On September 24, two days after its initial publication, the Ministry of Finance amended the “Guidance for Identifying Countries, States or Territories with Preferential Tax Regimes and Tax Treatment” applicable to fiscal year 2027, which contains the list of low-tax and no-tax jurisdictions to be considered for purposes of Salvadoran tax provisions.
I- What changes compared to the first version?
The first version of the 2027 Guidance provided for the removal of 31 jurisdictions from the low-tax and no-tax lists; however, the update significantly narrows that scope. In the updated version, only 11 jurisdictions are no longer expressly listed: Aruba, Botswana, United Arab Emirates, Grenada, Malta, Monaco, Montserrat, Samoa, Saint Vincent and the Grenadines, Saint Lucia, and Trinidad and Tobago.
As a result, 88 jurisdictions are identified for fiscal year 2027 as subject to the treatment applicable to preferential, low-tax or no-tax regimes, in accordance with the Guidance published by the Tax Administration.
II- But what about the other 20 jurisdictions?
These jurisdictions are now included in the list of no-tax territories: Anguilla, the Bahamas, Bahrain, Belize, South Dakota, Guernsey, the Isle of Man, the Cayman Islands, the Marshall Islands, the British Virgin Islands, Jersey, Liberia, Nevada (USA), Qeshm (Iran), Saint Kitts and Nevis, Texas (USA), Turks and Caicos, Vanuatu, Washington (USA) and Wyoming (USA).
This update corrects the duplication in the first version, in which 20 jurisdictions appeared on both lists at the same time.
III- Are the new additions maintained?
Yes. The updated version keeps Iraq and the Mariana Islands on the list of low-tax jurisdictions.
Likewise, the reclassifications made in the first version remain in place, whereby certain jurisdictions previously listed as no-tax are now part of the low-tax list.
These include Brunei Darussalam, Campione d’Italia, Curaçao, Saint Helena, Ascension and Tristan da Cunha, Seychelles, the U.S. Virgin Islands, Delaware and Florida.
IV- What does this update mean?
For tax purposes, it is important to pay close attention to the changes introduced in this new version of the Guidance, particularly the status of the 20 jurisdictions that were reinstated and are now included in the no-tax list.
This change means that the classification of certain jurisdictions must be reviewed again for transactions corresponding to fiscal year 2027, especially in the case of payments, credits or transactions with persons domiciled, incorporated or located in those jurisdictions.
Consequently, taxpayers should verify the current classification of their counterparties for 2027, considering that a jurisdiction that was not included in the lists of the first version of the Guidance may now be included in them again.
This verification is relevant to determine, as applicable, obligations related to income tax withholding, transfer pricing and the deductibility of costs and expenses.
In this regard, monitoring these lists and their updates is essential to timely identify the tax implications of transactions and to prevent contingencies arising from the transfer pricing, withholding and deductibility limitation rules provided for under Salvadoran law. For more information, please write to us at taxelsalvador@consortiumlegal.com.