The Digital Assets Law, which is in force since February 1, 2023, aims to establish a legal framework that provides legal certainty to the transfer operations of any title of digital assets used in public offerings issued in El Salvador. Likewise, it regulates the requirements and obligations of issuers, digital asset service providers, and other participants operating in the process of public offerings, with the objective of promoting the efficient development of the digital asset market and protecting the interests of acquirers.

Hence, the Digital Asset Law applies topublic offerings of digital assets in El Salvador, as well as to issuers and service providers of digital assets and other participants of public offerings.

To attract the different participants of this new market of digital assets in El Salvador, and to promote the issuance of offerings of these, the referred law has established thefollowing tax benefits:

1. 1. The nominal value and the yields or incomefrom digital assets shall be exempt from all kinds of levies, duties, taxes, fees and contributions, of any kind and nature, present or future, whether ordinary or extraordinary or even special.The capital gain or ordinary incomeobtained from the sale and purchase or any other means of transfer of digital assets, including debt forgiveness, shall be exempt from any kind of taxation.

1. 2. Issuers, certifiers and registered digital asset service providersshall enjoy all the tax benefits indicated above with respect to the activity related to digital assets they develop, being exempt from the Tax on the Transfer of Movable Goods and Rendering of Services [VAT], Income Tax [ISR], Municipal taxes, or any other taxation, regardless of its nature. They shall also beexempt from the obligation to withhold such taxes if such obligation exists.

1. 3. In the case oflegal entities, the tax benefits shall apply both to the entity and to the partners or shareholders individually considered, with respect to the profits or dividends derived from the activities detailed above.

The Digital Assets Law clarifies that the tax benefits will not apply when exchange transactions are carried out for goods or services that are not regulated in the referred law, which are the following:

1. • Exchange of digital assets for fiat money or its equivalent, or for other digital assets, whether using own capital or that of a third party.
   • Operating a platform for the exchange or trading of digital assets or derivatives.
   • Evaluating the risk and price, as well as underwriting the issuance of digital assets.
   • Placing digital assets on digital platforms or wallets.
   • Promote, structure, and manage all types of investment products in digital assets.
   • The following operations when performed on behalf of and in favor of third parties:
   • Transferring digital assets or the means to access or control them between natural or legal persons or between different acquirers, electronic wallets or digital asset accounts.
   • Safeguard, custody or manage digital assets or the means to access or control them.
   • Receiving and transmitting orders for the purchase or sale of digital assets or the trading of derivative digital assets; Receiving and transmitting orders for the purchase or sale of digital assets or the trading of derivative digital assets.
   • Execute orders for the purchase or sale of derivative digital assets.

With the above, the Salvadoran State seeks to position itself as an ideal business center for the digital assets market, providing a legal framework and benefits for market participants.

Without questioning the effort of the State to encourage the Salvadoran digital assets market, the scope of the tax benefits contained in the Digital Assets Law should be reviewed, because, although there is a broad tax exemption regarding the type of taxes it includes, in the case of issuers, certifiers and service providers of digital assets,such benefit is subject to the activity of digital assets that they develop, and in this contextit will be necessary to establish how each of the taxes interact with their respective generating facts.

Therefore, it will be important to know the criteria of the Public Administration Bodies in charge of administering and collecting the different taxes related to the activity of digital assets carried out by issuers, certifiers and service providers of digital assets regulated in this law.