WHAT TO DO AFTER INCORPORATING A COMPANY IN EL SALVADOR; AND I REGISTERED MY BUSINESS IN EL SALVADOR. WHAT’S NEXT?
Making the decision to incorporate a company in El Salvador is not easy. Many entrepreneurs who have taken this step in their businesses and commercial activities have had to seek prior advice on the process, time, costs and requirements. Incorporating a company in El Salvador does not only imply that two or more natural persons (individuals) or companies (entities) join together and decide to become shareholders, execute the articles of incorporation before a Salvadoran Notary Public, prepare the initial balance sheet of the company, pay the corresponding fees and submit the documentation to the Registry of Commerce to obtain the registration of the company. This is only the beginning of a company that has been born to legal life.
Once the company is registered and duly registered in the country, a series of obligations arise in accounting, legal and tax matters according to our legislation. The purpose of this article is to review some of the most important obligations that every corporation in El Salvador must comply with. These are contemplated in Book II of the Commercial Code of El Salvador.
¿Cuáles son las obligaciones mercantiles de las empresas en El Salvador?
First of all, it is mandatory for every company incorporated and registered in El Salvador to have its accounting duly organized under an accepted accounting system and supported by Certified Public Accountants and Auditors in El Salvador. We recommend the elaboration and authorization of your accounting system by a Certified Public Accountant duly accredited in El Salvador. This includes: System Description, Accounting Policies, Chart of Accounts and Accounts Application Manual, based on IFRS for SMEs. In addition, the ten legal and accounting books required by law in El Salvador must be prepared, which include:
- General Ledger
- Financial Statements Book
- Shareholders’ Record Book
- General Shareholders’ Meeting Minute Book
- Board of Directors’ Minute Book
- Sole Administrator’s Resolution Book
- Capital Increase and Decrease Book
- Sales to Taxpayers Book
- Sales to Consumers Book
- Purchase Book
In what language should accounting be done in El Salvador?
Accounting in El Salvador must be kept in Spanish and in United States dollars, as legal tender. In addition, it must be kept locally, in our country.
Other Commercial Obligations in El Salvador
The companies in El Salvador must register annually in the Registry of Commerce the Balance Sheet, the Income Statement and the Statement of Changes in Equity, documents that must be duly certified by a Certified Public Accountant. This must be done so that at the close of each fiscal year the companies can demonstrate the economic situation of the company. In addition, all companies are required to appoint an External Auditor and be audited once a year.
We can mention in turn, that it is an obligation of all the companies to register their mercantile company and their establishments in the Registry of Commerce, these are documents that authorize the exercise of commerce in general and in these the physical address where the company is established is defined. When the companies are incorporated in El Salvador, the first registration of the company and establishment is generated. However, company registrations must be renewed annually, in the month in which the company was registered in the Registry of Commerce. The company registration renewal fees are calculated based on the assets of the company. In case of non-renewal within the established term, an additional fine must be paid in addition to the renewal costs.
What are the tax obligations of companies in El Salvador?
According to Article 91 of the Tax Code, all sole traders and partnerships must register as taxpayers and file monthly and annual tax returns. The main taxes in El Salvador include:
- VAT: 13% on any transfer or provision of services made by the company, paid monthly, the first 10 business days of the following month.
- Income Tax Advance: Known as payment on account, equivalent to 1.75% of gross income, paid monthly, specifically the first 10 business days of each month.
- Income Tax: Paid annually with a tax rate between 25% and 30% on the profits of the company, this must be paid no later than April 30 of each year.
It is important to point out that there are other special taxes that may be applied, depending on the Company’s line of business.
What are the labor and social security obligations of a company in El Salvador?
From the moment companies hire their first employee, labor and social security obligations arise and must be complied with. To this end, companies must register as employers with the Salvadoran Social Security Institute (ISSS), as well as with the Ministry of Labor and Social Security and with the selected Pension Fund Administrator. At the same time, it will be an obligation to keep and manage an administrative spreadsheet of the employees, with which the calculation of the salary, commissions, overtime, vacations, Christmas bonus and other benefits of Law that must be cancelled to each one of the employees will be made on a biweekly or monthly basis.
What are the municipal obligations of companies in El Salvador?
Likewise, a series of municipal obligations arise for corporations. These also depend on the commercial activities or line of business. For example, when establishing a company in El Salvador dedicated to the sale of household goods, it will not have the same municipal obligations as a restaurant or bar. Among some of the municipal obligations, we can mention, first and foremost, registering the company with the Municipal Government corresponding to its domicile. This is done so that the Municipal Government recognizes the existence of the company within its system and, with this, the corresponding municipal taxes begin to be paid.
If the company’s line of business requires it, it will also be necessary to obtain municipal permits. In certain cases, such as construction or tree felling, it will also be necessary to obtain permits from the Municipal Government to carry out that activity. Other special permits must be requested in the case of restaurants or bars. In order for them to operate, the Municipal Mayor’s Office where they are located must grant them an operating license and a permit to sell alcoholic beverages, if applicable. If they carry out musical activities, they must apply for said permit.
Furthermore, if companies wish to use signs or billboards in the establishment where they are domiciled or operating, they must notify the respective Mayor’s Office and obtain permits to place advertising elements.
Other obligations of companies in El Salvador
A very important issue and that currently the entities of our country are regulating with much more preponderance, is the obligation to comply with all regulations relating to the Anti-Money Laundering Law, its regulations and instructions issued by the Financial Investigation Unit of the Attorney General’s Office (UIF).
Among the most important obligations that must be complied with in this matter, is to report suspicious financial operations and/or all those that exceed the amount determined by our Law, the appointment of a Compliance Officer, submit suspicious operation reports to the UIF, have internal due diligence policies to know your users or clients, file the documentation of your operations, as well as train your employees on these regulations and Laws.
What is the importance of compliance with all obligations?
It allows keeping the Company up to date, in good working order and operations, and avoids the imposition of penalties determined by our Law, for non-compliance with them.
As it can be seen with this summarized tour, it is when the companies are constituted that the path of compliance with the most important obligations that are required by our legislation and various regulations just begins, however, this should not discourage any entrepreneur or trader, who wishes to incorporate a company in El Salvador, since whenever they look for experts in these related matters, such as Lawyers in El Salvador, Public Accountants and Salvadoran Auditors duly authorized, Graduates in Business Administration, among other related professions that can advise them in these processes, they will not have any inconvenience in the orderly and effective fulfillment of all the obligations that I have tried to detail summarized.
As a legal and accounting firm in El Salvador, we are here to support you in your idea of incorporating a company in El Salvador and registering a company in El Salvador, to provide you with all the advice you need.