Global Tax Alert (News from Americas Tax Center) | 31 October 2013
El Salvador's Tax Authorities publish list of 2014 tax havens
On 25 September 2013, El Salvador’s Tax Authorities issued resolution No. DG-001/2013, which is an annual guide (the Guide) on transactions with tax havens. The Guide sets out a revised list of countries, states or territories that are considered to be preferential tax regimes, low or nil-tax jurisdictions and tax havens for Salvadoran tax purposes (Tax Havens1). This revised list will be effective for tax year 2014 (i.e., from 1 January to 31 December 2014).
The consequence of being a tax haven included in the Guide’s list is that payments made from El Salvador to individuals or legal entities domiciled or located in such jurisdictions are subject to an increased withholding tax rate of 25%,2 which is considered as a final income tax payment in accordance with Section 158-A of the Salvadoran Tax Code.
List of tax havens
Tax havens that fall in the low-tax category include 39 jurisdictions such as Cyprus, Delaware, Florida, Hong Kong, Ireland, Lebanon, Singapore and Switzerland for certain types of companies. The following countries were added to the Guide: Andorra (used to be considered a nil-tax jurisdiction), Bosnia and Herzegovina, Bulgaria, Georgia, Ireland, Lithuania, Macedonia, Moldavia, Montenegro, Oman, Romania, Serbia, Slovenia, Taiwan and Uzbekistan.
Tax havens that fall in the nil-tax category include 38 jurisdictions such as Aruba, the Bahamas, Bermuda, the Cayman Islands, Cook Islands, Curacao, Jersey, Monaco, the US and British Virgin Islands, Nevada and Wyoming.
While Luxembourg was excluded from the list, companies operating in Luxembourg under the Private Asset Management Companies (a.k.a SPF) regime will be deemed as being in the nil-tax category. In the same vein, multinational companies with regional headquarters in Panama operating under the so-called Multinational Companies Headquarters (a.k.a. SEM) regime of Law No. 41 of 24 August 2007 will be deemed as being in the nil-tax category.
Additionally, the Guide states that the list of tax havens is not comprehensive and makes a reference to Section 62-A of the Salvadoran Tax Code, which sets forth the criteria3 of a tax haven.
The Guide adds that a jurisdiction not included in the list, but which nonetheless meets the statutory definition of a tax haven, will be treated as such. Conversely, a taxpayer has the right to submit any relevant documents evidencing that a jurisdiction listed in this Guide as a tax haven does not meet the statutory definition.
Jurisdictions classified as high-risk and non-cooperative by the Financial Action Task Force
The Guide also refers to the list of jurisdictions classified by the Financial Action Task Force (FATF) as high-risk and non-cooperative in fighting money laundering and terrorist financing but with the caveat that such jurisdictions are not to be considered as tax havens for Salvadoran tax purposes and that they have been included for illustrative purposes only.
1. Note: The Guide makes a distinction between preferential tax regimes, low or nil-tax jurisdictions, and tax havens but the tax implications are the same.
2. Exceptions apply: e.g., payments for the acquisition/transfer of certain tangible assets, international transportation services, insurance and related services, or loan interests.
3. According to Section 62-A of the Salvadoran Tax Code, Tax Havens are those jurisdictions in any of the following situations: (i) jurisdictions where there is no income tax or where the income tax rate over net income is less than 80% of the applicable Salvadoran income tax rate (i.e., currently 30%), and (ii) jurisdictions classified as such by the Organization for Economic Cooperation and Development (OECD) and the Financial Action Task Force (FATF).
For additional information with respect to this Alert, please contact the following:
Ernst & Young, S.A., San Salvador
- • Héctor Mancia
+503 22 48 7000
EYG no. CM3924