El Salvador eliminates withholding tax on foreign stock market earnings to boost competitiveness and attract international investment, replacing a levy that previously stood at 20% before being reduced to 3% in 2015.
El Salvador has eliminated a 3% withholding tax on returns earned by foreign investors in its stock market, marking a significant policy shift to attract international capital and boost economic growth.
Legislative Decree No. 544, approved on 9 April 2026 and effective from 21 April 2026, removes the tax on income and yields from securities and transactions conducted through the Salvadoran Stock Exchange (Bolsa de Valores). The measure applies to both primary and secondary market investments by non-resident individuals and entities.
The tax elimination represents the latest step in El Salvador’s evolving approach to foreign investment. The original Tax Code from 2000 imposed a 20% withholding rate on non-domiciled investors. This was reduced to 3% in 2015 through Decree No. 179, and now stands at zero under the new legislation.
Salvadoran lawmakers determined that even the reduced 3% rate discouraged foreign capital inflows. The complete removal aims to prevent capital flight, expand financing alternatives for local businesses, and enhance the competitiveness of regional capital markets.
While the tax has been removed, foreign investors will not operate completely off the radar. Brokerage houses in El Salvador must submit formal reports to the tax administration identifying non-domiciled investors, using government-provided forms within the same timeframe required for filing withheld taxes under Article 62 of the Income Tax Law.
President Nayib Bukele sanctioned the decree on 10 April 2026, with publication in the Official Gazette following on 13 April 2026. The reform became law eight days after publication, positioning El Salvador to attract greater foreign participation in its securities markets.
