DOING BUSINESS IN EL SALVADOR IN 2020
Since 2003, Healy Consultants Group PLC has assisted our Clients with starting their company in El Salvador. Our services include i) El Salvador business registration ii) government license registration iii) corporate bank account opening services in El Salvador and abroad iv) employee recruitment strategies v) visa strategies and vi) office rental solutions in El Salvador.
Summary table of El Salvador company registration
|Summary||LLC||Free zone LLC||Public limited company||Tourism company||Limited partnership||Branch office|
|Also known as||Ltda||Empresa zona franca||S.A de C.V.||Ltda||SPNC||Sucursal|
|Best use of company?||All products and services||International trading||To secure public funding||Project of National Tourist Interest||Professional services||Specific projects|
|How soon can you invoice Clients/sign sales contracts?||4 weeks||4 weeks||6 weeks||4 weeks||4 weeks||4 weeks|
|How soon can you hire staff?||4 weeks||4 weeks||6 weeks||4 weeks||4 weeks||4 weeks|
|How soon can you sign a lease agreement?||1 week||1 week||1 week||1 week||1 week||1 week|
|How long to supply corporate bank account numbers?||6 weeks||6 weeks||6 weeks||6 weeks||6 weeks||6 weeks|
|How long to supply company registration/tax numbers?||4 weeks||4 weeks||6 weeks||6 weeks||4 weeks||6 weeks|
|Corporate tax rate on annual net profits?||30%||0%||30%||0%||0%||30%|
|Limited liability entity?||Yes||Yes||Yes||Yes||Yes||No|
|Government grants available?||Yes||Yes||Yes||Yes||Yes||Yes|
|Government approval required for foreign owners?||No||No||No||No||No||No|
|Resident director/partner/manager/legal representative required?||No||No||No||No||No||Yes|
|Minimum paid up share capital?||US$100||US$25,000||US$100||US$25,000||US$100||None|
|Can bid for Government contracts?||Yes||Yes||Yes||Yes||Yes||Yes|
|Corporate bank account location?||Citibank||Scotiabank||Banco Azul||Banco Agricola||BAC Credomatic||Banco Promerica|
|Can secure trade finance?||Yes||Yes||Yes||Yes||Yes||Yes|
|VAT payable on sales to local customers?||13%||13%||13%||13%||13%||13%|
|Average total business set up engagement costs?||US$12,135||Request a proposal||US$12,135||Request a proposal||Request a proposal||US$12,135|
|Average total engagement period?||2 months||2 months||3 months||3 months||2 months||3 months|
El Salvador company registration summary
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Advantages and disadvantages
Advantages of El Salvador company registration
- A limited liability company in El Salvador can be incorporated with a minimum of i) two shareholders and ii) one director of any nationality. The minimum paid-up capital required for company incorporation in El Salvador is only US$100 (US$2,000 at the end of the first year) and our Client will not need to travel to complete the engagement;
- The free zones in El Salvador allow foreign investors to establish manufacturing companies, free of corporate income tax and VAT on their products sold overseas;
- No restrictions are imposed on foreign-trade operations or foreign-currency transactions in El Salvador and the US dollar is used as local currency which provides a sense of stability and investment security for investors and also constitutes a competitive advantage for doing business in El Salvador;
- El Salvador is a good location for the formation of a manufacturing company because:
- Our Clients benefit from low operational costs in el Salvador, notably thanks to a minimum wage set at levels between US$175 and US$240 according to the industry;
- El Salvador is a member of DR-CAFTA which is a free trade agreement between Central American countries, the United States and the Dominican Republic, eliminating custom duties on trade among member countries for locally produced services and products;
- El Salvador has two ports on the Pacific Ocean: Acajutla and La Union ports. In addition, it has access to two ports on the Atlantic Ocean: Cortés Port in Honduras and Santo Tomas de Castilla in Guatemala, just six hours by road from San Salvador. These ports move millions of tons of cargo from Asia to the USA which is an advantage for investors in the import and export business;
- El Salvador has been ranked as the 16th freest economy (out of 32 countries) in the Americas region in the 2018 Index of Economic Freedom. This is majorly due to i) excellent fiscal health of the nation contributed by high government spending on electricity, LPG and transportation as well as ii) ample business freedom to both local and foreign investors.
Disadvantages of El Salvador company registration
- Foreigners forming a company in El Salvador must be aware of the following requirements:
- If the company does not have any director ordinarily residing in El Salvador, the local authorities will require the appointment of a resident legal representative. If needed, Healy Consultants will be pleased to provide your firm with a professional nominee services in El Salvador;
- It is a bad idea to use a company located in a tax haven to hold investment in a company based in el Salvador, as the subsidiary will be subject to a special withholding tax rate of 25% when remitting dividends overseas, compared to 5% if the company is located in a white list country;
- The national language in El Salvador is Spanish. All legal documents in El Salvador must be translated into Spanish before submitting which is a time-consuming exercise during company incorporation and has cost implications on the investor. Communicating with the employees and government officials will also be a problem for the foreign investors who do not speak Spanish;
- All companies are required by law to appoint a local auditor and to submit audited financial statements to the local tax authority.
- Locally sourced income is subject to a corporate income tax rate of 30%, in El Salvador which is higher than most other countries in Latin America and Caribbean countries;
- El Salvador is a small country with a population of only 6 million people, with an average income of only US$500 per household, which means that local sales will likely be low;
- El Salvador has been poorly ranked in the 109th position (out of 137 countries) in the Global Competitiveness Index 2017-2018 edition. This is majorly due to i) widespread crime and theft in the nation, ii) a corrupt and inefficient bureaucracy and iii) nation’s insufficient capacity to innovate.
Best uses of an El Salvador companyEl Salvador is a great place to form a manufacturing company, notably in the textile and garment industries.
- Time to incorporate: Four weeks
- Cost to set up: US$12,135
- Minimum capital: US$100
- Physical office required: Yes
- Shareholders: 2
- Directors: 1
- Company secretary: Yes
- Resident director: Yes
- Corporate tax rate: 30%
- Corporate tax base: Territorial
- Shelf companies: Unavailable
- Main company type: LLC
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Useful links for El Salvador