Crypto Companies in El Salvador: Taxes, Reporting, and Auditing

El Salvador became the first country in the world to recognize Bitcoin as an official means of payment, which attracted the attention of crypto companies from all over the world. Liberal tax policies and a business-friendly environment have made the country an attractive destination for crypto companies. Despite its advantages, doing business in El Salvador requires compliance with a number of tax and accounting obligations that are necessary for proper operation and compliance with the law. Let's figure out what taxes and reporting and auditing obligations apply to crypto companies in El Salvador.

1. Income Tax (ISR)

The Salvadoran tax system has a number of advantages for crypto companies. Unlike traditional businesses that are required to pay income tax, crypto companies are exempt from income tax and capital gains tax. This makes El Salvador one of the most attractive places for crypto operations, as income from crypto transactions is not subject to corporate tax, which in other sectors is 30%.

However, cryptocurrency companies are required to file a tax return even if the income is not taxable. This allows tax authorities to monitor the activity and ensure that all rules are followed.

2. Value Added Tax (VAT)

An important point is that crypto companies in El Salvador are not required to pay VAT on cryptocurrency transactions. According to the law, cryptocurrencies are exempt from the value added tax (VAT), which is 13%. This means that transactions with Bitcoin and other cryptocurrencies are not subject to VAT, which makes it much easier for crypto companies to do business.

However, if a crypto company is engaged in other activities (such as selling goods or services unrelated to cryptocurrencies), it may face VAT on these transactions, depending on the specific conditions. It is important to remember that VAT only applies to traditional goods and services, and not to cryptocurrency transactions.

3. Municipal Taxes

In addition to federal taxes, crypto companies may face municipal taxes, which depend on where they are registered. In El Salvador, each municipality can set its own rules for taxation, so crypto companies need to take into account local tax requirements. This means additional costs for analysis and compliance with local regulations.

4. Accounting

There are several basic obligations that must be followed to run a business properly:

• Monthly Financial Reports: Every crypto company must file regular reports on its financial activities so that tax authorities can monitor its activities.
• VAT Accounting: Companies must keep detailed records of all purchases and sales related to VAT-taxable transactions.
• Annual Report (Form F-971): Companies are required to file a report at the end of the year, which reflects all key financial indicators. This helps government agencies analyze the financial stability and legitimacy of the business.
• Semi-Annual Reports (Form F-987): If the company’s transactions exceed $837,380 in a six-month period, it must submit a report on its suppliers, customers, and partners, including information on debtors and creditors.
• Annual Report on Profits and Dividends (Form F-915): Companies must submit information on the distribution of their profits, as well as dividend payments.

5. Audit

There is a mandatory requirement for crypto companies in El Salvador to have an external audit. This requirement applies to all companies that conduct commercial activities. An external audit is necessary to ensure that the company’s financial statements comply with applicable laws and to verify compliance with tax obligations.

Crypto companies in El Salvador must engage audit firms that will conduct an external audit. Auditors review the financial statements, including all transactions and operations.

In conclusion, we can say with confidence that El Salvador provides favorable conditions for crypto companies, including exemption from income and capital gains taxes. However, this does not mean that crypto companies can ignore tax obligations. Crypto companies are required to comply with requirements and keep records of transactions, file reports, and ensure mandatory external audits. These measures help maintain financial transparency and compliance with the law, which in turn contributes to the further growth of the crypto sector in El Salvador.

Our team will help you understand the tax requirements of El Salvador, prepare the necessary reporting and ensure that your business is fully compliant with local legislation. We will provide support in tax accounting, auditing and legal support so that you can focus on developing your company without worrying about possible legal risks.

Alina Natalushko

Lawyer
Antwort Law