El Salvador is a favorable environment for financial companies. The nation has a flexible regulatory regime that facilitates the launch and growth of financial businesses.
Thanks to the business environment and the political and regulatory approaches, a perfect incubation ground has been created for the establishment of financial and innovative businesses.
When deciding to invest in El Salvador, our associate lawyer, Adalicia Torres, considers it important to remember the different forms of investment available in El Salvador.
"When we review the Commercial Code of El Salvador, we find that there are two types of companies: personal-based companies and capital-based companies. The former is governed by individuals, while the latter is based on the capital contributed," indicates Torres.
Thus, in El Salvador, we see that different types of commercial companies can be established, such as: a) General Partnerships or Collective Partnerships; b) Limited Partnerships; c) Limited Liability Companies; d) Stock Corporations; e) Limited Partnerships with Shares.
Another way to invest in El Salvador is through a Foreign Branch, a figure used when a company already exists abroad and seeks recognition in El Salvador, committing to comply with the legal requirements and regulations that a local company would comply with.
Our specialist states that the third option is through a Joint Venture: "It involves the union of 2 or more companies with the purpose of deploying a business or entering a new market for a period of time, with the aim of obtaining benefits," detailed Adalicia.
Another important aspect is the tax issue. Individuals and legal entities will pay 13% Value Added Tax (VAT) and it is declared monthly, while foreign individuals will have 20% withheld on income generated in El Salvador.
Regarding Income Tax, our expert mentions that a 25% tax rate applies to incomes up to $150,000.00 and a 30% tax rate applies to incomes of $150,000.01 and above, both on an annual basis. Additionally, a 1.75% advance payment on sales generated that month is made towards the income tax.
"The foreign investor should not forget that the Salvadoran Tax System has specific taxes such as fuel tax, telecommunication tax, import taxes, and other economic activities that would be determined according to each particular case," says Torres.
For more information on tax and legal obligations, you can contact us through our social media channels or at our offices in Escalón neighborhood, San Salvador.
-Written by the Torres Legal Team.