Despite having the nickname of the “30-minute country” ranging to “45 minutes” depending on the travel blog that you read, El Salvador is not a country to be overlooked as a business jurisdiction. The country of just 6.5 million habitants has a particularly positive business relationship with the United States, hosting giant companies such as FedEx and General Motors, whilst the two countries boast an impressive exchange of nearly USD$ 6 billion in goods. It is also a very easy destination to conduct business, facilitated by a dollarized economy and a growing and thriving service-based industry. The US government has highlighted printing and graphics, security equipment and tourism as some of the most promising market opportunities.
As with any country, when planning to conduct business in El Salvador, there are many new laws and requirements that you must comply with. Some of the most important requirements are those that relate to your fiscal obligations or taxes. This article will walk you through all of the different types of accounting and tax declaration obligations that you will face in El Salvador.
Principal tax types in El Salvador.
When running your business venture in El Salvador, it is essential that you properly file your tax returns. Depending on the type of company that you chose at the time of incorporation and the activity that your company carries out, there are a variety of specific taxes that are applied in certain situations. Below is a list of the main tax types in El Salvador:
- The tax placed on the purchase of goods and services- it is set at 13%, normally known as VAT.
- A tax placed on societies that varies according to their earnings. It ranges from 25-30%- normally known as Income Tax.
- Tax on Dividends- 10%
- The tax rate for LLC (Limited Liability Companies) ranges from 25-35%
- The tax rate for branches in El Salvador is 25%-30%
DON’T FORGET: Companies must register before the Treasury Department to receive their Tributary ID Number (NIT) and their Unique Registration and Contributor Number (NRC).
Other Tax Tips to bear in mind
The above-mentioned tax requirements are applicable to nearly every corporation operating in El Salvador. However, the following information may only apply to some investors:
- Shareholders or Partners of the company must be registered with the treasury as individuals and must get their own NIT
- Company Shareholders and Partners must share the total capital of the company in terms of the number and value of the shares. This must be done at the same time that the company is registered with the Treasury. In the event of a shareholder changing or in a shift (positive or negative) in the value of the shares, these must also be registered at the treasury.
- A tax of 3% is applied to any transfers of real estate property with a value of more than USD$ 28,571.43.
- In the case of some financial operations, certain bank transactions worth more than USD$1000 have a levy of 0.25% which is retained by the bank. However, this tax does not apply to all transactions and has many exemptions.
- In the case of any workers that have a net monthly salary of USD$500, employers must withhold between 10-30% of their salary as income tax. The percentage changes depending on the net salary of the employee.
- Companies that are looking to import into El Salvador will have to pay an importation tax or tariff. This varies from 5-40% depending on the type of good that you are looking to import.
TOP TIP: Although the El Salvador legal system allows a company legal representative to carry out legal, accounting and administrative responsibility in addition to their legal role, we advise that you employ two people to carry out the separate roles as it can prove to be a very cumbersome and stressful role for just one legal representative, and they may lack the necessary expertise.
Accounting Requirements and Duties for Companies in El Salvador.
Accounting requirements are crucial to the incorporation process of a company in any country, and El Salvador is no different. Normally, it is best to employ an authorised public accountant who will take on the responsibility for all company accounts. Some of the major accounting administrative tasks to bear in mind are:
- Management of Auditing: This includes keeping a documentation of all the different corporate transactions that flow through the company.
- Tax Management: You must ensure that all operations of the company are properly filed and that all tax payments are completed on time.
- Fiscal Auditing: You must verify that your company’s activity verifies with tributary requirements. Depending on the size and income of the company, you may need to hire a fiscal auditor.
- All accounting registers and requirements must be submitted in accordance to the IFRS (International Financial Reporting Standards)
REMEMBER: The above requirements are applicable to nearly every type of society in El Salvador, with the exception of a few cases whereby some regulations may be added or removed. A local agent can help you understand if you qualify for exemptions.
Keen to learn more about the company accounting and business tax requirements in El Salvador?
El Salvador offers many attractive benefits for those looking to establish business operations in the region. Taking the time to understand the local tax and accounting requirements, and ensuring that you have a solid support network of legal and accounting staff can be crucial to the success of your business.
At Biz Latin Hub, we have a team of experts in both fields who have ample experience in supporting companies to start their corporate adventures across the Latin region through a wide range of multi-lingual, back-office services. Please get in touch with our Bi-Lingual Country Coordinator, Diego at [email protected] if you have any questions regarding El Salvador or any other country’s accounting requirements.
Interested in hiring staff in Latin America? Check out the short presentation below and learn what options you have available.