Government presents a law to encourage the technology industry in El Salvador
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Contact the Central American Group to invest in the technology industry in El Salvador.
The Minister of Economy, María Luisa Hayem, presented this past Thursday, March 30, 2023, a draft “Law for the promotion of technological innovation and manufacturing” to the Salvadoran Legislative Assembly. The purpose of the law is to encourage the development of the technology industry in El Salvador.
The draft proposal stipulates that incentives will be provided for 15 years to companies that are dedicated to software services such as programming, development of models and systems with artificial intelligence, and services related to the cloud and data storage, among others.
The technology industry in El Salvador encompasses a number of productive activities
She explained that the Salvadoran government would incentivize companies engaged in technological manufacturing, that is, productive activities that center on communications technologies such as semiconductors and related parts such as nanotechnology, robotics, unmanned vehicles such as drones, and motor vehicles, among others.
The benefit that the government will grant to encourage the technology industry in El Salvador will be a total exemption from Income Tax for 15 years, from municipal taxes, exemption from payment of capital gains, and a total exemption from tariffs on imported inputs for the development of the incentivized activity.
The minister explained that the country’s activities would promote companies in the software, hardware, technological manufacturing, systems, and programming service sector, among others.
“What we are looking for is to generate more sources of jobs that are well paid. We see that technology is the future, and we are taking a very important step to be part of that future,” she said.
The legislation was introduced by deputy Christian Guevara, head of the Nuevas Ideas Party, and was studied by the corresponding Commission; The change in the agenda was approved with 65 votes from the Nuevas Ideas Party and its allies.
Eliminate taxes for the technology industry in El Salvador
According to the announcement made by the President of the Republic, Nayib Bukele, on March 23, the bill would seek to eliminate all taxes on technological innovations and the manufacture of computer and communications equipment. “Next week, I will send a bill to the Assembly to eliminate all taxes (on income, property, capital gains, and import duties) on technological innovations,” Bukele said on Twitter.
He explained that the technological innovations to be encouraged would include software programming, coding, applications, the development of Artificial Intelligence, and the manufacture of computing and communications hardware.
In 2021, a situation report from the Salvadoran Social Security Institute (ISSS) reported that the technology industry in El Salvador generated 18,091 direct jobs. In 2019, the country reached $74.3 million in exports of computer services, software production, and the development of applications for mobile devices.
El Salvador currently has a government led by President Nayib Bukele, who has been described as having a pro-business stance. In addition to promoting the technology industry in El Salvador, Bukele and his administration have implemented various policies and initiatives to attract foreign direct investment and promote economic growth in the country.
Some of the pro-business measures taken by the Bukele government include streamlining bureaucracy, reducing red tape, offering tax incentives to businesses, and investing in infrastructure development. The government has also taken steps to improve the country’s security situation, which has been a major concern for investors in the past.
Free Trade Agreements make El Salvador a location for foreign direct investment in the tech sector
In addition to benefitting from pro-business measures, foreign direct investment in the technology industry in El Salvador can take advantage of the several free trade agreements that the country has entered into. Among them are the following:
Central America-United States Free Trade Agreement (CAFTA-DR): This agreement was signed in 2004 and includes El Salvador, along with several other Central American countries and the United States. The agreement aims to eliminate trade barriers and promote trade and investment between the parties.
Mexico-El Salvador Free Trade Agreement: This agreement was signed in 2011 and aims to facilitate trade and investment between Mexico and El Salvador. It includes provisions related to the elimination of tariffs, the protection of intellectual property rights, and the promotion of trade in goods and services.
Association of Caribbean States (ACS): El Salvador is a member of the ACS, which is a regional organization that aims to promote economic integration and cooperation among Caribbean countries and the wider region.
Pacific Alliance: El Salvador is an observer country in the Pacific Alliance, which is a regional trade bloc made up of Chile, Colombia, Mexico, and Peru. The alliance aims to promote trade and investment between its members and with other countries in the region.
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