El Salvador: Veto of Free Zone Law Reform

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.

Tuesday, September 24, 2019

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.

You may be interested in "Proposals for Special Economic Zones Law

The official document released at the end of last month explains that "... That exemption applies to income taxes, municipal taxes, and real estate transfer taxes.

This provision is open to users who can prove that during the last five years of the total exemption, they have increased their investment by 100% with respect to their initial investment; the increase in investment must be made in the purchase of land, in the construction of buildings and in the acquisition of machinery and equipment, linked to the authorized activity. Likewise, they will be entitled to this benefit if they prove that there has been a 100% increase in the hiring of personnel with respect to the initial number of personnel hired.
"

After overcoming the debates in the Assembly, the President of the Executive decided not to approve it. Elsalvador.com reports that "... In the present case, the undersigned (Bukele) considers that Legislative Decree No. 404 is disadvantageous, as it is intended to incorporate assumptions that will impact public revenue projections and affect the principle of generality that governs taxation, not being able to be warned of the concrete positive consequence at the economic level for the country to support the reform proposal,' states the president in the veto sent to the Legislative Assembly."

The article adds that "... Therefore, in attention to the scheme of fiscal responsibility, there is no benefit or concrete incentive that allows to balance the progressive strengthening of public revenues, taking into account a scheme where the economy is encouraged and therefore, justifies a sacrificial collection of a tax,” it says in the document."

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Benefits Extended to Free Zone Companies

February 2020

In Honduras, a law reform was approved that simplifies the procedures that local and foreign companies must follow to take advantage of the Free Zone Law and extends for 15 more years the benefits that it grants to the companies of the regime.

From the National Congress of Honduras' statement:

Proposals for Special Economic Zones Law

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In El Salvador, it is proposed that the law discussed in the Assembly, considers the reduction of minimum requirements for investments made in special economic zones, to compensate for the disadvantages of lack of productive activity in the area.

In July 2018, the Executive Branch presented to the Legislative Assembly the draft Law on Special Economic Zones (LZEE), which is being analyzed by the Economy Commission.

Nicaragua: New Law on Free Zones

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The new legislation extends the tax benefits enjoyed at current export processing zones, to free trade zones in other sectors such as logistics, outsourcing and agricultural exports.

From a statement issued by the National Assembly:

The legislative approved on October 8 the draft Reform Law Decree Nº46-91 "Export Processing Zones".

El Salvador: Free Zones Law Generates Controversy

October 2011

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

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.

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