El Salvador's Ministry of Finance has issued guidance on new requirements for an ad valorem tax on insurance companies (Impuesto Ad Valorem Compañías de Seguros - IACS). Key points include:
- The requirements generally apply for all types of insurance policies contracted (sold) in El Salvador, as well as the extension, renewal, or modification of insurance policies, including life insurance, accident and illness insurance, car insurance, home insurance, specific damage insurance, and others;
- Certain insurance policies are excluded, including insurance related to all types of banking and non-banking credits (loans), as well as reinsurance;
- The taxpayers of the IACS are the insurance companies with which the insurance policy is contracted, extended, renewed, or modified;
- The IACS tax base is the premium for the respective policy, whether paid in full or in installments;
- The IACS rate is 5% on the tax base;
- Insurance companies must settle the IACS due for each monthly tax period, with returns and payment due within 10 business days following the end of the tax period (return due even if no IACS is payable);
- IACS effectively incurred and paid in a fiscal year constitutes a deductible expense for income tax purposes.
The IACS requirements generally apply from 7 January 2023.