Company formation in El Salvador Overview
El Salvador is a country with enormous opportunities for entrepreneurship in various sectors. There is potential for the development of agriculture, manufacturing, tourism, and corporate technology. The Salvadoran government supports the development of renewable energy sources to reduce dependence on oil. The country’s IT sector is also growing rapidly, offering a wide range of services to customers from all over the world.
El Salvador is a country with a favorable business climate. The country’s economy is one of the freest in Latin America, which means there is no state interference in business activities. In addition, the US dollar is used as the national currency, which ensures macroeconomic stability. El Salvador also became the first country to accept Bitcoin as legal tender, opening up new opportunities for business.
Time to register a company
7 to 14 business days
Average register a company timeline
Typical paid-up capital
US$2,000 – US$10,000
The minimum paid-up capital
Tax rate
25%
Corporate tax rate
El Salvador is a country open to foreign business. Foreign companies can own businesses, merge, acquire them, and establish company formation in El Salvador without any restrictions. In addition, El Salvador is a party to several free trade agreements that provide duty-free access to 1.2 billion consumers in North and South America.
Companies that produce and export goods in El Salvador have the opportunity to start their activities in one of the country’s free trade zones (FTZs). There are seventeen such zones in the country. The ease of company registration in El Salvador, as well as the country’s attractive regulatory framework, have long been factors contributing to the growth of business opportunities in the country.
General information
| Country name | Republic of El Salvador |
| Capital | San Salvador |
| Official language | Spanish |
| Currency | US dollar (USD) |
| Time zone | Central Time Zone (UTC-6) |
| Business entities | Corporations (SA), Limited Liability Companies (SRL), Partnerships |
| Regulatory authority | Ministry of Economy and Superintendent of Financial Systems |
| Foreign ownership | 100% foreign ownership is permitted in most sectors. |
Advantages of Company Registration in El Salvador
Registering a business in El Salvador offers a number of advantages to entrepreneurs and companies seeking to expand in Central America and beyond. Here are some of the main advantages of setting up a company in El Salvador:
Strategic location.
El Salvador is strategically located between North and South America, providing convenient access to both major markets. This strategic location makes it an ideal hub for companies seeking to reach a broad customer base throughout the Americas.
Favorable business environment.
El Salvador is one of the most open and business-friendly countries in Latin America. The government takes various measures to encourage foreign investment and business, including tax incentives, simplified registration procedures, and a favorable legal framework.
Free trade zones.
El Salvador has 17 free trade zones (FTZs) that offer companies operating within their territory a range of tax incentives and benefits. These free trade zones create attractive conditions for manufacturing, export-oriented, and logistics companies. They also provide access to a wide range of international markets.
Stable economy.
El Salvador has a stable macroeconomy with growing GDP and low inflation. The country also uses the US dollar as its official currency, which provides stability and predictability for businesses.
Skilled workforce.
El Salvador has a highly educated and skilled workforce with a literacy rate of over 95%. The cost of labor in the country is relatively low compared to other developed countries, making it an attractive option for labor-intensive industries.
Government support.
The Salvadoran government actively supports foreign investment and business development. The government offers various programs and initiatives to help companies develop and expand their activities in the country.
Ease of company registration.
The process of registering a company in El Salvador is relatively simple and can be completed in a few weeks. The government has made significant efforts to simplify the registration process and reduce bureaucratic red tape.
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 and a population of over 6.5 million people, located between North and South America. This makes it an attractive market for companies seeking to expand their customer base. The country’s GDP is US$25.8 billion, and its per capita income is US$4,273 per year.
Economic efficiency.
El Salvador offers a relatively low cost of living and doing business compared to other developed countries. This makes it an attractive option for companies seeking to control costs and maximize profits. These indicators point to the country’s economic growth and increased consumer demand.
Ready to Start Your Company in the El Salvador?
Our experts will accompany you at every stage of the opening process, ensuring its smoothness and efficiency.
Requirements for Company Formation in El Salvador
The rules for doing business in El Salvador are set out in the country’s Commercial Code, which regulates the process of registering companies. The legal requirements for doing business may vary depending on the type of company chosen. As a rule, they include:
- registration of a trade name;
- obtaining a taxpayer identification number;
- obtaining a business license 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 for a limited liability company is US$2,000; the minimum capital 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 commercial companies in El Salvador, each with its own characteristics:
Sole Proprietorship (Empresario Individual).
This is a form of business in which an individual owns and manages the business. The owner is not liable for their assets. The main advantages of this type are simplicity of creation and management, as well as single liability.
Limited Liability Company (Sociedad de Responsabilidad Limitada, SRL).
This is a form of limited liability company in which the owners are called “socios” (partners) and are liable only to the extent of their investment in the company. This type of company structure is popular among private companies, as well as in cases where it is necessary to attract investment from third parties.
Corporation (Sociedad Anónima, SA).
A corporation is a more complex structure with shareholders (accionistas) and a board of directors (consejo de administración). Shareholders are not personally liable for the company’s debts. The advantages include limited liability for shareholders and the ability to easily transfer shares.
Limited liability company (Sociedad Anónima de Capital Variable, SA de CV).
This is the most common type of corporate structure in El Salvador, representing an organizational and legal form that combines the features of a joint-stock company with limited liability and variable capital. The advantages of this form are:
Branch (Sucursal).
A branch is a division of a foreign company operating in El Salvador. A branch may conduct commercial activities on behalf of its foreign parent company and use its resources.
Limited partnership (Sociedad en Comandita).
This is a structure in which there are two types of partners: limited partners (comanditarios) and general partners (comanditados). The main advantage is the division of liability between the different types of partners.
These forms provide entrepreneurs with various options for setting up and managing a business in El Salvador. Before choosing a company type, it is advisable to seek professional advice to assess your specific needs and circumstances.
Types of companies
| Corporation (CPC) | A widely used structure that requires a minimum of two shareholders and has limited liability. |
| Limited Liability Company (SRL) | Requires a minimum of 2 and a maximum of 25 members, providing limited liability protection. |
| Partnership | Allows two or more individuals to conduct business together, sharing duties and responsibilities. |
Process of Company Formation in El Salvador
Selecting the legal structure of the company.
Determine the desired legal form of your company. Fast Offshore Licenses lawyers will help you choose the appropriate structure that suits your goals and objectives.
Trade Name Registration
Check the availability of your chosen trade name and register it with the El Salvador Trade Registry.
Preparation of legal documentation
Prepare the necessary legal documents, such as the company’s articles of association and founding documents. The list of documents also includes certified copies of the board members’ IDs, proof of actual 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), El Salvador’s tax authority.
Post-registration procedures
After registering a company, the next step is to open a bank account. Although this process can be complicated, Fast Offshore Licenses offers professional assistance, making it easier and faster for clients.
Opening a corporate bank account.
Open a corporate bank account at a local bank. The bank may require certain documents, including your tax identification number (NIT) and company registration. Register 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 you to be present in person to open a corporate account. However, some local banks offer the option of completing the process remotely or through an intermediary.
Banking
| State-owned banks | Several state-owned banks focus on development projects. |
| Central Bank | The Central Reserve Bank of El Salvador (BCR) manages monetary policy and banking regulation. |
| Number of banks | About 13 banks, including local and international institutions. |
| Credit rating | Moody’s B3 rating, indicating moderate credit risk. |
| Corruption ranking | Ranked 112th in the world on Transparency International’s Corruption Perceptions Index. |
| Judicial system | Independent judicial system, but it faces problems related to efficiency and corruption. |
Ready to Start Your Company in the El Salvador?
Our experts will accompany you at every stage of the opening process, ensuring its smoothness and efficiency.
Register Employees with ISSS in El Salvador
Register your employees with the Instituto Salvadoreño del Seguro Social(ISSS), the social security institution in El Salvador.
Registration with other government agencies
Once your registration has been approved, you will need to contact the Ministry of Labor to officially register your company in accordance with 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 registration approval.
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 provides various tax incentives to foreign investors, making El Salvador even more attractive for doing business.
The main types of taxes in El Salvador
- Value added tax (VAT).
VAT is levied on all goods and services sold in El Salvador. The standard value-added tax rate is 13%, while exports of goods and services are subject to a zero rate. There are also various VAT exemptions for certain foreign organizations and individuals under the terms of reciprocal agreements.
- Corporate income tax.
The corporate income tax (CIT) rate for Set up a business in El Salvador is 30% and applies to the company’s total income. For companies whose taxable income for the fiscal year is equal to or less than US$150,000, a reduced corporate income tax rate of 25% applies.
El Salvador’s corporate tax system is based on the principle of territoriality. This means that goods sold in El Salvador, services provided in El Salvador, and capital invested in El Salvador are subject to tax. However, there are exceptions to this rule. For example, income from securities and financial instruments issued by companies registered in El Salvador is considered to be earned in El Salvador, even if it is received 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.
The standard VAT rate is 7%, 10% for alcoholic beverages, and 15% for tobacco products. Some goods, such as food and medical services, are exempt from VAT.
Dividends paid by legal entities to their shareholders are subject to dividend tax. The dividend tax rate is 10%.
In addition to a zero VAT rate for foreign companies exporting goods and services, El Salvador offers a number of tax incentives for foreign investors to attract and retain foreign investment:
- Foreign investors can receive tax holidays of up to 10 years for new investments in certain sectors, such as manufacturing, exports, and tourism.
- Foreign investors can receive income and property tax benefits.
- Corporate income tax (CIT) benefits — a number of benefits provide reduced income tax rates for certain types of investments or companies, depending on their size and field of activity.
- Property tax exemption. In certain cases, foreign investors may be granted property tax incentives.
Also, on June 5, 2023, a new Law on the Promotion of Innovation and Technology Production came into force. These include programming, development, and commercialization of services related to new technologies such as cloud infrastructure, artificial intelligence, big data, and distributed ledger technology.
The benefits of El Salvador business incorporation include exemption from income tax, property tax, and capital gains tax for up to 15 years, as well as exemption from import duties on the import of goods, equipment, and tools necessary for the creation of software and hardware.Applications for the special tax regime provided for in the Innovation Law are submitted through the Investment Department of the Ministry of Economy. This process takes approximately 20 business days from the date of submission of all required documents.
Taxation
| Corporate tax rate | Usually 30% of net income. |
| VAT | The standard rate for most goods and services is 13%. |
| Capital gains tax | Capital gains are usually taxed as ordinary income at the corporate tax rate. |
| Tax incentives | Free trade zones available in certain sectors, such as tourism and renewable energy, may offer advantages. |
El Salvador Information
Corporate structure
| Legal System | Based on civil law with influences from Spanish law. |
| Local registered office | Mandatory for all companies; must have a physical address in El Salvador. |
| Local registered agent | Mandatory appointment of a local registered agent to ensure compliance and legal correspondence. |
Corporate governance
| Board of Directors | Required for corporations, typically consisting of at least 3 directors, who may be residents or non-residents. |
| Shareholders’ meetings | Meetings must be held annually with minutes taken and kept. |
| Disclosure requirements | Companies are required to disclose financial statements and other relevant information to shareholders. |
FAQ about a Company formation in El Salvador
How to form a company in El Salvador?
Starting a business in El Salvador involves choosing a legal form, determining the name of the company, registering it in the El Salvador State Registry, obtaining a taxpayer identification number, and opening a corporate bank account. For more information about this process, please contact Fast Offshore Licenses business consultants.
How much does it cost to register a company in El Salvador?
The cost of registering a company in El Salvador can vary depending on a number of factors, including the type of legal structure, legal assistance services, and additional fees associated with the registration process.
How long does it take to register a company in El Salvador?
The time it takes to register a company in El Salvador can vary depending on the complexity of the company structure and the completeness of the documentation provided. However, as a rule, it takes between 2 and 4 weeks to register a company in El Salvador.
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 a number of 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” (Sociedad Anónima de Capital Variable), which translates as “Corporation with Variable Capital.” This is the most common type of corporate business structure in El Salvador.
Can a foreigner start a business in El Salvador?
Yes, foreigners can own businesses in El Salvador. The country’s constitution guarantees equal treatment for foreign and domestic investors, and there are no restrictions on foreign ownership of companies. Moreover, the Salvadoran government actively encourages foreign investment and takes various measures to make it easier for foreigners to start and run businesses in the country.
