27 March 2024 El Salvador's Legislative Assembly approves reform to Income Tax Law, exempting foreign-source income On 12 March 2024, the Legislative Assembly approved an initiative to reform the Income Tax Law that excludes from the concept of income any passive income that entities and individuals in El Salvador receive from foreign sources. The change in the law means that dividends, capital gains and interest, among other income, from securities and financial instruments abroad would not be subject to Income Tax in El Salvador. Section 3 of the Income Tax Law (IT Law) is amended, adding a new section (Section 4) that excludes from the concept of income all values that are received in any form, obtained abroad, or any capital movement, remuneration or emolument, in cash or kind obtained or received by individuals, legal entities or entities without legal personality, domiciled or not in the country, coming from any kind of source abroad. Taxpayers who obtain taxable income and foreign-source income that is excluded from tax under the new Section 4 are excluded from the application of the mechanism for determining the proportion of costs and expenses established in the final subsection of Section 28 of the IT Law.
The legal reform is effective as of 22 March 2024 (i.e., eight days after its publication in the Official Gazette).
Document ID: 2024-0695 | ||||