El Salvador approves reforms to the Free Trade Zone Law

The purpose of these reforms is to increase domestic and foreign investment and boost the country’s competitiveness and productivity, in line with the new dynamics of international trade.

EY Law | On 23 December 2025, the Legislative Assembly of El Salvador approved the Legislative Decree containing amendments to the Free Trade Zones, Industrial Zones and Marketing Act, specifically Articles 2, 10, 11, 17, 18, 19, 28, 44, 46-A, 54-B, and 54-I, which is published in Official Gazette No. 243, Volume 449, dated 23 December 2025.

What changes are we talking about?

• The metropolitan area of San Salvador and surrounding municipalities is defined as that constituted by the municipalities and districts covered by the Law on Development and Land Use Planning in the Metropolitan Area of San Salvador and its Regulations.
• The concept of ‘Free Internation’ is added as the introduction of goods into the national territory exempt from the payment of Import Duty (hereinafter DAI), and the Tax on the Transfer of Movable Property and the Provision of Services (hereinafter VAT), or any other tax levied on their importation.
• It is determined that the green area shall be 30% of the total area, including ecological green areas and sports areas, of which 10% shall be distributed within the Free Trade Zone or Active Processing Warehouse, or in an area adjacent to the Free Trade Zone or Active Processing Warehouse, and the other 20% may be established inside or outside the Free Zone or the Warehouse for Active Improvement, and that with the addition of Art. 46-A, it is created to authorise green areas outside the compensation zone.
• With regard to building permits for green areas, the provisions of the rules and specifications issued by the Directorate of Land Use Planning (DOT), the San Salvador Metropolitan Area Planning Office (OPAMSS) or any other institution with similar powers, as applicable, shall apply.
• Tax benefits: an additional ten-year term if investment and employment are doubled, with a minimum investment of $500,000 required for Free Trade Zones and a minimum investment of $800,000 for Active Improvement Warehouses. Both benefits may be requested more than once, provided the requirements are met.
• Prior to making changes to plans or projects, such as: expansions, reductions, change of address, change of beneficiary type or closure of operations, users of Free Trade Zones and Inward Processing Warehouses must request authorisation from the Ministry of Economy. In addition, in the case of Free Trade Zone users, they must notify the Free Trade Zone Administrators.
• The Ministry of Economy must include in the Agreement it issues upon authorisation of a Free Zone User or an ADP, the details of the goods that are not considered necessary for the execution of the authorised activity, with their respective tariff nomenclature, either specifically or generally. In addition, it must clearly and exhaustively describe the economic activity to be carried out by the Free Zone User.

What is important to bear in mind?
That Article 54-B, in its first paragraph, has established that natural or legal persons who have operated in the national customs territory and paid income tax prior to applying for classification as a Developer, Free Trade Zone User or DPA, may not benefit from this law, and that in accordance with Article 51-I, it is established that for the purposes of the aforementioned law, Free Zone Users authorised in accordance with its provisions, who are established in Service Parks authorised in accordance with the International Services Law, shall be considered as if they were established in a Free Zone.

On 20 October 2025, the Legislative Assembly of El Salvador approved the Law on the Promotion of Renewable Energy Use. Although provisions already exist that allow end users to use renewable resource-based generation units to supply their internal demand and feed surplus energy back into the distribution network for non-commercial purposes, it was considered essential to create a legislative framework to promote the adoption of these technologies. The aim is to strengthen the resilience of the electricity infrastructure and guarantee citizens safer, more diversified and sustainable access to electricity services.

Next steps
Developers, Free Trade Zone Users and Inward Processing Warehouses (IPWs) will have a two-year grace period starting from the expiry date of their respective Agreements, during which they will continue to enjoy all the benefits of the law, including exemption from income tax on profits or dividends distributed to their partners or shareholders from the favoured activity.

They must make the adjustments and investments they deem necessary so that, once the grace period has expired, they continue to receive the benefits conferred by the Industrial and Commercial Free Trade Zones Act for the term it confers.

If the investment is not made within the aforementioned period, they are obliged to pay the applicable duties and taxes that would have been generated during that period if they had not enjoyed the benefit.

The decree came into force on 31 January 2025.

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