Doing business in El Salvador

How quickly can I set up a business?

If it is a company made up of a single person, it can be established in 10 days. If it is a partnership, it could take 15-30 days.

What is the minimum investment needed?

If it is a company constituted by a single person or a limited liability company, there is no minimum investment of capital. If it is a corporation, the minimum investment is two thousand dollars, just to be able to register the company.

How can I raise finance?

The initial capital must be contributed by the investor (corporation). The operation of the company can be financed through banking institutions, according to the evaluations they carry out.

If it is a company with individual representation, all the capital can be financed.

What are the legal requirements for setting up my business?

1. Individual company (company constituted and managed by a single person in a personal capacity). Requires initial registration with the tax administration.

2. Companies of persons or capital. It requires initial registration in the «commercial registry office” and later in the tax administration.

What structure should I consider?

Companies of persons or capital:

Partnerships differ from capital companies, in the sense that the essential condition for establishing the partnership is the powers to its partners,

While, in capital companies, the essential condition is the economic contribution of its shareholders, which is represented in shares.

Societies of people:

a) Collective partnership, in which the partners are jointly and severally liable for all obligations contracted by the partnership without any limit;
b) Simple limited partnerships, where there are two types of partners: the investment partner, who cannot participate in the administration of the company, and will only be responsible to the extent of their investment; and the managing partner, who is in charge of the management of the company and is responsible for the obligations of the companies without any limit;
c) Limited liability companies, in which the partners are liable only to the extent of their investment.

Capital companies:

a) Limited partnership by shares, which reflects the characteristics of the simple limited partnership,
with the differentiating mainly in the participation titles through which the capital stock
is represented (of shares versus personal holdings); Y
b) Public Limited Company, in which the shareholders are only responsible for the obligations of the company
up to the amount of their participation in the share capital of the same.

The type of company most used in El Salvador is the corporation.

What advice can you give me in regards to payroll and taxation requirements?

Trade and taxes:

– There are areas dedicated to the industrial and manufacturing area locally.
– The legislation contemplates the existence of export processing zones. These zones are called «free trade zones», which enjoy different tax benefits.
– The rate of the Value Added Tax is 13%. With this rate all purchases and sales of products are taxed locally.
– Income tax of a company with income below $ 150,000.00 (25%).
– Income tax of a company with income above $ 150,000.00 (30%).

Social security:

Discount on staff salary on a monthly basis. Access to a health care network for the worker and his beneficiaries.

Discount for staff: 3%.

Contribution of the employer or company: 7.5%

Pension fund:

Discount on the salary of the staff to establish their pension fund to which they will have access when they meet the requirements to retire or withdraw from the labor field.

Discount for staff: 7.25%.

Contribution of the employer or company: 7.75%

Is there anything else that I should know?

In El Salvador, companies engaged in the export of merchandise enjoy the preferential rate of 0% Value Added Tax on sales as export they make.

Companies that export their merchandise, in addition to having the benefit of the 0% Value Added Tax (VAT) rate, can request the tax administration to reimburse the VAT that they paid at the time of acquiring the raw materials (according to to the established requirements).