Global Tax Alert (News from Americas Tax Center) | 9 October 2017
El Salvador Tax Authorities publish revised list of tax havens for 2017
On 28 September 2017, El Salvador’s Tax Authorities issued their annual guide (Resolution No. DG-001/2017 or the Guide) on transactions with tax havens, which sets out a revised list of countries, states or territories that are considered to be preferential tax regimes, low or nil-tax jurisdictions, or tax havens for Salvadoran tax purposes (Tax Havens1).
This revised list will be effective for tax year 2018 (i.e., from 1 January to 31 December 2018).
Payments made from El Salvador to individuals or legal entities domiciled or located in Tax Havens are subject to an increased withholding tax rate of 25%.2
List of Tax Havens
Tax Havens in the low-tax category include 44 jurisdictions, such as Estonia, Hungary, Iceland, Kazakhstan, Poland, Saudi Arabia, Switzerland and Turkey.
Tax Havens in the nil-tax category include 41 jurisdictions, such as Aruba, the Bahamas, Bermuda, the British and US Virgin Islands, the Cayman Islands, Cook Islands, Curacao, Jersey, Monaco, and certain US states including Delaware, Florida, Nevada, South Dakota and Wyoming.
The Guide also establishes that any entity of a country, state or territory not expressly mentioned in the list will be considered a Tax Haven if exemptions of income tax or similar taxes have been granted or the income tax rate over net income is less than 80% of the applicable Salvadoran income tax rate. Such entities include holding companies; parent companies; auxiliary or mixed companies; service companies; financial subsidiary or financial power; private asset management companies; multinational companies’ headquarters; international trusts; entities with whom international financial lease agreements are held and international business companies.
Additionally, the Guide states that the list of Tax Havens is not comprehensive and refers to Section 62-A of the Salvadoran Tax Code, which sets forth the criteria3 of a Tax Haven.
The Guide establishes that a jurisdiction meeting the statutory definition of a Tax Haven, but not included in the list, will be treated as a Tax Haven. 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.
Countries that have signed tax agreements or tax treaties with El Salvador
The Guide also lists Spain as the unique jurisdiction with which El Salvador has signed a Double Taxation Treaty. Costa Rica, Guatemala, Honduras and Nicaragua are also included as countries that have signed the Convention on Mutual Assistance and Technical Cooperation between the tax and customs administrations in Central America.
1. The Guide distinguishes among preferential tax regimes, low or nil-tax jurisdictions, and tax havens, but the tax implications are the same.
2. Exceptions apply for the acquisition or transfer of certain tangible assets, international transportation services, insurance and related services, or interest payments.
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 Organisation for Economic Co-operation and Development and the Financial Action Task Force.
For additional information with respect to this Alert, please contact the following:
Ernst & Young, S.A., San Salvador
- Hector Mancia
+503 2248 7006
- Carlos E Gaitan Cortez
+503 2248 7015
Ernst & Young, S.A., San José
- Rafael Sayagues
+506 2208 9880
Ernst & Young Limited Corp., Panama City
- Isabel Chiri
+507 208 0112
Ernst & Young LLP, Latin American Business Center, New York
- Pablo Wejcman
+1 212 773 5129
- Ana Mingramm
+1 212 773 9190
- Enrique Perez Grovas
+1 212 773 1594
Ernst & Young LLP (United Kingdom), Latin American Business Center, London
- Jose Padilla
+44 20 7760 9253
EYG no. 05748-171Gbl