Multinational companies are increasingly choosing Latin American as the location for commercial expansion. There are two main ways to establish a local presence in El Salvador: creating a legal entity or utilizing a PEO to hire local staff.
How you establish your local sales presence in a country will be the key to the success of your business. Some generate greater profits and others better mitigate the risks, obligations and local regulations of the country.
Here we outline the different ways to establish a local presence in El Salvador, their differences, benefits and risks.
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Options to establish a local sales presence
These are the two most common options to establish a local presence in El Salvador:
- Establish a legal entity in El Salvador: There are different types of entities to choose from. For example, a Sociedad Anonima (S.A.), Sociedad de Responsabilidad Limitada (S.R.L.) and a foreign branch.
- By contracting the services of a PEO (Professional Employer Organization) in El Salvador.
Both alternatives have their benefits and disadvantages. Choosing an alternative depends on your business model, budget and risk tolerance.
Establish a legal entity in El Salvador
When establishing a legal entity in El Salvador, you have different types to choose from. The most common entity is a Corporation. This is the best way to start as it gives you a strong local sales presence from the start. It gives you more control of the company’s administration, including navigating local regulations and laws. In addition, you can manage and have greater control over the employees hired.
However, despite these benefits, consider the following disadvantages:
- Costly: Establishing a company is expensive. It not only requires a heavy initial investment but also requires constant investment for maintenance.
- Compliance obligations: These include commercial, tax and accounting obligations required for all companies in El Salvador.
- Commercial obligations: You must renew your trade registration to continue operating. Additionally, a General Meeting of Shareholders must be held at least once a year.
- Tax obligations: Annual tax returns must be submitted monthly to the tax authorities of El Salvador.
- Accounting obligations: Includes the preparation of the company’s financial statements.
- Other obligations: Depending on your business activity, you must comply with different obligations from several public institutions. These institutions include the Ministry of Labor, the Salvadoran Social Security Institute and the Pension Fund Administrators.
Contract a PEO in El Salvador
Hiring a PEO in El Salvador can be a great alternative if interested in entering the Salvadoran market, but are not willing to heavily invest at first. It is also the ideal alternative if you want to test the local market before making that larger investment.
By establishing a local sales presence, the PEO hires staff necessary to carry out your commercial activities in the country. The PEO is responsible for employee payroll, benefits and handling withholding taxes to employees. In short, a PEO hires talented staff to work for you without you needing to have your own physical company in El Salvador. When your business is ready, you can convert from operating via a PEO to establishing your own company in the country.
A PEO also allows you to operate staff remotely, saving you from incorporation costs and constant administration of a company. Without a physical company presence, the compliance obligations previously mentioned do not apply to your commercial activities or are drastically reduced.
Establish your local sales presence in El Salvador with Biz Latin Hub
There are different options to enter the Salvadoran market. As a business executive you can compare the advantages and disadvantages of each option. Our team at Biz Latin Hub is comprised of local and foreign experts. We can support your businesses however you choose to establish a local sales presence, whether by incorporating a company or hiring a PEO in El Salvador. We offer a wide range of services tailored to the needs of your commercial business. Contact us for more information and guidance, it will be a pleasure to assist you.