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Executive Summary

The outgoing government of El Salvador (GOES) is generally perceived as unsuccessful at improving the investment climate.  Political polarization, cumbersome bureaucracy, an ineffective judicial system, and widespread violence and extortion have all contributed to this perception.  The GOES has taken some measures to improve the business climate, with very limited results. The most commonly cited impediments to doing business in El Salvador include the discretionary application of laws/ regulations, lengthy and unpredictable permitting procedures, and customs delays.

President-elect Nayib Bukele assumes office on June 1, 2019.  He has pledged to support investors and make El Salvador a more attractive destination for investment.  The incoming administration’s plans to improve the investment climate will be evident soon after Bukele takes office.

In 2015, El Salvador’s second Millennium Challenge Corporation (MCC) Compact entered into force.  The five-year USD 277 million Compact (plus USD 88.2 million from GOES funding) seeks to improve El Salvador’s investment climate by improving its productivity and competitiveness in international markets.  MCC Compact information is available at https://www.mcc.gov/where-we-work/program/el-salvador-investment-compact.

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, which is still pending implementation.

In August 2018, El Salvador recognized the People’s Republic of China and ceased to recognize Taiwan.  El Salvador signed several memorandums of understanding (MOUs) with China, but has not entered into negotiations with China for an investment or trade agreement.  Although the GOES announced the cancellation of its trade agreement with Taiwan in February 2019, the Supreme Court halted the cancellation in March 2019 and the agreement remains in force.

In November 2018, El Salvador officially joined the Northern Triangle Customs Union with Guatemala and Honduras following the ratification of the Accession Protocol by Legislative Assembly.  The Customs Union inaugurated the first integrated border post in El Salvador in December 2018. Northern Triangle countries continue technical-level negotiations to operationalize the Customs Union, harmonize customs regulations and procedures, interconnect automated systems, and finalize which goods will freely move within the single customs territory.  Full implementation of the Customs Union is targeted for 2020.

In recent years, El Salvador has lagged behind the region in attracting foreign direct investment (FDI).  The sectors with the largest investment have historically been textiles and retail establishments, though investment in energy projects has been increasing steadily.

In November 2018, El Salvador and Bolivia signed a Partial Scope Agreement that is pending ratification in the Legislative Assembly.  In 2018, El Salvador also ratified a free trade agreement (FTA) with South Korea, signed trade agreements with Cuba and Bolivia, and reinitiated long-stalled FTA negotiations with Canada.

In December 2018, El Salvador adopted the Regulatory Improvement Law (LMR), which establishes the Regulatory Improvement Institution (OMR), an MCC compact investment, as the government’s sole institution for regulatory reform.  OMR will coordinate the regulatory improvement process and the simplification of business procedures and paperwork.  In addition, El Salvador enacted the Law on the Elimination of Bureaucratic Barriers in December 2018 that creates a specialized tribunal to verify that regulations and procedures are implemented in compliance with the law.  The new tribunal has the authority to sanction public officials who impose administrative requirements not contemplated in the law.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 105 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2018 85 of 190 http://www.doingbusiness.org/rankings
Global Innovation Index 2018 104 of 126 http://www.globalinnovationindex.org/content/page/data-analysis
U.S. FDI in partner country ($M USD, stock positions) 2017 $3,037 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $3,560 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

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 far behind regional neighbors. The Central Bank reported net FDI inflows of USD 839.6 million in 2018.

The Exports and Investment Promotion Agency of El Salvador (PROESA) supports investment in nine main sectors: textiles and apparel; business services; tourism; aeronautics; agro-industry; medical devices; footwear 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/ 

As part of a 2018 reorganization, the GOES created the post of Presidential Commissioner for Investment.

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 USD 121,319.40 or less, foreign investors may freely establish any type of domestic businesses.  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
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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 

Business Facilitation

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.

Business Registration

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 2019 Doing Business Report, El Salvador ranks 147 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 Atencion Empresarial) caters to entrepreneurs and investors.  The office has two divisions: “Growing Your Business” (Crecemos Tu Empresa) and the National Investment Office (Direccion 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.

Contact information:

Business Services Office
Telephone: (503) 2590-9000
Address: 1 calle Poniente, final 41 avenida Norte, N.°8, San Salvador.  Schedule: Monday-Friday, 7:30 a.m. – 3:30 p.m.

Crecemos Tu Empresa
E-mail: crecemostuempresa@minec.gob.sv
Website: www.minec.gob.sv/crecemostuempresa  

The National Investment Office:

Telephone: (503) 2590-5116.

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 USD 121,319.40 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 (USD 121,319.40) and 4,817 minimum monthly wages (USD 1,212,438.90) 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.

Outward Investment

While the government encourages Salvadoran investors to invest in El Salvador, it neither promotes nor restricts investment abroad.

2. Bilateral Investment Agreements and Taxation Treaties

El Salvador has bilateral investment treaties in force with Argentina, Belize, BLEU (Belgium-Luxembourg Economic Union), Chile, Czech Republic, Finland, France, Germany, Israel, Republic of Korea, Morocco, the Netherlands, Paraguay, Peru, Spain, Switzerland, United Kingdom, and Uruguay.  El Salvador is one of the five Central American Common Market countries, which have an investment treaty among themselves.

The CAFTA-DR entered into force in 2006, between the United States and El Salvador.  CAFTA-DR’s investment chapter provides protection to most categories of investment, including enterprises, debt, concessions, contract, and intellectual property.  Under this agreement, U.S. investors enjoy the right to establish, acquire, and operate investments in El Salvador on an equal footing with local investors. Among the rights afforded to U.S. investors are due process protections and the right to receive a fair market value for property in the event of expropriation.  Investor rights are protected under CAFTA-DR by an effective, impartial procedure for dispute settlement that is transparent and open to the public.

El Salvador also has free trade agreements (FTAs) with Mexico, Chile, Panama, Colombia, and Taiwan.  Although the GOES announced the cancellation of the Taiwan FTA in February 2019, the Supreme Court halted the cancellation in March 2019 and the FTA will remain in force until the Supreme Court rules on the case.

In 2018, El Salvador ratified an FTA with South Korea, which also includes investment provisions.  This FTA is pending ratification from South Korea’s National Assembly to enter into effect. El Salvador’s FTAs with Mexico, Chile, and Panama also include investment provisions.  El Salvador reinitiated trade agreement negotiations with Canada, which will likely include investment provisions. The Salvadoran government signed a Partial Scope Agreement (PSA) with Cuba in 2011 and an additional Protocol to the PSA in October 2019.  El Salvador and Bolivia signed a PSA in November 2018 that is pending ratification in the Legislative Assembly. The PSA agreement with Ecuador entered into force in 2017.

El Salvador, along with Costa Rica, Guatemala, Honduras, Nicaragua, and Panama, signed an Association Agreement with the European Union that establishes a Free Trade Area.  The agreement, which entered into force with El Salvador in 2013, includes a provision for access to a wider range of EU development aid. El Salvador and Central American countries are negotiating with United Kingdom to ensure continuity post-Brexit.

El Salvador does not have a bilateral taxation treaty with the United States.

On October 2018, El Salvador’s Legislative Assembly ratified the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters  .  The jurisdictions participating in the Convention can be found at: www.oecd.org/ctp/exchange-of-tax-information/Status_of_convention.pdf 

El Salvador became a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes in 2011.  The OECD published El Salvador’s Phase 1 peer review report, which demonstrates its commitment to international standards for tax transparency and exchange of information, in 2015.  The Phase 2 peer review on implementation of the standards, published in 2016, concluded that El Salvador is “largely compliant.”

In December 2018, the Directorate General of Internal Revenues (DGII) re-interpreted tax rules and modified the criteria to classify companies as large taxpayers.  The re-classification subjects free zone companies to several tax obligations, including the payment of the Special Contribution for Citizen Security (CESC).  Enacted in 2015, the CESC applies a five-percent tax on the profits of companies whose net income exceeds USD 500,000.  CESC proceeds finance security measures, including the GOES’ Plan El Salvador Seguro (Secure El Salvador Plan).

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, enacted in December 2018, 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 recent reforms are not yet apparent, though private sector stakeholders have expressed support for the measures.

The GOES controls the price of some goods and services, including electricity, liquid propane gas, gasoline, fares on public transport, 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 USD 50 million to USD 60 million annually.  Energy sector companies have warned that the government’s inability to pay the subsidies in a timely manner has discouraged investment in new generation capacity.

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/  .  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 manages reserved expenses and other special funds that are not subject to disclosure or audit.

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 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 as required by the TFA, though it has met only twice since its formation.

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.

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, 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.

Dispute Settlement

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.

Bankruptcy Regulations

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 2019 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

Investment Incentives

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, and 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, and cinematography postproduction services.

The Tourism Law establishes tax incentives for those who invest a minimum of USD 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 in full 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 megawatts 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.

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 242 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 84,000 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).
  • 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, or fulfill other performance criteria.  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.

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 USD 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 one year, and may be extended annually.

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://www.amchamsal.com/?lang=en  

The International Services Law establishes tax benefits for businesses that invest at least USD 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 USD 10 million, if surgical services are provided, or a minimum of USD 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.

El Salvador does not require investors to incorporate a specific percentage of local content, to turn over source code or provide access to surveillance, or to fulfill other performance criteria.  Business-related data may be freely transferred outside of El Salvador.

5. Protection of Property Rights

Real Property

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 73rd of 190 economies on the World Bank’s Doing Business 2019 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 registered 82 products for data protection since 2008, including three in 2017 and eight in 2018.  The NDM protects the confidentiality of relevant test data and the list of such protected medications is available at the NDM’s website: 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 2018, the PNC arrested 38 individuals for reproducing copyrighted material.  In 2018, the PNC also conducted 39 inspections and 20 raids, where it seized 30,300 pirated optical media discs (CDs and DVDs), along with five burner towers used to make pirated discs, and tens of thousands of fake products, including clothing (2,275 articles), footwear (2,526 pairs), toys (114,960 items), parts for sewing machines, and mobile phones.  Additionally, in a 2018 operation at El Salvador’s international airport, the Drug Division of the PNC and DNM confiscated 4,950 packages of counterfeit pharmaceuticals in violation of IP laws.

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 in El Salvador were imported.  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.

Customs officials have identified some counterfeit products arriving directly from China through the Salvadoran seaport of Acajutla.  In 2018, Customs officials seized 39 shipments based on the presumption of containing fake products. These shipments primarily involved toys (e.g., Disney, Marvel, Hello Kitty, Barbie, and DC Comics), footwear (e.g., Adidas, Nike, Puma, and Converse), and handbags (e.g., Michael Kors).

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 Baron Rojo San Lorenzo” (a sour fruit), “Pupusa de Olocuilta” (a variant of El Salvador’s traditional food), “Camarones de la Bahia 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), “Cafe Ilamatepec” (coffee – since 2010), and “Chaparro” (Salvadoran hard liquor- since 2016).

El Salvador is not listed in the notorious market report nor Special 301 list.  There are no IP-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  

6. Financial Sector

Capital Markets and Portfolio Investment

The Superintendent of the Financial System supervises individual and consolidated activities of banks and non-bank financial intermediaries, financial conglomerates, stock market participants, insurance companies, and pension fund administrators.  Foreign investors may obtain credit in the local financial market under the same conditions as local investors. Interest rates are determined by market forces, with the interest rate for credit cards and loans capped at 1.6 times the weighted average effective rate established by the Central Bank.  The maximum interest rate varies according to the loan amount and type of loan (consumption, credit cards, mortgages, home repair/remodeling, business, and microcredits).

In January 2019, El Salvador eliminated the Financial Transactions Tax (FTT), which was enacted in 2014.

The 1994 Securities Market Law established the present framework for the Salvadoran securities exchange.  Stocks, government and private bonds, and other financial instruments are traded on the exchange, which is regulated by the Superintendent of the Financial System.

Foreigners may buy stocks, bonds, and other instruments sold on the exchange and may have their own securities listed, once approved by the Superintendent.  Companies interested in listing must first register with the National Registry Center’s Registry of Commerce. In 2018, the exchange averaged daily trading volumes between USD 10 million and USD 16 million.  Government-regulated private pension funds, Salvadoran insurance companies, and local banks are the largest buyers on the Salvadoran securities exchange. For more information, visit: https://www.bolsadevalores.com.sv/  

Money and Banking System

All but one of the major banks operating in El Salvador are regional banks owned by foreign financial institutions.  Given the high level of informality, measuring the penetration of financial services is difficult; however, it remains relatively low between 30 percent- according to the Salvadoran Banking Association (ABANSA) – and 40 percent- reported by the Superintendence of the Financial System (SSF).  The banking system is sound and generally well-managed and supervised. El Salvador’s Central Bank is responsible for regulating the banking system, monitoring compliance of liquidity reserve requirements, and managing the payment systems. No bank has lost its correspondent banking relationship in recent years.  There are no correspondent banking relationships known to be in jeopardy.

The banking system’s total assets as of January 2019 totaled USD 18 billion.  Under Salvadoran banking law, there is no difference in regulations between foreign and domestic banks and foreign banks can offer all the same services as domestic banks.

The Non-Bank Financial Intermediaries Law regulates the organization, operation, and activities of financial institutions such as cooperative savings associations, non-governmental organizations, and other microfinance institutions.  The Money Laundering Law requires financial institutions to report suspicious transactions to the Attorney General. However, there is no regulatory scheme in place to supervise the filing of reports by Non-Bank Financial Intermediaries.  As such, these entities, although designated filers under the law, rarely file suspicious activity reports.

The Insurance Companies Law regulates the operation of both local and foreign insurance firms. Foreign firms, including U.S., Colombian, Canadian, Honduran, Panamanian, and Spanish companies, have invested in Salvadoran insurers.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no restrictions on transferring investment-related funds out of the country.  Foreign businesses can freely remit or reinvest profits, repatriate capital, and bring in capital for additional investment.  The 1999 Investment Law allows unrestricted remittance of royalties and fees from the use of foreign patents, trademarks, technical assistance, and other services.  Tax reforms introduced in 2011, however, levy a five percent tax on national or foreign shareholders’ profits. Moreover, shareholders domiciled in a state, country or territory that is considered a tax haven or has low or no taxes, are subject to a tax of twenty-five percent.

The Monetary Integration Law dollarized El Salvador in 2001.  The U.S. dollar accounts for nearly all currency in circulation and can be used in all transactions.  Salvadoran banks, in accordance with the law, must keep all accounts in U.S. dollars. Dollarization is supported by remittances – almost all from workers in the United States – that totaled USD 5.47 billion in 2018.

Remittance Policies

There are no restrictions placed on investment remittances.  The Caribbean Financial Action Task Force’s Ninth Follow-Up report on El Salvador  (https://www.cfatf-gafic.org/index.php/member-countries/el-salvador  ) noted that El Salvador has strengthened its remittances regimen, prohibiting anonymous accounts and limiting suspicious transactions.  In 2015, the Legislature approved reforms to the Law of Supervision and Regulation of the Financial System so that any entity sending or receiving systematic or substantial amounts of money by any means, at the national and international level, falls under the jurisdiction of the Superintendence of the Financial System.

Sovereign Wealth Funds

El Salvador does not have a sovereign wealth fund.

7. State-Owned Enterprises

El Salvador has successfully liberalized many sectors, though it maintains state-owned enterprises (SOEs) in energy production, water supply and sanitation, ports and airports, and the national lottery (see chart below).

SOE 2019 Budgeted Revenue Number of Employees
National Lottery  USD         51,653,500.00  150
State-run Electricity  Company (CEL)  USD          362,033,465.00  895
Water Authority (ANDA) USD          221,265,600.00  4,356
Port Authority (CEPA) USD          140,589,815.00  2,104

Although the GOES privatized energy distribution in 1999, it maintains significant energy production facilities through state-owned Rio Lempa Executive Hydroelectric Commission (CEL), a significant producer of hydroelectric and geothermal energy.  The primary water service provider is the National Water and Sewer Administration (ANDA), which provides services to 96 percent of urban areas and 77 percent of rural areas in El Salvador. As an umbrella institution, ANDA defines policies, regulates and provides services.  The Autonomous Executive Port Commission (CEPA) operates both the seaports and the airports. CEL, ANDA, and CEPA Board Chairs hold Minister-level rank and report directly to the President.

The Law on Public Administration Procurement and Contracting (LACAP) covers all procurement of goods and services by all Salvadoran public institutions, including the municipalities.  Exceptions to LACAP include: procurement and contracting financed with funds coming from other countries (bilateral agreements) or international bodies; agreements between state institutions; and the contracting of personal services by public institutions under the provisions of the Law on Salaries, Contracts and Day Work.  The government publishes tenders by government institutions at: https://www.comprasal.gob.sv/comprasal_web/  .

Alba Petroleos is a joint venture between a consortium of mayors from the FMLN party and a subsidiary of Venezuela’s state-owned oil company PDVSA.  Alba Petroleos operates 55 gasoline service stations across the country and businesses in a number of other industries, including energy production, food production, medicines, micro-lending, supermarkets, and bus transportation.  Critics have charged that the conglomerate receives preferential treatment and have also alleged that Alba Petroleos’ commercial practices, including financial reporting, are non-transparent. Although audited financial statements are not available to the public, Alba Petroleos is at risk of insolvency.  A February 2019 report from the Court of Accounts notes that Alba Petroleos had losses equivalent to 113 percent of its capital (Alba Petroleos refuse to publish financial statements).

Privatization Program

El Salvador is not engaged in a privatization program and has not announced plans to privatize.

8. Responsible Business Conduct

The private sector in El Salvador, including several prominent U.S. companies, has embraced the concept of responsible business conduct (RBC).  Several local foundations promote RBC practices, entrepreneurial values, and philanthropic initiatives. El Salvador is also a member of international institutions such as Forum Empresa (an alliance of RBC institutions in the Western Hemisphere), AccountAbility (UK), and the InterAmerican Corporate Social Responsibility Network.  Businesses have created RBC programs to provide education and training, transportation, lunch programs, and childcare. In addition, RBC programs have included inclusive hiring practices and assistance to communities in areas such as health, education, senior housing, and HIV/AIDS awareness. Organizations monitoring RBC are able to work freely.

The Secretariat of Transparency and Corruption was launched in 2009 to develop guidelines, strategies, and actions to promote transparency and combat corruption in government (see: http://www.presidencia.gob.sv/temas/secretaria-de-participacion-ciudadana-transparencia-y-anticorrupcion-de-la-presidencia/  ).  The watchdog organization Transparency International is represented in-country by the Salvadoran Foundation for Development (FUNDE).

El Salvador does not waive or weaken labor laws, consumer protection, or environmental regulations to attract foreign investment.  El Salvador’s ability to effectively and fairly enforce domestic laws is limited by a lack of resources. El Salvador does not allow metal mining activity.

9. Corruption

U.S. companies operating in El Salvador are subject to the U.S. Foreign Corrupt Practices Act.

Corruption can be a challenge to investment in El Salvador.  El Salvador ranks 105 out of 180 countries in Transparency International’s 2018 Corruption Perceptions Index.  While El Salvador has laws, regulations, and penalties to combat corruption, their effectiveness is at times questionable.  Soliciting, offering, or accepting a bribe is a criminal act in El Salvador. The Attorney General’s Anticorruption and Anti-Impunity Unit handles allegations of corruption against public officials.  The Constitution establishes a Court of Accounts that is charged with investigating public officials and entities and, when necessary, passing such cases to the Attorney General for prosecution. Executive-branch employees are subject to a code of ethics, including administrative enforcement mechanisms, and the government established an Ethics Tribunal in 2006.

Corruption scandals at the federal, legislative, and municipal levels are commonplace and there have been credible allegations of judicial corruption.  Three of the past four presidents have been indicted for corruption, and a former Attorney General is in prison on corruption-related charges. The law provides criminal penalties for corruption, but implementation is generally perceived as ineffective.  In 2017, a civil court found former president Mauricio Funes guilty of illicit enrichment and ordered him to repay over USD 200,000. In 2018, the Attorney General brought additional embezzlement and money laundering charges against Funes, who fled to Nicaragua in 2017, where he currently enjoys asylum.  In March 2019, the Supreme Court unanimously approved the Attorney General’s December 2018 petition to request Funes’ extradition. In 2018, former president Elias Antonio (Tony) Saca pleaded guilty to embezzling more than USD 300 million in public funds. The court sentenced him to 10 years in prison and ordered him to repay USD 26 million.

The NGO Social Initiative for Democracy stated that officials, particularly in the judicial system, often engaged in corrupt practices with impunity.  Long-standing government practices in El Salvador, including cash payments to officials, shielded budgetary accounts, and diversion of government funds, facilitate corruption and impede accountability.  For example, the accepted practice of ensuring party loyalty through off-the-books cash payments to public officials (i.e., sobresueldos) has persisted across five presidential administrations.  El Salvador has an active, free press that reports on corruption.  In 2015, the Probity Section of the Supreme Court began investigating allegations of illicit enrichment of public officials.  In 2017, Supreme Court Justices ordered its Probity Section to audit legislators and their alternates. The illicit enrichment law requires appointed and elected officials to declare their assets to the Probity Section.  The declarations are not available to the public, and the law does not establish sanctions for noncompliance.

The law provides for the right of access to government information, but authorities have not always effectively implemented the law.  The law gives a narrow list of exceptions that outline the grounds for nondisclosure and provide for a reasonably short timeline for the relevant authority to respond, no processing fees, and administrative sanctions for non-compliance.

In 2011, El Salvador approved the Law on Access to Public Information and joined the Open Government Partnership.  The Open Government Partnership promotes government commitments made jointly with civil society on transparency, accountability, citizen participation and use of new technologies (http://www.opengovpartnership.org/country/el-salvador  ).

UN Anticorruption Convention, OECD Convention on Combating Bribery

El Salvador is not a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.  El Salvador is a signatory to the UN Anticorruption Convention and the Organization of American States’ Inter-American Convention against Corruption.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Doctor Jose Nestor Castaneda Soto, President of the Court of Government Ethics
Court of Government Ethics (Tribunal de Etica Gubernamental)
87 Avenida Sur, No.7, Colonia Escalon, San Salvador
(503) 2565-9403
Email: n.castaneda@teg.gob.sv
http://www.teg.gob.sv/  

Licenciado Raúl Ernesto Melara Morán
Fiscalia General de La Republica (Attorney General’s Office)
Edificio Farmavida, Calle Cortez Blanco
Boulevard y Colonia Santa Elena
(503) 2593-7400
(503) 2593-7172
Email: xvpocasangre@fgr.gob.sv
http://www.fiscalia.gob.sv/  

Chief Justice Oscar Armando Pineda Navas
Avenida Juan Pablo II y 17 Avenida Norte
Centro de Gobierno
(503) 2271-8743
Email: conchita.presidenciacsj@gmail.com
http://www.csj.gob.sv  

Contact at “watchdog” organization (international, regional, local or nongovernmental organization operating in the country/economy that monitors corruption, such as Transparency International):

Roberto Rubio-Fabián
Executive Director, National Development Foundation (Fundacion Nacional para el Desarrollo – FUNDE)
Fundacion Nacional para el Desarrollo, Calle Arturo Ambrogi #411, entre 103 y 105 Avenida Norte, Colonia Escalon, San Salvador
(503) 2209-5300
Email: direccion@funde.org

Resources to request government information

Access to Public Information Institute (IAIP for its initials in Spanish)

Rene Eduardo Carcamo
Commissioner President of the IAIP
Prolongacion Ave. Alberto Masferrer y Calle al Volcán, Edif. Oca Chang # 88
(503) 2205-3800
Email: rcarcamo@iaip.gob.sv
https://www.iaip.gob.sv/  

10. Political and Security Environment

El Salvador’s 12-year civil war ended in 1992.  Since then, there has been no political violence aimed at foreign investors.

The crime threat level in El Salvador is critical and the Travel Advisory warns U.S. citizens of the high rates of crime and violence.  A majority of serious crimes in El Salvador are never solved. El Salvador lacks sufficient resources to properly investigate and prosecute cases and to deter crime.  For more information, visit: https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/ElSalvador.html

El Salvador has thousands of known gang members from several gangs including Mara Salvatrucha (MS-13) and 18th Street (M18). Gang members engage in violence or use deadly force if resisted.  These “maras” concentrate on extortion, violent street crime, car-jacking, narcotics and arms trafficking, and murder for hire. Extortion is a common crime in El Salvador. U.S. citizens who visit El Salvador for extended periods are at higher risk for extortion demands. Bus companies and distributors often must pay extortion fees to operate within gang territories, and these costs are passed on to paying customers.  The World Economic Forum’s 2018 Global Competitiveness Index reported that costs due to organized crime for Salvadoran businesses are the highest among 140 countries. In 2017, the World Bank estimated that companies in El Salvador allocated 3.4 percent of their revenues to security and crime prevention, the highest in Central America.

11. Labor Policies and Practices

In 2018, El Salvador had a labor force of approximately three million, according to the Ministry of Economy.  Informal employment accounts for approximately 72 percent of the economy. While Salvadoran labor is regarded as hard-working, general education and professional skill levels are low.  According to many large employers, there is a lack of middle management-level talent, which sometimes results in the need to bring in managers from abroad. Employers do not report labor-related difficulties in incorporating technology into their workplaces.

The Salvadoran Constitution guarantees the right of employees in the private sector to organize into associations and unions.  In practice, unions are independent of the government and employers. Unions may strike only to obtain or modify a collective bargaining agreement or to protect professional rights.  They must also engage in negotiation, mediation, and arbitration processes before striking, although many groups skip or go through these steps quickly.  Employers are free to hire union or non-union labor. Closed shops are illegal. Labor laws are generally in accordance with internationallyrecognized standards, but are not enforced consistently by government authorities.  Although El Salvador has improved labor rights since the CAFTA-DR entered into force and the passage of the 2014 Special Trafficking in Persons Law, there remains room for better implementation.

The Ministry of Labor (MOL) is responsible for enforcing the law.  The government proved more effective in enforcing the minimum wage law in the formal sector than in the informal sector. Unions reported the ministry failed to enforce the law for subcontracted workers hired for public reconstruction contracts.  The government provided its inspectors updated training in both occupational safety and labor standards. As of June 2018, MOL conducted 13,315 inspections, in addition to 3,857 follow-up inspections, and levied USD 777,000 in fines against businesses.

The law sets a maximum normal workweek of 44 hours, limited to no more than six days and to no more than eight hours per day, but allows overtime (to be paid at a rate of double the usual hourly wage).  The law mandates that full-time employees receive pay for an eight-hour day of rest in addition to the 44-hour normal workweek. The law provides that employers must pay double-time for work on designated annual holidays, a Christmas bonus based on the time of service of the employee, and 15 days of paid annual leave.  The law prohibits compulsory overtime. The law states that domestic employees are obligated to work on holidays if their employer makes this request, but they are entitled to double pay. The government does not adequately enforce these laws.

While workers have the right to strike, the law contains cumbersome and complex registration procedures for conducting a legal strike.  The law does not recognize the right to strike for public and municipal employees or for workers in essential services, which include those services where disruption would jeopardize or endanger life, security, health, or normal conditions of existence for some or all of the population.  The law does not specify which services meet this definition, and courts apply this provision on a case-by-case basis. The law places several other restrictions on the right to strike, including the requirement that 30 percent of all workers in an enterprise must support a strike for it to be legal and that 51 percent must support the strike before all workers are bound by the decision to strike.  In addition, unions may strike only to obtain or modify a collective bargaining agreement or to protect the common professional interests of the workers. They must also engage in negotiation, mediation, and arbitration processes before striking, although many groups often skip or go through these steps quickly. The law prohibits workers from appealing a government decision declaring a strike illegal.

The government does not effectively enforce the laws on freedom of association and the right to collective bargaining in all cases.  Resources to conduct inspections were inadequate, and remedies remained ineffective. Penalties for employers who disrupt the right of a union to exist were generally not sufficient to deter violations.  The Ministry of Labor lacks sufficient resources to enforce the law fully. Judicial procedures were subject to lengthy delays and appeals. According to union representatives, the government did not consistently enforce labor rights for public workers, maquila/textile workers, subcontractors in the construction industry, security guards, informal sector workers, or migrant workers.  In 2018, the Ministry of Labor received 1,778 complaints of violations of the labor code, including 565 instances of failure to pay the minimum wage, and 15 claims of violations for labor discrimination.

El Salvador’s Labor Law mandates that the minimum wage must be proposed by the National Minimum Wage Council.  In January 2017, El Salvador raised the minimum wage in four sectors: commercial/industrial, textiles, seasonal harvesting, and agriculture.  The minimum wage increase applied to Salvadorans working in the formal economy, approximately 28 percent of the labor force or 770,000 people.

12. OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) has an agreement with El Salvador that requires governmental approval on each project application.  In December 2017, OPIC announced its Northern Triangle initiative to leverage USD 1 billion in private investment in El Salvador, Guatemala, and Honduras over the next two years.  Currently, OPIC is supporting eight projects in El Salvador, as well as several regional projects that include El Salvador. More information on the Northern Triangle initiative is available at https://www.opic.gov/opic-action/regional-priorities/northern-triangle  

El Salvador uses the U.S. dollar, so full inconvertibility insurance is unnecessary.  El Salvador is a member of the Multilateral Investment Guarantee Agency (MIGA).

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2017 $24,805.44 2017 $24,805  https://data.worldbank.org/country/el-salvador  
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2017 $2,611.41 2017 $3,037 BEA data available at https://apps.bea.gov/international/factsheet/factsheet.cfm?Area=209  
Host country’s FDI in the United States ($M USD, stock positions) 2017 N.A. 2017 N.A. BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm  
Total inbound stock of FDI as % host GDP 2017 10.5% 2017 12.2% N/A

* Central Bank, El Salvador.  In 2018, the Central Bank released GDP estimates using the new national accounts system from 2008 and using 2005 as the base year.


Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data (2017)*
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 9,603 100% Total Outward 2 100%
Panama  2,661 27.7% Guatemala 1 44%
United States 2,611 27.2% Nicaragua 1 34%
Mexico 871 9.1% Costa Rica 0 12%
Spain 867 9.0% Honduras 0 44%
Colombia 851 8.9%
“0” reflects amounts rounded to +/- USD 500,000.

*Coordinated Direct Investment Survey, International Monetary Fund


Table 4: Sources of Portfolio Investment

There is no IMF data for portfolio investment assets available for El Salvador.

14. Contact for More Information

Michael L. Benton
Deputy Economic Counselor
U.S. Embassy San Salvador
Final Blvd. Santa Elena, Antiguo Cuscatlán, La Libertad, El Salvador
Phone: + (503) 2501-2999
Email: bentonML2@state.gov
Website: http://sansalvador.usembassy.gov/index.html

To reach the U.S. Foreign Commercial Service (FCS) Office, please email: san.salvador@trade.gov

2019 Investment Climate Statements: El Salvador
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