for final consumption.
   7. Development of physical or technological infrastructure to increase the beneficiary’s production capacity.

III- Tax benefits on expansion investment

The main benefit consists of a tax credit against income tax, applicable to capital investment, which may be used for a period of up to ten years, with the possibility of extension for an equal period.

The tax credit is determined based on the amount of the expansion investment, applying rates according to the following details:

1. 1. Range I: Investments from $1,000,000.00 to $10,000,000.00, with a credit equivalent to 10% of the investment
   2. Range II: Investments from $10,000,000.01 to $20,000,000.00, with a credit equivalent to 20% of the investment.
   3. Range III: Investments from $20,000,000.01 and above, with a credit equivalent to 30% of the investment.

The credit may be credited starting in the fiscal year in which the qualification agreement is obtained. However, its annual use is limited to the income tax surplus that exceeds the best result declared by the taxpayer in the last ten fiscal years, adjusted by the latest annual inflation data issued by the BCR.

Unused credit may be accumulated within the authorized period, but it is not transferable, deductible, or refundable once that period has expired.Additionally, total exemption from Real Estate Transfer Tax is granted for the acquisition of real estate intended for expansion, if it is used and retained as property for a minimum period of five years. Failure to comply with this condition will result in the payment of the corresponding tax.Expansion projects must begin operations within a maximum period of eighteen months from the date of qualification, under penalty of revocation.

The Ministry of Economy is responsible for the application of the investment law, and the Ministry of Finance is responsible for the supervision and control of the tax regime.

For any additional questions, please contact Diego Martín (dmartin@consortiumlegal.com); Verónica Tadeo (vtadeo@consortiumlegal.com); or email: taxelsalvador@consortiumlegal.com.