GUIDE TO COUNTRIES, STATES OR TERRITORIES WITH PREFERRED TAX REGIMES 2021 (Applicable to fiscal year 2022)
The importance of the detailed lists in the Guide to tax havens published in September of each year for taxpayers lies in evaluating the effects they may have on their business operations in terms of the following:
1) TRANSFER PRICES: Article 62-A of the Tax Code establishes that Entities domiciled in Countries, States or Territories that appear on the list in reference must be considered as related subjects and on the other hand in Article 199-D of the The same Code establishes that these entities should not be used as comparables in the transfer pricing analysis. Likewise, these amounts must be considered to verify whether or not the taxpayer is obliged to present the Report on operations with related subjects (F-982) (Art. 124-A of the Tax Code), which expires in the first three months. following the expiration of the fiscal year and that causes a fine of up to 0.5% of the assets for its non-presentation, presentation after the term, or presentation without the requirements demanded by the Tax Code (Art. 244, literal l) of the same Code
2) WITHHOLDING: Withholding of 25% of Income Tax is applicable to payments made to entities domiciled or incorporated in Countries, States or Territories with low or no taxation in accordance with the provisions of Article 158-A of the Tax Code ; The same percentage will be applied in the case of distribution of profits according to what is established in Article 72 of the Income Tax Law.
On September 28, 2021, guide 006.02/2021 was issued to help recognize tax havens, applicable to fiscal year 2022, with the following new features:
Apart from the reclassification of some States, Territories and/or countries, the following additions also stand out:
Countries, States or Territories with low taxation
Countries, States or Territories with zero taxation
- Trinidad and Tobago
It is important to take into account that according to the Guide “Any entity constituted, domiciled or located in a Country, State or o Territory not named above and that enjoys exemption from Income Tax or other taxes of an identical or analogous nature, or with a Tax calculated on income or net taxable income, less than 80% of the Income Tax that would be caused and would pay in El Salvador, or are protected by Law or Administrative Provision to a preferential tax regime of low or no taxation, such as: Holding Company, Principal Company, Auxiliary or Mixed Companies, Service Companies, Finance Branches or Financial Power , Family Wealth Management Company, Multinational Company Headquarters (SEM), International Trust, Trust, Limited Liability Companies (LLC – for its acronym in English), International Financial Leasing Companies (Leasing for its meaning in English), Foundations of Private Interest, International Business Corporations (IBC – for its acronym in English) among others.”
Comment: Each year the Company must evaluate its transactions with entities domiciled or incorporated in Countries, States or Territories with low or no taxation in order to comply with its tax obligations, especially in relation to transfer prices and applicable withholdings to avoid possible fines for non-compliance.
The complete guide can be consulted at the following Link: 700-DGII-GA-2021-PF