El Salvador promotes FinTech Law: Tax exemptions and a "sandbox" to foster innovation in digital financial services

Written by: Diego Ciudad Real, associate

El Salvador has proposed the "Law for the Promotion of Fintech Entities and Regulation of Digital Financial Services" to promote financial technologies. The bill aims to regulate Salvadoran and foreign legal entities that wish to operate in the country offering digital financial products or services. Among its key points, the law seeks to regulate these activities by establishing the requirements for the commencement of operations of such entities, as well as for those already established and operating, ensuring they comply with the provisions of the bill.

The Law also promotes a tax exemption for a period of 5 years on the payment of ISR (Income Tax) on income, profits and investments in FinTech companies, from the moment of their incorporation, in the case of companies that are already operating with an operation of no more than 5 years, this exemption applies to them on the remainder of the term.

Another key point of the law includes a "sandbox" or controlled testing environment, where FinTech companies can develop and test innovations under supervision. The objective of this sandbox is to allow companies to present their financial technology projects in a controlled trial phase before being granted certification as operators of digital financial products or services. The Central Bank will manage temporary authorizations, with a focus on data protection and user confidentiality.