Taxes in El Salvador apply only to income earned inside the country, are computed and paid in U.S. dollars, and are administered by the General Directorate of Internal Taxes (DGII) under the Ministry of Finance. Individuals pay a progressive income tax that tops out at 30%, companies pay 30% (or 25% if taxable income stays at or below $150,000), consumption is taxed at a flat 13% IVA, and capital gains are taxed at 10% when the asset has been held for at least a year. The fiscal year matches the calendar year for everyone, and the annual return is due April 30.
Who Is a Tax Resident, and What Income Is Taxed
You become a tax resident by staying in El Salvador for more than 200 consecutive days in a calendar year, or by earning your principal source of income from Salvadoran activities. Residency does not change the base of taxation. Both residents and non-residents are taxed only on Salvadoran-source income, and a 2024 reform to the Income Tax Law explicitly excluded foreign-source wages, investment returns, and capital movements from taxable income.1EY Global. El Salvadors Legislative Assembly Approves Reform to Income Tax Law Exempting Foreign Source Income
The practical consequence: someone who lives in El Salvador but earns entirely from foreign clients, foreign investments, or a foreign pension has no Salvadoran income tax to pay. This is the biggest single reason people look at the country’s tax system in the first place.
Personal Income Tax Rates
Individuals are taxed on a four-bracket progressive scale. The first $6,600 of annual net income is exempt. Above that, marginal rates step up through 10%, 20%, and 30%, with a fixed dollar amount built into each bracket to keep the progression smooth.2PwC Worldwide Tax Summaries. El Salvador – Individual – Taxes on Personal Income
- Up to $6,600: no tax.
- $6,600.01 to $9,142.86: $212.12 plus 10% of the amount over $4,064.
- $9,142.87 to $22,857.14: $720 plus 20% of the amount over $9,142.86.
- Over $22,857.14: $3,462.86 plus 30% of the amount over $22,857.14.
Because the top rate is a marginal rate, someone earning $25,000 pays nothing on the first $6,600 and escalating amounts on the rest, so the effective rate sits well below 30%.
Deductions Available to Individuals
Salaried individuals earning more than $9,100 a year can deduct medical expenses up to $800 and educational expenses up to $800 per year, each capped separately.3PwC Worldwide Tax Summaries. El Salvador – Individual – Deductions Keep receipts for doctor visits, prescriptions, and tuition. Below the $9,100 threshold, the exemption already shelters most income, so the deductions matter less.
Corporate Income Tax
The corporate rate is 30% on net profits from Salvadoran sources. Companies with annual taxable income of $150,000 or less pay 25%.4PwC Worldwide Tax Summaries. El Salvador – Corporate – Taxes on Corporate Income
Companies also make monthly advance income tax payments equal to 1.75% of gross revenues, due within ten working days after each month closes. These are credited against the final annual tax bill, and any excess can be applied against future obligations.5PwC Worldwide Tax Summaries. El Salvador – Corporate – Tax Administration
One rule regularly catches foreign investors: net operating losses cannot be carried forward or back. A losing year gives no future tax benefit. Capital losses are treated more generously and can be carried forward five years against future capital gains.6PwC Worldwide Tax Summaries. El Salvador – Corporate – Deductions
Value Added Tax (IVA)
IVA (Impuesto al Valor Agregado) is charged at a flat 13% on sales of goods, imports of goods and services, and services performed in the country.7PwC Worldwide Tax Summaries. El Salvador – Corporate – Other Taxes Exports are zero-rated, so exporters do not charge IVA on foreign sales but can still recover the IVA they paid on their inputs.
Common exemptions that affect residents include residential leasing, public transportation, health services from public institutions, educational services from authorized providers, drinking water from public utilities, and interest on deposits or loans from local financial institutions.7PwC Worldwide Tax Summaries. El Salvador – Corporate – Other Taxes
Registered businesses collect IVA from customers, credit the IVA they paid on purchases, and remit the net monthly. IVA returns and payments are due within the first ten working days of the following month.8Grant Thornton. Indirect Tax – El Salvador Registration for the VAT number (NRC) is mandatory once annual turnover exceeds $5,714.29 or total assets exceed $2,285.71 in the preceding twelve months.9KPMG. Americas Indirect Tax Country Guide El Salvador
Capital Gains
Capital gains sit outside the ordinary income tax scale and are taxed at a flat 10% of net profit, calculated as sale price minus acquisition cost and related expenses.10PwC Worldwide Tax Summaries. El Salvador – Individual – Income Determination This covers real estate, securities, and other assets.
Sell within twelve months of acquisition, though, and the gain is reclassified as ordinary income and taxed at progressive rates up to 30%.10PwC Worldwide Tax Summaries. El Salvador – Individual – Income Determination Holding for at least a year is the simplest way to keep the 10% rate. Capital losses carry forward for up to five years.6PwC Worldwide Tax Summaries. El Salvador – Corporate – Deductions
Withholding on Payments to Non-Residents
When a Salvadoran payer sends money to a non-resident for services, royalties, or other Salvadoran-source income, the payer must withhold tax before remitting the balance. The general rate is 20%.11PwC Worldwide Tax Summaries. El Salvador – Corporate – Withholding Taxes Reduced rates apply in specific cases:
- Dividends: 5%, treated as the recipient’s final tax.
- Interest paid to a regulated foreign lender supervised in its home country and qualified by El Salvador’s Central Reserve Bank: 10%. Related-party interest stays at 20%.
- International transportation and insurance services: 5%.
- Royalties and use of intangible property: 5%.
- Securities income through the Salvadoran stock exchange: 3%.
Payments to entities in jurisdictions classified as tax havens are withheld at 25%.11PwC Worldwide Tax Summaries. El Salvador – Corporate – Withholding Taxes A double taxation treaty with Spain can reduce some of these rates.
Pension Contributions on Payroll
Payroll in El Salvador carries mandatory pension contributions to the AFP system. Employees pay 7.25% of monthly salary through withholding, and employers pay an additional 8.75% on top of the salary.12PwC Worldwide Tax Summaries. El Salvador – Individual – Other Taxes The combined 16% is filed and paid monthly, and missed payments trigger AFP penalties separate from any DGII sanctions.
Real Estate Transfer and Municipal Taxes
Transferring real estate between living parties triggers a one-time tax. The first ¢250,000 of value (about $28,571.43) is exempt, and anything above that is taxed at 3%.13Asamblea Legislativa de la República de El Salvador. El Salvador Ley del Impuesto sobre Transferencia de Bienes Raíces On a $100,000 property, the tax applies to $71,428.57, producing roughly $2,142.86.
El Salvador does not impose a recurring annual property tax on land and buildings. Municipalities instead tax business assets located in their jurisdiction, with rates that vary by municipality and by economic sector. For homeowners this means no yearly bill from the town, which surprises people arriving from countries with standard property tax regimes.
Filing Deadlines and How Payment Works
The annual income tax return, for both individuals and corporations, is due April 30 of the year after the tax period.14PwC Worldwide Tax Summaries. El Salvador – Individual – Tax Administration Filing is done through the Ministry of Finance’s online portal using your NIT. The system often pre-fills figures reported by withholding agents, so much of the work is confirming what is already there, and the portal produces an official voucher on submission.
Two monthly obligations run alongside the annual return. IVA returns and payments are due within the first ten working days of the month after the taxable period,8Grant Thornton. Indirect Tax – El Salvador and the corporate 1.75% advance income tax payment follows the same ten-working-day deadline.5PwC Worldwide Tax Summaries. El Salvador – Corporate – Tax Administration
All tax payments are made in U.S. dollars through authorized banks. The online portal generates a payment order that can be settled by electronic banking or at a branch. There is no option to pay in other currencies.
Penalties and Interest for Late or Missed Filings
Not filing a return at all costs 40% of the tax owed, with a minimum penalty of one minimum monthly wage (currently $365). Late returns that arrive before that point face graduated fines based on how late they are:
- Up to one month late: 5% of the tax due.
- One to two months late: 10%.
- Two to three months late: 15%.
- More than three months late: 20%.
These late-filing fines carry a floor of two minimum wages. A return showing no tax due still draws a penalty, though it drops to one minimum wage. Failing to file or pay the monthly advance payment brings a separate fine of 50% of the unpaid amount, with a minimum of $112.
Unpaid tax liabilities also accrue interest at roughly 8% per year. After 60 days without payment the rate rises to about 12% per year. The Ministry of Finance updates the exact rates periodically, so the figures shift slightly, but the structure of a base rate that becomes punitive after 60 days is constant. Late-payment cost adds up quickly, and because the monthly filings are frequent, one overlooked month can generate several stacked penalties before the next annual return is even due.