Modification to the Instructions for Qualifying Financial Institutions Not Domiciled in El Salvador

As of January 1, of this year, the new “Instructions for Qualifying Institutions Domiciled Abroad in the context of the Income Tax Law, Tax Law on the Transfer of Personal Property and the Provision of Services and Tributary Code” entered into force. These Instructions regulate tax benefits such as VAT exemption (currently 13%) and income tax reduction (from 20%-25% to 10%), payable on all interest resulting from loans granted in El Salvador by financial entities not domiciled in the country. Through qualification, such entities can enjoy these tax incentives. Main modifications introduced by the instructions:

• Qualification validity: The term of validity is 1 year.
• Qualification prices: The prices for the qualification service for all types of procedures, whether processed for the first time, renewal, or extension, remain the same as those of the circular issued in June 2021 and have now been annexed to the new Instruction.
• Digital platform: All documentation must be uploaded to the digital platform (PCIDE- Qualification Program for Institutions Domiciled Abroad) before being physically delivered to the executives of the Central Reserve Bank.
• Rating deadlines: The deadlines for the verification, evaluation, resolution, and notification of the rating have been modified to speed up the process.

The other aspects of the new Instructions, such as the scope of application, types of procedures, documentary requirements, remain the same as the previous regulation. Due to the modifications introduced, the institutions that wish to qualify as of January 1 or that already had an open qualification process before said date, must comply with the provisions of the new Instructions. On the other hand, institutions that at the date of entry into force of the new Instructions already had valid qualifications will maintain said validity for the term established in the certificate issued by the BCR until they must initiate new qualification procedures if they so desire.