Taxation applicable to public-private Partnership contracts in Latin America - 1st edition – September 2025

A look back at Taylor Wessing's first two webinars on PPPs in Latin America

Webinars on November 18 and December 9, 2024 – Focus on Guatemala, Colombia, El Salvador, Ecuador, Mexico, the Dominican Republic, and Panama

Presentation and moderation:

• Sophie Pignon, Partner, Taylor Wessing France
• Marcos Portela Barreto, Counsel, Taylor Wessing France

Speakers:

• Renaud Bourget, Professor, University of Nice-Côte d'Azur
• David Bedoya Goyes, Lawyer, ECIJA Colombia
• Marcos Palma, Lawyer, ECIJA Guatemala
• Carlos Gil, Lawyer, ECIJA El Salvador
• Bayardo Rafael Poveda, Lawyer, ECIJA Ecuador
• Ricardo Chacón, Lawyer, ECIJA Mexico
• Polibio Valenzuela, Lawyer, ECIJA Dominican Republic
• Antonio Alberto Vargas, Lawyer, ECIJA Panama

Introduction by Professor Renaud Bourget

“Taxpayers, and even more so foreign investors, need stability.”

Key points to remember:

• The development of PPPs in Latin America has intensified over the past 15 years, affecting increasingly innovative sectors such as sports and healthcare. International institutions have played a key role in encouraging transparency. Since 2019, there has been a noticeable improvement in these countries thanks to measures to strengthen transparency and accountability among public actors.
• General legal framework for PPPs in Colombia: Colombia did not have a specific framework applicable to public-private partnership contracts before the introduction of a 2012 law aimed at promoting private participation in infrastructure projects[1]. In 2018[2], a law targeting public procurement more generally had the effect of securing repayments to investors and lenders. Several entities are specifically dedicated to the implementation and monitoring of PPPs in Colombia: the Department of National Planning, the National Infrastructure Agency, and the National Development Finance Bank. Currently, road works and construction projects between Catambuco and Pasto are underway under the PPP model.
• General legal framework for PPPs in Guatemala: A specific law[3] has governed public-private partnerships in Guatemala since 2010 and has enabled the implementation of more than 20 projects in various sectors such as energy and sanitation. A National Agency for the Development of Economic Infrastructure (ANADIE) specializes in the promotion, awarding, and supervision of PPP contracts. In particular, it finances pre-investment studies using private funds. In Colombia, several projects are underway: the Escuintla-Puerto Quetzal highway, the Riel metro, and the state administrative center in Guatemala City.
• General legal framework for PPPs in El Salvador: El Salvador adopted a law in 2013 specifically governing public-private partnership contracts[4]. Two dedicated entities were established under this law: the Export and Investment Promotion Agency of El Salvador and the Public-Private Partnership Oversight Agency, which supervises PPPs in sectors that do not have a specific sectoral regulatory authority. El Salvador saw its first PPP project in 2021. This project aims to increase the capacity and operations of El Salvador International Airport, San Óscar Arnulfo Romero y Galdamez.
• General legal framework for PPPs in Ecuador: Between 2014 and 2020, five PPP projects reached financial closure, including four in the energy sector and one in the road sector. The trend is currently continuing with numerous road projects. The country has had specific regulations in place since 2015[5]. In December 2023, a law on economic efficiency and job creation[6] called “PPP” was adopted. This law established a Public-Private Investment Secretariat (SIPP) responsible for the central structuring of projects, and more clearly defined the roles of the various institutional bodies involved in PPPs, particularly the Interinstitutional Committee on Public-Private Partnerships. Finally, an executive decree was issued in June 2023[7] specifying the institutional framework and processes applicable to PPP projects in accordance with Article 316 of the Constitution.
• General legal framework for PPPs in Mexico: Between 1990 and 2010, 305 PPP projects were launched in Mexico, particularly in the road, rail, electricity, and water sectors. Large-scale projects are underway, such as the expansion of the Papantla prison, the new Mazatlán aquarium, and the PROMTEL shared network. A PPP law was passed in 2012 and amended in 2018[8]. As Mexico is a federal state, PPPs can be regulated at federal level, at state level or at municipal level. For example, there are specific laws applicable in the states of Mexico and Veracruz. There is also a specialized agency, the Ministry of Finance and Public Credit (SHCP), which has developed a strategy to promote public-private partnership projects. This ministry has a unit dedicated to investment, which has published guidelines on the procedure applicable to PPP projects. Finally, the ministry nistry is the origin of a rich corpus of administrative doctrine.
• General legal framework for PPPs in the Dominican Republic: The Dominican Republic has implemented a national development policy aimed at promoting PPPs in the agriculture and tourism sectors. The government also draws up a plan every four years to define investment objectives with a list of identified infrastructure projects. PPPs are a recurring theme in current political discourse, and 12 initiatives are currently being evaluated in various fields (tourism, ports, national defense, health, etc.). A PPP law was adopted in 2020[9],  accompanied by implementing regulations[10]. The law established a General Directorate of PPPs, an autonomous and decentralized authority with legal personality, but reporting to the Ministry of the Presidency.
• General legal framework for PPPs in Panama: In Panama, 35 PPP projects had been awarded by 2010. The specific legal framework for PPPs dates from a 2019 law[11]. This law aims to encourage private investment, social development, and job creation. It provides for the creation of a governing body composed of six ministers and the Comptroller General of the Republic. Its mission is to approve or reject the projects submitted to it. The law also created a National PPP Secretariat, which receives and evaluates projects before forwarding technical reports to the body in charge of validating them.

Local approach, expert opinion

Colombia – David Bedoya Goyes, ECIJA Colombia

“This is an excellent development tool. PPP contracts have been used in the field of infrastructure, and we have had very good experience with them. Just look at how Colombia has developed its road network thanks to this model.”

Key points to remember:

• A special law on PPPs is in force[12] and has already led to the completion of projects at both the national level (e.g., the “4G project”) and the local level (e.g., El Campin Stadium in Bogota).
• From a tax perspective, a PPP can be broken down into three phases:

• The pre-construction phase, during which the private sector learns about the project and submits bids.
• The construction phase, during which costs are capitalized and recorded on the balance sheet. If revenue is generated during the construction phase, it may be deferred and taxed during the operating phase.
• The operating and maintenance phase, during which the operator generating revenue may depreciate the capitalized asset over the term of the contract. The difference between the revenue generated and the amortized asset will be considered taxable income subject to corporate income tax, currently at a rate of 35%.

• The VAT regime is based on a VAT exemption during the construction phase and VAT applicable during the operating phase on certain types of revenue such as asset rentals.
• Other applicable taxes include a contribution to public works (2.5% of the contract value) and local taxes (stamp duty, industry and trade tax).
• Specific tax advantages have been introduced for renewable energy projects. These allow for a tax deduction of 50% of the investment and accelerated depreciation of the asset.

Guatemala - Marcos Palma, ECIJA Guatemala

“Even though there are some very good projects, the control of the Congress is in fact a "bottleneck" that significantly reduces their scope.”

Key points to remember:

• A special law on PPPs was passed in 2010[13]. It introduces a more modern legislative framework, notably by creating ANADIE.
• Various areas are open to PPPs: road infrastructure, urban mobility, social housing, and water and sanitation.
• PPP contracts remain subject to approval by the Congress of the Republic, due to a constitutional requirement. This step can slow down projects and even block them: to date, only one PPP contract has been approved (the Escuintla–Puerto Quetzal Road).
• Although only one project has been approved at this stage, others are in the feasibility study phase or are being evaluated by ANADIE.
• In terms of the tax system, there is, in principle, no special tax treatment for PPPs. However, the law provides for VAT exemption on the transfer of certain assets to facilitate project financing. Apart from this specific provision, normal taxation applies with two regimes: one applicable to profit-making activities with a rate of 25% on taxable income and a simplified regime with a rate of 7%. The applicable regime varies depending on the margin of the PPP contract holder.
• In addition, there is a solidarity tax and VAT at a rate of 12%.
• As in Colombia, costs are capitalized during the construction phase, but deferred depreciation is not allowed.

El Salvador – Carlos Gil, ECIJA Salvador

“For El Salvador, this type of regulation, as the professor mentioned, is relatively new. (...) We hope to be able to start promoting other projects soon, particularly due to the need to maintain and improve roads and build new ports.”

Key points to remember:

• In El Salvador, a special law has been in place since 2013[14]. One project has been classified as a PPP: the infrastructure project comprising El Salvador's international airport. Several local projects are under consideration, particularly in the fields of telecommunications and energy infrastructure.
• Certain sectors are excluded from PPPs, such as health, public education, water resources, and public safety.
• As in Guatemala, there is a certain political dimension to the implementation of PPPs, as PPP contracts must be approved by Congress and are subject to a resolution that becomes law.
• Proesa (the National Investment Promotion Agency of El Salvador) is the entity in charge of PPPs promotion in the country. It played a particularly important role in the international airport project.
• One specific feature in El Salvador is that the law requires the creation of a special purpose vehicle (SPV) for the execution of the PPP contract, and this SPV must be owned by the state and by the private investors selected at the end of the procedure.
• The SPV is subject to the same tax obligations as ordinary companies, namely:

• 13% VAT on local purchases and imports, which is not recoverable during the first years of the project.
• A corporate tax rate of 25% on taxable income.
• A withholding tax of 5% or 10% on project profits repatriated abroad.

• It should be noted that specific rules benefiting renewable energy or technological innovation projects may apply to PPP contract holders when the projects covered by the contract meet the criteria set by law.

Ecuador - Bayardo Rafael Poveda, ECIJA Ecuador

“Public investment drives private investment.”

Key points to remember:

• During the 1990s, the liberalization of the country's economy paved the way for private investment in all sectors of the Ecuadorian economy. However, the 2008 Constitution reserved certain public services and strategic sectors for the state, thereby excluding PPPs from these sectors.
• In 2015, an organic law on incentives for public-private partnerships and foreign investment[15] was enacted, allowing for the implementation of a number of PPP projects. Since the 2023 reform[16], all sectors of the economy can be subject to PPPs (greenfield, brownfield, and yellowfield). A decree[17] also provided details on PPP financing, lenders' rights, and other financial aspects.
• Despite a competitive legal framework compared to its neighbors, the implementation of PPP contracts remains limited in Ecuador. Five projects have been signed since 2015.
• In terms of taxation, corporate income tax is 25% and normally applies to PPP contract holders. VAT is 15% and an exit tax of 2.5% applies to payments made abroad through the financial system. Finally, there is a municipal business license and municipal taxes that may apply to PPP projects. Other taxes such as customs duties or various local contributions should also be taken into account.
• However, the legislation provides tax incentives for PPP projects, including corporate tax exemption for the first 10 years of the project, exemption from exit tax for project-related payments, and the possibility of accelerated depreciation. In addition, the SPV holding the PPP contract may act as a “VAT withholding agent” under the same conditions as public companies.
• The legislation applicable to PPPs allows for the conclusion of tax stability agreements with the State. While these agreements do not allow for a freeze on applicable tax rates, they guarantee investors economic rebalancing of the PPP contract in the event of changes to the tax framework that are unfavorable to the project.
• Finally, it should be noted that, as of recently, public financial entities are authorized to grant state aid. Contract holders are authorized to provide guarantees on the assets and cash flows of the PPP project.

Mexico – Ricardo Chacon, ECIJA Mexico

“Public-private partnership contracts have the power to promote the development of our regions and countries.”

• In Mexico, the specific law enacted in 2012 and amended in 2018[18] covers all phases of the contract, from the launch of the project to its normal or early termination.
• With regard to the applicable tax regime, corporate income tax is levied at a rate of 30%, but this may vary depending on income and other specific factors provided for in the Tax Code. Deductions are also applicable, mainly relating to investment expenses or project operating costs.
• VAT normally applies to the goods and services of the project. When a party is foreign or a foreigner is a shareholder of entities participating in a PPP project, withholding taxes may be applied to payments made to these persons. Withholding tax rates vary depending on the tax payable but also on the tax treaty in force between the states.
• Local taxes (imposed by the federal states) must be taken into account: each federal state has its own PPP regulations and may impose property taxes, municipal fees, and specific payroll taxes.
• Existing tax incentives include capital investment depreciation, tax credits, research and development credits, and exemptions and reductions for certain taxes.
• In order to protect investors against unfavorable changes in regulations or taxation, two contractual stability mechanisms exist: freeze clauses and economic equilibrium clauses (which may also cover the risk of exchange rate fluctuations).
• Incentives for energy projects are also in place, such as tax credits for renewable energy projects.
• PPPs are subject to very specific rules and strict tax reporting legislation. Monitoring is carried out by the SAT (Tax Administration System) and heavy penalties are imposed for non-compliance with tax and reporting obligations.

Dominican Republic - Polibio Valenzuela, ECIJA Dominican Republic

“In the Dominican Republic, we have the general PPP law and the concessions law. But in addition to the general law, we have specific regulations for various sectors.”

• Since 2020, Law No. 47-20[19], accompanied by a presidential regulation[20] and technical guidelines, has helped to establish a general and unified framework for PPPs. However, sectoral regimes continue to coexist with this general regime.
• Resolutions approved by the PPP agency define the sectors eligible for PPP projects: these include road infrastructure, ports, airports, energy, water, housing, health, telecommunications, defense, security, and tourism.
• The PPP Directorate General acts as a regulator and intermediary between public entities and private actors.
• PPP contracts are subject to congressional approval.
• With regard to the applicable tax regime, the common law regime applies in principle. There is an automatic 15% VAT exemption (called ITBIS) for five years for projects officially recognized by the competent PPP authorities. All other exemptions (corporate income tax, dividend tax, real estate transfer tax, interest payments, interest payments made abroad) must be provided for in the PPP contract.
• If a modification to the contract affects the tax exemptions initially granted, this modification must also be submitted to Congress for approval.
• Tax stability clauses are not provided for by law but may be included in the contract, as Congress is required to validate these clauses through a law validating the contract and the project's tax regime.

Panama - Antonio Alberto Vargas, ECIJA Panama

“Depending on the area covered by the project, there may be special tax treatment, with certain advantages and benefits. For example, there are partial advantages in the energy sector for solar and renewable energy projects, such as hydroelectric projects.”

• The legal regime for PPPs consists of a 2019 law[21] and a decree[22]. Any project considered a PPP contract must have a minimum value of $15 million.
• Panama currently has one project awaiting approval, namely the rehabilitation, improvement, and maintenance of the Eastern Pan-American Highway. Two other projects are in the pre-feasibility phase.
• The law does not provide for any special tax regime for PPP projects. The common law regime applies, with a 25% income tax, a 10% local transactions tax, a 7% VAT and import duties, as well as property tax and local taxes (applicable depending on the municipality).
• Tax benefits may exist for certain projects depending on the sector, such as renewable energy or sports infrastructure. These benefits must be included in the PPP contract.
• Panama's Ministry of Economy and Finance plays a fundamental role in the entire PPP contracting process. It performs ex-ante control by validating or rejecting projects based on compliance with fiscal and budgetary constraints. It may also propose fiscal stability measures, although these are not directly provided for by law.
• It should be noted that the legislation requires the PPP holder to set up a specific company domiciled in Panama and to establish a trust responsible for all tax and contractual obligations under the PPP contract.

Conclusion by Professor Renaud Bourget:

✔️ Investors need legal stability, particularly in terms of taxation.

✔️ Latin American countries have been influenced by the German model, which was first introduced in Mexico. This has helped to establish a more equal relationship between the state and the taxpayer, in particular by offering the latter the opportunity to defend their rights before an administrative court. It has also helped to harmonize the applicable rules.

✔️ The development of legal stability instruments, such as those emerging in Peru with the introduction of legal stability agreements, are welcome in order to reassure and encourage foreign investors to participate in the implementation of public-private partnerships.