Special Economic Zone for El Salvador

A proposal has been made to create a special economic zone in 26 municipalities in the southeast of the country, which would provide tax incentives for activities related to clean energy and the prospecting of natural gas and oil.

Thursday, July 5, 2018

The Executive presented to the Legislative Assembly a preliminary draft of the Law on the Special Economic Zone of the Southeast Region of El Salvador, which has the objective of developing 26 municipalities of Usulután, San Miguel and La Unión.

Regarding the tax benefits that companies that set up in the Special Economic Zone (ZEE) would obtain, explains Elmundo.sv that " ... In El Salvador, the first EEZ would be installed between the eastern coastal strip and the Litoral highway, providing total exemption from Income Tax (ISR) during the first 25 years of operation of the companies set up there. Once that period expires, they would pay 70% for five years and then 50% for the duration of their investment in the area."

For the investments to be made in the EEZ, the business sector believes that the project must contemplate a series of additional efforts by the Government.  

In addition, the director of economic affairs at the National Association of Private Enterprise, Waldo Jiménez, explained that " ... 'conceptually the project is insufficient to achieve what it intends, which is to attract investment and generate employment. The logic of the EEZ is that there is a flexible legal framework that facilitates investment and completion of procedures (...).  Currently, the procedures are done with the same public institutions, which are bureaucratic, and instead of attracting investment put obstacles in the way."

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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.

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.

Tax Benefits for Companies in Special Zones

February 2019

The regulation for Special Public Economic Development Zones, which came into effect in Guatemala on February 4, establishes fiscal incentives for companies operating under this scheme.

Among the tax benefits provided by the Law on Special Public Economic Development Zones (ZDEEP), include the exemption for 10 years of 100% of income tax, as well as the temporary suspension of taxes associated with imports.

Real Usefulness of Tax Incentives

May 2015

The problem with income tax exemptions is that they favor high-return projects that would probably have been made anyway.

From an IDB document entitled "The effectiveness of tax incentives: The case of export processing zones in Costa Rica, El Salvador and the Dominican Republic".