On June 1, 2019, President Nayib Bukele assumed office. His administration immediately pledged to eliminate cumbersome bureaucracy and improve security conditions to attract investment and create jobs. Early accomplishments included increased dialogue with the private sector and reduced homicide rates, which increased business confidence. El Salvador and the United States signed a Growth in the Americas memorandum of understanding in January 2020 to promote private investment. The COVID-19 pandemic has unfortunately complicated implementation of reforms and dampened investment.
Commonly cited challenges to doing business in El Salvador include the discretionary application of laws and regulations, lengthy and unpredictable permitting procedures, as well as customs delays. In recent years, El Salvador has lagged its regional peers in attracting foreign direct investment (FDI). The sectors with the largest investment have historically been textiles and retail establishments, though investment in energy has increased in recent years.
The Bukele administration has proposed several large infrastructure projects, which could provide opportunities for U.S. investment. Project proposals include enhancing road connectivity and logistics, expanding airport capacity and improving access to water and energy, as well as sanitation. Having inherited a large public debt from the previous administration, the Bukele administration has begun pursuing Public-Private Partnerships (PPPs) to execute infrastructure projects. El Salvador launched its first PPP in September 2019 to expand the cargo terminal at the international airport. It launched a second PPP to install highway lighting and video surveillance in January 2020. With these two PPPs, the Bukele administration delivered on its commitment under the Millennium Challenge Corporation (MCC) Compact, which is due to close in September 2020. More information about the MCC Compact is available at https://www.mcc.gov/where-we-work/program/el-salvador-investment-compact.
As a small energy-dependent country with no Atlantic coast, El Salvador relies on free trade. It is a member of the Central American Dominican Republic Free Trade Agreement (CAFTA-DR) and the United States is El Salvador’s top trading partner. Proximity to the U.S. market is a competitive advantage for El Salvador. As most Salvadoran exports travel by land to Guatemalan and Honduran ports, regional integration is crucial for competitiveness. Although El Salvador officially joined the Customs Union established by Guatemala and Honduras in 2018, the Bukele administration announced in January 2020 that it would prioritize bilateral trade facilitation with Guatemala.
The Bukele administration has taken initial steps to facilitate trade – a major priority of the textile, retail, and other U.S. companies invested in El Salvador. In July 2019, the government of El Salvador (GOES) relaunched the National Trade Facilitation Committee (NTFC), which had not met since its creation in 2017. The NTFC produced the first jointly developed private-public action plan to reduce trade barriers. The plan contains 60 strategic measures focused on simplifying procedures, reducing trade costs, and improving connectivity and border infrastructure. Companies are hopeful the plan would help reduce costs and make El Salvador more attractive for further investment.
|TI Corruption Perceptions Index||2019||113 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2019||91 of 190||http://www.doingbusiness.org/rankings|
|Global Innovation Index||2019||108 of 129||http://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, stock positions)||2017||3,037||http://apps.bea.gov/
|World Bank GNI per capita||2017||3,820||http://data.worldbank.org/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Toward Foreign Direct Investment
The GOES recognizes that attracting FDI is crucial to improving the economy. El Salvador does not have laws or practices that discriminate against foreign investors. The GOES does not screen or prohibit FDI. However, FDI levels are still paltry and lag behind regional neighbors, except for Nicaragua. The Central Bank reported net FDI inflows of $437.7 million at the end of September 2019.
The Exports and Investment Promotion Agency of El Salvador (PROESA) supports investment in eight main sectors: textiles and apparel; business services; tourism; aeronautics; agro-industry; light manufacturing; logistic and infrastructure networks; and healthcare services. PROESA provides information for potential investors about applicable laws, regulations, procedures, and available incentives for doing business in El Salvador. Website: http://www.proesa.gob.sv/investment/sector-opportunities
The National Association of Private Enterprise (ANEP), El Salvador’s umbrella business/private sector organization, has established an ongoing dialogue with relevant GOES ministries. http://www.anep.org.sv/
In June 2019, the GOES created the Secretariat of Commerce and Investment, a position within the President’s Office responsible for the formulation of trade and investment policies, as well as coordinating the Economic Cabinet.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign citizens and private companies can freely establish businesses in El Salvador.
No single natural or legal person – whether national or foreign – can own more than 245 hectares (605 acres) of land. The Salvadoran Constitution stipulates there is no restriction on foreign ownership of rural land in El Salvador, unless Salvadoran nationals face restrictions in the corresponding country. Rural land to be used for industrial purposes is not subject to the reciprocity requirement.
The 1999 Investments Law grants equal treatment to foreign and domestic investors. With the exception of limitations imposed on micro businesses, which are defined as having 10 or fewer employees and yearly sales of $121,319.40 or less, foreign investors may freely establish any type of domestic business. Investors who begin operations with 10 or fewer employees must present plans to increase employment to the Ministry of Economy’s National Investment Office.
The Investment Law provides that any extractive resource is the exclusive property of the state. The GOES may grant private concessions for resource extraction, though there have been no new permits issued in recent years.
Other Investment Policy Reviews
El Salvador has been a World Trade Organization (WTO) member since 1995. The latest trade policy review performed by the WTO was published in 2016 (document: WT/TPR/S/226/Rev.1). https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(@Symbol=%20wt/tpr/s/*)%20and%20((%20@Title=%20el%20salvador%20)%20or%20(@CountryConcerned=%20el%20salvador))&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true#
The latest investment policy review performed by the United Nations Conference on Trade and Development (UNCTAD) was in 2010. http://unctad.org/en/Docs/diaepcb200920_en.pdf
El Salvador has various laws that promote and protect investments, as well as providing benefits to local and foreign investors. These include: the Investments Law, the International Services Law; the Free Trade Zones Law; the Tourism Law, the Renewable Energy Incentives Law; the Law on Public Private Partnerships; the Special Law for Streamlining Procedures for the Promotion of Construction Projects; and the Legal Stability Law for Investments.
Per the World Bank, registering a new business in El Salvador requires nine steps taking an average of 16.5 days. According to the World Bank’s 2020 Doing Business Report, El Salvador ranks 148 in the “Starting a Business” indicator. El Salvador launched an online business registration portal in 2017 designed to give entrepreneurs a one-stop shop for registering new companies. Specifically, the online business registration website allows new businesses the ability to formalize registration within three days and conduct administrative operations through the online platform. The portal (https://miempresa.gob.sv/ ) is available to all, though services are available only in Spanish.
The GOES’ Business Services Office (Oficina de Atención Empresarial) caters to entrepreneurs and investors. The office has two divisions: “Growing Your Business” (Crecemos Tu Empresa) and the National Investment Office (Dirección Nacional de Inversiones, DNI). “Growing Your Businesses” provides business advice, especially for micro-, small- and medium-sized enterprises. The DNI administers investment incentives and facilitates business registration.
Business Services Office
Telephone: (503) 2590-9000
Address: Alameda Juan Pablo II y Calle Guadalupe, Edificio C1 y C2, Centro de Gobierno, San Salvador. Schedule: Monday-Friday, 7:30 a.m. – 3:30 p.m.
Crecemos Tu Empresa
The National Investment Office:
Ana Luisa Valiente, National Director of Investments, email@example.com;
Roberto Salguero, Deputy Director of Business Development, firstname.lastname@example.org
Special Investments; Christel Schulz, Business Climate Deputy, email@example.com
Laura Rosales de Valiente, Deputy Director of Investment Facilitation, firstname.lastname@example.org
Telephone: (503) 2590-5106/ (503) 2590-5264.
The Directorate for Coordination of Productive Policies at the Ministry of Economy focuses on five areas: Productive Development, Capacity Building, Trade Facilitation, Taxation, and Export Promotion. Website: http://www.minec.gob.sv
The Productive Development Fund (FONDEPRO) provides grants to small enterprises to strengthen competitiveness. Website: http://www.fondepro.gob.sv/
The National Commission for Micro and Small Businesses (CONAMYPE) supports micro and small businesses by providing training, technical assistance, financing, venture capital, and loan guarantee programs. CONAMYPE also provides assistance on market access and export promotion, marketing, business registration, and the promotion of business ventures led by women and youth. Website: https://www.conamype.gob.sv/
The Micro and Small Businesses Promotion Law defines a microenterprise as a natural or legal person with annual gross sales up to 482 minimum monthly wages, equivalent to $146,609.94 and up to ten workers. A small business is defined as a natural or legal person with annual gross sales between 482 minimum monthly wages ($146,609.94) and 4,817 minimum monthly wages ($1,465,186.89) and up to 50 employees. To facilitate credit to small businesses, Salvadoran law allows for inventories, receivables, intellectual property rights, consumables, or any good with economic value to be used as collateral for loans.
El Salvador provides equitable treatment for women and under-represented minorities. The GOES does not provide targeted assistance to under-represented minorities. CONAMYPE provides specialized counseling to female entrepreneurs and women-owned small businesses.
While the government encourages Salvadoran investors to invest in El Salvador, it neither promotes nor restricts investment abroad.
3. Legal Regime
Transparency of the Regulatory System
The laws and regulations of El Salvador are relatively transparent and generally foster competition. Legal, regulatory, and accounting systems are transparent and consistent with international norms. However, the discretionary application of rules can complicate routine transactions, such as customs clearances and permitting applications. Regulatory agencies are often understaffed and inexperienced in dealing with complex issues. New foreign investors should review the regulatory environment carefully. In addition to applicable national laws and regulations, localities may impose permitting requirements on investors.
Companies have noted that the GOES has enacted laws and regulations without following required notice and comment procedures. The Regulatory Improvement Law, which entered into force, in April 2019, requires government agencies to publish online the list of laws and regulations they plan to approve, reform, or repeal each year. Institutions cannot adopt or modify regulations and laws not included in that list. Prior to adopting or amending laws or regulations, the Simplified Administrative Procedures Law requires the GOES to perform a Regulatory Impact Analysis (RIA) based on a standardized methodology. Proposed legislation and regulations, as well as RIAs, must be made available for public comment. In practice, the Legislative Assembly does not publish draft legislation on its website and does not solicit comments on pending legislation. The GOES does not yet require the use of a centralized online portal to publish regulatory actions. The implications of the reforms are still not apparent, as the reforms have not been fully implemented. However, private sector stakeholders have expressed support for the measures.
El Salvador began implementing the Simplified Administrative Procedures Law in February 2019. This law seeks to streamline and consolidate administrative processes among GOES entities to facilitate investment. In 2016, El Salvador adopted the Electronic Signature Law to facilitate e-commerce and trade but is still working on the design, policies and procedures for implementation, as well as construction of data centers and acquisition of hardware and software.
In 2018, El Salvador enacted the Law on the Elimination of Bureaucratic Barriers, which created a specialized tribunal to verify that regulations and procedures are implemented in compliance with the law and sanction public officials who impose administrative requirements not contemplated in the law. However, the law is pending implementation until members of the tribunal are appointed.
The GOES controls the price of some goods and services, including electricity, liquid propane gas, gasoline, public transport fares, and medicines. The government also directly subsidizes water services and residential electricity rates.
The Superintendent of Electricity and Telecommunications (SIGET) oversees electricity rates, telecommunications, and distribution of electromagnetic frequencies. The Salvadoran government subsidizes residential consumers for electricity use of up to 100 kWh monthly. The electricity subsidy costs the government between $50 million to $64 million annually.
El Salvador’s public finances are relatively transparent. Budget documents, including the executive budget proposal, enacted budget, and end-of-year reports, as well as information on debt obligations are accessible to the public at: http://www.transparenciafiscal.gob.sv/ptf/es/PTF2-Index.html An independent institution, the Court of Accounts, audits the financial statements, economic performance, cash flow statements, and budget execution of all GOES ministries and agencies. The results of these audits are publicly available online. However, the Office of the President does not provide detailed information of the budget of the Intelligence Agency (OIE) and does not subject the OIE to audits.
International Regulatory Considerations
El Salvador belongs to the Central American Common Market and the Central American Integration System (SICA), organizations which are working on regional integration, (e.g., harmonization of tariffs and customs procedures). El Salvador commonly incorporates international standards, such as the Pan-American Standards Commission (Spanish acronym COPANT), into its regulatory system.
El Salvador is a member of the World Trade Organization (WTO), adheres to the Agreement on Technical Barriers to Trade (TBT Agreement), and has adopted the Code of Good Practice annexed to the TBT Agreement. El Salvador is also a signatory to the Trade Facilitation Agreement (TFA) and has notified its Categories A, B, and C commitments. El Salvador has established a National Trade Facilitation Committee (NTFC) as required by the TFA, which was reactivated in July 2019 as it had not met since 2017.
El Salvador is a member of the U.N. Conference on Trade and Development’s international network of transparent investment procedures: http://tramites.gob.sv . Investors can find information on administrative procedures applicable to investment and income-generating operations including the name and contact details for those in charge of procedures, required documents and conditions, costs, processing time, and legal bases for the procedures.
Legal System and Judicial Independence
El Salvador’s legal system is codified law. Commercial law is based on the Commercial Code and the corresponding Commercial and Civil Code of Procedures. There are specialized commercial courts that resolve disputes.
Although foreign investors may seek redress for commercial disputes through Salvadoran courts, many investors report the legal system to be slow, costly, and unproductive. Local investment and commercial dispute resolution proceedings routinely last many years. The judicial system is independent of the executive branch, but may be subject to manipulation by diverse interests. Final judgments are at times difficult to enforce. The Embassy recommends that potential investors carry out proper due diligence by hiring competent local legal counsel.
A substantial ruling against a foreign bank in 2019 caused widespread concern in the private sector due to perceived irregularities. The case is pending consideration by the Constitutional Chamber of the Supreme Court.
Laws and Regulations on Foreign Direct Investment
Miempresa is the Ministry of Economy’s website for new businesses in El Salvador. At Miempresa, investors can register new companies with the Ministry of Labor (MOL), Social Security Institute, pension fund administrators, and certain municipalities; request a tax identification number/card; and perform certain administrative functions. Website: https://www.miempresa.gob.sv/
The country’s eRegulations site provides information on procedures, costs, entities, and regulations involved in setting up a new business in El Salvador. Website: http://tramites.gob.sv/
The Exports and Investment Promoting Agency of El Salvador (PROESA) is responsible for attracting domestic and foreign private investment, promoting exports of goods and services, evaluating and monitoring the business climate, and driving investment and export policies. PROESA provides direct technical assistance to investors interested in starting up operations in El Salvador, regardless of the size of the investment or number of employees. Website: http://www.proesa.gob.sv/
Competition and Anti-Trust Laws
The Office of the Superintendent of Competition reviews transactions for competition concerns. The OECD and the Inter-American Development Bank have indicated that the Superintendent employs enforcement standards that are consistent with global best practices and has appropriate authority to enforce the Competition Law effectively. Superintendent decisions may be appealed directly to the Supreme Court, the country´s highest court. Website: http://www.sc.gob.sv/home/
Expropriation and Compensation
The Constitution allows the government to expropriate private property for reasons of public utility or social interest. Indemnification can take place either before or after the fact. There are no recent cases of expropriation. In 1980, a rural/agricultural land reform established that no single natural or legal person could own more than 245 hectares (605 acres) of land, and the government expropriated the land of some large landholders. In 1980, private banks were nationalized, but were subsequently returned to private ownership in 1989-90. A 2003 amendment to the Electricity Law requires energy generating companies to obtain government approval before removing fixed capital from the country.
ICSID Convention and New York Convention
El Salvador is a member state to the ICSID Convention. ICSID is included in a number of El Salvador’s investment treaties as the forum available to foreign investors.
Investor-State Dispute Settlement
In 2016, ICSID ruled in favor of El Salvador on a case brought by an international mining company that sought to force government acceptance of a gold-mining project. Following the ruling, El Salvador banned the exploration and extraction of metal mining in the country.
The rights of investors from CAFTA-DR countries are protected under the trade agreement’s dispute settlement procedures. There have been no successful claims by U.S. investors under CAFTA-DR. There are currently no pending claims by U.S. investors.
For foreign investors from a country without a trade agreement with El Salvador, amended Article 15 of the 1999 Investment Law limits access to international dispute resolution and may obligate them to use national courts. Submissions to national dispute panels and panel hearings are open to the public. Interested third parties have the opportunity to be heard.
International Commercial Arbitration and Foreign Courts
A 2002 law allows private sector organizations to establish arbitration centers for the resolution of commercial disputes, including those involving foreign investors. In 2009, El Salvador modified its arbitration law to allow parties to appeal a ruling to the Salvadoran courts. Investors have complained that the modification dilutes the efficacy of arbitration as an alternative method of resolving disputes. Arbitrations takes place at the Arbitration and Mediation Center, a branch of the Chamber of Commerce and Industry of El Salvador. Website: http://www.mediacionyarbitraje.com.sv/
El Salvador is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) and the Inter-American Convention on International Commercial Arbitration (The Panama Convention). Local courts recognize and enforce foreign arbitral awards and court judgments, but the process can be lengthy and difficult.
The Commercial Code, the Commercial Code of Procedures, and the Banking Law all contain sections that deal with the process for declaring bankruptcy. However, there is no separate bankruptcy law or court. According to data collected by the 2020 World Bank’s Doing Business report, resolving insolvency in El Salvador takes 3.5 years on average and costs 12 percent of the debtor’s estate, with the most likely outcome being that the company will be sold piecemeal. The average recovery rate is 32.5 percent. Globally, El Salvador ranks 89 out of 190 on Ease of Resolving Insolvency. Website: http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Profiles/Country/SLV.pdf
4. Industrial Policies
The International Services Law, approved in 2007, established service parks and centers with incentives similar to those received by El Salvador’s free trade zones. Service park developers are exempted from income tax for 15 years, municipal taxes for ten years, and real estate transfer taxes. Service park administrators are exempted from income tax for 15 years and municipal taxes for ten years.
Firms located in the service parks/service centers may receive the following permanent incentives:
Tariff exemption for the import of capital goods, machinery, equipment, tools, supplies, accessories, furniture, and other goods needed for the development of the service activities;
Full exemption from income tax and municipal taxes on company assets.
Service firms operating under the existing Free Trade Zone Law are also eligible for the incentives. Firms providing services to the Salvadoran market cannot receive the incentives. Eligible services include: international distribution, logistical international operations, call centers, information technology, research and development, marine vessels repair and maintenance, aircraft repair and maintenance, entrepreneurial processes (e.g., business process outsourcing), hospital-medical services, international financial services, container repair and maintenance, technology equipment repair, elderly and convalescent care, telemedicine, cinematography postproduction services, including subtitling and translation, and specialized services for aircraft (e.g., supply of beverages and prepared food, laundry services and management of inventory).
The Tourism Law establishes tax incentives for those who invest a minimum of $25,000 in tourism-related projects in El Salvador, including: value-added tax exemption for the acquisition of real estate; import tariffs waiver for construction materials, goods, equipment (subject to limitation); and, a ten-year income tax waiver. The investor also benefits from a five-year exemption from land acquisition taxes and a 50 percent reduction of municipal taxes. To take advantage of these incentives, the enterprise must contribute five percent of its profits during the exemption period to a government-administered Tourism Promotion Fund. More information about tax incentives for tourism, please visit: http://www.mitur.gob.sv/ii-aspectos-legales-en-beneficio-de-la-inversion-contemplados-en-la-ley-de-turismo/
The Renewable Energy Incentives Law promotes investment projects that use renewable energy sources. In 2015, the Legislative Assembly approved amendments to the Law to encourage the use of renewable energy sources and reduce dependence on fossil fuels. These reforms extended the incentives to power generation using renewable energy sources, such as hydro, geothermal, wind, solar, marine, biogas, and biomass. The incentives include a 10-year exemption from customs duties on the importation of machinery, equipment, materials, and supplies used for the construction and expansion of substations, transmission or sub-transmission lines. Revenues directly derived from power generation based on renewable sources enjoy full exemption from income tax for a period of five years in case of projects above 10 MW and 10 years for smaller projects. The Law also provides a tax exemption on income derived directly from the sale of certified emission reductions (CERs) under the Mechanism for Clean Development of the Kyoto Protocol, or carbon markets (CDM).
El Salvador does not issue guarantees or directly co-finance foreign direct investment projects. However, El Salvador has a Public-Private Partnerships Law that allows private investment in the development of infrastructure projects, including in areas of health, education, and security. Under the second MCC Compact, El Salvador launched international tenders for two Public-Private Partnerships projects. The first PPP tender, published on September 11, 2019, is for the financing, design, expansion, construction, maintenance, and operation of expanded cargo operations of El Salvador’s primary international airport. The project consists of two phases: improvements to the existing air cargo terminal and construction of a new air cargo terminal. The estimated budget for the entire PPP is $55 million. The second PPP tender, released on January 31, 2020, is for the design, financing, installation, equipment, operation and maintenance of a public lighting and video surveillance systems on approximately 143 kilometers of roads in San Salvador, La Libertad and La Paz departments. The estimated investment for the project is $17 million.
Foreign Trade Zones/Free Ports/Trade Facilitation
The 1998 Free Trade Zone Law is designed to attract investment in a wide range of activities, although the vast majority of the businesses in free trade zones are textile plants. A Salvadoran partner is not needed to operate in a free trade zone, and some textile operations are completely foreign-owned.
There are 17 free trade zones in El Salvador. They host 153 companies in sectors, including textiles, distribution, call centers, business process outsourcing, agribusiness, agriculture, electronics, and metallurgy. Owned primarily by Salvadoran, U.S., Taiwanese, and Korean investors, free trade zone firms employ more than 78,000 people. The point of contact is the Chamber of Textile, Apparel and Free Trade Zones of El Salvador (CAMTEX) at: https://www.camtex.com.sv/site/ .
The 1998 law established rules for free trade zones and bonded areas. The free trade zones are outside the nation’s customs jurisdiction while the bonded areas are within its jurisdiction, but subject to special treatment. Local and foreign companies can establish themselves in a free trade zone to produce goods or services for export or to provide services linked to international trade. The regulations for the bonded areas are similar.
Qualifying firms located in the free trade zones and bonded areas may enjoy the following benefits:
- Exemption from all duties and taxes on imports of raw materials and the machinery and equipment needed to produce for export;
- Exemption from taxes for fuels and lubricants used for producing exports if they not domestically produced;
- Exemption from income tax, municipal taxes on company assets and property for either 15 years (if the company is located in the metropolitan area of San Salvador) or 20 years (if the company is located outside of the metropolitan area of San Salvador); and
- Exemption from taxes on certain real estate transfers, e.g., the acquisition of goods to be employed in the authorized activity.
Companies in the free trade zones are also allowed to sell goods or services in the Salvadoran market if they pay applicable taxes on the proportion sold locally. Additional rules apply to textile and apparel products.
Regulations allow a WTO-complaint “drawback” to refund custom duties paid on imported inputs and intermediate goods exclusively used in the production of goods exported outside of the Central American region. Regulations also included the creation of a Business Production Promotion Committee with the participation of the private and public sector to work on policies to strengthen the export sector, and the creation of an Export and Import Center.
All import and export procedures are handled by the Import and Export Center (Centro de Trámites de Importaciones y Exportaciones – CIEX El Salvador). More information about the procedures can be found at: http://www.ciexelsalvador.gob.sv/registroSIMP/
Performance and Data Localization Requirements
El Salvador’s Investment Law does not require investors to meet export targets, transfer technology, incorporate a specific percentage of local content, turn over source code or provide access to surveillance, or fulfill other performance criteria. Business-related data may be freely transferred outside of El Salvador.
Labor laws require that 90 percent of the workforce in plants and in clerical positions be Salvadoran citizens. Nationality restrictions are more lax for professional and technical jobs.
Foreign investors and domestic firms are eligible for the same incentives. Exports of goods and services are exempt from value-added tax.
A new Immigration Law, enacted in May 2019, introduces the investment, business, or commercial representation visa for foreign nationals of countries with a visa requirement who want to conduct temporary business-related activities in El Salvador. This visa can be issued for a single entry or multiple entries with a duration of up to two years. Eligible nationals can enter El Salvador for business purposes without a visa for up to 90 days, extendable once for an additional 90 days, for a total maximum stay of 180 days. The law institutes the Frequent Traveler Card for foreign nationals who frequently visit El Salvador for business. This card can be issued for up to three years and allows multiple entries for stays of up to 90 days per entry.
However, investors who plan to live and work in El Salvador for an extended period need to obtain temporary residency, which may be renewed periodically. Under Article 11 of the Investment Law, foreigners with investments totaling more than $1 million may obtain Investor’s Residency status, which allows them to work and remain in the country. This residency may be requested within 30 days of registering the investment. It allows residency for the investor and family members for a period of two years and may be extended thereafter.
It is customary for companies to hire local attorneys to manage the process of obtaining residency. The American Chamber of Commerce in El Salvador can also provide information regarding the process. Website: http://amchamsal.com/
The International Services Law establishes tax benefits for businesses that invest at least $150,000 during the first year of operations, including working capital and fixed assets, hire no fewer than 10 permanent employees, and have at least a one-year contract. For hospital/medical services to qualify, the minimum capital investment must be $10 million, if surgical services are provided, or a minimum of $3 million, if surgical services are not provided. Hospitals or clinics must be located outside of major metropolitan areas, and medical services must be provided only to patients with insurance.
5. Protection of Property Rights
Private property, both non-real estate and real estate, is recognized and protected in El Salvador. Mortgages and real property liens exist. Companies that plan to buy land or other real estate are advised to hire competent local legal counsel to guide them on the property’s title prior to purchase.
Per the Constitution, no single natural or legal person–whether national or foreign–can own more than 245 hectares (605 acres) of land. Reciprocity applies to the ownership of rural land, i.e., El Salvador does not restrict the ownership of rural land by foreigners, unless Salvadoran citizens are restricted in the corresponding states. The restriction on rural land does not apply if used for industrial purposes.
Real property can be transferred without government authorization. For title transfer to be valid regarding third parties, however, it needs to be properly registered. Laws regarding rental property tend to favor the interests of tenants. For instance, tenants may remain on property after their lease expires, provided they continue to pay rent. Likewise, the law limits the permissible rent and makes eviction processes extremely difficult.
Squatters occupying private property in “good faith” can eventually acquire title. If the owner of the property is unknown, squatters can acquire title after 20 years of good faith possession through a judicial procedure; if the owner is known, squatters can acquire title after 30 years.
Squatters may never acquire title to public land, although municipalities often grant the right of use to the squatter.
Zoning is regulated by municipal rules. Municipalities have broad power regarding the use of property within their jurisdiction. Zoning maps, if they exist, are generally not available to the public.
The perceived ineffectiveness of the judicial system discourages investments in real estate and makes execution of real estate guarantees difficult. Securitization of real estate guarantees or titles is legally permissible but does not occur frequently in practice.
El Salvador ranks 79th of 190 economies on the World Bank’s Doing Business 2020 report in the Ease of Registering Property category. According to the collected data, registering a property takes an average of six steps over a period of 31 days, and costs 3.8 percent of the reported value of the property.
Intellectual Property Rights
El Salvador’s intellectual property rights (IPR) legal framework is strong. El Salvador revised several laws to comply with CAFTA-DR’s provisions on IPR, such as extending the copyright term to 70 years. The Intellectual Property Promotion and Protection Law (1993, revised in 2005), Law of Trademarks and Other Distinctive Signs (2002, revised in 2005), and Penal Code establish the legal framework to protect IPR. Investors can register trademarks, patents, copyrights, and other forms of intellectual property with the National Registry Center’s Intellectual Property Office. In 2008, the government enacted test data exclusivity regulations for pharmaceuticals (for five years) and agrochemicals (for 10 years) and ratified an international agreement extending protection to satellite signals.
El Salvador’s enforcement of IPR protections falls short of its written policies. Salvadoran authorities have limited resources to dedicate to enforcement of IPR laws. The National Civil Police (PNC) has an Intellectual Property Section with seven investigators, while the Attorney General’s Office (FGR) has 13 prosecutors in its Private Property division that also has responsibility for other property crimes including cases of extortion. According to ASPI, the PNC section coordinates well with other government and private entities. Nevertheless, the PNC admits that a lack of resources and expertise (e.g., regarding information technology) hinders its effectiveness in combatting IPR crimes.
The National Directorate of Medicines (NDM) has 60 products registered for data protection , including 13 in 2018 and four in 2019. The NDM protects the confidentiality of relevant test data and the list of such protected medications is available at the NDM’s website: https: https://www.medicamentos.gob.sv/index.php/es/servicios-m/informes/unidad-de-registro-y-visado/listado-de-productos-farmaceuticos-con-proteccion-de-datos-de-prueba
The Salvadoran Intellectual Property Association (ASPI – Asociacion Salvadoreña de Propiedad Intelectual) notes that piracy is common in El Salvador because the police focus on investigating criminal networks rather than points of sale. Trade in counterfeit medicines and pirated software is common.
In 2019, the PNC arrested 29 individuals for copyright and trademark infringement. In 2019, the PNC also conducted 49 inspections and 25 raids, where it seized pirated optical media discs (CDs and DVDs) and fake products, including clothing, cosmetics, footwear, toys, parts for sewing machines, and mobile phones. Additionally, in an operation at El Salvador’s central market, the PNC and DNM confiscated tens of thousands of packages of counterfeit pharmaceuticals in violation of IPR laws. Customs officials have identified some counterfeit products arriving directly from China through the Salvadoran seaport of Acajutla.
Contraband and counterfeit products, especially cigarettes, liquor, toothpaste and cooking oil, remain widespread. According to the GOES and private sector contacts, most unlicensed or counterfeit products are imported to El Salvador. The Distributors Association of El Salvador (ADES) estimated in 2017 that around 50 percent of the liquor consumed in El Salvador is smuggled. Most contraband cigarettes come in from China, Panama, and Paraguay and undercut legitimately-imported cigarettes, which are subject to a 39 percent tariff. According to ADES, most contraband cigarettes are smuggled in by gangs, with the complicity of Salvadoran authorities. A 2017 study by CID Gallup Latin America, noting the link between contraband cigarettes and gang finances, estimated that 32 percent of the 940 million cigarettes consumed annually in El Salvador are contraband. Gallup estimated that the GOES lost USD $15 million in tax revenue due to cigarette smuggling in 2014.
The national Intellectual Property Registry has 22 registered geographical indications for El Salvador. In 2018, the GOES registered four new geographic indications involving Denominations of Origin for “Jocote Barón Rojo San Lorenzo” (a sour fruit), “Pupusa de Olocuilta” (a variant of El Salvador’s traditional food), “Camarones de la Bahía de Jiquilisco” (shrimp from the Jiquilisco Bay), and “Loroco San Lorenzo” (flower used in Salvadoran cuisine). Existing geographic indications include “Balsamo de El Salvador” (balm for medical, cosmetic, and gastronomic uses – since 1935), “Café Ilamatepec” (coffee – since 2010), and “Chaparro” (Salvadoran hard liquor- since 2016).
El Salvador is not listed in the United States Trade Representative (USTR) Special 301 Report or the Notorious Markets List.. There are no IPR-related laws pending.
El Salvador is a signatory of the Berne Convention for the Protection of Literary and Artistic Works; the Paris Convention for the Protection of Industrial Property; the Geneva Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication; the World Intellectual Property Organization (WIPO) Copyright Treaty; the WIPO Performance and Phonograms Treaty; the Rome Convention for the Protection of Performers, Phonogram Producers, and Broadcasting Organizations; and the Beijing Treaty on Audiovisual Performances (2012), which grants performing artists certain economic rights (such as rights over broadcast, reproduction, and distribution) of live and recorded works.
For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/details.jsp?country_code=SV