El Salvador’s Law for the Promotion of Renewable Energy Use takes effect

Arias - The regulatory landscape of El Salvador is undergoing a profound transformation, oriented towards sustainability and the diversification of the energy matrix. This evolution resulted in the "Law for the Promotion of the Use of Renewable Energy" (the "Law"), which entered into force on November 4, 2025.

The Law seeks to promote the installation of electricity generation systems using renewable sources, whether conventional or non-conventional, their storage, and the eventual re-injection into the distribution grid. This creates significant opportunities in two main areas: 

• Investment in the Supply Chain: It incentivizes the import, sale, commercialization, acquisition, installation, and maintenance of systems and equipment for electricity generation from renewable sources. 
• Optimization of Operational Costs: The law establishes a new tax incentive regime for both suppliers and end-users, allowing for the deduction of expenses and tax exemptions. 

Natural or legal persons engaged in the sale, supply, installation, or maintenance of generation systems for end-users may access a wide range of tax benefits, provided they are previously qualified by the General Superintendency of Electricity and Telecommunications (SIGET). 

These incentives have a duration of ten years, counted from the entry into force of the Law, and include: 

• Income Tax (ISR): Total exemption from income derived from the incentivized activities and exemption from all ISR withholding. 
• Tax on the Transfer of Movable Goods and the Provision of Services (IVA - VAT): Full exemption on local transfers of incentivized goods and the provision of incentivized services. 
• Import Tariff Duties (DAI) and Import VAT (IVA): Full exemption from taxes and levies on the importation and domestic entry (including DAI and IVA) of machinery, equipment, tools, materials, spare parts, accessories essential for the sale, supply, or installation of the systems. 

End-users will also enjoy direct benefits when acquiring systems and services from qualified suppliers by the General Superintendency of Electricity and Telecommunications (SIGET), which include: 

• VAT (IVA): Full exemption from VAT on the purchase, installation, or maintenance of the systems. 
• Income Tax (ISR) Deduction: The right to deduct from their taxable income the expenses incurred for the corresponding purchase and installation, in the fiscal year or tax period in which the operation is carried out. 

The General Superintendency of Electricity and Telecommunications (SIGET) shall issue the relevant qualification agreements to allow suppliers to access the fiscal benefits. Oversight of the fiscal regime shall be exercised by the Ministry of Finance through the General Directorate of Internal Revenue and the General Directorate of Customs. The Consumer Protection Agency (Defensoría del Consumidor) shall have the authority to monitor and supervise to ensure that the exemptions and tariff reductions are reflected in the final prices to the end-users. 

Both end-users and suppliers who violate the Law, as well as operators who obstruct its implementation, shall be subject to the infractions and sanctions established under the General Electricity Law.

ariaslaw.com