The Financial Operations Tax Law

Original Language Title: LEY DE IMPUESTO A LAS OPERACIONES FINANCIERAS

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LEGISLATIVE ASSEMBLY-REPUBLIC OF EL SALVADOR ____________________________________________________________________

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DECREE NO 764

THE LEGISLATIVE ASSEMBLY OF THE REPUBLIC OF EL SALVADOR,

CONSIDERING:

I.-It is the obligation of the State to guarantee the justice, security and welfare of the community, requiring for such effects the participation of citizens who show contributive capacity; in such a way that there is a need to generate a series of measures that strengthen public finances.

II. These measures include those aimed at increasing tax revenues in an equitable relationship.

III.-The introduction of a tax that will seriously affect financial transactions by means of checks or transfers with a low rate and reasonable exemptions, allows the generation of tax collection in a systemic way, with lower costs to the economic agents, contributing to the balance of the finances of the State through the way of the public revenues.

IV.-That the imposition of cash operations on the Financial System, by means of a Liquidity retention with neutral character, allows for control of significant operations that are not being declared in other taxes.

BY TANTO,

in use of its Constitutional powers and on the initiative of the Othon Sigfrido Reyes Morales and Deputy Lorena Guadalupe Peña Mendoza.

DECRETA the following:

FINANCIAL OPERATIONS TAX LAW

CHAPTER I OF THE TAX ON CHECK AND ELECTRONIC TRANSFERS

Tax

Art. 1.-Establish a tax that will fall on the value paid of any type of check and the electronic transfers made in the national territory, in currency of legal circulation in the country, according to the regulations contained in this Law.

Financial System Entities

Art. 2. For the purposes of this Law, it will be comprised of entities of the Financial System, regulated in the Law of Banks, the Law of Cooperative Banks and Companies of Savings and Credit, the Bank of Agricultural Development and the Associations and Societies Savings and Credit cooperatives regulated by

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their respective laws.

General Facts

Art. 3.-They constitute tax-generating facts on deposit accounts and payment orders or electronic transfers corresponding to:

a) Payments of goods and services through the use of check and debit card, the value of which transaction or transaction is greater than US$ 1,000.00;

b) Payments by means of electronic transfers whose transaction or transaction value is greater than US$ 1,000.00;

c) Transfers in favor of third parties, under any mode or technology medium, the transaction or transaction value of which is greater than US$ 1,000.00;

d) The disbursements of loans or financing of any nature; and,

e) The operations performed among the entities of the Financial System, based on any type of instruction of their clients or by their own interest.

The above operative events are understood to have occurred and caused the tax when payment, transfer or disbursement is made.

The transfers of resources to the outside will be taxed with the present tax, which will be they are included in literals (b) and (c) of this article.

Extentions

Art. 4.-The following financial transactions or transactions are exempt from the tax:

a) The withdrawal of cash from deposit accounts, both in electronic teller machines, and in the offices of the entities of the Financial System;

b) Payment of goods and services by means of check, use of debit card and transfer under any mode or technology medium, whose transaction or transaction value is equal to or less than US$ 1,000.00;

c) make the right holders in the Credit Card System, including the use of the credit card for the cardholder;

d) Social and interim security payments;

e) Payments, accreditations, and transfers made by:

1. The State, the Municipalities and the Autonomous Institutions, including the Central Reserve Bank of El Salvador, the Superintendence of the Financial System,

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The Salvadoran Social Security Institute, the National Institute for Employee Pensions Public, the Institute of Social Welfare of the Armed Forces and the Deposit Insurance Institute;

2. Diplomatic missions, consular and foreign diplomatic personnel accredited in the country, on condition of reciprocity;

3. International agencies, development agencies or cooperation of foreign states or countries;

4. The Pension Funds; and,

5. Users of Free Zones, Active Perfection Deposits, Parks or Service Centers.

The exemption includes operations that are performed on accounts of the entities flagged in the exercise of their functions.

f) Payment of remuneration to workers, including work allowances, by transfer or issue of cheques.

The exemption provided for in this literal shall only be effected when payment of the sums is made by means of transfer of funds from a special deposit account of the employer or by cheques, in the the special account of the employer and the holder of the deposit account is identified. In the case of payment by cheque, the name of the employer, its special account and the employee's Unique Identity Document will be identified;

g) The payment of loans by the clients to the entities of the Financial System. In the case of loans originating abroad for use in the national territory, payments by means of transfers, orders or any other means shall be subject to the tax of this

; loans for the working capital of micro-entrepreneurs, for the purchase of housing, or loans for agricultural and livestock farming. The exemption will always be provided that the sum of the disbursements values is equal to or less than US$ 50,000.00. In the case of personal or consumer loans, the exemption will be granted when the disbursements values are equal to or less than US$ 10,000.00.

In the case of refinancing, renewals or restructurings of loans is exempt the balance of securities cancelled with such an operation, taxed only the net disbursement.

The disbursements are also exempt of loans granted by cooperative or second-floor integration bodies to user entities intended to finance the credit operations of the final debtors of such funds;

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i) Transfers between deposit accounts of a same holder in System entities Financial. Also, those made by the Financial System institutions with the Central Bank of El Salvador; or in the case of the Cooperative Savings and Credit Associations in the Central Bank or mechanisms of centralization of established funds by its Federation;

j) The formation of the liquidity reserve of the entities of the Financial System, as well as that of the requirement for liquid assets and any act of disposition or operation thereon;

k) water and electric power supply services which are carried out by means of cheques, transfers bank, credit or debit cards;

l) The investment and issuance operations that are carried out on the primary market of the Stock Exchange, as well as the purchase and sale of primary products on the Stock Exchange and Services. This exemption includes the securities issued by the State and the municipal and autonomous public entities.

The operations carried out by the Corredas de Bolsa, Depositary de Valores, Posts of Bags in the exercise of their functions

for the purposes of this Law, the tax that generates the payment of cheques or the transfers made by investors and issuers to the Houses of Stock brokers, Securities Depository, as well as the Stock Exchange Products and Services, will not be retained by the entities of the Financial System. The subjects mentioned in this paragraph are obliged to withhold the tax, as provided for in this Law;

m) Foreign transfers related to imports of goods and services related to the activity productive and remittance for repatriation of capital or profits;

n) Transfers from abroad, credited to the beneficiary's account or recipient, such as family remittances, payments for goods or services exported;

n) Payments for insurance premiums whose transaction or transaction value is equal to or less than US$ 1,000.00. Transfers by indemnification and sale of insurance premiums related to insurance premiums whose monthly fee is equal to or less than US$ 1,000.00; and,

or) The payments made by fuel service stations for the purchase of the said fuel product.

Passive Subjects

Art. 5.-They are taxable persons of the tax that regulates this Law, the following:

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a) Money deposit holders;

b) Those who order or instruct payments or transfers by any form or technology, through the financial system entities and non-financial institutions; and,

c) Financial system entities making loan disbursements of any nature and operations for your own interest.

Retention Agents

Art. 6.-They are responsible for the payment of the tax, as withholding agents:

a) The entities of the Financial System;

b) Entities that execute payment orders or transfers by any modality or technology medium;

c) The Exchange Brokers ' Houses, in the case of securities transactions in third-party transactions;

d) The Stock Exchange, in the case of Products and Services Intermediation operations; and,

e) Tax administration, by resolution.

The withholding agent is responsible for the payment of the tax.

The withholding agent that would have made undue or excess payments to the Tax Administration, may request the refund or credit, using the procedure established in the Tax Code.

Retention Agent Obligations

Art. 7.-Retention agents are required to:

a) Rehold the tax regulated in this Act;

b) Carry out registration of transactions subject to withholding and surrender to the taxpayer, the document where the withholding tax is recorded individual or accumulated, when required. The issuance of the constancy shall be carried out for a monthly period;

c) Make the return of the holds made unduly or in excess to the taxpayers, including when they are the product of a fraudulent operation in detriment of the client; and,

d) Submit an affidavit for a monthly tax period, through an electronic form that the Tax Administration provides. The affidavit will include paying the tax

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and will be made within the first ten working days of the end of the monthly tax period.

Imposable and Alicuota Base

Art. 8.-The tax base of the tax will be determined by applying the aliquot of 0.25% equivalent to 2.5 per thousand, on the amount of transactions or transactions taxed.

In the case of the operations of reported and interbank, the period of which is the retention to be applied shall be on an annualized basis, according to the period of the operation. For the case of the reporting operations for investors and issuers, the withholding agent will be the brokerage House.

Tax Retention Process

Art. 9.-The holding agents must charge the aliquot in the deposit account of the taxable person, at the time the tax is caused without affecting the amount of the debit. In no case will the tax be paid.

In the case of a payment or transfer order in which there is no deposit account, the tax must be paid to the withholding agent, in addition to the value of the transaction.

CHAPTER II WITHHOLDING TAX FOR LIQUIDITY CONTROL

Art. 10.-The subjects referred to in Article 6 of this Law shall carry out a withholding tax for the liquidity control of 0.25% or its equivalent of 2.5 per thousand, over the excess of US$ 5,000.00 originating from the operations of deposits, payments and withdrawals in cash, individual or accumulated in the month.

The above operative events are understood to have occurred and caused the tax when the deposit, payment or cash withdrawal is made.

obligations laid down in Article 7 of this Law. Also exempt from the withholding tax for liquidity control are the subjects and entities cited in Article 4, literal e) of this Law, the Cooperative Associations, their Federations and Confederations.

The accounts for the liquidity reserve management and the requirement for liquid assets of the financial system entities, will be exempt from this withholding.

They are taxable persons in the nature of taxpayers, who make deposits, payments or withdrawals in cash.

Retention agents will give the taxpayers a record of the tax retained individual or accumulated, in accordance with the requirements and procedures established by the Tax Administration. Such constancy will be untransferable.

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The retention of effectively entered liquidity control tax will be creditable against any of the taxes that the Tax Administration administers within the two-year period, counted from the date of the respective withholding tax. For the purposes of the accreditation, the statements shall be filed in electronic means.

The taxpayer who does not credit or compensate for the tax and the excess thereof, in accordance with the provisions of the foregoing paragraph, shall lose the right to do so in subsequent exercises.

Retention agents must retain the aliquot to the subject making the deposit, payment or withdrawal of the cash. In no case will the tax be stopped.

CHAPTER III GENERAL PROVISIONS AND VALIDITY

Applicable Rules

Art. 11. In the absence of this Law, the provisions of the Tax Code and Tax Laws will apply.

The Tax Administration will issue the rules that facilitate the application of this Law, establishing in it the form of the law. how holds, rounding rules, controls, and required stub documents are to be made. For such purposes, you can rely on the Central Reserve Bank of El Salvador and the Superintendence of the Financial System.

Accreditation

Art. 12.-The amounts that are paid in application of the taxes set forth in this Law, are not deductible as cost or expense of income tax. Likewise, the tax in the First Chapter of this Law will not be accreditable against any tax obligation.

Vigency

Art. 13. This Law shall enter into force on 1 September 2014, after publication in the Official Journal.

GIVEN IN THE BLUE HALL OF THE LEGISLATIVE PALACE: San Salvador, at the thirty-one day of the month of July of the year two thousand fourteen.

OTHON SIGFRIDO REYES MORALES, PRESIDENT.

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ENRIQUE ALBERTO LUIS VALDEZ SOTO, GUILLERMO ANTONIO GALLEGOS NAVARRETE, FIRST VICE PRESIDENT. SECOND VICE-PRESIDENT.

JOSÉ FRANCISCO MERINO LÓPEZ, LORENA GUADALUPE PEÑA MENDOZA, THIRD VICE PRESIDENT. FOURTH VICE-PRESIDENT.

CARLOS ARMANDO REYES RAMOS, FIFTH VICE PRESIDENT.

GUILLERMO FRANCISCO MATA BENNETT, MANUEL VICENTE MENJÍVAR ESQUIVEL, FIRST SECRETARY. SECOND SECRETARY.

SANDRA MARLENE SALGADO GARCÍA, JOSÉ RAFAEL MACHUCA ZELAYA, THIRD SECRETARY. FOURTH SECRETARY.

IRMA LOURDES PALACIOS VÁSQUEZ, ERNESTO ANTONIO ANGULO MILLA, FIFTH SECRETARY. SIXTH SECRETARY.

FRANCISCO JOSE ZABLAH SAFIE, JOSE SERAFIN ORANTES RODRIGUEZ, SEVENTH SECRETARY. EIGHTH SECRETARY.

CASA PRESIDENTIAL: San Salvador, at thirty-one day of the month of July of the year two thousand fourteen.

PUBESQUIESE,

Salvador Sánchez Cerén, President of the Republic.

Juan Ramón Carlos Enrique Cáceres Chávez, Minister of Hacienda.

D. O. No. 142 Took No. 404 Date: July 31, 2014

FN/pch 02-09-2014

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