What should I consider when establishing a business in El Salvador?
Want to start a company in El Salvador?
El Salvador, strategically located in the heart of Central America, offers unique tax incentives and business opportunities for entrepreneurs. If you want to start a company in El Salvador, it is essential to understand the types of business structures available and the key steps to register your business successfully.
Establishing a business in El Salvador ensures access to a strong legal framework that protects both local and foreign investments. Below, we provide a comprehensive guide on how to start a business in El Salvador, including legal procedures, tax incentives, and the benefits of setting up your company in this dynamic business environment.
The most common business entities in El Salvador include:
1. General Partnership (Sociedad en Nombre Colectivo – SNC)
A general partnership in El Salvador is formed under a trade name, including the names of one or more partners. All partners share responsibility for the company’s obligations and actively participate in its management.
The capital is composed of quotas or capital participations, which can be unequal (Articles 73 to 92 of the Commercial Code of El Salvador).
2. Limited liability company (Sociedad de Responsabilidad Limitada – SRL)
A Limited Liability Company (LLC) in El Salvador is ideal for small businesses with a limited number of partners. This structure protects personal assets from business liabilities and requires a designated trade name followed by “Limitada” or “Ltda.”
It is suitable for smaller companies with a reduced number of partners and limited capital requirements. (Articles 101 to 124 of the Commercial Code of El Salvador).
3. Corporation (Sociedad Anónima – S.A.)
It is a company in El Salvador established under a single denomination, immediately followed by “Sociedad Anónima” or “S.A.”.
A Corporation (S.A.) in El Salvador is recommended for medium and large businesses seeking to raise capital through share sales. The liability of shareholders is limited to the value of their investment.(Articles 191 to 295 of the Commercial Code of El Salvador).
4. Sole proprietorship with limited liability (Empresa Individual de Responsabilidad Limitada – EIRL)
It is a company in El Salvador, in which a natural or juridical person, known as an entrepreneur, invests a part of its assets to carry out one or more economic activities, allowing the owners to limit their liability for commercial obligations; it can operate under the name of the owner or a specific denomination followed by “Empresa de Responsabilidad Limitada” or “E. de R. L.”. (Articles 600 to 622 of the Commercial Code of El Salvador).
Establishing a business in El Salvador
Incorporating a company in El Salvador offers multiple advantages, including: strategic location with access to international markets through free trade agreements (FTAs), tax incentives to promote business growth and foreign investment, monetary stability, as the US dollar (USD) is the official currency, skilled and young workforce, ideal for business expansion.
Choosing the right business structure is crucial when launching a company. The decision depends on factors such as business size, capital investment, number of partners, and legal requirements.
For a successful company registration in El Salvador, it is essential to have professional legal guidance to ensure compliance with local regulations and take advantage of available investment incentives.
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What are the main investment incentives and programs in El Salvador? al crear una empresa en El Salvador?
-Innovation and Competitiveness Promotion Fund (FIIC)
It is a program dedicated to providing non-refundable co-financing to companies to boost the digital services, biosecurity and environmental sectors, and promote innovative entrepreneurship in El Salvador.
Business Development Services Program (SDE)
This is a program aimed at new businesses in El Salvador, especially supports technological innovation, market expansion, and tourism projects.
-National Trade Facilitation Strategy (ENFC)
Aims to simplify business operations and increase the competitiveness of Micro, Small, and Medium Enterprises (MSMEs) in El Salvador.
-Tax Benefits for Companies under different laws, including:
These are benefits that can be applied thanks to different laws such as:
-Trade Facilitation Agreement (TFA)
Enhances global market competitiveness and improves supply chain integration in El Salvador.
It is important to note that not all businesses qualify for these incentives. Consulting with legal advisors in El Salvador is recommended to obtain updated information on tax exemptions and investment benefits for those who want to start a business in El Salvador
What steps must be followed to establishing a business in El Salvador? this website
Company registration:
To register your company, it is necessary to select the type of company and complete the registration at the National Registration Center (CNR).
Obtaining the Tax Identification Number (NIT) and Value Added Tax (VAT) Taxpayer Registration Number.
Every company must obtain a Tax Identification Number (NIT) and a Value Added Tax (VAT) Taxpayer Registration Number from the General Directorate of Internal Taxes (DGII) of the Ministry of Finance.
Opening a bank account in El Salvador:
Open a corporate bank account to manage financial transactions and comply with tax regulations.
Obtaining permits and licenses:
Acquire necessary permits and licenses depending on your industry (e.g., health permits for food businesses).
Registration with The National Investment Office (ONI) of El Salvador
Foreign investors may register their investments with the ONI EN EL SALVADOR, which will issue a resolution granting the holder the status of foreign investor, indicating the registered investment; in some cases this procedure will be indispensable, for example, for the registration of branches of foreign companies in El Salvador.
Registration with the Financial Investigation Unit (UIF):
Every corporation, company, whether national or foreign according to Article 2 of the Anti-Money Laundering Law, must register with the UIF of El Salvador. This is the institution responsible for collecting financial information to prevent and combat the crime of money laundering.
Inscription in the Commercial Registry:
All investors must register in the Registry of Commerce in El Salvador, which will accredit the existence of their company through the registration in the public registry of this, granting the Company Registration and Registration of Establishment, which must be renewed annually, in the month of incorporation of the company; and which accredits the company to carry out its business activities.
Registration of the company's internal work regulations with the Ministry of Labor and Social Security (MTPS)*.
The employer must register his company and formalize labor agreements when hiring personnel. The purpose is to ensure compliance with labor regulations in companies.
Registration of the Employer Identification Number of the Salvadoran Social Security Institute (ISSS).
Every company established in El Salvador must register with the Salvadoran Social Security Institute (ISSS). This allows the registration as an employer and its workers, guaranteeing social security against labor risks.
Legalization of accounting systems in El Salvador:
The term Accounting System refers to the elaboration and authorization by a Salvadoran Auditor, of the accounting policies, accounting chart of accounts and its corresponding application manual; every company must have a system to record the transactions of the company in El Salvador in the accounting.
Earlier, we only mentioned some of the essential steps to establishing a business in El Salvador. Depending on the type of business you wish to establish and the industry in which you operate, you may have to comply with additional requirements and documents.
Establishing a business in El Salvador is a strategic move for entrepreneurs looking to expand in Latin America. Take advantage of tax incentives, a strong legal framework, and business-friendly policies to establish and grow your company.
Here, we detail the requirements and steps to start a company in El Salvador.
- Personal Identification Document: A valid identification document, such as the Unique Identity Document (DUI) or a valid passport, is required for the legal representative.
- Articles of Incorporation: The company’s incorporation document must be drafted and certified by a notary public in El Salvador before submission to the CNR.
- Registration Fees: Payment of the applicable fees is required for the company’s registration with the CNR.
It is important to note that some requirements may vary depending on the type of establishing a business in El Salvador. Seeking professional guidance is recommended to ensure compliance with legal and tax obligations.
- Company Registration in El Salvador: Businesses must register with the National Registry Center (CNR) and obtain a Tax Identification Number (NIT).
- ISSS Registration Form: The ISSS registration form must be completed and signed by the legal representative or attorney, including company details, employee information, and required supporting documents.
- Required Documents:
- Certified copy of the NIT and Articles of Incorporation.
- Certified copy of the DUI and NIT of the legal representative.
- Employee payroll.
Since labor regulations in El Salvador may change, it is advisable to seek legal consultation to ensure successful compliance with all business registration requirements.
What documents do I need to have to incorporate a company in El Salvador?
- Company Registration in El Salvador: Register with the National Registry Center (CNR) and obtain a Tax Identification Number (NIT).
- Business Registration Form: This document includes administrative, legal, and financial information, company contact details, employee information, Occupational Health and Safety Committee (CSSO) details, internal labor regulations, and employment contracts.
- Required Documents:
- Company NIT in El Salvador
- Articles of Incorporation
- Latest valid credential of the legal representative
- DUI of the legal representative
- DUI of the employer representative
Due to possible changes in business laws in El Salvador, staying informed about requirements is crucial. We recommend seeking legal advisory for company formation in El Salvador.
Social Security Contributions and Rates in El Salvador
What are the social security payments required for companies in El Salvador?
All companies in El Salvador must contribute to social security on behalf of their employees. Contributions include:
FAQs About Business Registration in El Salvador
How long does it take to register a company in El Salvador?
The complete process usually takes 7 to 14 business days, depending on the business type and specific requirements.
Is hiring a notary mandatory to register a company in El Salvador?
Yes, the Articles of Incorporation must be prepared by an authorized notary in El Salvador.
Types of taxes for businesses in El Salvador and their corresponding rates
Income Tax (ISR – Impuesto Sobre la Renta)
Income tax (ISR) is the tax levied on net profits for the fiscal year ending and is payable in the first four months of the following year.
The annual income tax rate is 25% for income under $150,000.00 and 30% for income of $150,000.01 or more. In addition, a monthly declaration of payment on account and withholding tax is made, in which 1.75% of the monthly income is paid as an advance payment of the annual income tax.
Value Added Tax (IVA – Impuesto al Valor Agregado)
Value Added Tax (IVA) refers to the tax added to goods or services at all stages of production, distribution and sale; that is, it is imposed specifically on those involved in the production, distribution and commercialization process.The Sales Tax in El Salvador is 13%, invoiced monthly and declared within the first 10 working days of the following month.
