Series: Investing in El Salvador — A legal guide for foreign investors
Since 2023, El Salvador has had one of the most aggressive tax regimes in the region for attracting technology companies: the Law to Promote Innovation and Technology Manufacturing. Its promise is simple: for 15 years, qualifying technology activities can operate with no income tax, no capital gains tax and no import duties on the equipment they need.
Who can benefit?
Any individual or company, Salvadoran or foreign, making a new investment in technology or innovation projects in the country. Incentivized activities include, among others:
- Software development, IT consulting and systems maintenance.
- Cloud computing, artificial intelligence, data analytics and cybersecurity.
- Manufacturing of hardware, semiconductors, robotics, nanotechnology and drones.
- New energy sources and storage.
- Research and development of new technologies.
The benefits
Approved projects enjoy, for 15 years from notification of the Qualification Agreement:
- Full income tax exemption on the incentivized activities.
- Exemption from withholding on income from those activities.
- Exemption from municipal taxes on net assets.
- Capital gains tax exemption.
- Exemption from import duties and taxes on machinery, equipment and inputs essential to the activity.
Requirements and exclusions
Applicants must be registered with the tax authority, show that their activity falls within the incentivized categories and obtain a Qualification Agreement from the Ministry of Economy. Three key exclusions apply:
- Investments made before the law took effect do not qualify.
- Investments resulting from mergers or restructurings of existing businesses do not qualify.
- Companies already enjoying other special regimes, such as free trade zones or international services, cannot apply.
Using the benefits for unauthorized activities is subject to fines and can jeopardize the agreement.
The AI regulatory landscape
If your company develops or uses artificial intelligence, beyond the incentives you should consider the 2025 Law to Promote Artificial Intelligence and Technologies, which created the National Artificial Intelligence Agency (ANIA) as the sector authority, as well as personal data protection obligations.
Frequently asked questions
This law or the International Services Law?
It depends on your model. The International Services Law requires minimum investment and headcount and focuses on clients abroad; the Innovation Law focuses on the type of technology activity. They cannot be stacked, so compare both before applying.
Do my foreign shareholders pay tax on dividends?
The treatment of distributed profits should be reviewed in light of the Qualification Agreement and the tax law of the shareholder’s country of residence. We analyze it case by case.
How long does the Qualification Agreement take?
It depends on the completeness of the file and the Ministry of Economy. A well-prepared investment plan and activity description speed up the process.
Bring your tech company to El Salvador
Legal Boutique supports foreign tech companies with company formation, the Qualification Agreement application, trademark registration and AI and data protection compliance. See our English-speaking legal services in El Salvador. Virtual or in-person consultations from $30. Contact us or message us on WhatsApp at +503 7987-1398.
This article is for informational purposes only and does not constitute legal, tax or investment advice for any specific situation.