El Salvador provides a favorable environment for financial businesses. The nation has a flexible regulatory regime that makes it easy for financial companies to launch and grow. Thanks to the business environment and regulatory policies, a perfect incubation ground has been created for the establishment of financial and innovative businesses.

When considering investing in El Salvador, our associate lawyer, Adalicia Torres, highlights the importance of understanding the different ways to invest in the country.

“When we review El Salvador’s Commercial Code, we find that there are two main types of Mercantile Companies: those based on personnel and those based on capital. The former is governed by the individuals involved, while the latter is based on the capital contributed,” explains Torres.

In this way, in El Salvador, various types of Mercantile Companies can be established, including:
a) General Partnerships or Collective Partnerships
b) Limited Partnerships or Simple Commandite Companies
c) Limited Liability Companies
d) Corporations
e) Partnerships Limited by Shares or Limited Partnerships by Shares

Another way to invest in El Salvador is through a Foreign Branch, a structure used when there is already a foreign company and it seeks recognition in El Salvador, committing to comply with the legal requirements and obligations of the country.

Our specialist states that the third option is through a Joint Venture: “This involves the union of 2 or more companies with the purpose of carrying out a business or entering a new market for a period of time, with the aim of obtaining benefits,” Adalicia explained.

Another important aspect is the tax issue. Both natural and legal persons will pay a 13% Value Added Tax (VAT), which is declared monthly. For foreign individuals, a 20% withholding tax is applied on income generated in El Salvador.

Regarding Income Tax, our expert mentions that it is taxed at 25% for income up to $150,000.00 and 30% for income exceeding $150,000.01, both on an annual basis. In addition, an advance payment of 1.75% of monthly sales is made towards income tax.

“The foreign investor should not forget that the Salvadoran Tax System has specific taxes such as fuel tax, telecommunications tax, import taxes, and other economic activities that are determined on a case-by-case basis,” says Torres.

For more information on tax and legal obligations, you can contact us through our social media or visit our offices in the Escalón neighborhood, San Salvador.