
El Salvador, strategically located in Central America, has emerged as a competitive and attractive destination for foreign investors.
Recognized by the Financial Times’ FDI Intelligence as one of the most competitive countries in the region for establishing and operating a business, El Salvador offers a welcoming environment for international entrepreneurs.
This guide provides a comprehensive overview of how to set up and run a business in El Salvador, outlining the necessary steps and highlighting key considerations for foreign investors.
Why Invest in El Salvador?
Strategic Location and Growing Economy
El Salvador’s strategic position in Central America makes it an ideal hub for accessing both North and South American markets. With a growing economy and a commitment to fostering international trade, the country offers numerous opportunities across various sectors, including manufacturing, technology, and services.
Competitive Business Environment
The Salvadoran government has undertaken significant reforms to enhance the business climate, simplifying procedures, reducing bureaucracy, and promoting transparency. These efforts have reduced response times for business registrations by up to 60%, making it easier than ever to start a business.
Simplified Procedures and Incentives
El Salvador has implemented user-friendly online platforms, such as Crea Empresa and Simple, to streamline the process of establishing a company. Additionally, the country offers various tax incentives and benefits under laws promoting innovation, technological manufacturing, and international services.
Types of Business Entities in El Salvador
When establishing a business in El Salvador, foreign investors can choose from several types of legal entities. Understanding the available options will help you select the structure that best suits your business needs.
Simplified Joint Stock Companies (S.A.S.)
The Simplified Joint Stock Company (S.A.S.) is a flexible and straightforward option, especially designed to facilitate the formalization of micro, small, and medium enterprises (MSMEs). Key features include:
- Single Shareholder Allowed: Unlike traditional corporations requiring multiple shareholders, an S.A.S. can be formed by a single individual.
- Low Capital Requirement: The minimum capital stock is just US $1, making it accessible for entrepreneurs.
- Online Incorporation: The entire incorporation process can be completed online without the need for a notary, using electronic signatures.
- Inclusivity for Salvadorans Abroad: Salvadorans residing abroad can establish an S.A.S. using their electronic signature.
Branch Offices of Foreign Corporations
Foreign companies can establish a branch office in El Salvador to conduct business activities. This involves registering the foreign company with Salvadoran authorities and obtaining the necessary permits to operate locally.
Other Forms of Incorporation
Other business structures include traditional Stock Corporations (Sociedad Anónima – S.A.), Limited Liability Companies (Sociedad de Responsabilidad Limitada – S.R.L.), and partnerships. Each type has its own legal and tax implications, so it’s advisable to consult with a local legal expert to determine the best option.
Step-by-Step Guide to Establishing a Business
Establishing a company in El Salvador involves several mandatory procedures. Below is a step-by-step guide to help you navigate the process efficiently.
Step 1: Draft and Prepare the Articles of Incorporation
Begin by drafting the Articles of Incorporation for your company. This document outlines the company’s purpose, capital structure, governance, and other essential details.
- Traditional Entities: For entities like S.A. or S.R.L., you’ll need to work with a Salvadoran notary to formalize the document.
- Simplified Joint Stock Companies (S.A.S.): No notary is required. The process can be completed online using electronic signatures. All shareholders must have a Tax Identification Number (NIT), including foreign nationals.
Step 2: Register the Articles and Obtain Company Registration
Register your Articles of Incorporation with the National Registration Center (CNR). This process includes:
- Company Registration: Legal recognition of your company as a business entity in El Salvador.
- Establishment or Premises Registration: Recognition of the physical locations where your business will operate.
- Initial Balance Sheet Registration: Submission of your company’s opening financial statements.
Step 3: Obtain Tax Identification Numbers (NIT and NRC)
Register with the Ministry of Finance to obtain:
- Tax Identification Number (NIT): A unique number for tax purposes.
- Taxpayer Registration Number (NRC/IVA): Required for businesses that will collect Value Added Tax (IVA).
Step 4: Register with the Social Security Institute (ISSS)
Enroll your company as an employer with the Salvadoran Social Security Institute (ISSS). This ensures compliance with social security obligations for your employees.
Step 5: Register with the Ministry of Labor and Social Welfare
Register your workplace and any branches with the Ministry of Labor and Social Welfare. This involves providing details about your business activities and labor practices.
Step 6: Register with Pension Fund Administrators (AFP)
As an employer, you must enroll with the Pension Fund Administrators (AFP) to manage your employees’ pension contributions.
Step 7: Register Internal Labor Regulations
Draft and register your company’s internal labor regulations with the Ministry of Labor and Social Welfare. This document outlines workplace policies and employee rights.
Note: This step must be completed in person at the relevant institution.
Step 8: Register Foreign Capital with the National Investment Office
If you’re bringing foreign capital into El Salvador, register it with the National Investment Office (ONI) of the Ministry of Economy. This facilitates the repatriation of capital and profits in the future.
Step 9: Obtain Solvency from the National Statistics Office
Acquire a solvency certificate from the National Statistics and Census Office (ONEC) of the Central Reserve Bank. This certificate is often required for various administrative procedures.
Step 10: Register with the Municipal Government
Register your company with the municipal government of the area where your business will operate. This includes obtaining necessary municipal licenses and permits.
- Online Registration: If your company is located within San Salvador or Santa Ana, this procedure can be completed online.
Additional Considerations
One-Stop Shop for Procedures
El Salvador has introduced Simple, an online platform serving as a one-stop shop for business procedures. Through simple.sv, you can manage various registrations and filings, reducing paperwork and saving time.
Tax Incentives
The Salvadoran tax system offers incentives to promote competitiveness and attract foreign investment. Some benefits include:
- Tax Exemptions: Under laws such as the International Services Act and the Law for the Promotion of Innovation and Technological Manufacturing.
- Simplified Tax Regime: For small businesses and startups.
You can download the guide to tax incentives here.
Environmental and Construction Permits
If your business involves infrastructure development, you’ll need to obtain:
- Environmental Permit or Resolution: Issued by the relevant environmental authority.
- Timeframe: Approximately 10 months.
- Water Discharge Permits: If your operations involve discharging treated wastewater.
- Timeframe: Approximately 3 months.
Note: Some of these procedures can be carried out concurrently to expedite the process.
Operating Your Business in El Salvador
Registering Employees and Workplace Regulations
Ensure compliance with local labor laws by:
- Enrolling Employees in Social Security (ISSS): Mandatory for all employers.
- Registering with Pension Funds (AFP): For employee pension contributions.
- Implementing Internal Labor Regulations: Establish clear policies for workplace conduct and employee relations.
Navigating the Business Environment
El Salvador provides support to new and established businesses by:
- Simplifying Procedures: Continuous efforts to reduce bureaucracy and improve response times.
- Providing Resources: Access to information and assistance through government websites and agencies.
- Offering Incentives: Various laws and programs designed to encourage investment and innovation.
Conclusion
El Salvador presents a promising landscape for foreign investors looking to establish and operate a business. With its strategic location, competitive environment, and streamlined procedures, the country has made significant strides in facilitating entrepreneurship and investment.
By following the steps outlined in this guide and leveraging the resources available, foreign investors can navigate the process of establishing a business in El Salvador with confidence. It is advisable to consult with local legal and financial experts to ensure compliance with all regulations and to make the most of the opportunities the country offers.
For more detailed information and assistance, you can visit the following official websites:
- National Registration Center (CNR): cnr.gob.sv
- Crea Empresa Platform: creaempresa.cnr.gob.sv
- Simple Platform (One-Stop Shop): simple.sv
- Invest in El Salvador: investinelsalvador.gob.sv
Embark on your entrepreneurial journey in El Salvador and take advantage of the opportunities this vibrant country has to offer.