Investment Tax Incentives in Latin America and the Caribbean: An Analysis Using Effective Tax Rates

This OECD paper analyses corporate income tax (CIT) incentives for investment in ten Latin American and Caribbean countries (LAC-10). It finds that incentives are often tax exemptions, but expenditure-based incentives are more common than in other developing regions. Tax incentives tend to involve multiple eligibility criteria and are implemented through fragmented legal and institutional frameworks. The paper quantifies the impact of incentives on effective tax rates (ETRs), finding that they vary widely across countries and sectors. Similar projects can face different tax treatment within the same country when multiple incentives apply. On average, incentives reduce ETRs by 47% for tourism investments (including hotel activities and infrastructure), 55% for renewable energy generation, and 85% in Special Economic Zones, relative to standard tax treatment. The paper suggests that LAC-10 countries could reassess whether incentives are the most appropriate policy tool, favour expenditure-based measures, streamline eligibility conditions, consolidate incentives in core legislation, and institutionalise regular monitoring and evaluation to improve value for money.

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