Corporate Tax 2010 - BMR Advisors

Arias & Muñoz
El Salvador
El Salvador
destined for housing.
c. Those rendered in a dependency relation regulated by the
labor legislation, and those rendered by the public, municipal
and autonomous institution employees.
d. Public and cultural events qualified and authorised by the
Bureau.
e. Education services provided by schools, universities,
institutes, academies and other similar institutions.
f. Deposit operations, and other forms of money receipt and
loans, in relation to interest payment or generation carried
out by Banks, other Financial Intermediaries, or any other
financial institution supervised by the Financial System
Superintendence or registered in the Central Reserve Bank,
financial lease or factoring enterprises, Cooperative
Associations or Savings and Loans Cooperative Companies,
Public or Public Utility Foundations and Corporations,
dedicated to financial concessions.
g. The issuance and placement of Credit Instruments by the State
and autonomous official institutes as well as those carried out
by private entities, whose primary offer has been made public
through an authorised stock exchange institution, in relation to
the payment or generation of interest.
h. Water supply services and sewer services, provided by public
institutions.
i. Public land transportation services.
j. Personal insurance premiums as well as reinsurances in
general.
payer of the dividend. If that is not the case, the non-resident
shareholder that perceives them must pay the respective tax through
a 20% withholding that the local company is obligated to apply.
3.2 Would there be any withholding tax on royalties paid by a
local company to a non-resident
Yes, according to Salvadoran Income Tax Law, any person or
company who/which makes any payment in concept of royalties to
a foreign person or entity shall retain 20% of such payment as
withholding tax.
3.3 Would there be any withholding tax on interest paid by a
local company to a non-resident
Yes, a certain percentage must be withheld as Income Tax from a
non-resident person or company that obtains income as interest or
any other type of income from a local company. The applicable rate
is 20% over the earned income, in accordance to Article 158 of the
Tax Code.
3.4 Would relief for interest so paid be restricted by reference
to “thin capitalisation” rules
No such rules exist in our legislation.
2.4 Is it always fully recoverable by all businesses If not,
what are the relevant restrictions
Yes, the nature and structure of the VAT tax allows the monthly
application of credits against debits generated through said tax; this
allows its effect to be neutral in regards to its application by
merchants.
One of the relevant restrictions issued by the tax legislation is that
the VAT tax does not constitute a cost or expense in regards to the
goods or services rendered.
2.5 Are there any other transaction taxes
No, in regards to the transfer of goods or rendering of services, this
is the only applicable tax (with a 13% tax rate); however, there is
another tax specific to the transfer of Real Estate, which is regulated
through the Real Estate Transfer Tax Law, the rate of which stands
at 3%, over the excess of US$28,571.43.
3.5 If so, is there a “safe harbour” by reference to which tax
relief is assured
The possibility of a safe-harbour exists only when the respective
income tax is paid by the local company.
3.6 Would any such “thin capitalisation” rules extend to debt
advanced by a third party but guaranteed by a parent
company
No thin capitalisation rules exist in Salvadoran law.
3.7 Are there any restrictions on tax relief for interest
payments by a local company to a non-resident in addition
to any thin capitalisation rules mentioned in questions
3.4-3.6 above
No, there are not any restrictions on tax relief for interest payments
by a local company to a non resident.
2.6 Are there any other indirect taxes of which we should be
aware
Other indirect taxes exist, which are regulated by laws such as: The
Tobacco Product Tax Law, Production and Commercialisation of
Alcohol and Alcoholic Beverages Regulation Law, Carbonated
Unflavoured and Sweetened Beverage Tax Law, etc.
3 Cross-border Payments
3.1 Is any withholding tax imposed on dividends paid by a
locally resident company to a non-resident
3.8 Does El Salvador have transfer pricing rules
Yes, the Tax Code establishes transfer pricing rules at Articles 199-
A and 199-B, but they are limited in the procedures of the
determination.
4 Tax on Business Operations: General
4.1 What is the headline rate of tax on corporate profits
The headline rate of tax on corporate profits is 25%.
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There is no withholding tax imposed on dividends paid by a
resident company to a non-resident as long as the taxes
corresponding to said income have been declared and paid by the
4.2 When is that tax generally payable
The corresponding tax must be paid within the first four months
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