Through a new law, El Salvador intends to become a hub of innovation.
The Legislative Assembly of El Salvador approved earlier this month the Law for the Promotion of Innovation and Technology Manufacturing and through it will be exempted from Income Tax, municipal taxes and tariffs on all new technological investments for the creation software, analysis of computer systems, Artificial Intelligence, massive data analysis, computer services and drone parts factory, among others.
In this sense, from Torres legal, El Salvador, the business services firm, shared their opinion on the matter and explained a little about this new law that brings with it this series of tax benefits that apparently will be applied for a period of 15 years only to new companies. investments, excluding those carried out before the entry into force of the law, as well as those related to operations already established or that have been derived from mergers or restructuring.
Hector Torres, managing partner of the firm, explained that this new regulation aims to position El Salvador as a Hub for innovation in the region, through the creation of tax incentives for new projects or technological ventures.
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Likewise, the executive reported that companies that benefit from the law must keep separate accounting records to demonstrate the amount of income that is subject to said incentives in order to allow greater transparency in the control of tax benefits granted, and a adequate supervision by the relevant authorities.
Who will be the beneficiaries?
According to Torres, The tax exemption will also benefit manufacturing plants for technological equipment or hardware, semiconductors, communications technology, robotics, nanotechnology, aircraft and unmanned vehicles.
“However, people or companies benefiting from other special tax regimes, such as industrial and commercial free zones, and parks or international service centers, may not apply to this incentive”he added and clarified that engineering to compose industrial technologies in global production chains may also be exempt, as long as it is authorized by the MINEC.
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Modifications to the new law
According to Torres, The new law establishes that tax incentives may be modified if the expected objectives are not achieved. For this, the lawyer commented, the Ministry of Economy (MINEC) will evaluate its effectiveness within a period of 3 years, publishing a guide with indicators of expected compliance in the first 6 months.
After the first 3 years, MINEC will prepare and publish a “performance evaluation” of the expected objectives according to the guide: “If this evaluation is unfavorable, the MINEC can propose reforms”he pointed.
Regarding tax incentives, it also established that these may be “modified, reduced or superseded” based on the evaluation carried out by the MINEC. However, the Qualification Agreements and other rights acquired by law will not be modified in any case.
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Finally, Torres added that in order to keep track of the companies, a National Registry of Companies of Technological Innovation and Manufacturing Industries will be created to maintain adequate control of the benefited companies.
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