Series: Investing in El Salvador — A legal guide for foreign investors
Tourism is one of the sectors drawing the most foreign investment into El Salvador today, from boutique hotels on the coast to ecotourism projects in the volcanic highlands. Beyond the commercial opportunity, the Tourism Law provides tax incentives for new investments qualified as a Project of National Tourist Interest.
What is a Project of National Tourist Interest?
It is a project or master plan for building, remodeling or improving tourism infrastructure and services that the Ministry of Tourism qualifies as such because of its recreational, cultural, historical, natural or ecological value. Qualification requires favorable opinions from other agencies: for investments above US$50,000, from the Ministry of Finance, the Ministry of Environment and the culture authority; for smaller amounts, from Environment, Culture and Tourism.
Incentives under the law
Qualified new investments of US$25,000 or more may access:
- Real estate transfer tax exemption on property acquired for the project.
- Import duty exemption on goods, equipment, machinery, vehicles, vessels or aircraft for domestic tourism and construction materials, until the project is completed and capped at the capital invested.
- Income tax exemption for 10 years from the start of operations, on income generated by the new investment. The benefit ends after ten years or when the exempted tax reaches the value of the project, whichever comes first.
- Partial municipal tax exemption of up to 50% for five years.
Established tourism businesses may also access incentives for expansions, remodeling or improvements, provided the new investment equals at least 20% of the value of their tourism assets. Ordinary maintenance does not qualify.
Beneficiary obligations
- Register with the National Tourism Registry.
- Use the incentives exclusively for the approved activity and keep separate accounting records for exempt income.
- Notify the Ministry of Tourism of project changes and of any sale or transfer of assets or shares.
- Contribute 5% of the profits earned during the exemption period to tourism promotion.
Important: the Tourism Law’s tax incentive regime has been set up with application windows that have been extended by decree on several occasions. Before structuring your investment, confirm with us that the window to apply for qualification is open.
Frequently asked questions
Can a foreigner buy land for a hotel?
Yes, although for rural land the constitutional reciprocity rule must be checked. We explain it in this series’ article on land purchases by foreigners.
Does the income tax exemption cover all my profits?
No, only income generated by the qualified new investment. That is why the law requires separate records, and a proportional factor applies to remodeling projects.
What if I breach the conditions?
The law provides for fines and, for very serious violations such as using incentives for other purposes, revocation of the agreement and cancellation of the registration.
Develop your tourism project with confidence
Legal Boutique supports tourism investors with title due diligence and property acquisition, formation of the operating company, the qualification application and hotel trademark registration. 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.