In today’s increasingly globalized world, utilizing the trade agreements, expertise and low barriers to entry in other countries make sense. El Salvador, despite being one of the smallest countries in Latin America, is a true import and export powerhouse, and the perfect location for entrepreneurs considering an expansion into Latin American markets.
Below, we gather together some of the biggest reasons why you should consider setting up an import and export business in El Salvador and share guidance on maximizing profitability whilst growing your import/export business in Latin American markets.
Whilst El Salvador’s economy is primarily powered by its agricultural sector, the country’s services and industry sectors now employ more people than the agricultural sector, and add more to the country’s GDP than agriculture. However, that doesn’t mean that the agricultural sector is dead. Rice, oils, and beans are widely cultivated in the country, but it is coffee and sugar that provide the biggest returns – a real opportunity for foreign investors who want to manufacture premium goods made from high-quality raw materials to export.
Other key manufactured products in the country include food and beverage processing, and petroleum and chemicals are also popular options to consider. Thanks to the Inter-American Highway, which crosses El Salvador, products can be easily transported to other countries, whilst the Puerto de Acajutla and La Libertad ports can be reached from San Salvador.
In terms of exporting, coffee, sugar, textiles, chemicals, and shrimp are El Salvador’s key industries, whilst raw materials and fuel are key imports in the country.
Low Import Tariffs
For businesses looking to take part in international trade in El Salvador, it’s good to know that there are relatively low tariffs on goods imported into the country. All goods and services that are imported into the country are subject to taxes, known as the ‘Derechos Arancelarios a la Importación‘, or ‘DAI‘. The tariff depends on the type of merchandise being imported and its country of origin.
Live purebred animals, grains, fuels, gases, vaccines, inks, wood pastes, paper, motors, machinery, tractors, boats, and industrial devices carry a 0% to 5% import tariff, whilst non-purebred animals, perfume, cosmetics, candles, meats, fruits, oils, tires, wood, leather, and more are taxed between 5% and 10%, depending on their category and product value.
Beers, three-wheelers, four-wheelers, milk, cream, and fermented beverages are charged a DAI of 20%, whilst new and used vehicles have a DAI of 25%. Vehicles with an engine of 2,000 CC or more are charged at 30% DAI, as are cigarettes, gin, boneless meat, snow vehicles, firearms, ammunition, swords, and liquors, whilst denatured alcohol, cheese, sugar, yogurt, rice, and hams carry the most expensive import tariff of 40%. As is always the case in business, you should weigh up your opportunity costs and determine whether you can still make a profit once you have paid to import the goods into El Salvador. In many cases, particularly in agriculture with products like sugar, it’s best to buy locally to avoid charges.
There are some additional exceptions to the rule, with products originating from Central America, Free Zone users (Usuarios de Zonas Francas), printing companies, Active Improvement Deposits (Depósitos para Perfeccionamiento Activo), Duty-Free Stores (Tiendas libres) and tourism projects that exceed USD$50,000 are all exempt from paying import taxes on certain products. It is advisable to secure confirmation that your products are tariff-free before you begin setting up a new business in El Salvador.
No Export Taxes
Despite its small size, El Salvador exported more than US$5.8 billion worth of goods around the world in 2017, a figure that is growing year on year. According to the Central Intelligence Agency’s World Factbook, 25% of total Salvadoran economic output is represented by its exports, demonstrating just how lucrative the industry is.
One of the biggest reasons why you should consider an import/export business is that the majority of goods are exempt from paying taxes when exporting. Of course, this depends on the type of goods that you are exporting and does not take into account any import tariffs you’ll be liable to pay when you export your goods or services into another country.
Something else to take into account is the free trade agreements between El Salvador and other countries, which makes importing and exporting free or available at a reduced tariff. The nation entered the World Trade Organization in 1995, and the U.S. Central America Dominican Republic Free Trade Agreement (CAFTA-DR) in 2006. Since 2015, all US goods covering industrial and commercial can enter into El Salvador duty-free and vice versa, meaning that you can manufacture goods to export to the lucrative United States markets and increase your profitability in the country, thanks to low labor costs in El Salvador.
Simple Company Setup Process
In order to succeed in a Latin American business environment, you’ll need to act fast to take advantage of new opportunities as and when they arise. When you choose to set up an import and export business in El Salvador, you’ll benefit from the country’s straightforward incorporation process:
- Incorporate: The first step is to go through the incorporation process and register your business in the country, and then open a corporate bank account.
- Tax Identification Number: Once you have registered your business, you can then apply to become an importer or exporter in the country, by using your Numero de Identificación Tributaria and communicating your Declaration of Merchandise (DM).
- Verify Goods: You must also be able to verify your goods, and then carry out the export through the Formulario Aduanero Único Centroamericano (FAUCA).
- Pay Import Duties and Taxes: Once you get started, you must pay all import duties and taxes as and when required, either electronically or in authorized banks, and visit the customs office with your commercial invoices, transportation documents, licenses, permits, and certificates.
Whilst this may sound like a time-consuming process, working with a local expert will help to speed up the process.
Get Started with Biz Latin Hub
El Salvador offers countless opportunities for businesses of all shapes and sizes, who can utilize the country’s strategic regional trade agreements, low tariffs and labor costs to maximize profitability, either in El Salvador or in other global markets.
Consider working with Biz Latin Hub, your local experts, who can assist with everything from market entry to recruitment and due diligence. Contact Diego at [email protected] for personalized support.