How to Invest in El Salvador as a Foreigner
Your essential guide to foreign investment in El Salvador. Understand the complete process, from initial steps and legalities to financial operations.
El Salvador’s economic landscape has seen notable developments, positioning the country as an increasingly attractive destination for foreign investment. Recent reports from the Central Reserve Bank indicate a significant increase in foreign direct investment (FDI), reflecting growing confidence and interest in the nation’s economic stability and growth potential. This positive shift is supported by the government’s efforts to foster a business-friendly environment through simplified procedures and various incentives.
The country’s strategic location, coupled with its use of the U.S. dollar as legal tender, further enhances its appeal to international investors. These factors contribute to a stable monetary environment and facilitate trade. This guide provides an overview of practical considerations for investing in El Salvador.
Understanding Investment Opportunities
El Salvador presents diverse investment opportunities across various sectors, reflecting its ongoing economic development and strategic focus areas. Real estate remains a prominent option, encompassing residential, commercial, and tourism-related properties.
Beyond real estate, several industries are attracting foreign capital. These include textiles and manufacturing, agriculture and agro-industry, and the rapidly expanding technology and services sectors, especially IT-BPO and blockchain. Renewable energy, especially geothermal power, also offers significant potential due to the country’s natural resources and government incentives. Investors can also consider financial instruments, such as government bonds or participating in local equity markets.
Legal and Regulatory Requirements for Foreign Investors
El Salvador’s legal framework largely provides equal treatment to foreign and domestic investors. The 1999 Investments Law is designed to grant foreign investors similar rights and protections as local entities, fostering a secure environment for capital. This commitment encourages international participation.
Regarding property ownership, the Salvadoran Constitution affirms the right of foreigners to own land. However, specific limitations exist, such as restrictions on owning rural land exceeding 245 hectares (approximately 605 acres) unless it is used for agricultural purposes or contributes to the national economy. Coastal areas and land within 30 kilometers of international borders may also have specific regulations, often requiring urbanization for foreign ownership.
The government actively promotes and facilitates foreign investment through dedicated agencies. The Export and Investment Promotion Agency of El Salvador (PROESA) has been replaced by INVEST, which promotes and facilitates investments and exports. These bodies provide information, guidance, and support throughout the investment process.
Establishing Your Investment Presence
Establishing a legal investment presence in El Salvador involves a structured process, beginning with selecting a legal entity. Common choices for foreign investors include the Variable Capital Corporation (Sociedad Anónima de Capital Variable – S.A. de C.V.), the Limited Liability Company (Sociedad de Responsabilidad Limitada – S.R.L.), or establishing a branch of a foreign company. The S.A. de C.V. is frequently used by investors, requiring two shareholders and allowing diverse business activities.
The registration process starts with obtaining local tax identification numbers (NIT) for shareholders. Subsequently, articles of incorporation or bylaws must be drafted, often requiring formalization by a Salvadoran notary for traditional entities like S.A. or S.R.L. A minimum share capital of USD 2,000 is typically required for company incorporation, with 5% often paid at formation. For a foreign branch, the minimum capital investment is higher, around USD 12,000.
Once these initial steps are completed, the company’s bylaws and an initial balance sheet must be registered with the Commercial Registry (Registro de Comercio). Obtaining a company-specific tax identification number (NRC) is also required. Depending on the business activity, additional business licenses and permits will be required, often processed through an “Integrated Services Window” at the National Registry Center (CNR). The registration process for a subsidiary takes approximately 30 working days.
Opening a local corporate bank account is a subsequent step, possible once the company has its tax number. Banks will require various documents, including the deed of incorporation, the initial balance sheet, and the company’s NIT and VAT card. Opening a corporate bank account takes approximately 2 to 4 weeks, depending on the bank and documentation.
Taxation and Repatriation of Funds
Understanding the tax obligations and procedures for repatriating funds is important for investors. The country operates on a territorial tax regime, meaning only income generated from sources within El Salvador is subject to taxation. Corporate income tax is levied at a standard rate of 30% on local source income.
Capital gains are taxed at a flat rate of 10%. However, if an asset is sold within 12 months of its acquisition, the capital gain may be taxed as ordinary income. El Salvador also imposes a Value Added Tax (VAT), or IVA, at a rate of 13% on the transfer and import of goods and services.
Repatriation of capital and profits from El Salvador is permitted. While El Salvador does not have a comprehensive network of double taxation treaties, it engages with international tax conventions.