El Salvador has introduced Decree No. 498, a new incentives program designed to support established businesses in expanding within strategic manufacturing sectors. Qualified investors may receive tax credits ranging from 10% to 30% and exemptions on real estate transfer tax, contingent on project approval and adherence to program requirements.
El Salvador’s Legislative Assembly enacted Decree No. 498 on 16 January 2026, which took effect on 24 January 2026, with the aim to stimulate the national economy by offering tax incentives to established companies that increase their local productive capacity.
To qualify, businesses must have operated in the country for at least 10 years and focus on strategic sectors such as agro-industry, textiles, or electronics. Eligible entities can receive a tax credit against their income tax, ranging from 10% to 30%, depending on the total capital invested.
Eligibility criteria
The incentives target natural and legal persons, whether resident or non-resident, who have been operating in the country for at least 10 years. The expansion must occur within specific strategic manufacturing sectors, including:
- Textiles and clothing, agro-industry, food and beverages.
- Autoparts, electronics, plastics, and footwear.
- Chemicals, pharmaceuticals, construction products, and paper manufacturing.
Entities already benefiting from other tax incentives, or whose partners/shareholders were previously linked to revoked tax benefits, are excluded from the programme.
Qualifying expansion investments
Eligible projects include:
- Establishing new industrial production lines
- Constructing or acquiring infrastructure for new production or transformation centres
- Developing logistics, storage, or distribution facilities directly linked to the production process.
- Acquiring machinery, technology, or transport fleets.
- Establishing research, development, and innovation (R&D+i) centres.
Tax credit incentives
This credit is based on the total investment amount and can be used over a ten-year period. The credit percentages are tiered by investment size:
- Range I (USD 1 million to USD 10 million): 10% tax credit.
- Range II (USD 10 million to USD 20 million): 20% tax credit.
- Range III (Over USD 20 million): 30% tax credit.
Real estate transfer tax exemption
Beneficiaries receive a full tax exemption on the acquisition of real estate used for expansion, provided they retain ownership and use the property for the project for at least five years.
Regulatory oversight and obligations
Applicants must secure a qualification agreement from the Ministry of Economy, effective in the fiscal year of issuance. The annual credit is capped at the portion of Industrial special risk (ISR) insurance that exceeds the highest ISR paid in the past ten years, adjusted for inflation. Unused credits may be carried forward up to ten years, with the option to request an extension.
Implementation of the incentives involves the Ministry of Economy (qualifications), the Ministry of Finance (tax compliance), and INVEST (investment promotion). Beneficiaries must:
- Begin operations within 18 months of qualification
- Submit semiannual independent audit reports to confirm compliance
- Maintain separate accounting records for expansion-related assets, costs, and income
The law explicitly prohibits “triangulation” or any strategies designed to transfer tax benefits to third parties or related entities. Any such actions are classified as tax evasion, leading to the immediate revocation of benefits and potential criminal charges for defrauding the public treasury.
