When is a service performed in El Salvador considered an export?

The 3 conditions a service must meet

According to the analysis, for a service to be considered an export it must meet three conditions:

01. The service is performed in El Salvador

The service must be provided from within the national territory.

02. The client is not domiciled in El Salvador

The service must be provided to users who have neither domicile nor residence in the country.

03. The service is used exclusively abroad

This is the condition that requires the most detailed analysis.

It isn't enough for the client to be foreign. You must also determine where the service is actually used and enjoyed.

A practical example

Imagine a transaction involving three companies:

Company A: foreign client.
Company B: foreign company that provides the service contracted by A.
Company C: Salvadoran company subcontracted by B to perform part of the service.

In this case, A hires B to manage the shipment of packages to El Salvador. B, in turn, hires C to manage the delivery of the packages to their final recipients.

The question is:

Can the service provided by C be considered an export of services?

1. Who holds the business relationship?

Company C has a business relationship directly with Company B, which is the one that hires its services.

There is no direct business relationship between C and Company A, nor between C and the final recipients of the packages in El Salvador.

This allows the transaction to be analyzed based on the existing contractual relationship between C and B.

2. Where does the service originate and where is it consumed?

In the case described, the final recipients in El Salvador are not the ones requesting the service.

Company C handles the delivery on behalf of B, which in turn received the request from A, a non-domiciled client.

B requires C's service as part of the service it is providing to its foreign client.

3. Where is the service used?

The core of the analysis is determining where the contracting party's need is met.

In the case described, the use and enjoyment of the service is considered to take place exclusively abroad, where the contracting party requests the service and obtains its benefit.

Therefore, even if part of the activity is physically carried out in El Salvador, the analysis must consider the purpose and economic benefit of the service.

4. Why does the need for the service matter?

Company B needs C's services to complete the service it offered its foreign client.

In other words, C's service is part of a transaction contracted by a non-domiciled client and, according to the analysis presented, the need it meets lies abroad.

How would the transaction be treated?

Based on the case analyzed, the service provided by Company C qualifies as an export of services.

Therefore, the transaction must be invoiced at a 0% rate, instead of the 13% rate that applies to taxable transactions.

This can make a significant difference for Salvadoran companies that provide services to foreign clients or companies.

Having a foreign client isn't enough

The most important point is that the client's domicile is not the only factor to analyze.

A company may provide services from El Salvador to a foreign client and still need to analyze whether the service meets the conditions to be treated as an export.

The key is understanding what service is provided, who contracts it, what need it meets and where it is used or enjoyed.

Does your company provide services to clients abroad?

Correctly determining the tax treatment of these transactions can help you avoid invoicing errors and properly apply the regime for exports of services.

Do you have clients outside El Salvador?

At CENTR4L we can help you analyze how your transactions are structured and determine the tax treatment that applies to your case.

Let's talk about your company.