El Salvador: Less Taxes on Financial Activity

A proposal has been made to eliminate the tax on financial operations and lower from 20% to 5% income tax paid by foreign investors in the stock market.

Thursday, June 4, 2015

The reform which was carried out in September 2014 on the taxes charged on transactions in the financial market has affected market activity, say industry representatives. Carlos Araujo, president of Banco Azul, said that "the tax has had a direct impact on the decline in bank deposits; However, the main reason could be the country's economic situation.'"

In order to reverse this situation, it has been announced that the rules will be reformed. Ricardo Perdomo, superintendent of the Financial System, explained that "... the proposal submitted to the Presidential Palace and is to reduce from 20% to 5% the amount of income tax paid by foreign investors participating in the BVES. The tax takes away the appeal of the national market and makes it less competitive compared to other Central American countries, such as Panama, where they do not charge the tax. "

"... The banking sector is also suffering from a tax on financial transactions, in force since September 2014. The Salvadoran Banking Association (ABANSA) said that this tax has increased the cost of operations and has promoted greater use of cash. "

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Taxes and the Stock Market

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The proposal to increase the tax on interest on financial investments in Costa Rica could eventually make credit more expensive for both the private sector and the government.

In the view of the National Securities Exchange (BNV) it is worrisome that initiatives such as an increase in tax on income from financial investments are being discussed without knowing in detail and clearly the impact that something like this could have on the stock market and the country's financial activities.

El Salvador: Less Taxes, More Stock Exchange Transactions

January 2016

Lowering the tax on transactions for non-domiciled investors from 20% to 3% had a positive effect on the performance of the stock market in 2015, which grew by 6% compared to 2014.

The forecast made by Rolando Duarte, president of the Stock Exchange of El Salvador (BVES), is that this type of investment will continue to grow, thanks to the incentive which was first implemented in 2015.

El Salvador: Tax on Stock Market Gains Lowered

November 2015

A reduction from 20% to 3% has been made on withholding tax on income from investments in securities traded on the local stock market.

From a statement issued by the Financial Supervisory Authority:

Recently, the Legislature approved a decree amending art. 158 of the Tax Code in order to decrease from 20% to 3% withholding tax to foreign persons or entities charged on income from investments in securities traded on the Stock Exchange in the Republic of El Salvador.

Double Tax on Financial Transactions

September 2014

Market actors in El Salvador claim that transactions are being subjected to double retention, both by brokerage firms and the bank related to it.

Because of the speed with which the financial sector has been forced to comply with the withholding tax on financial transactions, effective from September 1st this year, the same market participants are claiming that investors are suffering because they are being billed the tax twice on each transaction.