Introduction

Taxation is subject to each country’s economic and social policy, which is why it must be constantly adapted over time through reforms that may be substantial (those that alter the pillars on which the system is based) or corrective (including specific improvements to the model itself).

Non-retroactivity

With regard to the entry into force of any tax law, its retroactive application is contrary to law.  Regarding the exercise or moment from which it rules, We must distinguish whether we are dealing with a tax based on the fiscal year (annual or monthly) or a tax based on the event of a   product or service consumption.

With regard to the periodic taxes, there are two criteria regarding their validity: a) they can be applied in the same period in which they were created (Argentina, Brazil – exceptions-, etc.) or b) their application only corresponds to the year after the sanction of the reform (Chile, Peru, etc.).

As for the consumption taxes, the modifications apply to the facts or acts subsequent to the publication of the tax rule.

Their unpredictability

Taxes may change in the future, which raises particular concerns regarding significant investments, since these investments require a long time to mature and generate returns; therefore, any change in the established rules could have a serious economic impact on them.

Faced with pressure from investors, emerging economies—in order to bring these measures to fruition—established tax incentive programs and implemented rules on fiscal stability or fiscal invariance to ensure their continued validity for a specified period of time.

Tax stability or invariability

It is the mechanism through which tax laws[1]  are given a certain degree of permanence over time for specific economic activities considered high priority for a country’s development, with the aim of protecting investors from future legislative changes that could significantly alter their situation and thereby affect the economic viability of the investment.

The tax stability regime is applied as a dominant trend through the implementation of specific contracts called legal or tax stability, although in some cases through general rules[2].

Depending on the tax policy in effect, this immutability of the tax system may be accompanied by tax benefits or, conversely, by a surcharge for taking advantage of it[3].

The economic activity involved included primarily investments in non-renewable natural resources, although they gradually expanded to other sectors, namely tourism, knowledge economy, agriculture, forestry, non-renewable energy, etc.

Developed countries vs emerging countries

There is a clear distinction between the differing positions of developed countries—which uphold the stability of their tax systems as a principle, backed by their long and consistent record of accomplishment—and those of emerging countries, which experience significant fluctuations in tax burdens, creating a certain degree of uncertainty regarding the rules of the game.

Stability and tax certainty are the fundamental pillars used by the developed countries of the OECD to compete globally for the attraction of Foreign Direct Investment (FDI)[4], without the need to incorporate clauses of legal invariance.

The tax measures that are currently usually applied are:

(a) Corporate tax reduction: Members lower nominal interest rates for businesses to encourage productive investment.  

(b) Increase in social contributions: They offset the decline in corporate tax revenue by taxing labor to fund pensions and healthcare.

(c) Regulatory simplification[5]: They promote less bureaucratic burden in tax compliance compared to regions such as Latin America.

(d) Global Minimum Tax (15%)[6]: They harmonize the taxation of multinational groups to avoid unfair competition without destroying real incentives.

(e) Tax benefits[7]: They are awarded to the activities of greatest interest.

The trend in LAC

There are two strategies. The first holds that it is necessary to implement tax stability regimes to provide legal certainty to investors, while the second holds that legal certainty for foreign investment is achieved through the application of constitutional principles, sector-specific incentives, and international treaties, without the need to restrict the country’s future tax policy.

Countries that apply tax stability have, in turn, followed two legal approaches in implementing it, through the application of: a) a general regime or b) specific regimes based on economic activity.

The main measures adopted in the countries of the region are presented as follows:

Source: Author.

Conclusions

As can be seen, several LA countries, with the aim of encouraging investment, have reformed their tax systems by adopting the principle of tax stability or invariance to provide legal certainty for investments over a specific period of time.

In some of them, its legal viability involved the intervention of the Highest Court[13], such as the case of the Constitutional Court (TC) of Chile that distinguished the legality of the invariability of individual contracts, differentiating it from the variability of the law that underpins them, while in Honduras, on the other hand, several measures were declared unconstitutional. In the last regimes in LAC. Any disputes that may arise would be settled through mediation or arbitration[14].

In contrast, other countries prioritize maintaining their full fiscal sovereignty without including such clauses [15], so as not to constrain their future tax policy, arguing that the public interest must take precedence over private interests in order to address the changing dynamics of future economic processes.

[1] It can be a tax or a set of taxes that affect economic activity.

[2] For example, in Ecuador.

[3] Ecuador applies a 2% surcharge on Income Tax, Chile in the recently approved National Reconstruction Law applied a 1.5% surcharge on First Category Tax. In Colombia during the validity of the Tax Stability Regime of Law No. 963 of 2005 and its amending Law No. 1111 of 2006, a premium of 1 % was applied at the beginning and 2 % of the value of the investment thereafter.

[4] OECD (2026): “Governments are reforming tax systems to boost growth, but pressures on incomes continue to increase,” Paris.

[5] IDB (2025): “Strengthening investor confidence through tax certainty in Latin America and the Caribbean” Fiscal Management, Washington.

[6] IDB (2026) “Beyond the “Side-by-Side”: Three key adjustments of the Global Minimum Tax for Latin America and the Caribbean”, Fiscal Management, Washington.

[7]  According to the OECD (2026) in corporate tax, the average combined tax rate remained virtually stable for the third consecutive year at 21.2%, while governments continued to use specific incentives to support research and development, artificial intelligence, defense, and other strategically important sectors.

[8] Its original 10-year extension was approved in 2026, for an additional 20 years until 2045.

[9] 8 years of exemption from Income Tax extendable by the Council of Ministers. Then maximum rate 15% and exemption from reinvestment of profits

[10] Instability of the legal regime: Honduras has had a history of instability in the legal regime in recent decades, specifically, in the General Mining Law. After declarations of unconstitutionality of the law on two occasions, the Government must optimize its legislation to put an end to the questioning by civil society and communities.

[11] Investment Contracts for Megaprojects (Decree No. 477/2008).

[12] Compensation to protect fiscal stability against the Domestic Complementary Minimum Tax (IMCD)

[13] Chile, Honduras.

[14] Argentina, Venezuela, etc.

[15] Brazil, Mexico, etc. Although granting temporary tax benefits, following the strategy of the developed countries of the OECD.

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