The Legislative Assembly of El Salvador approved the Law of Innovation and Manufacturing of Technology that will exempt from Income Tax municipal taxes and tariffs to all new technological investments aimed at the creation of software, computer systems analysis, Artificial Intelligence, massive data analysis, computer services and drone parts factory, among others.
This tax benefit would be applied for a period of 15 years only to new investments, excluding investments made prior to the entry into force of the law, as well as those related to operations already established or that have resulted from mergers or restructurings.
"This regulation aims to position El Salvador as a Hub for innovation in the region, through the creation of tax incentives for new projects or technological ventures," says our managing partner, Héctor Torres.
Our expert in FinTech and New Technologies assures that, in order to obtain the tax benefit, beneficiaries will require a Qualification Agreement issued by the Ministry of Economy (MINEC), while the oversight and effective control of the customs and tax regime will correspond to the Ministry of Finance.
"Companies benefiting from the law will be required to keep separate accounting records to demonstrate the amount of income that is subject to such incentives. This will allow greater transparency and control of the tax benefits granted, as well as an adequate control by the relevant authorities", postulates Torres.
According to Torres, the tax exemption will also benefit manufacturing plants of technological equipment or hardware, semiconductors, communications technology, robotics, nanotechnology, aircraft and unmanned vehicles.
"However, persons or companies benefited by other special tax regimes, such as industrial and commercialization free zones, and international service parks or centers, will not be able to apply to this incentive," our lawyer indicates.
In addition, engineering to compose industrial technologies in global production chains may also be exempted, as long as it is authorized by the MINEC.
"The law establishes that tax incentives may be modified in the event that the expected objectives are not achieved. To this end, the Ministry of Economy will evaluate their effectiveness within 3 years, publishing a guide with expected compliance indicators in the first 6 months," explains our managing partner.
After the first 3 years, Torres mentions that MINEC will elaborate and publish a "performance evaluation" of the expected objectives according to the guide: "If this evaluation is unfavorable, MINEC can propose reforms".
Our specialist also highlights that the established tax incentives may be "modified, reduced or replaced" depending on the evaluation made by MINEC. However, the Qualification Agreements and other rights acquired by law will not be modified in any case.
In order to keep track of the companies, a National Registry of Technological Innovation and Manufacturing Industries Companies will be created to keep a proper control of the benefited companies.
According to Torres, bilateral agreements with other countries and multinational companies will also be allowed to "make joint investments in industrial research and development" in innovation and technology manufacturing, which will allow for greater collaboration and growth in the sector.
If you have further questions about this and other topics you can contact us through our social networks or by visiting our offices located at Calle Cuscatlán, #4312, Colonia Escalón, San Salvador, El Salvador.
-Written by Torres Legal Team.