Step-by-Step Guide to Company Registration in El Salvador

Business Opportunities in El Salvador

El Salvador presents numerous business prospects across the agriculture, manufacturing, tourism, and technology sectors to the businesses establishing a company there. The government has implemented policies that attract foreign investment.

With a strategic location and a population exceeding 6.5 million, El Salvador offers an ideal market to increase a business’s customer base.

The government also promotes renewable energy development to reduce reliance on foreign oil. The IT sector is burgeoning rapidly with a plethora of software development, outsourcing, and other services for clients from all parts of the world.

Benefits of Starting a Business in El Salvador

There are various advantages of doing business in El Salvador, including:

• Fast-growing economy: El Salvador has experienced noteworthy economic diversification, marked by remarkable growth figures and the establishment of free trade zones (FTZs) that serve as a hub for much of the country’s manufacturing industry.
• Low tax regime: El Salvador’s low-tax system is an added incentive for entrepreneurs considering starting a business, with the value-added tax (VAT) set at 13% and a modest 10% dividend tax. Additionally, the government offers various tax benefits to attract foreign investors who want to start a business in El Salvador. 
• Minimal entry barriers: El Salvador offers one of Latin America’s most straightforward business establishment procedures. With the necessary documentation and funding, an entrepreneur can start a business in El Salvador in just a few weeks.
• Several trade opportunities: El Salvador’s involvement in multiple free trade agreements and the excellent accessibility that local businesses have to several of the world’s most influential economies, beyond just the Americas, put it as an exceedingly profitable option for trade.

Requirements for Starting a Business in El Salvador

The requirements to do business in El Salvador are set by the country’s commercial code defining the steps for establishing companies there. It can take on various legal forms, such as collective name companies, limited liability firms, and anonymous corporations.

To start a business in El Salvador within the legal structure, businesses can follow these steps:

• The first step to start the company registration process in El Salvador is determining the company name and activity.
• Collect all relevant identification documents for each partner, including the Tax Identification Number of El Salvador (or passport/resident card for foreign individuals). 
• It is required to have a minimum of two partners.
• A minimum share capital of US$2,000 must be presented.
• Present the legal representative’s designation, alternate, and the company’s board of directors specification.

After executing the deed of incorporation and registering the company with the commercial board, the next step is to follow mandatory procedures for the company to receive grants for starting a business in El Salvador. These procedures include:

• Obtaining the Tax Identification Number and the Value Added Tax ID
• Registering the business in the municipality where it stands
• Enrolling in the National Department of Statistics and Census
• Registering the company in the Salvadoran Trade Registry

Furthermore, when a company has employees, additional steps must be taken, such as:

• Registering employees with the Salvadoran Institute of Social Security
• Registering the company’s workers with the Pension Funds Administration
• Establishing the company’s accounting system must be authorized by a public accountant duly registered with the Salvadoran Accounting Council.

Types of Business Structures in El Salvador

When setting a company in El Salvador, it can take the following forms:

Limited Liability Company (Ltda.)

• During company incorporation in El Salvador, businesses may choose Sociedad de Responsabilidad Limitada (SRL) company structure.
• The SRL structure is unique in that it does not rely on stocks for capital investment but instead follows a method of Social Participation. Partners, rather than shareholders, are responsible for the investment.
• The management selects partners and legal representatives for the company; if necessary, partners can take on the role of Legal Representatives.
• SRL structures are used by those who want third-party participation in company formation.
• To register an SRL company in El Salvador, the partners must agree on the selection process and include “Sociedad de Responsabilidad Limitada” in the company name when registering.

Public Limited Company (S.A de C.V)

• In El Salvador, the most commonly found company structure is the one that includes shareholders and stocks-based capital.
• In a public limited company, shareholders can independently endorse stocks to others. Companies can legally represent themselves through a Board of Directors or Unique Administration.
• Naming rules also apply, requiring all companies of this type to include “Sociedad Anónima” in their names.
• This structure’s advantage is its flexibility, as it allows an unlimited number of shareholders to take part in the administrative aspects of the company.
• It is worth remembering that the cost of incorporating a company in El Salvador may vary depending on the legal advice and assistance required.

Branch Office Company (Sucursal)

• The companies can also set up a branch office in El Salvador. 
• The process involves registering with the Ministry of Economy and providing several documents and information.
• The minimum required capital investment for this type of company is USD$12,000. It must provide proof of proper and legal incorporation in its origin country, financial statements, and a corporate bank account.
• The name of the company, followed by “El Salvador Branch” (Sucursal El Salvador), must also be included in the branch’s name.
• Once the previous procedures have been fulfilled, the next step is for the company to register with the Commerce of Registry in El Salvador to become an official entity in the country.
• There are two options to represent the company legally: the first is through the Board of Directors responsible for managing the branch in El Salvador, and the second is by appointing a legal representative with a Power of Attorney (POA).

Company Registration Process

The steps to incorporate a company in El Salvador involve several stages, including:

Step 1: Selecting a suitable business entity

• The appropriate company type is crucial for opening a business in El Salvador. The two most common commercial structures are a Limited Liability Company (Sociedad de Responsabilidad Limitada or SRL) and Corporation (Sociedad Anónima or SA).
• SRL offers limited liability for partners and bases the company’s capital on membership interests. Meanwhile, SA is the most popular business form in El Salvador, with shareholders and corporate money based on stocks.

Step 2: Select a name for the company and verify its availability

• Once the company structure is set, the next crucial step is to select a unique name for the business. 
• It is vital to choose a unique and uncontested name when you start a business in El Salvador.

Step 3: Acquire a tax identification number (NIT) for all shareholders of the company

• All shareholders or partners must obtain a tax ID number or NIT (Tax Identification Number) before setting a company in El Salvador. 
• The company’s bylaws must include all the necessary documents.

Step 4: Create the company’s bylaws and make the payment for registration

• In El Salvador, the bylaws are an essential document for registering a company, which must be drafted and validated by a public notary.
• The bylaws should contain relevant information, such as shareholders’ or partners’ NIT and ID numbers, company name, share capital, registered office address, and management structure.
• Additionally, the founder needs to pay the incorporation fees at a bank or through an online platform to proceed with the registration process.

Step 5: Submit the registration document to register the company 

• The company must pay the incorporation fee before submitting the necessary documents to the Mercantile Registry offices in El Salvador.
• Upon completion of the registration process, the company receives three documents as proof of successful registration:

1. 1. Testimony of the Deed of Incorporation Registered in the Commercial Registry
   2. Certificate of Registered Company Registration
   3. Certificate of Registration of Premises

• These documents are crucial for the post-incorporation process of the company.

Step 6: Post-incorporation process for a company in El Salvador

• Opening a corporate bank account is the first step after company registration.
• Once the account is open, other necessary procedures must be completed for the business to operate in El Salvador. These include:

1. 1. Registering with the Ministry of Finance within 15 days of registration at the Mercantile Registry to obtain an NIT (tax identification number) and RNC (taxpayer registration number).
   2. Registering with the municipality where the company stands.
   3. Registering with the Salvadoran Trade Registry.

How Much Does it Cost to Incorporate a Company in El Salvador?

Company registration in El Salvador can incur various costs depending on factors such as the type of company, number of shareholders, and legal procedures involved.

Setting up an LLC in El Salvador in the first year will cost USD 5,000. This includes incorporation, corporate bank account setup, legal registered office, and government registration fees. The average fee for these services is USD 10,315.

Are Foreigners in El Salvador on Certain Passes Allowed to Start a Business in El Salvador?

El Salvador’s government recognizes that foreign direct investment is essential to improving the economy. There are no discriminatory laws or practices against foreign investors, and the government does not screen or prohibit foreign direct investments.

All foreigners entering El Salvador to start a business and want to stay there for more than three months must apply for a visa. They can apply for long-term stay or permanent residency visas, consulted visas, and business visas. Most foreign nationals working in El Salvador should apply for a residency visa. If you are continuously traveling to the country, you can also apply for a frequent traveler card. 

Government Assistance for Foreign-owned Businesses

In El Salvador, like domestic businesses, foreign-owned businesses may be eligible for government assistance programs such as grants, loans, tax incentives, and other financial support.

However, the availability and eligibility for a government-assisted company registration process in El Salvador may differ for foreign-owned businesses and may be subject to additional restrictions and requirements.

The Exports and Investment Promotion Agency of El Salvador promotes exports and investments in El Salvador. It supports investment in eight main sectors:

• Textiles and apparel
• Business services
• Tourism
• Aeronautics
• Agro-industry
• Logistics and infrastructure networks
• Healthcare services

Foreign individuals and private companies are free to establish businesses in El Salvador under the Investments Law of 1999, which provides equal treatment to foreign and domestic investors.

However, the government restricts certain business activities to foreign entrepreneurs, such as:

• Telecommunications
• Television and radio
• Banking
• Air transport
• And certain financial services

How Can Multiplier Help?

Multiplier can assist companies in expanding their business in El Salvador by providing the infrastructure to hire local talent without the requirement of establishing a subsidiary.

The service is especially advantageous for companies seeking to test new markets or establish teams in new countries without significant investments.

Additionally, Multiplier can help lower the costs associated with recruiting talent. By taking advantage of the offerings, businesses can focus on their core functions while Multiplier handles the rest.