2023 Investment Climate Statements: El Salvador

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 $223.2 million, or roughly 1 percent of GDP, at the end of September 2022. As of Spring 2023, the GOES has prioritized seeking to create a more attractive investment climate for international companies.

The Exports and Investment Promotion Agency of El Salvador (PROESA) supports investment in seven main sectors: textiles, apparel, and light manufacturing; Bitcoin, digital technologies, and business services; tourism; aeronautics; agro-industry; energy and sciences (medical devices, biotechnology, and pharmaceuticals). 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) is El Salvador’s umbrella business chamber, with 50 member chambers and organizations across 55 economic subsectors and 15,000 member companies, of which 97 percent are SMEs. Website: 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. On February 21, 2023, the GOES created the Construction Procedures Directorate, an office within the President’s Office that will act as central point for processing permits and authorizations for all construction projects. The directorate will manage a centralized digital platform for construction processes.

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. Metal mining is prohibited in El Salvador.

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 completed on April 20, 2023. https://www.wto.org/english/tratop_e/tpr_e/tp540_crc_e.htm .

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

A September 2021 report on foreign direct investment in El Salvador authored by the Salvadoran Foundation for Economic and Social Development (FUSADES) highlighted 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. Moreover, FUSADES latest position paper on private investment published in May 2022 notes that not having an investment attraction strategy prevents El Salvador from taking advantage of nearshoring to join global supply chains and diversify its productive structure, as well as expand access to technology and innovation. The paper proposes drafting a mid-term strategy focused on nearshoring that prioritizes sectors with potential to expand exports and create jobs, adoption of regulations to continue simplifying and digitizing procedures, implementation of labor flexibility, and jointly working with the private sector and academia in the creation workforce development programs. As of April 2023, the GOES is reportedly working on such a strategy.

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

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 Investment Directorate has launched a new online platform that allows companies to register their investments and apply for tax incentives granted by the International Services Law, the Free Trade Zone Law and the Law for the Promotion of Innovation and Manufacture of Technology.  The portal is still under construction, but investors can submit their applications using this link: .
https://inversionista.economia.gob.sv/login 

The Ministry of Economy Investment Directorate caters to entrepreneurs and investors. The office has two divisions: “Growing Your Business” (Crecemos Tu Empresa) and the National Investment Office (Oficina Nacional de Inversiones, ONI). “Growing Your Businesses” provides business advice, especially for micro-, small- and medium-sized enterprises. The ONI administers investment incentives and facilitates business registration.

Contact information:
Investment Directorate
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.

Crecemos Tu Empresa
E-mail: crecemostuempresa@economia.gob.sv
https://www.economia.gob.sv/ 

The National Investment Office:
Clarissa Valdebran Sanchez, Director of Investments, cvaldebran@economia.gob.sv
Christel Schulz, Business Climate Deputy, cdearce@economia@gob.sv
Laura Rosales de Valiente, Deputy Director of Investment Facilitation, lrosales@economia.gob.sv
Sandra Llirina Sagastume, Deputy Director of Special Investments, llirina.sagastume@economia.gob.sv
Telephone: +503 2590-5116.

The Directorate of Innovation and Competitiveness at the Ministry of Economy focuses on three areas: strengthening supply chains to enhance competitiveness and innovation, 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. http://edigital.economia.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. 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 $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.

Outward Investment

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

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. ESG strategies and reporting are still in initial stages. International corporations operating in El Salvador are implementing ESG standards and reporting, and local businesses are beginning to incorporate sustainability practices into their business operations, models, and strategies. The financial services industry is introducing ESG factors into investment portfolios and strategies. 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). In June 2022, a private bank issued the first sustainable thematic bonds in El Salvador, raising $20 million to finance green and social projects of small and medium-sized companies, primarily women-led and youth-led businesses.

Companies note the GOES has enacted laws and regulations without adhering to established notice and comment procedures.TheRegulatory Improvement Law, which entered into force in 2019, requires GOES agencies to publish a regulatory agenda listing 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. Full implementation of this law, to include municipalities, will take effect 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 for a 15-day period. However, not all government entities comply with the mandated notice and comment period. The Legislative Assembly is not required to publish draft legislation, nor does it solicit comments on pending legislation. The GOES does not yet require the use of a centralized online portal to publish regulatory actions. In 2022, 14 ministries (out of 16), 53 autonomous entities (out of 71) and the Judiciary drafted and published their regulatory agendas. GOES agencies performed only eight 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 developing the National Procedures Registry, an online platform listing all investment and trade-related procedures and requirements. The registry aims to increase 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 2022, ten ministries and 3 autonomous entities registered their procedures and requirements. Registered procedures can be consulted at: https://omr.gob.sv/category/rnt/ 

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. Implementation of the Electronic Signature Law to facilitate e-commerce and trade began in 2021. Companies interested in providing digital certification services and electronic document storage services must be licensed. Four companies are licensed to provide digital certification services. There are no licensed electronic document storage providers. Only 22 government agencies have implemented electronic signature; those include the Ministries of Economy, Finance, and Environment and Natural Resources; the National Directorate of Medicines, the National Registry Center, the Planning Office of the Metropolitan Area of San Salvador, and the Attorney General’s Office. In 2021, El Salvador enacted the Electronic Commerce Law, which 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 still 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. In 2022, El Salvador reinstated a subsidy paid directly to propane gas bottling companies as part of a series of measures to mitigate the impact of the sharp increase in fuel prices stemming from the Russia-Ukraine war. The subsidy will expire on May 31, 2023, if not further extended. 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 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 routinely withholds from public disclosure details on how it uses public funds, including but not limited to budgeting and procurement information. El Salvador’s use of Bitcoin remains opaque.  The GOES has not released fiscal information about its purchases of Bitcoin or related expenditures, such as the launch and maintenance of its state-owned Bitcoin wallet app, Bitcoin ATMs, and financial details of a public trust fund used to guarantee convertibility of Bitcoin and dollars.  In addition, the GOES has limited the Court of Accounts’ 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 legislative changes have weakened judicial independence, raising concerns over the rule of law. In May 2021, the Legislative Assembly dismissed the Attorney General and all five justices of the Supreme Court’s Constitutional Chamber and replaced them with officials chosen by the administration. 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 Constitutional Chamber allows for immediate presidential re-election, despite what many say are constitutional prohibitions on re-election to a consecutive term.

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.

In April 2022, the Legislative Assembly enacted regulations to expedite the construction of two signature projects of the Bukele administration: the Pacific Airport, located in eastern El Salvador (La Unión), and the Pacific Train, a railroad network connecting the Port of Acajutla with La Unión Port. Under the Law for the Construction, Maintenance and Operation of the Pacific Airport and the Pacific Train Administrative Procedures Simplification Law, the Autonomous Executive Port Commission (CEPA), which operates the airports, and the Ministry of Public Works (MOP) have authority to expropriate land where the projects will be built. The bills establish abbreviated condemnation proceedings that give affected landowners only three days to file an answer and grounds of defense and five days to produce evidence. Landowners cannot appeal the court’s decision regarding public use/necessity or the condemnation award.

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.

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.

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. The ICSID registered the request for arbitration in November 2021 and the arbitral tribunal was constituted in November 2022.

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 the use of 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. https://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.

Bankruptcy Regulations

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 a judge appoint a receiver, a 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.

Investment Incentives

The International Services Law, approved in 2007, established service parks and centers with incentives like 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 waiver of land acquisition taxes and a 50 percent reduction of municipal taxes for five years. To qualify for 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. 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. 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 three intermediate customs facilities (Metalio, Santa Ana and San Bartolo). The GOES has planned a total of 13 PPPs. Under a Build-Operate-Transfer (BOT) model, the GOES awarded two geothermal energy contracts for a total of 30 MW on February 27, 2023. At an estimated cost of $150 to $200 million, the construction of the two geothermal plants located in eastern El Salvador will be the first new investment in geothermal power in over 30 years.

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 281 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 83,000 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/ .

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 be exempted from:

• All duties and taxes on imports of raw materials, machinery, equipment, tools, parts, components, accessories, containers, labels, packaging, samples, and patterns needed to produce for export;
• Taxes for fuels, lubricants, catalysts, reagents, and any other substance or material used for producing exports;
• Income and 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). After the 15- year or 20 -year period expires, companies are entitled to a reduction of 60 percent of income tax and 90 percent of municipal taxes for the next ten years;
• Taxes on certain real estate transfers, e.g., the acquisition of goods to be employed in the authorized activity; and
• 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 Superintendency of the Financial System. The amendments took effect on March 9, 2022. 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 six months of operations, including working capital and fixed assets, hire at least 10 permanent employees, and have at least a six-month contract. For business processing, information technology, and cinematography services, an investment of $250,000 during the first year of operations and the creation of 20 permanent jobs are required. 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 with the creation of at least 15 permanent positions. Hospitals or clinics must be located outside of major metropolitan areas, and medical services must be provided only to patients with insurance. The investment for aircraft maintenance and repair services must be $500,000 during the first year of operations and the creation of at least 50 permanent jobs.

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 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 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’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 to 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. In October 2022, the National Registry Center launched the National Network of Technology and Innovation Support Centers with the opening of four regional centers in the departments of La Libertad, Usulutan, San Miguel and Santa Ana, mostly under higher education institutions and technology, innovation, and research centers. It also opened three more centers in San Salvador, with one housed within the Ministry of Economy Directorate of Innovation and Competitiveness. The National Registry Center also created the Intellectual Property Academy in November 2022 to build capacity of enforcement bodies and small and medium-sized businesses to protect IP rights.

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 the Access to Specialized Patent Information (ASPI) program, a public-private partnership administered by the World Intellectual Property Organization (WIPO), 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 (DNM) has 39 products registered for data protection. The DNM protects the confidentiality of relevant test data and the list of such protected medications is available on the DNM: https://expedientes.medicamentos.gob.sv/productos/protecciondatos 

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 2022, Customs officials seized 24 shipments based on the presumption of containing counterfeit products. These shipments primarily involved toys, clothing, wallets, footwear, mobile phone accessories, and accessories for vehicles. 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 country 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 originate in China, India, Panama, South Korea, and Belize and undercut legitimately imported cigarettes, which are subject to a 39 percent tariff. According to ADES, most contraband cigarettes are traditionally smuggled in by gangs, with the complicity of Salvadoran authorities. The ability of gangs to engage in these activities has been severely disrupted by the State of Exception begun in March 2022.

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 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 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 

Capital Markets and Portfolio Investment

The Superintendent of the Financial System ( https://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. El Salvador has agreements with Panama and Nicaragua to integrate their stock markets via remote operator.

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 2022, the exchange traded $2.9 billion, with average daily volumes between $10 million and $24 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 39 percent–- according to the Salvadoran Banking Association (ABANSA)–- and 45 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 2022 were $21.9 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 schemes 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

Foreign Exchange

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 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. To date, the provision mandating businesses must accept Bitcoin is not being enforced. Bitcoin is not widely used in consumer 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 the United States – that totaled $7.7 billion in 2022. While Bitcoin was touted as a means to facilitate remittance transfers and reduce transaction costs, remittances in Bitcoin are low. The Central Bank reported remittances in Bitcoin totaled $126.7 million in 2022, accounting for just two percent of total remittances.

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/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.

Privatization Program

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

Additional Resources

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions 

Department of Labor

• Findings on the Worst Forms of Child Labor Report ;
• List of Goods Produced by Child Labor or Forced Labor ;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World  and;
• Comply Chain .

Climate Issues

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, poor land use practices, contamination, and overexploitation have contributed to water insecurity.

The Water Resources Law took effect in July 2022. 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 created an all-public governing body the Salvadoran Water Authority (ASA) charged with drafting policies and guidelines for water extraction and wastewater discharge.  The ASA issues water permits for industrial purposes and other GOES ministries issue permits relevant to their sectors.  ASA is the sole issuer of effluent discharge permits. The GOES has yet to publish implementing regulations. 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.

In November 2022, ASA issued the General Guidelines for Wastewater Discharge. The guidelines establish discharge limits and conditions for industrial, agro-industrial, recreational, and other sources. The guidelines are mandatory for public or private entities that indirectly or directly discharge into receiving waters.

The Ministry of Environment and Natural Resources (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. MARN published the final version of the policy in September 2022

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. The Minister of Environment and Natural Resources participated in the 27 United Nations Conference on Climate Change 2022 (COP 27), where he called on countries with the highest greenhouse gas emissions to change their practices for the benefit of all.

The GOES does not have a climate strategy aligned with the UN System of Environmental-Economic Accounting. However, the United Nations Development Programme (UNDP) is providing technical assistance to MARN and the Ministry of Finance (MH) in reinforcing specific goals and streamlining compliance with NDCs. The implementation of national climate goals requires financing mechanisms and instruments for investments. According to UNDP, El Salvador is working on strengthening its institutional system to channel climate resources with the creation of the Climate Financing Roundtable and the design of the National Climate Financing 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 policies to address deforestation resulting from the production of commodities or supply chains.

The Public Procurement Law introduces sustainable acquisitions by ensuring that environmental performance and sustainability factors are included to the extent possible in purchases. The law mandates that preference must be given for products made of recycled content, energy and water efficient goods, and reusable, refillable, more durable, or repairable articles.