Company formation in El Salvador 2024

El Salvador is a country with great opportunities for entrepreneurship in various sectors. There is potential for agriculture, manufacturing, tourism, and enterprise technology. The government of El Salvador supports the development of renewable energy to reduce dependence on oil. The country’s IT sector is also growing raping, offering a wide range of services to clients from all over the world.

El Salvador is a country with a population of over 6.5 million, located between North and South America. This makes it an attractive market for businesses looking to expand their customer base. The country has a GDP of $25.8 billion and a per capita income of $4,273 per year. These figures indicate the country’s growing economy and increasing consumer demand.

El Salvador is a country with a favorable business environment. It has one of the freest economies in Latin America, which means that the government does not interfere with businesses. In addition, the country uses the US dollar as its national currency, which ensures macroeconomic stability. El Salvador is also the first country to use Bitcoin as a legal tender, which opens up new business opportunities.

El Salvador is an open country for foreign business. Foreign companies can own businesses, merge, take over, and form joint ventures without any restrictions. In addition, El Salvador is party to several free trade agreements that provide duty-free access to 1.2 billion consumers in the Americas.

Companies that manufacture and export goods in El Salvador have the opportunity to begin operations in one of the country’s free trade zones (FTZs). Seventeen such areas are operating throughout the country. They provide various tax incentives available to businesses located in these FTZs. These incentives include:

income tax exemption;
exemption from municipal tax;
duty-free importation of machinery, equipment, intermediary goods, and raw materials used in the production process;
VAT exemption;
exemption from real estate transfer taxes if the land is intended for use in production activities.

Businesses in El Salvador’s free economic zones can sell goods and services both for export and on the domestic market. Goods and services sold on the domestic market are subject to normal tax rules.

The ease of company registration and incorporation, as well as El Salvador’s attractive legal and regulatory framework, have long been factors contributing to the growth of business opportunities in the country.

Advantages of Company Registration in El Salvador

Registering a business in El Salvador offers several benefits for entrepreneurs and companies looking to expand in Central America and beyond. Here are some of the key benefits of setting up a company in El Salvador:

Strategic Location
El Salvador is strategically located between North and South America, providing easy access to both major markets. This strategic location makes it an ideal hub for businesses looking to reach a broad customer base throughout the Americas.

Favorable Business Environment
El Salvador has one of Latin America’s most open and business-friendly environments. The government has taken various measures to encourage foreign investment and business, including tax incentives, simplified registration processes, and a favorable legal framework.

Free Trade Zones
El Salvador boasts 17 free trade zones (FTZs) that offer several tax incentives and benefits to companies operating within their borders. These FTAs create an attractive environment for manufacturing, export-oriented, and logistics businesses. They also provide access to a wide range of international markets.

Stable economy
El Salvador has a stable macroeconomy with a growing GDP and low inflation. The country also uses the U.S. dollar as its official currency, providing stability and predictability for businesses.

Skilled Labor Force
El Salvador has a well-educated and skilled labor force with a literacy rate of over 95%. The country’s labor costs are relatively low compared to other developed countries, making it an attractive option for labor-intensive industries.

Government support
The government of El Salvador actively supports foreign investment and business development. The government offers various programs and initiatives to help businesses establish and expand their operations in the country.

Ease of company registration
The process of registering a company in El Salvador is relatively simple and can be completed within a few weeks. The government has made significant efforts to simplify the registration process and reduce bureaucracy.

Attractive tax regime
El Salvador’s tax system is one of the most attractive in Latin America. The value-added tax (VAT) rate is only 13% and the dividend tax is 10%. In addition, the government offers various tax incentives for foreign investors, making El Salvador even more attractive for doing business.

Growth potential
El Salvador is a developing country with a rapidly growing economy. The country’s infrastructure is improving and the consumer market is expanding, offering exciting business opportunities in a variety of sectors.

Economic Efficiency
El Salvador offers a relatively low cost of living and business operations compared to other developed countries. This makes it an attractive option for businesses looking to control costs and maximize profits.

Requirements for Company Formation in El Salvador

The rules for doing business in El Salvador are defined in the country’s Commercial Code, which regulates the process of company formation. The legal requirements for doing business may vary depending on the type of company chosen. Typically, they include:

registration of a trading name;
obtaining a taxpayer identification number;
obtaining business licenses from the municipality in which it is located (if applicable);
the company must open a corporate bank account with a Salvadoran bank;
the minimum capital amount for a limited liability company is US$2,000; the minimum capital amount for a corporation is US$10,000;
the company must have a local representative in El Salvador (not necessarily a director);
the company must have a registered address in El Salvador;
compliance with labor laws and regulations.

It is recommended that you consult with a qualified legal or tax advisor to determine the specific requirements for your business.

Types of Business Entities in El Salvador

There are several types of business companies in El Salvador, each with its characteristics:

Individual entrepreneur (Empresario Individual).
This is a form of business in which an individual owns and operates the business. The owner does not share responsibility for his assets. The main advantages of this type are simplicity of creation and management, and single responsibility.

Limited Liability Company (Sociedad de Responsabilidad Limitada, SRL).
This is a form of limited liability where the owners are known as “socials” (partners) and are only liable to the extent of their investment in the company. This company structure is popular among private companies and also in cases where investment from third parties needs to be raised.

Corporation (Sociedad Anónima, SA).
The corporation is a more complex structure with shareholders (accionistas) and a board of directors (consejo de administración). The shareholders are not personally liable for the debts of the company. The advantages include limited liability of shareholders and easily transferable shares.

Limited Liability Corporation (Sociedad Anónima de Capital Variable, SA de CV).
This is the most common type of corporate business structure in El Salvador, which is a legal form of company that combines the features of a joint stock company with limited liability and has variable capital. The advantages of this form are:

protection of the shareholders’ assets;
certain tax benefits, such as exemption from certain taxes and reduced tax rates;
ease of formation – S.A. de C.V. companies are relatively easy to form and manage compared to other corporate structures;
S.A. de C.V. companies offer flexibility in terms of capital structure and share ownership.

Branch (Sucursal).
A branch is a division of a foreign company that operates in El Salvador. The branch can perform business operations on behalf of its foreign parent company and can utilize the resources of the foreign company.

A limited partnership (Sociedad en Comandita).
This is a structure in which there are two types of partners: shareholders with limited liability (comanditarios) and shareholders with unlimited liability (comanditados). The main advantage is the division of responsibility between the different types of partners.

These forms provide entrepreneurs with different options to set up and manage their businesses in El Salvador. Before choosing the type of company, it is advisable to obtain professional advice to assess your specific needs and circumstances.

Process of Company Formation in El Salvador

Selecting the legal structure of the company.

Determine the desired legal structure for your company. Fast Offshore Licenses lawyers can help you choose the appropriate structure to suit your goals and objectives.

Trade Name Registration.

Check the availability of your chosen trade name and register it with the Commercial Registry of El Salvador.

Preparation of legal documentation.

Draft the necessary legal documents such as company charters and articles of incorporation. The list of documents also includes certified copies of the identity of the board of directors, proof of physical address, bank statements, etc.

Obtain a tax identification number (NIT).

Obtain a tax identification number (Número de Identificación Tributaria or NIT) from the Dirección General de Impuestos Internos (DGII), the tax authority of El Salvador.

Opening a corporate bank account.

Open a corporate bank account at a local bank. The bank may require certain documents, including NIT and company registration.
Registering with the Social Security Institute.

To complete the company registration process, you must deposit at least 5% of the authorized capital into the corporate account. Most banks in El Salvador require your presence to open a corporate account. However, some local banks offer the possibility to carry out the process remotely or through an intermediary.

Register Employees with ISSS in El Salvador

Register your employees with Instituto Salvadoreño del Seguro Social (ISSS), a social insurance institution in El Salvador.

Registration with other government agencies.

Once your registration is approved, you will need to go to the Ministry of Labor to officially register your company under Salvadoran law.
You will also need to complete the company registration process with the Ministry of Finance (Ministerio de Hacienda) within 15 days of receiving approval of registration.
In addition, depending on your company’s activity, you may need environmental permits and specialized licenses from the relevant authorities.

Keep in mind that regulations and requirements are subject to change, so it is advisable to obtain up-to-date information from Fast Offshore Licenses legal professionals before starting the process.

Tax and accounting obligations

The tax authorities in El Salvador are the Ministerio de Hacienda, which is responsible for tax administration in El Salvador, and the Tax Administration (Administración Tributaria), which is responsible for tax collection.

El Salvador’s tax system is one of the most attractive in Latin America. The value-added tax (VAT) rate is only 13% and the dividend tax is 10%. In addition, the government offers various tax incentives for foreign investors, making El Salvador even more attractive for doing business.

The main types of taxes in El Salvador are:

Value Added Tax (VAT).
VAT is levied on all goods and services sold in El Salvador. The standard value-added tax rate is 13%, with a zero tax rate for exports of goods and services. There are also various VAT exemptions for certain foreign entities and certain individuals under the terms of reciprocal agreements.

Corporate Income Tax.
The corporate income tax (CIT) rate is 30% and is applied to a company’s total income. For those companies whose taxable income for the fiscal year is equal to or less than US$150,000, there is a reduced corporate income tax rate of 25%.

The corporate tax system in El Salvador is based on the principle of territoriality. This means that taxes are paid on goods that are sold in El Salvador, services that are rendered in El Salvador, and capital that is invested in El Salvador. However, there are exceptions to this rule. For example, income from securities and financial instruments issued by companies domiciled in El Salvador is considered to be earned in El Salvador, even if it is earned outside the country.

Property Tax.
Property tax is levied on owners of real estate in El Salvador. The property tax rate depends on the type of property and its location.

Dividend Tax.
Dividend tax is levied on dividends paid by legal entities to their shareholders. The tax rate on dividends is 10%.

In addition to the zero rate of VAT for foreign companies exporting goods and services, El Salvador has several tax incentives for foreign investors to attract and maintain foreign investment:

Foreign investors can receive tax vacations of up to 10 years for new investments in certain sectors such as manufacturing, exports, and tourism.
Foreign investors can receive reductions in income and property taxes.
Corporate Income Tax (CIT) Reliefs – several incentives provide reduced income tax rates for certain types of investments or companies, depending on their size and field of activity.
Property tax exemption – property tax exemptions for foreign investors may be available in certain cases.

Also on June 5, 2023, a new Law for the Promotion of Innovation and Manufacturing of Technologies went into effect. Such activities include programming, development, and commercialization of services related to new technologies such as cloud infrastructure, artificial intelligence, big data, and distributed ledger technology.

Benefits include exemptions for up to 15 years from income, estate, and capital gains taxes, as well as exemption from import duties on the importation of goods, equipment, and tools necessary for the creation of software and hardware.

Application for the special tax regime provided for in the Innovation Law is made through the Investment Department of the Ministry of Economy. This process takes approximately 20 working days from the date of finalization of all necessary documents.

FAQ about a Company formation in El Salvador

How to register a company in El Salvador?

Starting a business in El Salvador involves choosing a legal entity form, determining the name of the company, registering it with the Salvadoran State Registry, obtaining a tax identification number, and opening a corporate bank account. More information about this process can be obtained by contacting the business consultants at Fast Offshore Licenses.

How much does it cost to register a company in El Salvador?

The cost of incorporating a company in El Salvador can vary depending on several factors, including the type of legal structure, legal assistance services, and additional fees associated with the incorporation process.

How long does it take to register a company in El Salvador?

The time required to register a company in El Salvador can vary depending on the complexity of the business structure and the completeness of the documentation provided. However, in general, company registration in El Salvador usually takes 2-4 weeks.

Is El Salvador a good place to start a business?

Yes, El Salvador can be a good place to start a business. The country has several factors that make it attractive to entrepreneurs and investors.

What is SA de CV in El Salvador?

SA de CV stands for “Sociedad Anónima de Capital Variable” in Spanish, which translates to “Variable Capital Corporation” in English. This is the most common type of corporate business structure in El Salvador.

Can a foreigner own a business in El Salvador?

Yes, foreigners can own a business in El Salvador. The country’s constitution guarantees equal treatment of foreign and domestic investors, and there are no restrictions on foreign ownership of a business. Moreover, the Salvadoran government actively encourages foreign investment and has taken various measures to make it easier for foreigners to start and operate a business in the country.