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2026 Reform to El Salvador's International Services Law: what your company needs to know
On January 14, 2026, the Legislative Assembly of El Salvador approved with 57 votes Legislative Decree No. 497, which introduces key reforms to the International Services Law (ISL). The decree was published in the Official Gazette on January 16, 2026 and entered into force eight days later, on January 24, 2026. If your company provides services from El Salvador to foreign markets, or if you are evaluating establishing operations in the country under this regime, these changes directly affect you.
What is the International Services Law and why does it matter?
The International Services Law was created to promote the export of services from El Salvador, granting significant tax incentives to companies established in authorized Service Parks or Service Centers. Among the most notable benefits of the regime are:
- Full exemption from Income Tax (ISR)
- Exemption from municipal taxes
- Exemption from VAT on the export of services
- Free importation of goods necessary for operations
These incentives have made El Salvador a competitive destination for business process companies (BPO), information technology, medical-hospital services, cinematography and other global service sectors. The 2026 reform does not eliminate these benefits; it makes them more accessible and flexible.
What changed with Legislative Decree No. 497?
Decree 497 introduces four main amendments to the International Services Law:
- Possibility of applying for multiple benefited activities (amendment to Art. 5)
Prior to this reform, companies could only qualify for one incentivized activity at a time. Now, both new applicants and already authorized beneficiaries may apply for one or more activities within the regime. If multiple activities are requested, the company must meet the most demanding investment and job creation requirement among the requested activities, in addition to the specific requirements of each one. This eliminates the need to create additional legal structures to diversify operations.
- Flexibility of the investment period for Direct Users in Service Parks (amendment to Art. 23)
The amendment to article 23 establishes that the minimum required investment must be made "from" the first six months of operations, rather than "in" the first six months. Although it appears to be a minor editorial change, in practice it grants greater legal certainty to companies in the start-up phase, allowing for a progressive execution of the investment. The minimum investment amounts required are:
- Business process services (BPO): USD 150,000
- Medical-hospital services: USD 1,000,000
- Elderly and convalescent care services: USD 250,000
Additionally, the minimum of ten permanent jobs must be met from the first year of operations, which broadens the compliance margin compared to the previous wording.
- Flexibility for Service Centers (amendment to Art. 24-A)
Similar adjustments to investment timelines apply to Service Centers. The minimum required amounts are:
- Business process services, information technology and cinematography: USD 250,000 (from the first six months)
- Medical-hospital services: USD 2,000,000 (from the first year)
- Elderly and convalescent care services and specialized aircraft services: USD 500,000 (from the first year)
The minimum number of permanent hires must also be met from the first year of operations.
- New distribution of green areas in Service Parks (amendment to Art. 13 and incorporation of Art. 13-B)
Developers of Service Parks must allocate 30% of their total surface area to green spaces. With the reform, this proportion may be distributed as follows:
- 10% within the park or in an adjacent area
- 20% within or outside the park, with authorization from the competent authorities (DOT, OPAMSS or others)
Green areas located outside the park must meet a compensation percentage equivalent to 20% of the total construction area, and may be located in surrounding areas or in areas designated for environmental restoration. This flexibility reduces physical restrictions on the development of new parks.
Who does this reform directly benefit?
Companies about to start operations: Those that wish to benefit from the International Services Law and have progressive investment plans are directly favored by the greater flexibility in timelines.
Current beneficiaries looking to expand: Companies already qualified as direct users or service centers that plan to diversify their service portfolio will be able to add new activities to the regime without creating additional legal structures.
Business groups with staggered investments: Those whose strategy involves gradual capital disbursements find greater certainty in meeting the regime's requirements.
Foreign investors: Those who conditioned their entry into the country on greater regulatory flexibility now have a more favorable framework to evaluate El Salvador as the base for their service operations.
Implicaciones prácticas para su empresa
The reform generates at least four strategic decisions that companies must review immediately:
Review of the investment timeline: The reformed timelines allow for the progressive structuring of capital execution. Review lease agreements, staff hiring, asset acquisition and working capital flow.
Evaluation of activity expansion: If your company already operates under the regime, analyze whether it is advisable to add new benefited activities. This can optimize your tax burden without incorporating new legal entities.
Documentation from the start: The reform does not eliminate controls. It is essential to document compliance with investment and employment requirements from day one to avoid issues in audits or oversight processes.
Evaluation of real estate development projects: For developers, the greater flexibility in the location of green areas opens possibilities for land that previously did not qualify due to physical restrictions.
What does not change: the conditions of the regime
It is important to clarify that the reform does not imply a deregulation of the sector. Tax benefits remain conditional on compliance with all requirements of the International Services Law, including:
- The minimum investment remains mandatory; only the timeline for executing it has changed.
- The generation of permanent employment remains an essential requirement.
- Activities must be formally authorized by the Ministry of Economy.
- Companies remain subject to supervision and audit by the competent authorities.
- Those already benefiting from other tax incentive regimes will not be able to accumulate both benefits.
The main risk is assuming that the increased flexibility eliminates controls. Companies that do not adequately document compliance from the start of operations are exposed to sanctions in subsequent reviews.
Steps to take advantage of the reform starting today
If your company operates or plans to operate under the International Services Law, we recommend the following steps:
Step 1. Audit your current situation: Verify whether your company is already qualified under the regime and under which activities.
Step 2. Evaluate activity expansion: With legal advisory, identify whether it is advisable to add new benefited activities and which are the most demanding applicable requirements.
Step 3. Review your investment timeline: Update financial plans considering the new timelines (six months or first year of operations depending on the type of service).
Step 4. Document from day one: Establish internal controls that record investment in assets, permanent staff hiring and compliance with each requirement.
Step 5. Consult a specialist attorney: Structuring decisions under tax incentive regimes have tax and corporate implications that require personalized analysis.
Frequently Asked Questions
No. The decree does not modify the tax incentives (ISR, municipal taxes, VAT). It only makes the timelines and conditions for accessing them more flexible.
Yes. The amendment to article 5 allows current beneficiaries to request the incorporation of new activities, provided they meet the most demanding investment and employment requirement among the requested activities.
What happens if my company does not complete the minimum investment within the established timeline?
Non-compliance can result in the loss of the regime's benefits and retroactive tax obligations. That is why it is essential to plan and document the investment from the start of operations.
Yes. The International Services Law is open to both national and foreign legal entities that meet the regime's requirements and obtain authorization from the Ministry of Economy.
A Direct User operates within an authorized Service Park. A Service Center can operate outside a park, with higher investment requirements. Both models benefit from tax incentives, but under different conditions.
Conclusion: less rigidity, more opportunity
The reform to the International Services Law under Legislative Decree No. 497 represents a strategic adjustment of El Salvador's regulatory framework to attract more investment in high value-added sectors. The flexibility in timelines, the possibility of accumulating benefited activities and the adjustments in green areas eliminate rigidities that could discourage projects in the start-up or expansion phase.
However, the reform requires companies to act with legal rigor: documenting the investment, meeting formal requirements and properly structuring operations. The opportunity is available, but it can only be seized with a well-defined legal strategy.
Does your company provide or plan to provide services from El Salvador?
At Legal Spot we analyze your particular situation and advise you on structuring your operation under the regime that best suits your objectives. Request your free consultation at legalspotsv.com
Legal note: This article is for informational purposes only and does not constitute legal advice. For specific decisions, consult legalspotsv.com