Free Zone Incentives in El Salvador
Income tax for free zone users
| Location | Full exemption | Then 60% exemption | Then 40% exemption |
|---|---|---|---|
| San Salvador metropolitan area | 15 years | Next 10 years | Next 10 years |
| Outside the metropolitan area | 20 years | Next 15 years | Next 10 years |
Source: Dirección General de Aduanas: Free Zones Law, consolidated text with Decree 493 of 23 December 20251
The periods run from the publication in the Diario Oficial of the MINEC agreement that authorises the user. During the first 12 fiscal years the exemption also covers dividends paid to the shareholders from the favoured activity; from the 13th fiscal year distributed profits are taxed. When a shareholder is a company, the benefit stays with that company and does not pass on to its own shareholders.1
Municipal taxes for free zone users
| Location | Full exemption | Then 90% exemption | After that |
|---|---|---|---|
| San Salvador metropolitan area | 15 years | Next 10 years | 75% exemption |
| Outside the metropolitan area | 20 years | Next 15 years | 75% exemption |
Source: Dirección General de Aduanas: Free Zones Law, consolidated text with Decree 493 of 23 December 20251
Municipal councils may grant further benefits. The metropolitan area is the one defined in the law on the development of the San Salvador metropolitan area and its neighbouring municipalities, so the location of the plant decides which column applies. Deloitte notes that since the December 2025 reform this area covers 23 districts instead of 14.1,4
The US State Department summary gives a shorter version (60% income tax and 90% municipal tax exemption for 10 years after the full period). The table follows the consolidated law text published by customs.1,2
Other exemptions
- Duty-free entry of machinery, equipment, tools, spare parts, raw materials, components, packaging and samples needed for the authorised activity, for as long as the company operates.
- Fuels and lubricants, catalysts and other materials used in production enter free of duties and taxes.
- Property transfer tax: full exemption on property bought for the authorised activity.
- 0% VAT on goods and services bought locally for the activity, including building materials.
Source: Dirección General de Aduanas: Free Zones Law, consolidated text with Decree 493 of 23 December 20251
DPAs and developers
| Beneficiary | Metropolitan area | Outside the metropolitan area |
|---|---|---|
| DPA, income tax | 10 years full, then 60% for 5 years and 40% for 10 years | 15 years full, then 60% for 10 years and 40% for 10 years |
| DPA, municipal taxes | 10 years full, then 90% for 5 years, then 75% | 15 years full, then 90% for 10 years, then 75% |
| Developer, income and municipal taxes | 10 years full from the start of operations | 15 years full from the start of operations |
Source: Dirección General de Aduanas: Free Zones Law, consolidated text with Decree 493 of 23 December 20251
Developers also get the property transfer tax exemption, and an additional 10 years when they expand the zone by at least the area they already have. The DPA rules are on the inward processing warehouses (DPA) page.1
Additional periods
- Reinvestment: after the full exemption ends, a user or DPA gets 10 more years if it has increased its investment by 100% over the initial investment, adjusted for inflation. Since the December 2025 reform the period can be requested more than once.
- Employment route: companies that qualified through jobs must invest at least as much as at the start, never less than USD 500,000 for a user or USD 800,000 for a DPA, and double their average employment of the last three years.
- Listed sectors: makers of microprocessors, integrated circuits, vehicle, aircraft and ship parts, computer parts, medical devices and power generation equipment get 5 more years of full exemption.
- Strategic activities: vehicles, aircraft, ships or goods made with nanotechnology, with a new investment of at least USD 10 million and declared strategic by MINEC, get 10 more years.
Source: Dirección General de Aduanas: Free Zones Law, consolidated text with Decree 493 of 23 December 2025; BLP: Key reforms to the Free Trade Zones Law and new reinvestment incentives in El Salvador; Deloitte: reforms to the Free Zones Law of El Salvador, January 20261,3,4
Frequently Asked Questions
How long are free zone companies exempt from income tax?
A free zone user pays no income tax and no municipal taxes for 15 years in the San Salvador metropolitan area, or 20 years outside it, followed by partial exemptions.
Do free zone companies pay VAT on imports?
No. Machinery and inputs enter free of duties and VAT, and local suppliers sell to the company at a 0% VAT rate for the authorised activity.
Can the exemption be extended?
The December 2025 reform added a repeatable 10-year extension for companies that increase their investment by 100%.
Sources
- Dirección General de Aduanas: Free Zones Law, consolidated text with Decree 493 of 23 December 2025 (in Spanish)
- U.S. Department of State: 2026 Investment Climate Statements, El Salvador
- BLP: Key reforms to the Free Trade Zones Law and new reinvestment incentives in El Salvador
- Deloitte: reforms to the Free Zones Law of El Salvador, January 2026 (in Spanish)
Figures checked 8 November 2026. Prepared by InvestSalvador.com for general information. It is not investment, tax or legal advice; please confirm details with a qualified adviser before acting.
