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Message 1DOINGBUSINESS2025
2LOCATION: El Salvador is located in the Central American region. It is bordered to the north and east by Honduras, to the south by the Pacic Ocean, to the west and northwest by Guatemala and the Gulf of Fonseca, located in the extreme southeast, which separates it from Nicaragua. The country is divided into 14 departments and 44 municipalities, with San Salvador as its capital and the nation’s largest city. CAPITAL: Salvador, with approximately 1,563,371 inhabitants.OFFICIAL LANGUAGE:Approximately 6,029,976 inhabitants.OFFICIAL LANGUAGE:Spanish.ÁREA:21.041 Km2 MAIN AIRPORT:San Óscar Arnulfo Romero y Galdámez” International Airport, San Luis Talpa, La Paz.EL SALVADORDoing Business El Salvador l General Aspects
32024: The presidential elections were held on February 4, 2024, without the need for a second round, as the winner obtained more than 50% of the valid votes, as established by the Constitution, and took ofce on June 1, 2024. As a result of the national elections described above, was elected:Current President: Nayib Bukele(Term 2024-2029).POLITICAL REGIME:Political Party:Nuevas Ideas.ECONOMY:2021 2022 2024It grew by 10.3%, following a decline of 8.2% in 2020, due to the COVID -19 pandemic.Moderate growth of 2.8%Projected growth of3% to 3.5%The GDP was 3.5%2023In the medium term, the GDP is expected to converge at 2.1%, above historical averages, driven by private consumption, public investment, and tourism. 2021: The economy grew by 10.3%, following a decline of 8.2% in 2020.The democratic government of El Salvador consists of three branches:1. Executive: President and Ministers.2. Legislative: Legislative Assembly.3. Judicial: Supreme Court of Justice.The body responsible for enacting the laws that govern the country is the Legislative Assembly.Doing Business El Salvador l Political & Economic Regime
4ENERGY SECTORINFRASTRUCTURE SECTOREl Salvador is positioned as the leading producer of geothermal energy in Central America. Except for hydroelectric generation, which is mostly managed by the government-owned company CEL (Comisión Ejecutiva del Río Lempa), the remaining generation capacity is in the hands of the private sector. The country demonstrates signicant potential, particularly in the production of electricity from renewable sources.These sources include hydroelectric, geothermal, wind, solar, marine, biogas, and biomass energy generation. This potential is strengthened by the existence of the Fiscal Incentives Law for the Promotion of Renewable Energy in Electricity Generation and the tax benets this regulation offers to investors.El Salvador emerges as a promising destination for investment in the infrastructure sector, supported by an ambitious development plan and a signicant allocation of nancial resources for its implementation. Key projects include the construction of priority projects such as the Francisco Corazón Viaduct in the department of La Libertad, the Gerardo Barrios Bypass in the department of San Miguel, as well as the construction of the new Pacic International Airport and the Pacic Train. These investments promise to improve connectivity, boost economic growth, and offer solid investment opportunities in a business-friendly environment. INCENTIVES FOR FOREING INVESTMENTDoing Business El Salvador l Foreign Investment Incentives
5TECHNOLOGICAL INNOVATIONThe digital services sector in El Salvador is made up of over three thousand companies that provide telecommunications, IT, programming, and information services to their clients. These companies accounted for 10.4% of the total exports of these services in 2021, thanks to the implementation of the Bitcoin Law, which recognizes this digital currency as legal tender in the country and aims to promote nancial inclusion and stimulate economic dynamism.Additionally, the country has several regulations that grant tax incentives for activities related to the technology sector, such as the Digital Asset Issuance Law and the Law to Promote Innovation and Technology Manufacturing. TOURISM SECTORThanks to joint efforts from both the public and private sectors in the eld of infrastructure, El Salvador continues to experience sustained growth in the tourism industry. As a result, the country is receiving 39% more international arrivals for tourism purposes compared to 2019, a year when the sector faced a global crisis due to the COVID-19 pandemic. The main focus of development in this area is the coastal region of the country, known for its high waves that are ideal for surng.The “Surf City” project has generated investment focuses in the construction and expansion of roads, in the hotel industry, improvement of municipal infrastructure, tourist docks, among other projects. Doing Business El Salvador l Foreign Investment Incentives
6Doing Business El Salvador l Special LawsWith the aim of promoting investment in digital assets, this regulation establishes a legal framework for the issuance, offering, and transfer of digital assets in El Salvador. Additionally, it provides tax benets to providers, certiers, and acquirers of digital assets, in accordance with Article 36 of this law. These benets include exemptions from taxes on nominal value and on returns or income generated by digital assets.DIGITAL ASSETS ISSUANCE LAWThis regulation is designed to encourage investment in high-rise real estate development projects through the granting of tax incentives. High-rise real estate development projects are dened as new real estate buildings initiated after the law’s entry into force, with at least 35 oors, measured from the lowest point of the street grade in front of the building. Among the benets established by this law are exemptions from Income Tax and Capital Gains Tax. Prots and income generated by investors in these projects will be exempt from Income Tax for a period of 15 years, starting from the scal year in which such benets begin to be received.Special Provisions for the Promotion and Granting of Tax Incentives for the Development of High-Rise Real Estate Projects
7CORPORATE ASPECTSCompanies in El Salvador are classied into two categories: Partnership:• General Partnerships.• Limited Partnerships.• Limited Liability Companies. Capital Companies:• Corporation.• Joint Stock Partnerships.• Simplied Stock CorporationAmong all the types of companies, the most used is the corporation (Sociedad Anónima). For the establishment of both partnerships and corporations, the requirements set forth in the Commercial Code and the Notarial Law must be followed.The company’s constitution must be executed through a Public Deed, which must be registered with the Commercial Registry at the National Registry Center.With the exception of Simplied Stock Corporations, which are incorporated through a form provided by the Commercial Registry.HOW TO BUILD A COMPANY?STEPS TO BUILD A COMPANYExecution of the Public Deed of Incorporation of the company, which includes all the clauses that will govern it. The deed of incorporation must be signed by at least two natural persons and/or legal entities. 124The approximate time to incorporate a company is 2 weeks after receiving the corresponding information and legal documentation.3After its establishment, the company must be registered with the Commercial Registry of the Republic and with the Ministry of Finance to obtain the Tax Identication Number (NIT) and be able to issue invoices.Doing Business El Salvador l Corporate Aspects
8Salvadoran companies can freely determine the capital regime they wish to adopt, with some exceptions such as banks, which can only have xed capital. The types of capital regimes are as follows:• VARIABLE CAPITAL:Increase and/or decrease (while respecting the minimum capital) only with the agreement of the board of partners or shareholders and thecorresponding notation in the Capital Increase and Decrease Book. Companies adopting this regime must add to their corporate name or the name specic to the type of company the words “variable capital” or its abbreviation “C.V.”FIXED CAPITAL:Salvadoran companies may increase and/ordecrease (considering the minimum capital) their share capital by granting a public deed for the increase or decrease of capital, which must be registered in the Commercial Registry. This regime imposes many more requirements than the previous one, as publications must be made in a national circulation newspaper and the Ofcial Journal, all debts must be settled and paid, or authorization must be obtained from creditors (in the case of a decrease), among other requirements.• CAPITAL REGIME ELEMENTS OF THE CORPORATION Comercial CompanyCapitalist.Capital represented by shares.Shares are always registered, and bearer shares are not permitted.Different classes of shares (common and preferred) may be stipulated.Shareholders’ liability is limited to the value of their shares.Shares can be transferred by endorsement or any other means provided by common law.The name can be freely formed, as long as it is available, with the mandatory addition of the legend “Sociedad Anónima”.Doing Business El Salvador l Corporate Aspects
9They must prove that the company is legally constituted, according to the laws of the country in which it isorganized.They must have documentation proving that the decision to establish a domicile in El Salvador or to operate in the country has been validly adopted in accordance with its bylaws.They must demonstrate that the representative/agent of the foreign company will reside permanently in thecountry.They must have sufcient share capital to carry out their business activities, in accordance with the foreigninvestment registry maintained by the Ministry of Economy (MINEC), for which MINEC will issue therespective authorization. They must certify through a public accountant authorized in the country the initial balance sheet of theforeign company or the branch to be established, reecting its share capital.The approximate time to establish a foreign branch is 1 to 5 business days from the submission of thedocumentation to the Commercial Registry.Foreign companies that wish to conduct commercial activities in El Salvador, by establishing a domicile in the countryor setting up branches, must comply with the requirements established in the Commercial Code and other specialregulations according to the nature of the foreign company’s business. The general requirements they must fulll areas follows:The general requirements that must be met are as follows:FOREIGN COMPANIES Doing Business El Salvador l Corporate Aspects
10TAXDIRECT TAXES1. ON INCOME:This tax applies to all products or prots received or accrued in Salvadoran territory, whether in cash or in kind, from multiple sources.The taxpayers are all natural or legal people, trusts, estates, partnerships, irregular or de facto companies, whether domiciled or not.TAX RATE ON TAXABLE INCOME SPECIFIED IN THE RELEVANT LAWThe tax rates are classied as follows:a. For natural persons, estates, and domiciled trusts, a graduated rate of 10%, 20%, or 30% will be applied, depending on the net income obtained. For non-domiciled natural persons, estates, and trusts not subject to withholding, a rate of 30% will be applied on net income.b. For legal people, partnerships, irregular or de facto com-panies, whether domiciled or not, with incomes below USD $150,000.00, a rate of 25% applies; for amounts exceeding this threshold, a rate of 30% will be applied.c. For non-domiciled taxpayers subject to withholding, a rate of 20% will be applied, which constitutes a denitive tax.d. Capital gains obtained from non-habitual transactions on movable and immovable property will be subject to a rate of 10% and will be settled separately from other income.e. Interest on savings deposits will be subject to a rate of 10% for all taxpayers; only natural people with an average deposit bal-ance of less than USD $25,000.00 will be exempt.f. Capital gains derived from the transfer or assignment of secu-rities will be subject to a rate of 10% and will be settled separately from other income.g. For dividends, a withholding tax of 5% will be applied, and it will be settled separately from other income obtained.DEFINITION Doing Business El Salvador l Tax
112. ON THE TRANSFER OF REAL ESTATE:This tax applies to the transfer of real estate by acts between living persons, and all natural or legal persons who acquire real estate are obligated to pay it. 3. ON ECONOMIC ACTIVITY:This tax is imposed by each municipality in Salvadoran territory and aims to tax the economic activities carried out within it. The taxable base will be the value of the net assets of natural or legal people.For the payment of municipal taxes, there will be a xed tax and a variable tax, which depend on the economic sector and the assets of the company; these are determined by the economic activity tax law of each district. TAX RATE ON TAXABLE INCOME SPECIFIED IN THE RELEVANT LAW DEFINITION The rate will be 3% on properties valued at more than USD $28,571.43; therefore, properties with a market value below this amount will be exempt. For the Commerce Sector, the Monthly Tax is:For the Industry Sector, the Monthly Tax is:If the asset is between ¢10,000.01 and ¢25,000.00, there will be a xed rate of ¢5.00 plus ¢1.00 per thou-sand or fraction of the excess over ¢10,000.00.If the asset is between ¢10,000.01 and ¢25,000.00, there will be a xed rate of ¢4.50 plus ¢1.00 per thousand or fraction on the excess over ¢10,000.00.If the asset is ¢15,000,000.01 or higher, there will be a xed rate of ¢2,057.50 plus ¢0.02 per thousand or fraction on the excess over ¢15,000,000.00If the asset is ¢15,000,000.01 or higher, there will be a xed rate of ¢2,057.00 plus ¢0.02 per thou-sand or fraction on the excess over ¢15,000,000.00.Doing Business El Salvador l TaxAccording to the current regulations of the municipality of San Salvador, the related gures are in Salvadoran colones, for which the exchange rate of ¢ 8.75 per USD$1.00 applies, in accordance with the Economic Integration Law, issued by Legislative Decree No. 201, dated November 30, 2000, and published in the Ofcial Gazette No. 241, Volume 349, dated December 22, 2000.
12IMPUESTOS INDIRECTOS1. VALUE ADDED TAX:In El Salvador it is called Tax on the Transfer of Movable Goods and the Rendering of Services and applies to the transfer, import, internment, internment, export and consumption of tangible movable goods; it also includes the rendering, internment, import, export and self-consumption of services.2. TAX ON BEVERAGES (soft drinks, isotonic, fortifying or energizing drinks, juices, nectars, soft drinks and concentrated or powdered preparations for the production of beverages).This tax is levied on the production,importation and internment of the beverages described above.3. ON TOBACCO PRODUCTS: This tax is levied on the production andimportation of tobacco products, such as cigars, cigarettes and cigarillos.TAX RATE ON TAXABLE INCOME INDICATED BY THE CORRESPONDING LAW The applicable rate is 13% to the price or remuneration agreed in the transfer of movable goods, in the rendering of services, or in the customs value of imports or internments. In the case of exports, it will be subject to a 0% rate. Specic tax: At a rate of USD $0.20 per liter of beverage.Ad-Valorem Tax: 10% will be applied on the suggested retail price to the general public on carbonated or carbonated beverages or simple or sweetened soft drinks and energy drinks, as well as concentrated or powdered preparations; and 5% on isotonic or sports drinks, fortiers, juices, nectars, drinks with juice, soft drinks and concentrated or powdered preparations. As Specic Tax: The value of USD$0.005 for each cigar, cigarette, cigarillo or any other tobacco product. As Ad-Valorem Tax: It will be calculated by applying 39% on the suggested retail price to the nal consumer. DEFINITIONDoing Business El Salvador l Tax
13Special Contribution on Diesel and GasolineThis is the highest contribution collected by the Salvadoran State, consisting of a tax of USD $0.20 per gallon of gasoline or diesel consumed. Special Contribution for the Stabilization of Public Passenger Transportation Fares: the fares of public passenger collective transport services is USD $0.10 per gallon of diesel, regular, or special gasoline. Special Contribution for Tourism Promotion:The Tourism Law, which is designed to foster, promote, and regulate the country’s tourism industry and services, sets a special contribution for: a) Accommodation payments; and b) Departures from the national territory by air.In the rst case, the special contribution for the promotion of tourism development is 5% applied to the daily price of the accommodation service. In the second case, the contribution is USD $7.00 per person per departure.• SPECIAL CONTRIBUTION The following are excluded from the payment of Income Tax: • Public law corporations and foundations, and public utility corporations• The value of assets received as legacies or inheritances by a person• The prot, gain, or benet obtained by an individual from the sale of their rst residential home, provided that the transaction value does not exceed USD $260,000.00, and if the person does not habitually engage in the purchase, sale, or exchange of real estate. The following are exempt from VAT:• The importation of machinery intended for xed assets, to be used directly in the production of goods and services, according to the procedures established in Salvadoran law.• The importation of buses, minibuses, and rental vehicles is dedicated to public passenger transportation.• The provision of services for leasing, subleasing, or the transfer of the use or temporary enjoyment of real estate intended for residential housing.• The provision of public land passenger transportation services.FISCAL BENEFITSDoing Business El Salvador l Tax
14LAW OF INDUSTRIAL AND COMMERCIAL FREE TRADE ZONES:The purpose of this law is to regulate the operation of Free Trade Zones and bonded warehouses for active improvement, as well as the benets and responsibilities of companies that develop, manage, or utilize them. Consequently, it grants exemptions from import taxes on machinery, equipment, spare parts, accessories, supplies, raw materials, and other goods necessary for directly carrying out the activities eligible for benets. Additionally, it provides exemptions from income tax and municipal taxes for a period of 15 to 20 years, in accordance with the rules established in the special law. INTERNATIONAL SERVICES LAW:Which seeks to regulate the establishment and operation of parks and service centers, this item is granted exemption from the payment of income and municipal taxes, as well as exemption from import taxes on machinery, equipment, spare parts and accessories, ofce furniture and equipment and other goods that are necessary for the execution of the incentivized services, according to the rules and conditions established in the law. TAX INCENTIVESIn addition to the above, El Salvador has had the good will to encourage economic and technological development, and through special laws it seeks to promote sectors such as: free zones, international services, renewable energy, technology manufacturing, among others, as detailed below:Doing Business El Salvador l Tax
15LAW OF TAX INCENTIVES:For the promotion of renewable energies in the generation of electricity, the purpose of this regulation is to promote investments in projects based on the use of renewable energy sources, through the use of hydraulic, geothermal, wind and solar resources, as well as biomass, for the generation of energy; For this purpose, exemption is granted for a term of 10 years from import duties on machinery, equipment, materials and supplies destined exclusively for pre-investment work and investment in the construction of works; exemption from payment of income tax for a period of 5 years and total exemption from payment of all taxes on income derived directly from the sale of “Certied Emission Reductions (CERs)”, according to the rules and conditions established in the aforementioned law. LAW FOR THE PROMOTION OF INNOVATION AND MANUFACTURING TECHNOLOGIES:This law aims to contribute to economic growth and the development of the workforce to generate advanced technological products and services, while also strengthening participation in essential supply chains for the global technological industry’s development. To this end, it grants tax incentives for a period of 15 years, in accordance with Article 7 of the law. Notable incentives include a total exemption from income tax and all types of withholding taxes on activities incentivized by the law, as well as a complete exemption from import duties and taxes levied on the importation of goods necessary for the development of the incentivized activities.TAX INCENTIVESDoing Business El Salvador l Tax
16LABORIn El Salvador, employers must comply with all applicable labor laws, social security regulations, and workplace safety measures. Failure to meet these employer obligations can result in nancial penalties imposed by the General Directorate of Labor Inspection of the Ministry of Labor and Social Welfare, as well as other risks concerning workers in case of claims during or after the employment relationship, or before the authorities of the Salvadoran Social Security Institute (ISSS).RELEVANT LEGISLATION: The relevant general provisions are primarily regulated in the Political Constitution of the Republic, the Labor Code, the General Law on the Prevention of Risks in the Workplace, and the Special Law for the Inclusion of Persons with Disabilities.Additionally, one source of labor law in El Salvador is the company custom; therefore, any extralegal benets provided to workers consistently, repeatedly, and with their acknowledgment constitute an obligation. RECRUITMENT OF PERSONNEL: The hiring of personnel is based on the requirements set by each company; however, as a constitutional right, no differentiation should be made based on race, marital status, gender, or creed.The individual employment contract is the legal-economic relationship by virtue of which a worker agrees to perform a task or provide a service to one or more employers under continuous dependency and immediate or delegated direction from theemployer, in exchange for a salary.The Employer must: WORKING HOURSEnter into individual employment contracts foran indenite period of time with all permanent personnel at the beginning of the employment relationship in 3 copies and send a copy to the General Directorate of Labor in writing within 8 days after signing the document.Deliver a copy of the individual employment contract to the employeeComply With the mínimum requirements stipulated in Article 23 of the Labor Code (identication of the parties, working day, contract term, salary, job assignment and place of performance).A.B.C.Doing Business El Salvador l Labor
17Sugarcane harvestingPer day $8.96Per hour $1.12Per month $272.66Per task $8.96Per ton $4.48Coffee harvestingPer day $8.00Per hour $1.00Per month $243.46Per quintal $1.60Per pound $0.60Agriculture, shing and other agricultural activitiesPer day $8.00Per hour $1.00Per month $243.46Commerce, services, industry, sugar mills and other agro-industrial activitiesPer day $12.00Per hour $1.50Per month $365Textile and apparel manufacturingPer day $11.81Per hour $1.48Per month $359.16Coffee processingPer day $8.96Per hour $1.12Per month $272.66The work shift that includes more than four hours of night work will be considered a night shift for the purpose of its duration.Effective working time is dened as any time the worker remains at the employer’s disposal.Every worker is entitled to at least one day of paid rest per week (the seventh day). There must be a minimum break of eight hours between the end of one shift, whether ordinary or with additional overtime, and the start of the next shift. The current minimum wage became effective on August 1, 2021. This was set by the National Council of the Minimum Wage, considering the cost of living, the nature of the work, remuneration systems, production areas and other similar criteria.The current minimum wage is:The amount of salary must be determined by the employer and the worker; however, it cannot be lower than the established minimum. Every worker has the right to earn the current minimum wage set by the National Minimum Wage Council. The salary is the monetary compensation that the employer is obligated to pay the worker for the services rendered. The most common payment methods are biweekly or monthly. Applicable deductions (ISSS, AFP, Income Tax) will be applied to this amount. • WORKING DAYSSALARY AND MINIMUM WAGEDAYTIME WORK: this is dened as work performed between 6:00 AM and 7:00 PM on the same day, and it cannot exceed 8 hours per day or 44 hours per week. NIGHT WORK: This refers to work performed between 7:00 PM of one day and 6:00 AM of the following day, and it cannot exceed 7 hours per day or 39 hours per week.Doing Business El Salvador l Labor
18CHRISTMAS BONUS:To be entitled to the payment of Christmas bonus the worker must have worked until December 12, in the following proportions: A) From 1 to 3 years the salary of 15 days.B) More than 3 years and less than 10 years the salary of 19 days.C) More than 10 years the salary of 21 days.VACATION:Every worker is entitled to a period of paid vacation after each year of continuous work, in the service of the same employer, the minimum duration of which is 15 days. Vacations are not compensable in money; such benet is constituted by the salary of the 15 days of vacation plus 30% of such amount. COMPENSATION FOR UNJUST DISMISSAL:All workers with unjustied dismissal must be paid an indemnity for time of services, equivalent to a basic salary of thirty days per year of service or proportionally for fractions of a year. The indemnity will never be less than the equivalent of the basic salary of fteen days. Likewise, for the calculation of the indemnity, no salary may be higher than four times the legal minimum daily salary in force. MINIMUM LABOR BENEFITSThe working mother shall enjoy a maternity leave paid with seventy-ve percent (75%) of her salary during the sixteen (16) weeks of maternity leave, ten (10) weeks of which shall be mandatory after childbirth.If the Worker enjoys the benets of the Salvadoran Institute of Social Security (ISSS), said Institute shall pay the maternity subsidy during the pre- and post-natal leave, and the Employer shall only have to grant the corresponding leave.Every breastfeeding worker may have at her place of work a half hour twice a day during her work to feed her child.The breastfeeding worker may accumulate the two half hours to which she is entitled and enter one hour after the beginning of the workday or leave one hour before the end of the workday, to feed her youngest son or daughter. The breastfeeding hour must be paid by the Employer.The breastfeeding period shall be computed from the day the mother returns to work and for a period of six (6) months thereafter.MATERNITYDoing Business El Salvador l Labor
19HOLIDAYSJanuary 1stJune17thNovember15thAugust5thMay1stAugust6thDecember25thMay10thSeptember15thAugust3rdHoly Thursday, Good Friday and Holy Saturday. SALVADORAN INSTITUTE OF SOCIAL SECURITY (ISSS SPANISH ACRONYM)• It is the obligation of the employer who employs one or more workers in any part of the territory of the Republic of El Salvador, to register and remain in the Social Security System. The employer is responsible for the global payment of its own contributions and for the delivery of the deducted contributions to its employees.• The employer must deduct from the workers the ISSS labor contribution equivalent to 3% of the total ordinary and extraordinary salaries earned by the worker during the month. The discounted labor contribution must be delivered to the ISSS within the rst twenty days of the month.• For its part, the Employer must pay the employer’s contribution equivalent to 7.5% of the total ordinary and extraordinary salaries accrued. INSTITUTES THAT ENSURE EMPLOYEE DEVELOPMENTPENSION FUND ADMINISTRATOR (AFP SPANISH ACRONYM)• It is the obligation of each worker to be afliated to an AFP when starting an employment relationship, to which contributions must be made on a monthly and mandatory basis. The employer is responsible for deducting these contributions, which amount to 16%, 7.25% of which corresponds to the employee and 8.75% to the employer.Doing Business El Salvador l Labor
20VOLUNTARY RESIGNATION BENEFIT:Any employee who has at least two years of continuous and effective service working for the same employer may request the benet for voluntary resignation, presenting the notice fteen (15) days prior to the effective resignation, working these; in the case of directors, managers, administrators, chiefs and specialized workers, the term must be thirty (30) days.The benet is equivalent to fteen days of basic salary for each year of service. For the purposes of calculating the economic benet, no salary may be higher than twice the legal daily minimum wage in force corresponding to the sector to which the employer’s economic activity corresponds. INTERNAL WORK REGULATIONS: Every Employer with 10 or more permanent workers must have an Internal Work Regulation approved by the Director General of Labor of the Ministry of Labor and Social Welfare.The Internal Labor Regulations must be made known to the workers six days after its approval, placing it in places of easy visibility. FOREIGN EMPLOYEES:There is a preference for Salvadoran workers, as the law establishes that 90% of the workforce must be Salvadoran. This means that the employer can hire no more than 10% of foreign workers and can allocate a maximum of 15% of total salaries to foreign personnel (unless for positions that are difcult or impossible to ll with Salvadorans).All foreign workers must have valid immigration status that allows them to work in the country (temporary or permanent residence) and must possess a work permit issued by the Ministry of Labor and Social Welfare. OTHER OBLIGATIONS AND SPECIAL CONSIDERATIONSDoing Business El Salvador l Labor
21INTELLECTUAL PROPERTYOwnership of trademarks, as well as their exclusive use, is acquired through registration and is limited to the goods or services with which the trademark is associated. This right can only be exercised within the territory of the Re-public.A trademark registration is valid for ten years from the date of its registration. It can be renewed for successive periods of equal duration indenitely.The trademark registration process typically takes approx-imately ve months, provided no oppositions are led.In El Salvador, trademark rights are attributive, meaning exclusive use of the trademark is granted only upon registration. However, this right is subject to territoriality and exclusivity, protecting only the goods or services registered within the national territory.An exception to this rule is trade names, which are acquired through their rst public use in commerce, without the need for registration. Additionally, Salvadoranlegislation not only protects trademarks but also prohibits unfair competition in the eld of Intellectual Property, providing more comprehensive protection.Doing Business Guatemala l Intellectual PropertyWHAT DOES IP PROTECT?FOR HOW LONG?ESTIMATED TIME TO REGISTER A TRADEMARK?WHAT IS DIFFERENT ABOUT TRADEMARK REGISTRATION IN EL SALVADOR?INVENTIONS PATENTS The right to a patent belongs to the inventor and grants the holder the ability to prevent third parties from exploiting the patented invention withoutauthorization. To obtain an invention patent, the creation must meet the following requirements: novelty, inventive step, and industrial applicability.FOR HOW LONG?Invention patents are granted for a term of twenty years from the date of ling the application with the registry. This term is non-renewable. Once it expires, the patent becomes part of the public domain.ESTIMATED TIME TO REGISTER A PATENT?Puede tardar de 3 años a más de 5 años. WHAT IS DIFFERENT ABOUT PATENTS IN EL SALVADOR?In El Salvador, the novelty requirement for registering an invention patent is evaluated not only nationally but also globally, considering the state of the art worldwide.In addition to invention patents, El Salvador also regulates utility model patents. These are granted for new and useful improvements to existing objects that allow enhanced or different functionality.Utility model patents grant exclusive rights to the holder for ten years, a term that cannot be extended.
22Doing Business Honduras l Real EstateThe Constitution of the Republic guarantees the right to private property as a constitutional right, establishing that every person has the right to freely dispose of their assets.In El Salvador, the National Registry Center (CNR) aims to ensure legal security and public access to registryinformation through its various registries and ofces. Its functions include maintaining accurate registry, geographic, cartographic, and cadastral information and ensuring its periodic updates. The CNR is responsible for the registration and cancellation of acts and contracts related to rights over real estate, movable property, companies, and intellectual property.This tax applies to the transfer of real estate through inter vivos acts. Properties valued at less than $28,571.42 are exempt from this tax. Article 1 of the Real Estate Transfer Tax Law also species other transactions that are exempt. The tax is calculated based on the sale price minus the exempt amount, and a 3% tax rate is applied to the remaining value.In addition to the mentioned tax, registration fees must be paid at the National Registry Center.REAL ESTATERIGHT TO PROPERTY: NATIONAL REGISTRY CENTER: REAL ESTATE TRANSFER TAXUnder the income tax law, the prot obtained by an individual or legal entity that does not engage in the purchase and sale of real estate or other forms of negotiation involving movable or immovable property is considered a capital gain. Capital gains or losses are determined by deducting from the transaction value the basic cost of the asset, the amount of improvements made, and the necessary transaction expenses. If the transaction value exceeds these deductions, it is considered a capital gain. Conversely, if the deductions exceed the transaction value, it is considered a capital loss.The tax is 10% of the net capital gain. However, if the transaction is carried out within 12 months of acquiring the asset, the gain is added to the ordinary net taxable income, and the tax is calculated as ordinary income.CAPITAL GAINS TAX:
23Doing Business Honduras l Agency, Distribu and Representation AgreementsAGENCY, DISTRIBUTION, AND REPRESENTATION CONTRACTSRelevant Legislation: Agency, distribution, and representation contracts are regulated by the Commercial Code of the Republic of El Salvador. The types of commercial agents regulated by this legal framework are: LEGISLACIÓN RELEVANTEDEPENDENT AGENTS:are those persons responsible for “promoting, in a specic market or region, business on behalf of a principal, either domestic or foreign, and transmitting proposals for acceptance.”INTERMEDIARY AGENTS:are those who do not bind the parties to each other nor represent their clients, meaning they cannot act as attorneys-in-fact for these clients because they lose their status as intermediaries. The right to payment of the agreed remuneration for these agents is contingent on the execution of the contract they mediate.”REPRESENTATIVE OR DISTRIBUTOR AGENTS:are natural or legal persons who “continuously, with or without legal representation, and through a contract, have been designated by a principal for the agency-representation or distribution of certain products or services within the country.” In cases where the distributor does not act on their own account and risk, they will not be held liable for any breach, as their responsibility is limited to fullling the instructions received from the principal. The agency may be exclusive or non-exclusive.
24Doing Business Honduras l Agency, Distribution and Representation ContractsAn agency-representation or distribution contract can be terminated by either party, in writing, with three months’ notice. The distributor, upon termination, is entitled to the value of any pending commissions earned during the duration of the contract.The justied causes for termination of an agency,representation or distribution contract by the principal, as provided by law, include:If the principal terminates or refuses to extend the agency or distribution contract, they must pay the agent the following compensation:Breach of the agency-representation or distribution contract.Fraud by the representative or distributor agent.Serious incompetence or negligence by the representative or distributor agent.Continuous decrease in sales or distribution of items due to the agent’s fault.Disclosure of condential information.Actions attributable to the agent that harm theintroduction, sale, or distribution of the entrustedproducts.Expenses incurred by the representative or distributor agent for the benet of the business from which they are deprived, as long as such expenses cannot be recovered.The value of investments in premises, equipment, installations, furniture, and supplies to the extent that these investments are only usable for the business from which the agent is deprived.The value of stock in goods and accessories, to the extent that the agent can no longer sell them or their sale becomes particularly difcult. This value will be calculated based on the acquisition cost, plus shipping fees to the agent’s premises, and any taxes and fees paid by the agent for holding the stock.The amount of the gross prot obtained by the representative or distributor agent in carrying out the representation or distribution during the last three years, or the shorter period during which they have carried it out.The value of credits that the representative or distributor agent has extended to third parties to pay for the goods they distribute.TERMINATION OF AGENCY,REPRESENTATION OR DISTRIBUTION CONTRACTDAMAGES TO THE AGENT
25FINANCIAL MARKETCOMMERCIAL LOANS AND SECURITIES:Commercial loans are those granted by banking or credit institutions engaged in providing mass nancing to third parties. According to Article 623 of the Commercial Code, securities are documents necessary to enforce the literal and autonomous right recorded within them. These securities can be nominative, to order, or bearer, and are classied as: 1. Credit securities. 2. Participation securities.3. Representative securities.Doing Business Costa Rica l Financial MarketSTOCK EXCHANGE:The El Salvador Stock Exchange provides a platform for public offer negotiations and stock market transactions. The Securities Market Law, in Article 29, sets forth the powers of the Stock Exchange, including regulating and overseeing stock market operations through regulations, rules, and instructions, as well as applying disciplinary measures.In 2023, the Stock Exchange reached a record in transaction volumes, driven by the private sector seeking nancing alternatives. The Superintendency of the Financial System (SSF) reported 8,866 transactions amounting to US$4,817 million, a 66% increase compared to the previous year.BANKING SYSTEM:The creation and nancial intermediation functions of banking institutions in El Salvador are primarily regulated by the Banking Law and, where applicable, by the Commercial Code. These entities must obtain prior authorization from the SSF to be constituted.EXCLUSIVE ACTIVITIES OF FINANCIAL INSTITUTIONS:Salvadoran legislation establishes that fundraising is an exclusive activity of nancial institutions duly authorized under the law that governs them. Additionally, only banking institutions constituted and authorized under the Banking Law and the Commercial Code may act as trustees.
26SUPERINTENDENCY OF THE FINANCIAL SYSTEM (SSF):This is an independent supervisory body of the nancial system.It is composed of a Board of Directors, the Superintendent of the Financial System, Deputy Superintendents, and other necessary ofcials for its operation.RELEVANT ENTITIES IN THE BANKING SYSTEMCENTRAL RESERVE BANKThis is an autonomous public credit institution with the following mainfunctions:• Promote the efcient and competitive development of the nancial system.• Prepare and publish key macroeconomic statistics.• Ensure the proper functioning of payment and securities settlement systems, and create technical standards for the entry, participation, and exclusion of participants and administrators of these systems.• Operate payment systems.• Act as the State’s nancial agent.• Issue technical standards for credit history information agencies, ensuring that only relevant data is collected and provided for the preparation of credit histories.SALVADORAN INSTITUTE FOR COOPERATIVE PROMOTION (INSAFOCOOP)This is an autonomous institution responsible for overseeing the cooperative movement in El Salvador. It is in charge of promoting, organizing, supervising, and regulating the operation of Cooperative Associations.Doing Business Costa Rica l Financial Market
27FAQCan the constitution of a corporation be signed with an electronic signature?In El Salvador, it is not possible to electronically sign the incorporation of corporations or partnerships, as their incorporation must be executed before a notary authorized by the Supreme Court of Justice and through a public deed. However, Simplied Stock Corporations allow electronic signatures, as they are incorporated through a form and not through a public deed. Can the shareholders of a corporation be foreigners? Yes, shareholders can be Salvadoran or foreign individuals, and they can also be national or foreign legal entities. In the case of foreign shareholders, they must obtain a Tax Identication Number from the Ministry of Finance.Can the legal representative of the corporation be a foreigner?Yes, there is no prohibition against a foreigner occupying the position of legal representative.Is it possible to establish a corporation in El Salvador with a single shareholder?Yes, the Simplied Stock Corporation is the only one that can be incorporated with a single shareholder. All other types of companies must be incorporated with at least two shareholders, who can be either natural or legal persons, whether domestic or foreign. Does the corporation need an accountant?Yes, it is necessary for the corporation to have an accountant in El Salvador, as they are required to maintain their accounting through a licensed accountant. What is the minimum capital to establish a corporation in El Salvador?The minimum capital is $2,000.Can a bank account be opened with the establishment of a corporation?It is necessary to have the deed of incorporation duly registered with the Commercial Registry. Additionally, the following documents must be presented: initial balance registered with the Commercial Registry, a list of shareholders and their shareholdings, the NIT and VAT of the corporation, and documents of the Legal Representative. Each bank may have its own additional requirements What is required to establish a corporation with a foreign shareholder who will not travel to El Salvador to sign the incorporation deed?Yes, it is possible. In this case, the foreign entity or individual must grant a special power of attorney to establish a corporation, which must include the authority to process the Tax Identication Number (NIT) and everything necessary for the incorporation of the company. The power of attorney must be apostilled if the country where it was granted is a signatory to the Hague Convention; otherwise, it must be authenticated. If the power of attorney is issued in a language other than Spanish, it must be accompanied by translation proceedings carried out before a Salvadoran notary. The passports of the natural persons or, if a legal entity, the legal representative and corporate documents must be presented, all properly apostilled or authenticatedDoing Business El Salvador l FAQ
28FAQWhat are the commercial obligations of a corporation in El Salvador?The obligations include a) Annual registration of the commercial entity and establishment with the Commercial Registry; b) Maintaining formal accounting; c) Appointing an external auditor; d) Keeping accounting and administrative books; e) Annual registration of nancial statements with the Commercial Registry; and f) Annual deposit of the external auditor’s report with the Commercial Registry. Not all of the aforementioned obligations apply to all Simplied Stock Corporations; this depends on the company’s assets.Is there a time limit for the management of a corporation?The maximum term established in El Salvador is seven years; however, individuals may be eligible for reelection. Can limitations be placed on the Legal Representative?In the case of sole administration, generally, no authorization is required; however, it may be established that the sole administrator needs authorization from the General Meeting of Shareholders for certain actions. Regarding the Board of Directors, it can be established whether the Legal Representative requires authorization from the Board for specic acts, such as incurring debts, selling real estate, encumbering real estate, among others. Is it mandatory for the Legal Representative or members of the Board of Directors or Management to be shareholders?No, it is not mandatory.What rights does a patent grant its holder?A patent grants its holder exclusive rights over the patented invention, preventing third parties from exploiting it without consent. This allows the holder to take legal action against unauthorized use of the invention.Doing Business El Salvador l FAQHow long is a corporation established for?A corporation can be established for a xed term or for an indenite or indeterminate period. Typically, it is set for an indenite or indeterminate period.. What rights are acquired through trademark registration in El Salvador?Trademark registration in El Salvador grants the owner property rights and exclusive use of the trademark, but only in connection with the goods or services for which it has been registered and within the Republic’s territory. This is based on the principles of territoriality and specicity.Is it possible to issue bearer shares?In El Salvador, share certicates must always be registered, and until the nominal value of the shares is satised, interested parties may request the issuance of bearer certicates, provided that the deed does not prohibit it.
29FAQWhen should a trademark be renewed in El Salvador?A trademark registration is valid for 10 years from the date of registration. This term can be renewed indenitely for equal periods. The renewal application must be led during the year prior to the expiration date, though a six-month grace period is available after the expiration date.What can be considered a trademark in El Salvador? The Intellectual Property Law in El Salvador denes a trademark broadly, allowing it to consist of everything from words and names to sounds, scents, and avors. This broad scope enables the protection of almost any distinctive aspect related to products or services.What kind of relationship does an agent have with the principal in agency contracts? The relationship between the agent and the principal in agency contracts is one of subordination. The agent acts under the express mandate of the principal and depends on them to enter, modify, or terminate contracts, make collections, or grant discounts. The agent can only act within the limits established by the principal.What guarantees private property in El Salvador?The Constitution of El Salvador recognizes, promotes, and guarantees the right to private property with a social function. Additionally, intellectual and artistic property rights are recognized and protected.What rights does a distributor have upon termination of an agency, representation, or distribution contract?Upon termination, the distributor is entitled to:• Pending commissions accrued during the contract term.• Compensation for expenses incurred and unrecovered investments.• The value of merchandise and accessories in stock.• Gross prot obtained in the last three years.• Credits granted to third parties.What types of taxes apply to real estate transfers in El Salvador?The following taxes apply to real estate transfers in El Salvador:• Real Estate Transfer Tax: Calculated at 3% on the amount exceeding $28,571.43.• Capital Gains Tax: Levied at 10% on net capital gains, with exceptions for transactions occurring within 12 months of acquisition.• Registration Fee for Real Estate and Mortgage Registry: Depends on the type of instrument and the declared value, ranging from a minimum of $8.86 to a maximum of $5,400.00, as per Article 50-A of the Law on Tariffs and Other Administrative Provisions of the Registry.Doing Business El Salvador l FAQ
30FAQCan an agent, representative, or distributor engage in other businesses?The agent, representative, or distributor may engage in activities or businesses different from those under the agency, representation, or distribution contract, provided they avoid competing with the principal. However, the principal may authorize the agent to conduct businesses of the same type as those covered by the contract.What are the most common securities and their characteristics? The most common securities include:• Bills of exchange: Credit instruments ordering the payment of a specic sum on a determined date.• Promissory notes: Written promises to pay a sum of money to a person or entity on a future date.• Checks: Orders for payment on demand, used for monetary transactions.• Shares: Securities representing an ownership interest in a company, granting economic and political rights.What are the functions of the stock exchange?The stock exchange has three primary functions: regulatory, supervisory, and disciplinary authority Is INSAFOCOOP still operational?Under a proposed Dissolution, Liquidation, and Transfer of Functions Law, INSAFOCOOP’s competencies would be redistributed to state entities such as the Ministry of Agriculture, CONAMYPE, Ministry of Housing, Ministry of Education, Science, and Technology, and the Vice Ministry of Transport. This proposal aims to provide more specialized attention aligned with the cooperatives’ economic focus, enhancing state regulation. However, the proposal is not yet law, so INSAFOCOOP remains operational.How many stock exchanges exist in El Salvador?There is only one stock exchange in El Salvador. Establishing a stock exchange requires an economic justication and must be authorized by the Superintendency of the Financial System, alongside compliance with all requirements established in the Securities Market Law.Doing Business El Salvador l FAQ
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