As of January 2020, electric vehicles imported into El Salvador and Honduras will be exempt from the import duty, which was 30% in El Salvador until now.
The measure, which will be applied in both countries, was approved at the session of the Council of Ministers of Economic Integration (COMIECO), held in El Salvador on December 5 and 6.
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.
A bill was presented to create fiscal and economic incentives for companies and individuals using electric vehicles.
The bill "Ley de Transporte Electrico", presented by the organization Mover El Salvador to the Legislative Assembly, seeks that each new electric vehicle or new hybrid electric vehicle be the object of benefits.
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.
Ventus S.A. de C.V., which will invest in the construction of the first wind farm in El Salvador, will enjoy tax exemptions in its investment plans and operation for 20 years.
The Guatemalan and Honduran capital company, Ventus, will invest $73 million over 10 years in the construction of a wind farm with a capacity of 54 MW, and the tax benefits that will be granted result from the signing of a Legal Stability contract for Investments.
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.
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.
An initiative put forward by the Executive Power proposes to create a registry of tourism companies and include more businesses in the tax incentive programs.
The bill presented by the Executive Branch also includes the creation of a new entity, which would be called the National Tourism Council (CNT), and would consist of public and private sectors.
Companies that hire people aged between 18 and 29 years will be able to deduct from income tax between 3 and 5 minimum wages, depending on the number of young people they hire.
With the amendment to the Incentive Law for the Creation of First Employment for Young People in the Private Sector, adopted by the Assembly, tax exemptions are established for businesses that hire young people aged between 18 and 29.
According to the ICEFI, "tax incentive policies seem to be a lost opportunity because of permanent tax expenses and the lack of tangible social benefits."
From a statement issued by the ICEFI:
Within the framework of the international meeting on Tax Justice and Transnational Fraud, held in Costa Rica, a study was presented on October 20 entitled 'The effectiveness of tax incentives for investment in Central America' in which an analysis was undertaken of the Central American experience in investment attraction through tax incentives.
From 2014 to 2015 the size of central governments remained constant at an average 18.5% of gross domestic product (GDP).
From the introduction of the report: "Macrofiscal Profiles: 6th Edition" by the Central American Institute for Fiscal Studies (Icefi):
2015 proved to be a period of low tax advance for the Central American region. On average, the size of central governments remained constant compared to 2014, at 18.5% of gross domestic product (GDP). However, not all nations maintained this trend in the same way. While the governments of Nicaragua, Costa Rica and El Salvador, some of the largest fiscally in the region, continued to increase their participation in the economy, reporting increases of 1.5, 0.7 and 0.7% of GDP, respectively, the Government of Guatemala - one of the smallest in the world became even smaller, being reduced by 1.2% of GDP. For its part, the Government of Honduras reported a small decrease of 0.2% of GDP, fully converged with its policy of fiscal austerity, while that of Panama had a transient contraction of 1.4%, reflecting a reorganization established by the new administration and that, according to the plans for 2016, will be reversed in full.
The 50 companies already operating at Tocumen's airport facilities will be able to access free trade zone incentives if the request made by the administration of the terminal is approved.
The documentation was submitted to the National Commission of Free Zones at the Ministry of Trade and Industry (MITI), and there will be a 30 day period to review and approve the application.
A proposal has been made to extend the list of natural resources and technologies that enjoy benefits, eliminating the limit of 10 MW in order to encourge larger projects and providing incentives for the expansion of existing plants.
The proposal put forward by the executive branch:
1. Expand the list of natural resources and technologies that can enjoy the benefits of the law, this in order to include new technological developments that are taking place in the industry of power generation.
Efforts are growing to minimize the impact of the possible signing of the Trans-Pacific Partnership Agreement, and a tariff reduction program with long deadlines for sensitive products has been proposed.
As negotiations proceed to sign the Trans-Pacific Partnership Agreement (TPP), the textile industry in El Salvador is stepping up its efforts to maintain the conditions of the CAFTA treaty and minimize the impact that the TPP will have on the sector in the long term. One of the main risks is that "... Vietnam could introduce products from China and then export them tariff-free to the United States, which would give them a huge competitive advantage. "
Tourism investments above $25000 and categorized as of national interest will be able to enjoy tax incentives for another five years.
"... They shall be entitled to the following incentives: exemption from taxes on real estate transfer, exemption from customs duties on the import of their goods, exemption from payment of income tax for a period of ten years and partial exclusion of municipal duties imposed for the period of 5 years from the start of operations relating to tourism activities for up to 50% of its value. "
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.
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.'"