Starting a Business in El Salvador: 4 Considerations

Starting a business in El Salvador may not be the first option you think of when considering doing business in Latin America, however investors are increasingly waking up to the opportunities on offer in this tiny Central American nation that is affectionately known as “The Tom Thumb of the Americas.”

For anyone seeking a local workforce in El Salvador on a limited -scale or shorter-term basis, or who simply wants to get to know the market better ahead of making a deeper investment, hiring staff via an employer of record in El Salvador is a good option. Because while that firm will act as the official employer of staff in the country, you will retain full control over their schedule and workload, while avoiding the need to go through company formation and liquidation.

El Salvador is a dollarized economy, having adopted the US dollar in 2001, offering investors confidence with regard to inflation and currency stability. The country has also posted impressive economic growth figures over recent years, with gross domestic product (GDP) rising almost five-fold since 1992, the year that a bloody civil war in the country ended.  Reporting only one year of slight GDP decline in the 27 years since the peace accords, the country’s GDP hit $27.01 billion in 2019. 

The country has also seen a corresponding rise in prosperity, with gross national income (GNI) similarly growing to hit $4,000 per capita in 2019, a figure that pushed the country into the ranks of “upper-middle income” nations according to standards established by the World Bank.

While El Salvador is a famed sugar- and coffee-growing  nation, agriculture only accounts for approximately 5% of the country’s GDP, while services make up almost 60% and manufacturing represents around 26%. The country has a highly developed garment production industry, with clothing among El Salvador’s most important export products, along with other manufactured goods such as electrical machinery and pharmaceuticals. 

The country is party to a number of free trade agreements (FTAs), most of which have been negotiated collectively with other Central American nations, with FTAs in place between the sub-region and the likes of Chile, Colombia, the European Union, and Mexico. Meanwhile the Central America-Dominican Republic-United States FTA (DR-CAFTA) provides local businesses with preferential access to the largest market in the world, as well as the largest market in the Caribbean.

In recent years, foreign direct investment (FDI) has fluctuated, while remaining on a generally upward trajectory, with FDI inflows rising from $215.8 million in 1999 to $724.8 million in 2019. 

If you are interested in starting a business in El Salvador, read on to learn about the benefits of doing business in the country and the key considerations you need to keep in mind when launching your project. Or go ahead and contact us now to discuss your business options.

Benefits of starting a business in El Salvador

Fast-growing economy: El Salvador has seen significant diversification in its economy since emerging from over a decade of civil war in the early 1990s, posting impressive growth figures and establishing free trade zones (FTZs) where much of the country’s manufacturing industry is based.

Significant trade opportunities: El Salvador’s participation in a range of FTAs, and the preferential access that locally-based businesses enjoy to some of the most important economies in the world, not just in the Americas, means that the country offers significant opportunities for trade. 

Low tax regime: Starting a business in El Salvador is made all the more enticing by the country’s low-tax regime, with value-added tax (VAT) generally set at 13% while dividends taxes are just 10%. Moreover, a range of tax incentives are offered to foreign investors entering the country.

Minimal entry barriers: Starting a business in Salvador is one of the easiest processes in Latin America. Indeed, with the right papers and your funding ready you can start your business in a couple of weeks. That stands in contrast to other countries where it can be a months long process, making El Salvador particularly enticing.

Key considerations for starting a business in El Salvador

Anyone thinking about starting a business in El Salvador should take the following considerations into account:

1. Choose the right company type: You must determine what type of company will fit your business needs. Note that in El Salvador there are several entity types to choose from, including a Limited Liability Company (LLC), Public Limited Company (PLC), branch, or a representative office. Currently, the minimum capital requirement to establish an LLC is $2,000.
2. Appoint a reliable legal representative: You must appoint a legal representative in El Salvador, who will be in charge of representing the company in the country, signing all legal documents on behalf of your company. This person must be at least 18 years old, have an offical identity document (known as a DUI) and Tax Identification Number (NIT), and be physically domiciled in the country.
3. Comply with labor regulations: Your legal representative will be able to guide you in making sure that you remain fully compliant with local labour regulations, including meeting all statutory requirements related to social security and leave. When you hire via an employer of record, guaranteed compliance is included in the service agreement.
4. Protect your intellectual property: When starting a business in El Salvador, you will need to register a trademark, or patent a name or logo, depending on the nature of your work. Once more, your legal representative should have experience in these matters and be able to oversee your protection.

Biz Latin Hub can help with company formation in El Salvador

At Biz Latin Hub, our team of multilingual company formation specialists can guide you in any of your business projects in El Salvador. With our complete portfolio of legal, recruitment, and tax advisory services, we can be your single point of reference for support when doing business in El Salvador, or any of the other 15 countries across Latin America and the Caribbean where we are present.

Reach out to us now for personalized assistance on your business project.

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