El Salvador is a small country with a big opportunity for investors across the globe. With its geographic location, El Salvador is perfect for linking up trade between North and South America.
Alongside this, it has a rapidly growing tourism industry for which its volcanic landscapes and its beautiful beaches are idyllic spots for hikers and surfers.
However, in setting up a business or in making an investment in El Salvador, it is advised to make sure that you get to grips with El Salvadorian legislation and the obligations that come with it. Therefore, here is a small introduction into corporate legal compliance in El Salvador.
Decree 732: Investment Law
This law has the objective of facilitating foreign investments and other investments in general, especially those which contribute to the economic and social development of the country. Furthermore, it treats foreign investment in the same light as domestic investments. Thus, to make an investment in El Salvador you must register this investment.
Registration of Companies and Investments
Article 22 on the Law on Investment indicates that registration of an investment will be requested to the ONI or the inscription of the same one, previous to the fulfillment of the corresponding legal requirements. Accompanying this, Article 358 sets out the requirement for foreign investments to be registered in the Commerce Registry.
This is to be done through the completion and presentation of several documents such as:
- Proof that the company is legally incorporated and abides by the laws of the country in which it was organized;
- Documentation proving that the decision to establish residency in El Salvador or operation in the country must have been validly taken in accordance with the law.
- There must be sufficient share capital, for the company to carry out its social activities. These shares will be verified with the foreign investment registry, for which is carried out by the Ministry of the Economy.
- An initial balance is to be authorized by a certified public accountant in the country of the foreign company in which the social capital will be reflected.
Renewable Energy Tax Incentives
El, Salvador being the “land of volcanoes” is an ideal place for companies dealing in geothermal energy. Other interests in renewable energy include; hydraulic, wind, solar and biomass sources. As a result, of El Salvador’s deep interest in renewable energy, Decree 462, outlines certain benefits if an investor or a company fulfill certain requirements.
Benefits include total exemption from payment of import duties on machinery, equipment, materials and supplies for pre-investment work. However, this exemption must follow a request to the Ministry of Treasury fifteen days prior to the importation of the goods described.
The second benefit is the total exemption from income tax payment, for a period of five years, if the income concerned, directly derives from power generation from a renewable source. Though the project from which this income derives from must be above 10 megawatts.
Furthermore, there is total exemption from payment of any type of taxes on income generated directly from the sale of “Reduced Emissions Certificates” hereon after called REC, in the framework of the Clean Development Mechanism (CDM) of the Kyoto Protocol or similar carbon markets. Obtained by qualified beneficiary projects in accordance with the present law.
Under Decree 899, tourism companies inscribed in the Registry may enjoy general benefits such as:
- inclusion in the catalogue of El Salvador tourism services published in CORSATUR;
- support from State Department/Ministry of Foreign Affairs when requested by associations in the tourism sector and in the interest of the national tourism effort;
- participation in contests for prizes or recognition for the tourism industry that are sponsored by the State Department/Ministry of Foreign Affairs.
- participation in contests for prizes or recognition for the tourism industry that are sponsored by the State Department/Ministry of Foreign Affairs, and
- support for governmental or private entities and organizations in the creation of national parks or natural protected areas, when these areas truly fall under the scope of tourism.
Alongside this, tourism company owners must comply with certain obligations such as:
- the use of fiscal incentives granted exclusively for the promoted activity;
- communication for any modifications to the plans and projects to the State Department/Ministry of Foreign Affairs within ten business days;
- to allow and facilitate inspections by delegates from the State Department/Ministry of Foreign Affairs as well as from the Ministry of the Treasury, providing access to documentation and information relative to the activity for which the incentive has been provided, as requested.
Free Trade Zones
Free Trade Zones will give any investor in El Salvador a flurry of tax incentives, such as full income tax exemption, full municipal tax exemptions and duty-free import of machinery, equipment, raw materials that are necessary for the companies ‘operations.
To use free trade zones, Decree 405 follows that an initial fixed investment equal or more than a hundred thousand United States dollars must be made in the first year of activity; they must operate with a number equal or higher than 15 permanent jobs. In addition, you must dispose of a minimum area of 5000 meters squared for investors and 1000 meters squared for laboratories. There must be formal administrative and financial structuring.
Join us at Biz Latin Hub
If you need more information on investing in El Salvador, you can be sure to find help at Biz Latin Hub. With our team of legal professionals, we are on hand, no matter what enquiry or doubt you may have in investing in El Salvador. To get in touch, contact us at [email protected]. Also make sure to visit our website on a regular basis for updates concerning business in El Salvador or other South American countries.