El Salvador’s location and natural attributes make it an attractive investment destination. The macroeconomic context and declining rule of law present some challenges. El Salvador’s economy has registered the lowest levels of growth in the region for many years, with average annual GDP growth of 2.5 percent from 2016 to 2019. After a deep pandemic-related contraction (7.9 percent) in 2020, the Central Bank estimates GDP rebounded to 10.3 percent growth in 2021. The IMF expects the economy to grow 3.2 percent in 2022, with growth rates declining to 2 percent in the medium-term. Economic underperformance is mainly driven by fiscal constraints. Persistent budget deficits and increased government spending – exacerbated by the pandemic – have contributed to a heavy debt burden. With public debt at an estimated 88.5 percent of GDP in 2021, the Government of El Salvador (GOES) has limited capacity for public investment and job creation initiatives. Large financing needs are projected for 2022.
The Bukele administration continues to make efforts to attract foreign investment and has taken measures to reduce cumbersome bureaucracy and improve security conditions. However, the implementation of the reforms has been slow, and laws and regulations are occasionally passed and implemented quickly without consulting with the private sector or assessing the impact on the business climate.
After being announced in June 2021, Bitcoin became a legal tender in El Salvador on September 7, 2021, alongside the U.S. dollar. The Bitcoin Law mandates that all businesses must accept Bitcoin, with limited exceptions for those who do not have the technology to carry out transactions. Prices do not need to be expressed in Bitcoin and the U.S. dollar is the reference currency for accounting purposes. The GOES created a $150 million trust fund managed by El Salvador’s Development Bank to guarantee automatic convertibility and subsidize exchange fees. The rapid implementation caused uncertainty in the investment climate and added costs to businesses.
Government of El Salvador actions have eroded separation of powers and independence of the judiciary over the past year. In May 2021, the Legislative Assembly dismissed the Attorney General and all five justices of the Supreme Court’s Constitutional Chamber and immediately replaced them with officials loyal to President Bukele. Furthermore, in August 2021, the legislature amended the Judicial Career Organic Law to force into retirement judges ages 60 or above and those with at least 30 years of service. The move was justified by the ruling party as an effort to root out corruption in the judiciary from past administrations. A September 2021 ruling from the newly appointed Constitutional Chamber allows for immediate presidential re-election, despite the Constitution prohibiting presidential incumbents from re-election to a consecutive term. Legal analysts believe these measures were unconstitutional and have enabled the Legislative Assembly and the Bukele administration to exert control over the judiciary.
The Legislative Assembly is not required to publish draft legislation and opportunities for public engagement are limited. With the NuevasIdeasruling party holding a supermajority, legislation is often passed quickly with minimal analysis and debate in parliamentary committees and plenary sessions, contributing to an overall climate of regulatory uncertainty.
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. 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. Given limited fiscal capacity for public investment, the Bukele administration has begun pursuing Public-Private Partnerships (PPPs) to execute infrastructure projects. In August 2021, El Salvador’s Legislative Assembly approved the contract award of the first PPP project to expand the cargo terminal at the international airport.
As a small energy-dependent country with no Atlantic coast, El Salvador heavily relies on trade. It is a member of the Central American Dominican Republic Free Trade Agreement (CAFTA-DR); 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, implementation stalled following the Bukele administration’s decision to prioritize bilateral trade facilitation with Guatemala. In October 2021, however, the GOES announced it would proceed with Customs Union implementation. El Salvador rejoined technical level working group discussions and resumed testing of system interconnectivity.
The Bukele administration has taken initial steps to facilitate trade. In 2019, the government of El Salvador (GOES) relaunched the National Trade Facilitation Committee (NTFC), which produced the first jointly developed private-public action plan to reduce trade barriers. The plan contained 60 strategic measures focused on simplifying procedures, reducing trade costs, and improving connectivity and border infrastructure. Measures were not fully implemented in 2020 due to the coronavirus pandemic. In 2021, the NTFC revised the action plan to adjust measures under implementation and finalized drafting the national trade facilitation strategy, which will be launched in March 2022. In January 2022, the NFTC met to evaluate progress on the action plan. The NFTC released the action plan for 2022 on February 17th. The 2022 action plan has 29 measures to facilitate cross-border trade and improve road and border infrastructure.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Toward Foreign Direct Investment
The GOES recognizes the benefits of attracting FDI. El Salvador does not have laws or practices that discriminate against foreign investors, nor does the GOES screen or prohibit FDI. However, FDI levels are among the lowest in Central America. The Central Bank reported net annual FDI inflows of $408.5 million, or approximately 1.5 percent of GDP, at the end of September 2021.
The Exports and Investment Promotion Agency of El Salvador (PROESA) supports investment in seven main sectors: textiles and apparel; business services; tourism; aeronautics; agro-industry; light manufacturing; and energy. PROESA provides information for potential investors about applicable laws, regulations, procedures, and available incentives for doing business in El Salvador. Websites: https://investelsalvador.com/ and https://proesa.gob.sv/servicios/servicios-al-inversionista/.
The National Association of Private Enterprise (ANEP), El Salvador’s umbrella business chamber, serves as the primary private sector representative in dialogues with GOES ministries. http://www.anep.org.sv/.
In 2019, the Bukele administration 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 overall coordination of the Economic Cabinet. In addition, the Bukele administration created the Presidential Commission for Strategic Projects to lead the GOES’ major infrastructure projects.
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 except in cases where Salvadoran nationals face ownership restrictions in the corresponding country. Rural land to be used for industrial purposes is not subject to this reciprocity requirement.
The Investments Law grants equal treatment to foreign and domestic investors. Apart from limitations imposed on micro businesses, which are defined as having 10 or fewer employees and yearly sales of $175,930 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 extractive resources are the exclusive property of the state. The GOES may grant private concessions for resource extraction, though concessions are infrequently granted.
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/344/Rev.1).
In 2018, the Salvadoran Foundation for Economic and Social Development (FUSADES) published a position paper on investment policies, expanding on a 2015 study of the role of policies in productive development and investment. The report, written in Spanish, contains an analysis of policies, competitive advantages, constraints to investment attraction, and private sector views of the business climate. The report recommends that the government formulate a long-term development strategy, strengthen the cohesion between investment, trade facilitation and competitiveness policies, and develop an infrastructure policy that includes investment and PPP portfolios, among others. In addition, a September 2021 report on foreign direct investment in El Salvador, also by FUSADES, points out that investment attraction continues to be constrained by the lack of a comprehensive development and competitiveness strategy, poor coordination among government agencies on investment issues, including promotion and aftercare, and institutional capacity limitations. The analysis also notes that stabilizing public finances would contribute to supporting capital flows to El Salvador.
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.
El Salvador launched an online business registration portal in 2017 designed as a one-stop shop for registering new companies. The online portal allows new businesses the ability to formalize registration within three days and conduct administrative operations online, including payment for services. The portal (https://miempresa.gob.sv/)is available to all, though services are available only in Spanish.
The GOES’ Business Services Office (Oficina de AtenciónEmpresarial) 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 2590-5107
Address: Boulevard Del Hipódromo, Colonia San Benito, Century Tower, 7th Floor, San Salvador. Schedule: Monday-Friday, 7:30 a.m. – 3:30 p.m.
The National Investment Office:
Boris Bonilla, National Director of Investments, Boris.firstname.lastname@example.org ;
Christel Schulz, Business Climate Deputy, email@example.com
Laura Rosales de Valiente, Deputy Director of Investment Facilitation, firstname.lastname@example.org
Telephone: +503 2590-5116 or +503 2590-5264.
The Directorate of Productive Innovation and Business Competitiveness at the Ministry of Economy focuses on three areas: productive development, capacity building, and digital transformation. https://www.economia.gob.sv/guia-de-programas/
The Productive Development Fund (FONDEPRO) provides grants to small enterprises to strengthen competitiveness.
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.
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 $175,930 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 ($175,930) and 4,817 minimum monthly wages ($1,758,205) 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.
2. Bilateral Investment Agreements and Taxation Treaties
El Salvador has bilateral investment treaties in force with Argentina, Belize, BLEU (Belgium-Luxembourg Economic Union), Chile, the Czech Republic, Finland, France, Germany, Israel, Republic of Korea, Morocco, the Netherlands, Paraguay, Peru, Spain, Switzerland, the United Kingdom, and Uruguay. El Salvador is one of the five Central American Common Market countries that 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. The FTA remains in force pending a Supreme Court ruling.
In January 2020, the South Korea-Central America FTA became effective. This FTA includes investment provisions. El Salvador’s FTAs with Mexico, Chile, Dominican Republic, and Panama also include investment provisions. El Salvador continues 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 2018. El Salvador and Bolivia signed a PSA in November 2018 that is pending ratification in the Legislative Assembly. A PSA 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 entered into force with El Salvador in 2013. On March 1, 2022, El Salvador ratified the Protocol to the Association Agreement to take account of the accession of the Republic of Croatia to the European Union. The United Kingdom-Central America Association Agreement entered into force in January 2021. The agreement ensures continuity of commercial ties following Brexit and provides a framework for cooperation and investment.
El Salvador does not have a bilateral taxation treaty with the United States. El Salvador has one tax agreement with Spain, in effect since 2008.
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.”
El Salvador is not a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting.
In November 2020, El Salvador eliminated the Security Special Contribution on Large Taxpayers (CESC). Enacted in 2015, the CESC levied a five-percent tax on companies whose net income exceeded $500,000 to finance security measures, including the GOES’ Plan Control Territorial (Territorial Control Plan).
In May 2019, the legislature also approved an Authentic Interpretation of the Income Tax Law to clarify that energy distributors may deduct energy losses from the income tax, as energy losses are an unavoidable cost of distribution. Prior to the authentic interpretation, tax authorities repeatedly imposed back taxes, interest, and penalties for improper deductions. Companies successfully challenged most of the tax assessments but had incurred legal costs and increased financial exposure.
3. Legal Regime
Transparency of the Regulatory System
The laws and regulations of El Salvador are relatively transparent and generally foster competition, but government accountability has weakened in recent years. 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.
Environmental, social and governance (ESG) disclosures are not mandatory in El Salvador. However, the financial services industry is introducing ESG factors into investment portfolios and strategies. In 2019, 12 private banks signed the “Sustainable Finance Protocol” to develop green finance strategies, design specialized products and services for sustainable development, and implement result-based frameworks for achieving environmental and social sustainability. In June 2021, the Stock Exchange issued guidelines for the issuance of sustainability-linked bonds and announced dedicated listing segments for thematic bonds (green, social and sustainable bonds).
Companies note the GOES has enacted laws and regulations without adhering to established notice and comment procedures. The Regulatory Improvement Law, which entered into force in 2019, requires GOES 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. The implementation of the law is gradual; the regulatory agenda is required for the executive branch since 2020, for the legislative and judicial branches, and autonomous entities in 2022, and municipalities in 2023. 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, however, 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 reforms have not been fully implemented. In 2021, 13 ministries (out of 16) drafted and published their regulatory agendas. Only five ministries revised their regulatory agendas to publish modifications. GOES agencies performed only five RIAs prior to approving new legislation. Although the implications of the reforms are still not apparent, private sector stakeholders have expressed support for the measures.
El Salvador continues to develop the National Procedures Registry, an online platform listing all investment and trade-related procedures and requirements. The registry aims at increasing transparency and legal certainty, as only registered procedures and requirements will be enforceable. Procedures and requirements of central government agencies will be registered in 2022, autonomous institutions and state-owned companies in 2023, and municipalities in 2024. In 2021, ten ministries registered their procedures and requirements.
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. Policies, procedures and needed infrastructure (data centers and specialized hardware and software) are in place for implementation. The first digital certification providers were licensed in 2021. Six GOES agencies plan to implement electronic signature in 2022, including the Ministry of Economy, the National Directorate of Medicines, the National Registry Center, and the Planning Office of the Metropolitan Area of San Salvador. El Salvador also enacted the Electronic Commerce Law, which entered into force in February 2021. The law establishes the framework for commercial and financial activities, contractual or not, carried out by electronic and digital means, introduces fair and equitable standards to protect consumers and providers, and sets processes to minimize risks arising from the use of new technologies. The law aims to support rapidly growing online businesses and financial technology (FinTech).
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 to sanction public officials who impose administrative requirements not contemplated in the law. However, the law is pending implementation until the GOES appoints members of the tribunal.
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. Electricity price is set by supply and demand and traded on a spot market. The market also operates with Power Purchase Agreements (PPAs) and long-term contracts. The GOES took over some private buses and routes in March 2022 in an effort to confront rising inflation, which critics said violated the Constitution.
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 105 kWh monthly. The electricity subsidy costs the government between $50 million to $64 million annually.
El Salvador’s public finances are relatively transparent, but do not fully meet international standards. 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.
The GOES has not disclosed information on the use of public funds devoted for Bitcoin implementation, including information about bitcoin holdings and operations. In addition, the GOES continues to shield the accounts of the Intelligence Agency from Court of Accounts and has limited the Court’s capacity to audit state-owned enterprise subsidiaries.
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. In 2017, El Salvador established a National Trade Facilitation Committee (NTFC) as required by the TFA, which was reactivated in July 2019.
El Salvador is a member of the U.N. Conference on Trade and Development’s international network of transparent investment procedures: https://elsalvador.eregulations.org/ 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. 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.
According to the Constitution, the judicial system is independent of the executive branch. Recent actions by the Legislative Assemblyhave eroded separation of powers and independence of the judiciary. In May 2021, the Legislative Assembly dismissed the Attorney General and all five justices of the Supreme Court’s Constitutional Chamber and immediately replaced them with officials loyal to President Bukele. Furthermore, in August 2021, the legislature amended the Judicial Career Organic Law to force into retirement judges ages 60 or above and those with at least 30 years of service. The move was justified by the ruling party as an effort to root out corruption in the judiciary from past administrations. Legal analysts believe these measures were unconstitutional and enabled the Legislative Assembly and the Bukele administration to exert control over the judiciary.
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. https://www.miempresa.gob.sv/
The country’s e-Regulations site provides information on procedures, costs, entities, and regulations involved in setting up a new business in El Salvador. https://elsalvador.eregulations.org/
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 technical assistance to investors interested in starting operations in El Salvador, regardless of the size of the investment or number of employees. 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 note 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. https://www.sc.gob.sv/
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.
In November 2021, the Legislative Assembly passed the Eminent Domain Law for Municipal Works to enable the National Directorate of Municipal Works (DOM) to expropriate land necessary for the development of infrastructure projects in the 262 municipalities of the country. The law allows the DOM to begin works before condemnation proceedings are finalized and without depositing the estimated value of the property. Landowners can appeal the court’s determination of the compensation but cannot challenge the grounds for the seizure. Legal experts have noted that the law’s broad expropriation parameters and insufficient guarantees for landowners could lead to arbitrary land seizures.
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, leading to the government expropriating 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.
In September 2021, a British bank filed a claim against El Salvador under the Bilateral Investment Treaty (BIT) El Salvador-United Kingdom of Great Britain and Northern Ireland with the ICSID. The claim seeks to recover a substantial amount in damages the bank alleges were wrongfully awarded against it by the Supreme Court of Justice. After El Salvador submitted its counter-memorial, the ICSID registered the request for arbitration in November 2021.
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 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 to resolve 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. 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 (Panama Convention). Local courts recognize and enforce foreign arbitral awards and judgments, but the process can be lengthy and difficult.
The Commercial Code, the Commercial Code of Procedures, and the Banking Law contain sections that deal with the process for declaring bankruptcy. There is no separate bankruptcy law or court. Bankruptcy proceedings are cumbersome, lengthy, and costly. In practice, bankruptcy proceedings are uncommon. In El Salvador, real estate mortgages and pledges grant the creditor privileged rights to obtain payment from assets given in guarantee. Thus, in case of insolvency, creditors with preferred guarantees file individual lawsuits. In addition, any creditor can request the judge the appointment of a receiver, procedure much simpler than bankruptcy.
Companies in financial distress can request a payment deferral from the judge to prevent bankruptcy. If approved by the judge and the creditors, the company may be able to negotiate a rescue plan with creditors.
Bankruptcy is not criminalized, but it can become a crime if the judge determines there was intent to defraud.
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, along with 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, though 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 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 renewable power generation enjoy full income tax exemptions 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. In August 2021, the Legislative Assembly approved the contract award of the first-ever PPP project to design, expand, construct, and operate expanded cargo operations of El Salvador’s primary international airport. The estimated budget for the PPP is $57 million. A second PPP tender was released in January 2020 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 GOES, however, cancelled the tender in 2022, because the key components of the project were dated after passing nearly two years since it was initially published. It is unclear if the GOES will relaunch the tender. El Salvador has undertaken pre-feasibility studies on other potential PPP projects, including a second airport in eastern El Salvador, a toll road concession to connect its biggest port (Acajutla) to the La Hachadura border with Guatemala, and improvements of four border crossings (La Hachadura, Anguiatu, El Poy and El Amarillo) and three intermediate customs facilities (Metalio, Santa Ana and San Bartolo). The GOES has planned a total of 16 PPPs.
Foreign Trade Zones/Free Ports/Trade Facilitation
The Free Trade Zone Law is designed to attract investment in a wide range of activities, although most 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 206 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 81,000 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 Free Trade Zone Law establishes 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 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; and
Exemption from value-added tax on goods and services sourced locally to be employed in the authorized activity, including goods that are not incorporated into the final product, security and transportation services, as well as construction services and materials.
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: https://www.ciexelsalvador.gob.sv/ciexelsalvador/
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.
In August 2021, the Legislative Assembly passed amendments to the Credit History Law. The amendments introduce data localization requirements mandating credit bureaus and economic agents that report on credit history to store data and its backup exclusively in El Salvador and grant unrestricted access to the Central Bank and the Superintendence of the Financial System. The amendments took effect September 9, 2021, with a grace period of six months for companies to comply as the Central Bank develops technical norms for implementation. U.S. stakeholders have expressed concerns that these new requirements could compromise consumer data privacy and protection. There are no restrictions on cross-border transfers of other business-related data.
Foreign investors and domestic firms are eligible for the same incentives. Exports of goods and services are exempt from value-added tax.
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 at least 10 permanent employees, and have at least a one-year contract. For hospital/medical services, the minimum capital investment must be $1 million and a minimum of $250,000 for care services for the elderly and convalescent. 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 property 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 property use 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.
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.
In November 2021, the National Registry Center inaugurated the first Technology and Innovation Support Center (TISC) to assist innovators and entrepreneurs create, protect, and manage IP rights. The TISC provides access to patent and non-patent (scientific and technology) databases and IP-related publications, and information on IP laws and regulations.
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 five 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 Salvadoran Intellectual Property Association (ASPI – Asociación 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.
Customs officials have identified some counterfeit products arriving directly from China through the Salvadoran seaport of Acajutla. In 2021, Customs officials seized 20 shipments based on the presumption of containing counterfeit products. These shipments primarily involved toys (e.g., Mattel and Rubin Cube), clothing, handbags, and footwear (e.g., Victoria’s Secret, Pink, Levi’s, Guess, Ralph Lauren, Cartier, Puma, Nike, Adidas, Vans, and Tommy Hilfiger), perfumes and colognes (e.g., Chanel, Dior, Hugo Boss and Lacoste), mobile phone accessories (e.g., Samsung), and accessories for vehicles (e.g., Kia and Hyundai). 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 2019 that the annual cost of illicit trade in El Salvador amounts to $1 billion. Most contraband cigarettes come in from China, Panama, South Korea, 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.
The national Intellectual Property Registry has 22 registered geographical indications for El Salvador. In 2018, the GOES registered four geographical 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 U.S. Trade Representative’s Special 301 Report or its Review of Notorious Markets for Counterfeiting and Piracy. 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.
The Superintendent of the Financial System (https://www.ssf.gob.sv/) 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 a Financial Transactions Tax (FTT), which was enacted in 2014 and greatly opposed by banks.
The Securities Market Law establishes the 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 2021, the exchange traded $3.7 billion, with average daily volumes between $12 million and $30 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 two 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 37 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 December 2021 were $21.1 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 Cooperative Banks and Savings and Credit Associations Law regulates the organization, operation, and activities of financial institutions such as cooperative banks, credit unions, savings and credit associations, and other microfinance institutions. The Money Laundering Law requires financial institutions to report suspicious transactions to the Attorney General. Despite having regulatory scheme in place to supervise the filing of reports by cooperative banks and savings and credit associations, these entities 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, Dominican, Honduran, Panamanian, Mexican, and Spanish companies, have invested in Salvadoran insurers.
Foreign Exchange and Remittances
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 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. On September 7, 2021, Bitcoin became a legal tender in El Salvador, alongside the U.S. dollar. The Bitcoin Law mandates that all businesses must accept Bitcoin, with limited exceptions for those who do not have the technology to carry out transactions. Even though banks can accept payments of loans, credit cards, and financial services in Bitcoin, they do not offer products or services in Bitcoin. There is no bank balance sheet exposure, as Bitcoin is converted to U.S. dollars during the payment process through external digital wallet providers. 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 $7.52 billion in 2021. While Bitcoin was touted as a means to facilitate remittance transfers and reduce transaction costs, remittances in Bitcoin remain significantly low. The Central Bank reported remittances in Bitcoin totaled $67.1 million between September 2021 and January 2022 accounting for just 2.1 percent of total remittances of the period.
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/documents/search?q=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 generation and transmission, water supply and sanitation, ports and airports, and the national lottery (see chart below).
2022 Budgeted Revenue
Number of Employees
State-run Electricity Company (CEL)
Water Authority (ANDA)
Port Authority (CEPA)
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.
In October 2021, El Salvador’s legislature enacted the Creation Law of the Power, Hydrocarbons, and Mines General Directorate. The new General Directorate will be responsible for dictating the national energy policy and proposing amendments to energy legislation and by-laws, as well as implementing the energy policy. The law allows the President of the state-owned power company (CEL) to serve as the Director General of the new entity. The law will enter into force in November 2022. Industry stakeholders are concerned about the potential conflict of interest that would result from CEL making energy policy and participating in the sector as SOE.
The primary water service provider is the National Water and Sewer Administration (ANDA), which provides services to 96.6 percent of urban areas and 77 percent of rural areas in El Salvador.
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. Additionally, LACAP allows government agencies to use the auction system of the Salvadoran Goods and Services Market (BOLPROS) for procurement. Although BOLPROS is intended for use in purchasing standardized goods (e.g., office supplies, cleaning products, and basic grains), the GOES uses BOLPROS to procure a variety of goods and services, including high-value technology equipment and sensitive security equipment. As of October 2021, public procurement using BOLPROS totaled $157.1 million. The United Nations Office for Project Services (UNOPS) and United Nations Development Program (UNDP) also support government agencies in the procurement of a wide range of infrastructure projects. Procurement for municipal infrastructure works is governed by the Simplified Procurement Law for Municipal Works in force since November 2021 and centralized in the National Directorate of Municipal works created by the Bukele administration to oversee investment in infrastructure and social projects in municipalities. The GOES has created a dedicated procurement website to publish tenders by government institutions. https://www.comprasal.gob.sv/comprasal_web/).
In August 2020, President Bukele signed an executive order allowing the submission of bids for contractual services via email and eliminating bidders’ obligation to register online with the public procurement system (Comprasal), as well as lifting the responsibility of procurement officers to keep a record of companies and individuals who receive tender documents. Transparency advocates and legal experts have noted that the order would decrease potential bidders’ ability to access and compete fairly for government tenders. The order is pending review in the Supreme Court of Justice, but without injunctive effect.
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. As majority PDVSA owned, Alba Petroleos has been subject to Office of Foreign Assets Control (OFAC) sanctions since January 2019. Alba Petroleos operates a reduced number of gasoline service stations and businesses in other industries, including energy production, food production, convenience stores, and bus transportation. Alba Petroleos has been surrounded by allegations of mismanagement, corruption, and money laundering. Critics charged that the conglomerate received preferential treatment during FMLN governments and that its commercial practices, including financial reporting, are non-transparent. In May 2019, the Attorney General’s Office initiated an investigation against Alba Petroleos and its affiliates for money laundering. Alba Petroleos’ assets are frozen by court order and some of its gasoline service stations are being managed by the National Council for Asset Administration (CONAB).
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). Many companies donated to COVID-19 relief efforts in 2020. 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.
Following a reorganization under the Bukele administration, the Legal Secretariat is responsible for developing strategies and actions to promote transparency and accountability of government agencies, as well as fostering citizen participation in government. 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 enforce domestic laws effectively and fairly is limited by a lack of resources. El Salvador does not allow metal mining activity.
El Salvador has a high exposure to natural hazards, such as earthquakes and volcanic eruptions, and is highly vulnerable to climate change impacts, including frequent occurrences of floods, droughts, and tropical storms. Climate change, contamination, and overexploitation have contributed to water insecurity. Aquifers in the coastal and central zones of El Salvador have receded by as much as 13 feet (4 meters) due to climate change and at least 90 percent of surface water sources are contaminated by untreated sewage, agricultural and industrial waste, according to a 2018 study by the Ministry of Environment and Natural Resources (MARN).
After nearly 15 years of a polarized debate over water management, the Legislative Assembly passed the Water Resources Law in December 2021. The law prohibits the privatization of water resources and establishes access to water and sanitation as a human right, as well as prioritizes water usage towards human consumption. The law creates an all-public governing body the Salvadoran Water Authority (ASA) charged with drafting policies and guidelines for water extraction and wastewater discharge. The ASA will issue water permits for industrial purposes and other GOES ministries will issue permits relevant to their sectors. ASA will be the sole issuer of effluent discharge permits. The law will take effect in July 2022 as by-laws and regulations needed for implementation are drafted. The private sector has expressed concerns about legal uncertainty, as the law does not differentiate existing water permits from new ones and does not clearly define regulatory entity by sector.
MARN released for public consultation the National Environmental Policy on February 7, 2022. The policy focuses on climate change management and adaptation, biodiversity mainstreaming in the economy, restoration and conservation of water resources, and environmental zoning. To enable implementation, three cross-cutting issues are highlighted in the policy (education and awareness- raising, research and scientific innovation, and governance) as action required by the GOES.
El Salvador presented the update of its Nationally Determined Contributions (NDC) to the United Nations Framework Convention on the Climate Change (UNFCCC) on January 6, 2022. The updated NDCs include actions to reduce greenhouse gas emissions (GHG) in the energy sector; a cumulative emissions reduction target, and activities to increase carbon sinks and reservoirs in the agricultural landscape of the agriculture, forestry, and land-use change sector if large-scale financing is obtained from international and national sources with the participation of the private sector.
El Salvador carried out a capacity needs assessment as the initial phase in the process of formulating its long-term low emission development strategy. The evaluation helped identify national strengths, priority sectors, institutional framework, relevant actors, and capacity constraints, as well as served as input to draft a roadmap to guide the development and implementation of the strategy. The assessment and roadmap were published on January 18, 2022. Work is underway to design El Salvador’s 2050 Low Emission and Resilient Development Strategy.
The Environmental Law creates the National Incentives and Disincentives Program and establishes parameters for its design. The program is prepared by MARN in conjunction with the Ministries for Finance and Economy. In 2021, MARN finalized drafting the program that focuses on restoration of ecosystems and productive landscapes and includes tools such as reputational incentives (National Price for the Environment), financial incentives (payments for ecosystem services and lines of credit with state-owned banks to undertake restoration actions in productive landscapes), non-financial incentives (technical assistance), and market incentives (eco-labels and certifications). The program is pending approval of the Economic Cabinet.
Protected areas, use of nature-based solutions, sustainable forest management, and other ecosystem management plans are regulated in the Natural Protected Areas Law and Wildlife Conservation Law. El Salvador does not have green public procurement policies.
U.S. companies operating in El Salvador are subject to the U.S. Foreign Corrupt Practices Act (FCPA).
Corruption can be a challenge to investment in El Salvador. El Salvador ranks 115 out of 180 countries in Transparency International’s 2021 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 public corruption. 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.
In June 2021, El Salvador terminated its 2019 agreement with the organization of American States (OAS) to back the International Commission Against Impunity and Corruption (CICIES). CICIES audited pandemic spending in 2020. After receiving CICIES preliminary findings in November 2021, the Attorney General’s Office began criminal investigations in 17 government agencies for alleged procurement fraud and misuse of public funds. In May 2021, the Legislative Assembly passed the “Law for the Use of Products for Medical Treatments in Exceptional Public Health Situations Caused by the COVID-19 Pandemic” to protect vaccine manufacturers from liability, a precondition for Pfizer to sell vaccines to El Salvador. However, the law’s broad liability shield provisions, including civil and criminal immunity for a wide range of medical product manufacturers and healthcare providers, raised concerns about the future of investigations into fraudulent purchases of medical supplies and PPE. The law was subsequently amended in October 2021 to clarify there is no immunity for acts of corruption, fraud, bribery, theft, counterfeiting or piracy and trafficking of stolen goods. Even though the reforms removed some of the most controversial aspects of the bill, investigations stalled after the Attorney General appointed by the Bukele Administration removed prosecutors working on pandemic-related probe against GOES officials.
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, a former Attorney General is in prison on corruption-related charges, and a former president of the Legislative Assembly, who also served as president of the investment promotion agency during the prior administration, faces charges for embezzlement, fraud, and money laundering. The former Minister of Defense during two FMLN governments is being prosecuted for providing illicit benefits to gangs in exchange for reducing homicides (an agreement known as the 2012-2014 Truce). In February 2020, the Attorney General’s Office indicted high-ranking members of the ARENA and FMLN parties under charges of conspiracy and electoral fraud for negotiating with gangs for political benefit during the run up to the 2014 presidential elections. In September 2020, the Attorney General’s Office launched a probe against the Director of Penal Centers, the Vice Minister of Justice, and the Chief of the Social Fabric Reconstruction Unit for covert dealings with gangs on a homicide reduction in exchange for better prison conditions. Since the appointment of the current Attorney General, the investigation into Bukele administration’s gang pacts has not progressed. U.S Treasury designated the two officials and Bukele’s Chief of Cabinet for financial sanctions in December 2021. The law provides criminal penalties for corruption, but implementation is generally perceived as ineffective. Former President Funes faces criminal charges for embezzlement, money laundering, and misappropriation of public funds. Although there are several pending arrest warrants against Funes, he has fled to Nicaragua and cannot be extradited because he was granted Nicaraguan citizenship. In 2018, former president Elias Antonio (Tony) Saca pleaded guilty to embezzling more than $300 million in public funds. The court sentenced him to 10 years in prison and ordered him to repay $260 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) persisted across five presidential administrations. President Bukele eliminated these cash payments to public officials and the “reserved spending account,” nominally for state intelligence funding. At his direction, in July 2019, the Court of Accounts began auditing reserve spending of the Sanchez Ceren administration. In July 2021, the Attorney General’s Office accused ten former FMLN legislators and former cabinet members who served in the Funes administration (2009-2014), including former President Salvador Sanchez, of money laundering, embezzlement, and illicit enrichment for allegedly receiving sobresueldos from the President’s Office reserved spending account.
El Salvador has an active, free press that reports on corruption. 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 only sanctions noncompliance with fines of up to $500. 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. In 2019, in observance of the Constitution, the Supreme Court instructed the Probity Section to focus its investigations only on public officials who left office within ten years. In 2020, the Supreme Court issued regulations to standardize the procedures to examine asset declarations of public officials and carry out illicit enrichment investigations, as well as to set clear rules for decision-making. At the end of 2021, the Probity Section had a total of 452 active investigations on illicit enrichment. Between 2015 and 2021, the office completed economic examinations in 58 cases, but the Supreme of Court recommended civil prosecution for illicit enrichment in only 21 of those cases. In an October 2021 interview, the President of the Criminal Chamber of the Supreme Court indicated that 127 illicit enrichment cases were nearing the end of the 10-year constitutional statute of limitations.
In 2011, El Salvador approved the Law on Access to Public Information. 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. The Bukele administration has weakened the autonomy of the Access to Public Information Agency (IAIP) – charged with ensuring compliance with the law – by reforming IAIP’s regulations to increase the President’s Office control over the appointment of its commissioners. Enacted amendments also add requirements for accessing information, including for the release of restricted information. Civil society organizations claim it is common practice of the Bukele administration to declare information to be reserved (confidential) or deny information without justification and in violation of the law to avoid citizen oversight and accountability.
In 2011, El Salvador 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
The following 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 Ética Gubernamental)
87 Avenida Sur, No.7, Colonia Escalón, San Salvador
Email: email@example.com http://www.teg.gob.sv/
Licenciado Rodolfo Delgado
Fiscalía General de La República (Attorney General’s Office)
Edificio Farmavida, Calle Cortéz Blanco
Boulevard y Colonia Santa Elena
Email: radelgado@ fgr.gob.sv http://www.fiscalia.gob.sv/
Oscar Alberto López Jerez
Avenida Juan Pablo II y 17 Avenida Norte
Centro de Gobierno
(503) 2271-8888 Ext. 1424
Email: firstname.lastname@example.org 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):
National Development Foundation (Fundación Nacional para el Desarrollo – FUNDE)
Calle Arturo Ambrogi #411, entre 103 y 105 Avenida Norte, Colonia Escalón, San Salvador
Resources to request government information
Access to Public Information Institute (IAIP for its initials in Spanish)
Ricardo Gómez Guerrero
Commissioner President of the IAIP
Prolongación Ave. Alberto Masferrer y
Calle al Volcán, Edif. Oca Chang # 88
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.
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, carjacking, 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 customers. The World Economic Forum’s 2019 Global Competitiveness Index reported that costs due to organized crime for businesses in El Salvador are the highest among 141 countries.
11. Labor Policies and Practices
According to the National Directorate of Statistics and Censuses (DIGESTYC), in 2021 El Salvador had a labor force of about 2.9 million people. Female labor force participation remained low at 41.2 percent. Around 70 percent of the workers were employed in the informal sector. The number of people working in the informal sector increased during the pandemic due to high unemployment rates. These workers do not have access to government health and pension benefits, and according to the 2020-2021 Salvadoran Foundation for Economic and Social Development report, 63.9 percent of workers the informal sector belong to vulnerable groups, such as women, children, and the rural poor.
Labor laws require 90 percent of the workforce in plants and in clerical positions be Salvadoran citizens. 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 law provides for the right of most workers to form and join independent unions, to strike, and to bargain collectively. The law also prohibits anti-union discrimination, although it does not require reinstatement of workers fired for union activity. Military personnel, national police, judges, and high-level public officers may not form or join unions. Workers who are representatives of the employer or in “positions of trust” also may not serve on a union’s board of directors. Only Salvadoran citizens may serve on unions’ executive committees. The labor code also bars individuals from holding membership in more than one trade union.
Unions must meet complex requirements to register, including having a minimum membership of 35 individuals. If the Ministry of Labor (MOL) denies registration, the law prohibits any attempt to organize for up to six months following the denial. Collective bargaining is obligatory only if the union represents most workers.
In 2021, some unions were concerned about the MOL’s delay in approving their organization’s credentials, required to continue operating as a union and to participate in various tripartite consultative committees between government, the private sector, and the unions. Without credentials, unions cannot participate in decision-making within tripartite committees on subjects such as worker social security benefits, minimum wage, housing, and other worker benefits. The members of the unions also lose their immunity from termination by their employers if their unions do not have credentials. As of January 2022, the MOL failed to grant credentials to more than 250 unions before their certifications expired. These unions represent workers in municipal, healthcare, education, and judicial trades, leaving these workers vulnerable to termination by their employers. The unions receiving their credentials quickly were those aligned with the political party of the Nuevas Ideas dominated government.
The law contains cumbersome and complex 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. The law does not specify which services meet this definition, and courts therefore interpret this provision on a case-by-case basis. The law requires 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. 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 unions often skip or expedite these steps. The law prohibits workers from appealing a government decision declaring a strike illegal.
The government did not effectively enforce the laws on freedom of association and the right to collective bargaining. Penalties remained insufficient to deter violations. Judicial procedures were subject to lengthy delays and appeals. According to union representatives, the government inconsistently enforced labor rights for public workers, maquiladora/textile workers, food manufacturing workers, subcontracted workers in the construction industry, security guards, informal-sector workers, and migrant workers.
Unions functioned independently from the government and political parties, although many generally were aligned with the traditional political parties of ARENA and the FMLN. Workers at times engaged in strikes regardless of whether the strikes met legal requirements.
Employers are free to hire union or non-union labor. Closed shops are illegal. Labor laws are generally in accordance with internationally recognized 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 law prohibits all forms of forced or compulsory labor, there remains room for better implementation and enforcement.
The 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 and conducted thousands of inspections in 2019.
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, which is 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 in these instances. The government does not adequately enforce these laws.
There is no national minimum wage; the minimum wage is determined by sector. On July 1, 2021, the government announced an increase in the minimum wage by about 20 percent for all industries in the formal sector. This was implemented on August 1, 2021, resulting in a one-month implementation period for industry. The increase had no impact on the majority of workers because most are employed in the informal sector.
El Salvador adopted the Telework Regulation Law in March 2020. The law is applicable in both private and public sectors and requires a written agreement between employer and employee outlining the terms and conditions of the arrangement, including working hours, responsibilities, workload, performance evaluations, reporting and monitoring, and duration of the arrangement, among others. Legislation prescribes employers as responsible for providing the equipment, tools, and programs necessary to perform duties remotely. Employers are subject to the obligations contained in labor laws, while workers are entitled to the same rights as staff working at the employer’s premises, including benefits and freedom of association.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs or Development Finance Programs
DFC has more than $725 million invested in energy, clean water, and inclusive financial services in El Salvador.
The Biden Administration launched a Call to Action to the private sector to increase investment in Central America, including El Salvador, to sustainably address the root causes of migration. The private sector commitments under the Call to Action have the potential to leverage DFC financing. DFC inherited an Overseas Private Investment Corporation (OPIC) agreement with El Salvador that requires governmental approval on each project application.
El Salvador uses the U.S. dollar, so full inconvertibility insurance is unnecessary. El Salvador is a member of the Multilateral Investment Guarantee Agency (MIGA).
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)