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Benefits and fiscal incentives of the international services law

The International Service Law (ISL) regulates the establishment and operation of service parks and service centres, as well as the responsibilities of owners of companies that provide those services. It was enacted in El Salvador as a solution to many services provider companies that were operating under the Industrial and Commercial Free Trade Zone Law (FTZL), which was not originally created for that purpose. The ISL has similar benefits and fiscal incentives as the FTZL, but is tailored for these kinds of companies.

Regarding the contents of the ISL, there are some conceptual differences between park service and service centres. Both terms are regarded by law as a physical demarcation, for customs or tax purposes, which are considered outside the national territory, both for the importing goods or rendering of services. Establishments which operate must be declared free zones by the Ministry of Economy.

The differences between park service and service centres are the following: The first requires that the area is physically bounded, "surrounded and isolated efficiently, without resident population", and has the capacity to establish and operate several companies involved in the rendering of services covered by ISL. The second refers to a company with a previous office area that should be declared as a service centre by the Ministry of Economy to enjoy the benefits and incentives of the law. The designation of a financial qualification and physical space as service centre can benefit many businesses that currently provide services to regional or international level, which have already invested in capital, technology, training of human resources, as well as adjust physical infrastructure, but they can not move to a park service.

The ISL provides that natural or legal persons, nationals or foreigners who meet the requirements can enjoy the benefits of taxation and customs when they lend international services such as international distribution or logistics companies, international call centers, business process outsourcing, aircrafts maintenance and repair services, medical and hospital services, international financial services, among others. These services are understood to be those provided to third parties, residing overseas, without prejudice that part of the services be destined to the national market. The owner of a company which has been declared a service centre or resides in a service park is entitled to enjoy the following benefits and tax incentives: Total exemption of the customs tariffs and the rest of taxes that are imposed on the importing of machinery, equipment, tools, replacement parts, accessories, furniture and office equipment, and the rest of the goods that are necessary for carrying out the activity subject of the incentive. It will also be exempt from the income tax, exclusively for income coming from the activity with the incentive, during the period in which they carry out their operations in the country, counting from the start of operations. This exemption, in the case of corporations, will apply to the corporation itself, as well as to the individual partners, with regards to the profits or dividends coming from the favoured activity. Finally it will be exempt from the payment of municipal taxes over the assets of the company, during the period when they carry out their operations in the country, counting from the start of operations.

Although the law and its regulation have been in force since November of 2007, most of the companies that have been benefited with it have just recently obtained its authorisation (during the year 2009 and 2010). Considering that El Salvador has committed itself with the WTO to eliminate all type of incentives and benefits granted by regulations such as the FTZL and the ISL by December 31 2015, it is worrying that the country does not have an aggressive policy to attract investments under this law. The more time that passes, the less chance there is that a company is installed in the country in order to obtain these benefits, when the return of their investment is not guaranteed over time.

Diego Martín-Menjívar

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