Damalion El Salvador desk
Doing business in El Salvador
El Salvador is popular for its volcanoes, its beaches on the Pacific, its tropical climate, and its abundance of natural beauty. This makes it recognized for its natural wonders, but the country is more than a tourist attraction.
El Salvador has one of the most stable economies in Latin America. It has an attractive and dynamic business environment that is concentrated on building credible macroeconomic fundamentals and strong institutions and creating a fair, more honest society in which all citizens benefit from economic growth.
El Salvador has several trade treaties and agreements with countries that allow it to have access to a potential market of over 1 billion consumers. It’s also currently experiencing good economic growth and is fast becoming a place of interest for foreign investment.
In addition, El Salvador has recently made headlines by making Bitcoin legal tender.
The key advantages of doing business in El Salvador
- There are unrivaled trade opportunities that investors and entrepreneurs can get in El Salvador.
- In an effort to encourage investment and job creation, the government of El Salvador has provided tax incentives to businesses in certain sectors.
- The country is located in the heart of Central America and it has a strategic location for doing business with other countries in the region.
- El Salvador has a young and skilled labor force which boosts the country’s competitiveness, and these individuals can develop more abilities by being part of global companies in different areas like service, agriculture, and manufacturing.
- El Salvador has also made substantial improvements in its business environment, including facilitating business registration and decreasing bureaucracy.
- El Salvador has signed several bilateral investment treaties which protects foreign investments in the country.
El Salvador’s legal system is a civil law system, that is based on the Spanish legal tradition.
It is governed by the Constitution of El Salvador and is composed of various branches, including the judiciary, the legislature, and the executive.
Entity choice in El Salvador
El Salvador’s government policies have been friendly toward foreign investment, so this country is generally welcoming of foreign investment.
Foreign direct investment has been playing an important role in driving the country’s rapid modernization. It has also helped sustain economic growth.
For foreign investors and entrepreneurs looking to do business and set up a company in El Salvador, the most common legal forms chosen are listed below:
Limited Liability Company (Sociedad de Responsabilidad Limitada)
This is an el Salvador company structure in which the partners have limited liability over the company’s capital.
- This company structure is most generally used by private companies
- this company may be established by other entities or individuals or an assortment of both.
- the partners of the company have limited liability over the company’s Social Participation.
- this company’s capital investment is not reliant on stocks, but on well-established membership interests.
Corporation /Public Limited Company or Sociedad Anónima (SA)
This is the most popular type of El Salvador company since it can be incorporated with only one shareholder.
- It requires only one shareholder
- It may be formed by other entities, individuals, or an assortment of both.
- the company capital is based on stocks
- It requires legal representation which can either be a board of directors or independent management
- It does not limit the number of shareholders that can participate at a managerial level.
- This company’s share capital is nominally represented in shares that can be willingly transferred.
- there is no maximum term of validity, so the company validity is indefinite.
- The company name must include the words “Sociedad Anónima”.
This is an authorized extension of a foreign company used to develop trade within El Salvador.
- It must operate under the same name in El Salvador as that of its origin country.
- It must register its capital at the National Investment Office of the Ministry of Economy, and the Commercial Registry.
- It must have a permanent company legal representative in El Salvador.
- It may only commence operations when it has been fully registered with the proper authorities.
Are you interested in registering your company in El Salvador? Contact your Damalion expert now.
El Salvador’s financial sector is regulated by the Central Bank (Banco Central de Reserva – BCR), which is supported by the Superintendent of Banks (Superintendencia del Sistema Financiero – SSF) – the independent regulatory agency, which authorizes and governs all financial institutions in El Salvador, the Superintendent of Pensions (SP), the Institute of Guarantees and Deposits (IGD), and the Superintendent of Securities (SV).
The BCR is responsible for exchange controls. It also promotes and maintains the monetary, exchange, and financial conditions that extensively benefit the stability of El Salvador’s economy.
Commercial banking services in this country are provided by fourteen institutions: twelve private and two state-owned banks. And thanks to El Salvador’s continual reforms in the financial sector, these commercial banks have solidified a strong banking community, with positive tax laws that bring in foreign investment.
Banking in El Salvador
Moving to El Salvador for business or any other reasons that may make you stay in the country long term? You will have unique banking and investment needs. El Salvador is a country that is fast rising and it has several banks with the ability to provide these needs.
With the right paperwork (identification documents such as a passport or ID card, proof of address, and proof of income), it is possible for you as a foreign to open a bank account in El Salvador.
The process of opening a bank account in El Salvador generally involves:
- choosing the applicable bank (there are several banks in El Salvador. research their account options and requirements to find the most ideal one for your needs)
- gathering the required documents
- visiting the bank of your choice with the required documents
- completing the application form
- Depositing the required initial deposit, and
- Waiting for the account to get approved and activated.
Aside from personal accounts, foreign business entities can also open a corporate bank account in El Salvador, they just have to establish a company in the country first.
When planing on opening a bank account in El Salvador, it’s highly recommended to get professionals to guide through the process. Contact your Damalion expert now to open a bank account in El Salvador.
Aside from the low cost of living, fantastic climate, and beach-worthy weather, El Salvador also promises a unique and great experience and is a great place to reside.
Tourists can enter and stay in El Salvador for a period of 90 days but anyone intending to stay in El Salvador beyond this period needs to apply for a residency permit.
Residency permit in El Salvador
This is a permit for individuals who want to stay in El Salvador for an extended period of time. The types of residency permits available in El Salvador include temporary residency and permanent residency.
Temporary residency in El Salvador
This is for individuals who plan to stay in El Salvador for a period of up to two years.
There are several ways to obtain temporary residence in El Salvador. Among these are:
- Work: this is for individuals who have a job offer in El Salvador.
- Family reunification: this is for family members of Salvadoran citizens who want to join their family in El Salvador.
- Humanitarian: this is for individuals who need protection or aid due to humanitarian reasons.
- Student: this is for individuals who want to study in El Salvador.
- Refugee: this is for individuals who have been bestowed refugee status in El Salvador because of a well-founded fear of persecution in their country.
- Retiree: this is for individuals who are retired and plan to live in El Salvador. To obtain this type of residency, applicants need to be at least 55 years old, provide proof of their retirement status, and have a salary of three minimum wages in the commerce and services sector.
- Rentista permit: this is designed for ‘people of means’ who wish to live in El Salvador.
- Investor: this is for individuals who invest a specified amount in a local business or real estate in El Salvador. El Salvador is also offering immediate permanent residency for Bitcoin/crypto investors in the country.
Other types of temporary residency permit in El Salvador include Business, Commercial Representative, Accompany, Shareholder, Individual Traders, Victims of Trafficking, Religious Reasons, and Cooperating Temporary Residence.
Among all of these, the most popular one is the Investor Residence permit.
Permanent residency and citizenship in El Salvador
Permanent residency is for individuals who plan to stay in El Salvador for an extended period of time, generally more than two years.
After living in El Salvador for three years as a temporary resident, foreign nationals can apply for permanent residency, and after five years of residency, one can apply for citizenship.
The tax system in El Salvador is based on principles of territoriality by which only income yielded in the territory and from a Salvadoran source is subject to income tax. Also, all individuals and legal entities are taxed on their taxable income, and this includes income from employment, investments, and other sources. All El Salvadoran taxpayers must file tax returns with the appropriate tax authorities.
Types of taxes in El Salvador
Individuals and corporations in El Salvador are subject to income tax on their taxable income.
Tax generally is charged on all income of residents and nonresidents of El Salvador, arising from their Salvadoran sources, and these include income developed from employment, and goods and services. The income tax rate for individuals generally ranges from 0% to 30%, but it depends on the income bracket.
Corporate income tax is levied on companies incorporated in El Salvador. The taxable income is specified by subtracting all necessary costs and expenses, and other specific deductions established by the law from the company’s gross income. The corporate income tax rate is 30% in El Salvador.
Value-added tax (VAT)
VAT in El Salvador applies to the transfer of movable goods, and the provision of services and imports, but the exports of goods or services are exempt. The taxable amount is the price agreed upon by the parties, but for imports, it is the customs value. The standard VAT rate in El Salvador is 13%.
Property tax in El Salvador is imposed on real estate and other properties owned by individuals and companies, and its rate varies depending on the value of the asset.
Capital gains tax
This tax is imposed on profits from the sale of assets such as real estate, and bonds. And its rate in El Salvador is 10%.
This tax is charged on specific types of documents, such as legal contracts and property transfers. And its rate is 0.5% of the value of the transaction in El Salvador.
These taxes are imposed on certain goods, e.g, alcohol, tobacco, and luxury goods. And its rates differ depending on the type of product.
Municipalities in El Salvador particularly establish the activities or matters to be taxed and the circumstances that apply. Each municipality may levy extra taxes on property, businesses, and services provided within their jurisdiction.
El Salvador only has one tax treaty signed, and this is with Spain.
In El Salvador, intellectual property is regulated and protected by national laws and international treaties to which El Salvador is a signatory. The country has a legal framework that provides for the registration, enforcement, and protection of Intellectual property rights.
Intellectual property in El Salvador is classified into the following categories:
- A patent is a certificate granted by the country in which it acknowledges that an invention has been made and that it belongs to the owner of the patent.
- A patent grants the owner the sole right to prevent third parties from copying, using, or exploiting his invention without his approval.
- Patents are granted by the DGPI (General Directorate of Intellectual Property) in El Salvador.
- Patents provide protection for up to 20 years from the date of filing.
- A trademark is considered any sign or combination of visually perceptible signs used to identify and distinguish goods and services.
- The registration of a trademark will give the owner the sole right to prevent third parties from using his mark, without his permission for the goods or services for which it is registered.
- Trademarks in El Salvador are registered with the DGPI (General Directorate of Intellectual Property). Also, the Department responsible for preserving a public register of trademarks in El Salvador, is The National Registration Center NBC.
- Trademark protection lasts for 10 years in El Salvador, and can be renewed indefinitely.
- Copyright in El Salvador is protected by the Copyright Law, and it grants sole rights to authors and creators of original works.
- This law protects the economic and moral rights of Salvadoran authors and foreigners residing in El Salvador.
- The law protects the works of personal creation, that is, originality.
- Copyright protection in El Salvador lasts for the lifetime of the author plus 70 years after their death. In case of being an unidentified or pseudonym work, the protection shall be 70 years.
Industrial designs protect the appearance of a product. In El Salvador, industrial designs are registered with the DGPI (General Directorate of Intellectual Property) and are protected for up to 15 years.
The legal framework in El Salvador authorizes a rights owner to register and defend any intellectual property asset employed by a corporation, it also provides for the enforcement of IP rights through civil, criminal, and executive proceedings.
LABOR AND EMPLOYMENT
Labor and employment laws in El Salvador are overseen by the Salvadoran Labor Code, and this summarizes the rights and obligations of both employers and employees.
Employment contracts in El Salvador
Employment contracts are mandatory in El Salvador. These employment contracts can be oral or written, and they must spell out the terms of the employee’s payment, benefits, and termination requirements.
These are the most common types of employment contracts in El Salvador:
- Indefinite-term employment contract: this type of contract is used when an employee is integrated into a work team to conduct activities within the company continually. This type of contract only end when both parties come to a mutual agreement.
- Fixed-term employment contrasts: this type of contract is typically used for the development of short-and medium-term projects in El Salvador. It usually lasts for days, weeks, or months, but no longer than one year. These types of contracts are commonly used to take the place of an employee that is on leave.
Employment benefits in El Salvador
- Working hours: standard working hour per week in El Salvador is 44 hours (eight hours per day). For night employees, the maximum work week is 39 hours long, based on seven-hour shifts. Employees may be prone to overtime but overtime is subject to extra pay.
- Minimum wage: the minimum wage in El Salvador varies by region and profession, so it’s not definite.
- Discrimination: El Salvador employees are forbidden from discriminating against employees based on their gender, religion, race, or other protected features.
- Paid leave: aside from mandatory public holidays, employees in El Salvador are entitled to paid annual leave of at least 15 days per year.
- Maternity and paternity leave: in El Salvador, 12 weeks of paid maternity leave are granted to new mothers, of six weeks must be taken after the due date of the birth. Also, under employment law in El Salvador, fathers receive 3 days of paternity leave and this can be used within the first 15 days of the birth of the child.
- Sick leave: under employment law in El Salvador, employees are entitled to sick leave. For serious ailments, the employers must handle the first three days of the illness, and social security will handle the rest of the medical leave at 75% of the salary.
- Bereavement leave: bereavement leave is granted in the event of the loss of immediate family and lasts for as long as required.
- Termination and severance: El Salvador employers must provide notice and just cause for terminating an employee. Compensation is obliged when an unjustified dismissal occurs. The amount of severance will be based on the employee’s length of service and salary.
Are you ready to set up shop in El Salvador?
Your Damalion experts are here to help. We have the expertise and experience that allows us to guide clients during the activity of building a company in El Salvador. We also provide several integral business solutions, including compliance, taxation, entity management, accounting, payroll support, and many more across El Salvador.
Contact us now to register your company in El Salvador.
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