El Salvador: Free Zones Law Generates Controversy

If a reform of the law is approved, tax exemptions enjoyed by members of the scheme would be limited.

Wednesday, October 12, 2011

Although the purpose of the law reform is to modernize the free zones scheme and meet the requirements established by the World Trade Organization, companies currently operating under the scheme would be affected.

One of the proposed changes is the elimination of unlimited tax exemptions based on export performance, which up until now has applied to all companies in free zones.

To avoid negative effects on company’s performance, if the reform is approved, the aforementioned elimination of exemptions, among other changes, will be applied five years after the expiration of the current model, in 2020.

An article in Elsalvador.com states: "although a date for presenting the draft to the Legislative Assembly has not yet been set, Roberto Bonilla, president of the Chamber of the Textile Clothing and Free Zones (CAMTEX), urged members to approve the bill as soon as they have in their hands, in order to provide legal certainty to investors based in the country and potential investors.

CAMTEX has estimated that once approved, during the first five years 50,000 more jobs could be generated in the sector, bringing the total number of workers in free trade zones to 290,000."

More on this topic

El Salvador: Veto of Free Zone Law Reform

September 2019

Nayib Bukele returned to the Legislative Assembly the reform to the law of Free Zones that granted tax benefits for an additional period of 10 years to companies in the country to increase their investment in 100% with respect to the initially made.

On August 29, 2019, the Assembly informed that the Legislative Plenum endorsed the reform to the Law of Industrial and Commercial Free Zones, establishing that the users of these zones would have a term of 10 additional years (before there were five) to continue enjoying total exemption from taxes, which would be applicable once the period established for the regular enjoyment of this benefit expired.

Changes in Free Trade Zone

October 2012

In El Salvador some companies will be left out of the new system introduced by the proposed reforms to the law on Free Zones.

If the draft amendment to the FTZ Act is approved, about ten companies, both national and foreign, would fall outside the new regime, said the director of the Agency for the Promotion of Exports and Investments in El Salvador (Proesa), Giovanni Berti.

Textile Industry Hopes for Free Trade Area Reforms

November 2011

New investments in the sector are pending the approval of El Salvador's new tax-free zone law.

According to the Salvadoran chamber of textile manufacturers (CAMTEX in Spanish), the reforms being considered by the government comply with all the demands made by the World Trade Organization (WTO).

El Salvador: New Law on Free Zones Delayed

August 2011

There is a growing demand for textiles and clothes manufacturing, but a new Law on Free Zones is needed in order to bring fresh investments to this sector.

The World Trade Organization (WTO) has determined, after two extensions, the country should, in 2015, replace the law that has been in force since 1998, which grants tax benefits such as a total and permanent exemption from taxes, among others.