Latin America has welcomed a number of technological revolutions in recent years, including online business activity (known as electronic commerce or ‘e-commerce’) and financial technology or ‘fintech’ innovation. With El Salvador right at the forefront, this development consists of introducing and implementing new technologies to perform activities and services such as transactions, purchases, sales, finances, and many others. These enhanced services allow people, businesses and banking institutions to save on money and time to capitalize on the convenience offered by the online commercial world.
The only drawback is that this explosive development has meant governments don’t necessarily have the right legal frameworks ready to nurture and regulate such trends as fintech and online business. A new law recently introduced in El Salvador has the primary intent of supporting e-commerce business.
Regulation supports growing E-commerce in El Salvador
Increased technological and digital capacity for South and Central American countries has opened up a new channel for businesses that’s rapidly growing, as millions of customers in the continent come online through greater use of mobile and other electronic devices.
Fintech activity surfaced in El Salvador a few years ago, although currently there are not many significant actors in this space in the country. In addition to banks, some fintech start-ups appear to be taking their first steps and are succeeding domestically. With the emergence of a new fintech sector, the country has already taken steps to formalize a regulatory framework to support and manage fintech and other businesses operating through online platforms.
The Salvadoran government understands that online or e-commerce is an economically beneficial development that will benefit both companies and consumers. On 31 October, the Electronic Commerce Law (known as the Ley de Comercio Electrónico in Spanish) was approved by the Legislative Assembly of El Salvador.
The country is thereby taking its first steps towards the regulation of commercial and financial digitalization, with a forward-thinking perspective. With greater regulation of online commercial and financial activity, businesses and customers alike can enjoy minimized risk, clearer processes, and fair and equitable standards.
Law established on the back of growing fintech activity
The establishment of the new law for e-commerce in El Salvador is linked to the growing Latin American fintech market. This has only recently included El Salvador; other countries in the region such as Mexico, Brazil, Chile, Colombia, and Argentina have experienced a greater degree of fintech growth. Some countries have also already introduced new regulation on the subject, to support and manage further fintech activity.
For El Salvador, this process has just begun and the country represents a small amount of regional fintech activity by foreign startups. Though fintech activity hasn’t taken off in the Central American country as quickly as some of its Southern neighbours, the proactivity of the government in establishing and approving the new e-commerce law makes entering this market much easier for businesses looking to establish a base for their online commercial activities in the region.
Scope of the e-commerce law in El Salvador
The purpose of this law is primarily to protect suppliers and consumers who make use of digital market modalities. The law also aims to establish a legal framework that regulates relationships of a commercial nature, contractual or not, carried out by electronic or technologically equivalent means between the suppliers of goods and services electronically, intermediaries, commercial communications and by customers.
Before its approval, the government reviewed the law extensively to ensure it could reasonably cover future developments in a highly changeable tech environment. There were, therefore, several participating institutions that provided their support during this process.
This included the:
- Economy Commission of the Legislative Assembly
- Consumer Advocacy (Defensoría del Consumidor)
- Salvadoran Association of Industrialists (Asociación Salvadoreña de Industriales)
- National Commission of Micro and Small Businesses (Commisión Nacional de la Micro y Pequeña Empresa, or CONAMYPE)
- Central Reserve Bank of El Salvador (Banco Central de Reserva de El Salvador)
- Ministry of Economy (Ministerio de Economía).
The law is connected to other existing regulations that address other specific elements of electronic commerce: it is also complementary to the Electronic Signature Law and the draft Personal Data Protection Law.
Considerations for e-commerce under new law
With this Electronic Commerce Law, the country has finally closed an important gap that lagged behind in the new world of contracting, since the law establishes a legal framework for electronic commercial and contractual relationships.
It establishes a principle of functional equivalence for electronic documents and communications that generate from online transactions. These electronic documents will have the same value, legal effects, validity and probative force of hardcopy documents, provided they meet a set of requirements outlined in the law.
Thus, the new law regulates and allows the use of the electronic invoice, which must be issued as proof of payment to those who carry out commercial transactions by these means, and develops what is related to electronic contracts, which will produce full legal effects.
Before the E-commerce Law can enter into force, it must first pass through another review by governmental institutions that will offer their analysis and recommendations. Once the law passes this final review, it’s expected that the law will come into force within one year.
Improving doing business in El Salvador
With the approval of the Electronic Commerce Law, El Salvador is now one step closer to energizing its commercial processes for its businesses and industries. Greater clarity of regulatory expectations, processes and commercial frameworks will enable businesses to more easily navigate this emerging industry and the wider domestic market.
As one of the only countries in Central America with such clarity, El Salvador offers ideal business conditions for online-operating companies looking to expand into Central and South America. The government shows a clear desire to support and grow its fintech and online commerce scene, and such a law puts the country on the map for international operators.
With this e-commerce law, businesses and consumers are protected. Companies will be allowed to act in a safer and faster way to establish a presence in the market.
Make the most of this development by exploring your options for expansion and company formation in El Salvador. As mobile and other device usage increases in Latin America, businesses would benefit greatly from planning their market entry strategy and taking steps to capitalize on the developing region.
Start your e-commerce business in El Salvador with Biz Latin Hub
In Biz Latin Hub, we work across Latin America to support multinationals with their expansion plans. Our teams of local and expatriate professionals are located in 12 countries and offer a suite of multilingual market entry and back-office services. We enable foreign businesses to operate in the different emerging and developing industries that Latin America has to offer.
Contact our team in El Salvador today at [email protected] to learn more about business opportunities in the country, and get a personalized consultation about your market entry needs. With our legal and accounting professionals, we’ll ensure your company formation and market integration runs smoothly and seamlessly, so your business gets the best start it possibly can in a new environment.
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