Global Tax Alert (News from Americas Tax Center) | 22 November 2013

El Salvador's Supreme Court declares the Alternative Minimum Income Tax unconstitutional

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On 15 November 2013, the Supreme Court of Justice of El Salvador (SCJ) ruled1 the alternative minimum income tax (AMT) statutory scheme2 unconstitutional.


The AMT is a minimum income tax computed by applying a rate of 1%3 to a taxpayer's gross income. Income tax is computed by applying the standard corporate income tax rate of 30%4 to net income and by applying the AMT to gross income. The income tax payable is the higher amount resulting from the computations.

The SCJ determined that the AMT statutory scheme violated the constitutional principles of tax fairness and ability-to-pay by not allowing taxpayers to take any deductions on costs and expenses necessary to generate taxable income or to protect the source thereof.


The SCJ's ruling is final and cannot be appealed. It results in a repeal of Sections 76, 77, 78, 79, 80 and 81 of the income tax law. It is binding on all branches of the government, government officials, public authorities, and on any individual or legal entity. It applies as from the income tax return filed for tax year 2013.


1. Ruling No. 18-2012 of the Constitutional Chamber.

2. Set out in Sections 76, 77, 78, 79, 80 and 81 of the income tax law and effective as of tax year 2012.

3. A reduced rate of 0.6% applies to importers, refineries and wholesalers of gasoline in connection with their gross income derived from sales of gasoline.

4. Rate applies to companies with sales in excess of US$150,000. Companies that have sales equal to or less than this US$150,000 threshold are subject to a reduced income tax rate of 25%.

For additional information with respect to this Alert, please contact the following:

Ernst & Young, S.A., San Salvador
  • Héctor Mancia
    +503 2248 7000
Ernst & Young, S.A., San José, Costa Rica
  • Alexandre Barbellion
    +506 2208 9800
  • Rafael Sayagues
    +506 2208 9880
Ernst & Young LLP, Latin American Business Center, Houston
  • Priscila Maya
    +1 713 750 8698

EYG no. CM3982