By means of Legislative Decree issued on July 31, 2014 (the Decree), the Congress of El Salvador approved amendments to the Income Tax Law, which created an Alternative Minimum Tax (AMT) and eliminated the income tax exemptions established in the Printing Law.

The Decree first has to be signed by the Executive Branch before it gets published and becomes effective.

AMT on net assets

The amendments impose a minimum payment for the annual income tax on net assets.

The net asset value will be determined by subtracting the following amounts from the total value of the assets: (1) accumulated depreciations and amortizations, (2) non-operating fixed assets including those owned abroad, (3) shares owned in other Salvadoran entities and (4) financial liabilities related to fixed operating assets.

Several types of taxpayers are exempt from the AMT, including the following:

• Employed individuals¹
• Users of free trade zones and/or shared service companies
• Entities and trusts financed by the state of El Salvador, international organizations or foreign goverments
• Persons not subject to income tax by law
• Taxpayers that are within their first three years of business, provided the business is carried out with new investments and expressly excludes purchases of pre-existing assets or rights
• Taxpayers dedicated to a sector of the economy that has been affected by a public calamity and disaster, provided the corresponding declaration has been made by Congress or the President of El Salvador
• Taxpayers with taxable income equal to or less than US$150,000

The income tax that must be paid would be the higher amount resulting from the computation of the income tax and the AMT.

Elimination of the income tax exemptions included in the Printing Law

The Decree also eliminates the exemptions to income tax established in Section 8 of the Printing Law,² with the exception of books, which will continue to be exempt from income tax.

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ENDNOTES

¹ Individuals with a personal trade or business are not exempted.

² The exemption being eliminated provides that printing companies are not subject to any tax in connection with any activity related to the production, distribution and sale of newspapers, magazines, books, handbooks, single sheets, informative or intellectually or in general, linked to free dissemination of ideas.