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The Legislative Assembly of El Salvador approved, with 56 votes, the elimination of the 3% withholding tax applied to income and returns on capital invested in securities, a measure aimed at incentivizing foreign investment in the country’s financial market.
The reform modifies the fourth paragraph of Article 158 of the Tax Code and was approved during the 104th plenary session. With this change, capital returns obtained by individuals not domiciled in El Salvador, through investments in the securities market, will no longer be subject to withholding tax or the payment of Income Tax.
Until now, the regulations stipulated that sums paid or credited to foreign investors for this type of return were subject to a 3% withholding tax, which, according to legislators, reduced competitiveness compared to other markets in the region.
By eliminating this fee, authorities aim to revitalize the salvadoran stock market and make it more attractive to international investors, facilitating capital inflows and strengthening the country’s financial development.
Legislators indicated that this measure also seeks to prevent investment flight to other markets with more favorable conditions, since maintaining higher tax burdens could result in lower revenue and a negative impact on economic growth.
The Tax Code, which regulates the relationship between the State and taxpayers, establishes the rules for tax collection, as well as the rights and obligations of the parties. This reform adjusts the legal framework to respond to current market dynamics and promote a more competitive environment in the stock market.
The amendment is part of a broader strategy to strengthen the salvadoran financial system and position it as an attractive option within the region for investment in capital instruments.
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