General Overview

El Salvador has a legal system derived from civil law, based on its Constitution and written laws enacted by the legislative branch as well as regulations developed by the executive branch. Jurisprudence is also a source of law and is frequently used to support legal actions; however, it is not necessarily binding, as differing criteria may be admitted if duly substantiated.

Additionally, there are local governments for 44 municipalities distributed across the 14 departments that make up the national territory. Municipalities are administered by a municipal council and have the authority to establish their own fees and municipal contributions through ordinances and local regulations. However, municipal taxes may only be established by law. Typically, fees are set based on the economic activities conducted within the municipality and asset size, among other factors.

Municipalities may also establish special requirements for granting business operation and licensing permits for specific types of businesses.

Over the years, El Salvador has developed a broad legal framework to support business development and investment. In addition to the Civil Code – one of its oldest legal frameworks and frequently applied in a supplementary manner in the absence of specific regulations – and the Commercial Code, which governs commercial transactions and merchants, several laws have been enacted to promote commercial development, including:

• the Competition Law;
• the Investment Law;
• the Free Trade and Export Processing Zone Law;
• the International Services Law; and
• the Law for the Promotion of Innovation and Technological Manufacturing.

There are also specific laws applicable to certain sectors, such as banking and finance, energy and telecommunications.

El Salvador promotes foreign investment and has established a legal and institutional framework for this purpose, including the Investment Law, the National Investment Office (Oficina Nacional de Inversiones; ONI) and the Investment and Export Promotion Agency (Invest in El Salvador).

This legal framework recognises investments in the form of capital contributions to Salvadoran companies, as well as the acquisition of assets (movable, immovable and intangible). It guarantees the equality and freedom of investments, as well as the repatriation of funds derived from investments.

In general, foreign investment does not require prior approval. However, for the purposes of facilitation, administrative co-ordination and statistical reporting, investments must be registered with ONI. This is particularly necessary in cases involving the establishment of foreign company branches, which must also be registered with the Commercial Registry. The registration process typically requires information about the investor and proof of foreign currency inflows, issued by a local banking entity.

Additionally, investments made in companies operating within free trade zones, duty-free warehouses for active improvement, or service centres and parks require authorisation from the Ministry of Economy to benefit from applicable tax incentives. Likewise, entities seeking incentives for renewable energy generation must obtain prior certification from the General Superintendency of Electricity and Telecommunications (SIGET) and the Ministry of Finance.

In 2019, El Salvador implemented the Territorial Control Plan as a measure to reclaim areas previously occupied by gang members. In line with this strategy, a state of exception has been in effect since 2022. While this measure has been subject to criticism, it has produced unprecedented results, enabling intervention in and the recovery of previously besieged areas.

As a result of this improved security climate, tourism has been incentivised, and various initiatives have been undertaken to position El Salvador as a safe and attractive destination for both international tourists and investors. This has fuelled real estate and commercial development in the country’s key tourist zones. Combined with investment-friendly legislation, these efforts have generated interest in El Salvador across various sectors. Furthermore, recently enacted legislation promotes technological innovation, digital asset issuance, Bitcoin circulation and high-rise construction, among other initiatives, all of which have contributed to a more favourable environment for business, trade and investment at both the local and international levels.

At the institutional level, El Salvador is undergoing a digital transformation to promote e-government services. To this end, the government signed a co-operation agreement with Google, which has since opened offices in the country to support the modernisation of public services.

More recently, Tether, the issuer of stablecoins, announced its entry into the Salvadoran market after completing the necessary regulatory procedures to obtain authorisation as a digital asset service provider. This represents another step towards establishing El Salvador as a technological hub.

In 2024, El Salvador held presidential elections, in which the incumbent President controversially secured re-election with over 84% of the vote. This outcome has ensured continuity for the government’s initiatives aimed at fostering national development.

However, public debt has increased, reaching 85% of GDP in 2024 according to International Monetary Fund (IMF) data. Nevertheless, negotiations with the IMF continue, and in December 2024, a technical agreement was reached, pending approval by the IMF’s executive board. This agreement includes recommendations such as improving fiscal policy and ensuring greater regulatory clarity regarding Bitcoin usage.

The most commonly used investment structure in El Salvador involves the acquisition of shares or equity interests in existing companies, either through purchase and sale transactions or capital contributions to a local company. Such acquisitions can be executed directly or through a holding company.

Another commonly used mechanism is the establishment of a branch of a foreign company in El Salvador. As mentioned in 1.2 Regulatory Framework for FDI, this requires prior registration of the investment with ONI.

The Securities Market Law allows for the public offering of shares through the local stock exchange. However, in practice, this mechanism is not commonly used. Instead, Salvadoran businesses tend to be privately held, and transactions are typically conducted through private negotiations.

The Competition Law, as part of the regulation of economic concentrations, establishes the legal framework applicable to mergers and acquisitions, business integrations or combinations, and the direct or indirect acquisition of control over economic agents, subject to certain thresholds as detailed in the following.

It is advisable to conduct a prior analysis of the transaction to determine whether authorisation from the Superintendence of Competition is required. If the transaction meets the parameters set forth by law, the authorisation process must be completed before the transaction is finalised.

If the merger or acquisition involves economic agents subject to supervision by another government entity, such as banks, insurance companies, brokerage firms and other financial institutions regulated by the Superintendence of the Financial System (SSF) or telecommunications and electricity market companies regulated by SIGET, these entities will be bound by the resolution issued by the Superintendence of Competition regarding the transaction’s admissibility.

The two most common corporate structures in El Salvador are:

• the corporation (sociedad anónima; SA); and
• the limited liability company (sociedad de responsabilidad limitada; SRL).

Both structures are primarily regulated under the Commercial Code, which establishes certain corporate obligations that all companies must comply with, including:

• maintaining formal accounting records;
• registering the company with the Commercial Registry and renewing the registration annually, reporting its assets and offices;
• filing audited financial statements annually with the Commercial Registry;
• maintaining valid municipal and tax solvency certificates; and
• appointing an external auditor on an annual basis.

Additionally, companies must maintain the following legal corporate books:

• shareholders’ or partners’ registry book;
• capital increases and reductions book;
• general shareholders’ or partners’ meeting minutes book; and
• board of directors’ or managers’ meeting minutes book.

Companies are also required to obtain a tax identification number (número de identificación tributaria; NIT) and a value added tax (VAT) registration number, for which one of the key requirements is establishing a fiscal domicile in El Salvador.

Except for simplified stock companies (sociedades por acciones simplificadas; SAS), a recently approved legal framework designed to support small entrepreneurs that allows the incorporation of companies with a single shareholder and a minimum capital of USD1, corporate entities have a minimum capital requirement for incorporation in El Salvador of USD2,000, with an initial paid-in capital of at least 5% (USD100). The incorporation costs of a company range between USD2,000 and USD2,500, including legal fees and registration costs.

Liability and Share Transfers

In both corporations and limited liability companies, shareholder liability is limited to their capital contribution. However, in limited liability companies, the transfer of equity interests is restricted, as it requires the consent of the other partners, and the transfer must be registered with the Commercial Registry. In contrast, in corporations, shares are freely transferable via endorsement and registration in the Shareholders’ Registry Book, without requiring prior approval from other shareholders.

Corporate Governance and Administration

Corporations may be administered by a board of directors or a sole administrator, with a maximum term of seven years, though re-election is permitted. Limited liability companies are managed by either a general manager or a management council, whose appointment may be indefinite. In both cases, foreign individuals may participate in the administration of the company.

Board of directors’ meetings may be held virtually, but the meeting must be recorded and archived by any available technological means. Directors are liable for their management decisions, unless they explicitly register their dissent in the corresponding meeting minutes. Additionally, directors are prohibited from engaging in business transactions with the company for their own benefit, either directly or indirectly, unless expressly authorised by the general shareholders’ or partners’ meeting.

Additional corporate governance requirements apply to entities supervised by the SSF, including specific eligibility criteria for administrators and senior management, as well as the obligation to establish oversight and support committees.

Anti-Money Laundering Compliance

Companies operating in El Salvador must comply with strict anti-money laundering (AML) and counter-terrorism financing regulations. These compliance requirements include internal controls, reporting obligations and due diligence procedures, as mandated by local financial authorities.

The rights of minority investors are equivalent to those of any shareholder: the right to attend and vote at shareholders’ meetings, the right to dividend distributions in proportion to their shareholding, and the first option right to subscribe to new shares in proportion to their existing shareholding. Additionally, shareholders representing at least 5% of the share capital have the right to request that the administrators convene a shareholders’ meeting.

Shareholders representing 25% of the share capital are also granted the right to appoint one-third of the directors. Likewise, corporate by-laws may grant additional rights to minority shareholders.

Companies may issue preferred shares if permitted in the corporate by-laws. While voting rights may be restricted for preferred shares, they are guaranteed a minimum dividend payment of 6% of the nominal value of the shares.

In January of each year, companies must submit a list of their shareholders or partners to the Ministry of Treasury, indicating any transfers made and whether dividends have been received.

As previously mentioned, the financial statements of local companies must also be filed with the Commercial Registry.

Additionally, for foreign investments registered with ONI, it is mandatory to notify ONI of any withdrawal of investment.

Banking regulations and AML legislation require certain business sectors to obtain information on the ultimate beneficial owners of the companies with which they conduct transactions. Therefore, it is common to request information about investors holding more than 10% of the equity in local companies.

El Salvador has an extensive regulatory framework governing the securities market. In addition to the Securities Market Law, enacted in 1994, the following laws are also applicable:

• the Law on Electronic Book-Entry of Securities;
• the Asset Securitization Law;
• the Investment Funds Law; and
• more recently, the Digital Assets Issuance Law.

The securities market in El Salvador is regulated and supervised by the SSF, which is responsible for overseeing and administering the Public Securities Registry. This registry records securities issuances, issuers and other market intermediaries, such as depository and custody entities, brokerage firms and credit rating agencies, among others.

Additionally, El Salvador has a local stock exchange, Bolsa de Valores de El Salvador, which facilitates trading activities and promotes the development of the country’s capital markets. The stock exchange also issues its own set of regulations.

While the banking system has traditionally been the preferred financing method in El Salvador, an increasing number of companies are exploring alternative financing mechanisms, such as asset securitisation and investment funds, particularly due to certain fiscal incentives introduced to promote these financial structures.

As previously mentioned, any security subject to a public offering must be registered in the Public Securities Registry, maintained by the SSF, in addition to being listed on a stock exchange. Securities issuers must also be registered and are required to operate exclusively through a duly authorised brokerage firm. This registration process necessarily entails a due diligence procedure, which includes the disclosure of shareholders information.

Foreign companies may operate within the trading systems of a local stock exchange on behalf of non-resident investors, provided they obtain prior authorisation from the SSF and comply with specific requirements, including the appointment of a domiciled representative in El Salvador.

The Asset Securitization Law, enacted in 2007, introduced an alternative financing mechanism. Currently, there are three authorised securitisation companies responsible for structuring issuances and managing securitisation funds. To date, securitisation have been utilised to finance significant real estate projects. Returns from securitised instruments are subject to income tax; however, they are exempt from VAT.

The Investment Funds Law currently in force regulates the supervision of investment funds by the SSF, as well as the marketing of participation units in foreign investment funds.

Investment fund managers (gestoras de fondos de inversion), which administer the funds on behalf and at the risk of investors, must maintain a registry of participants and participation units. This registry is subject to due diligence procedures in compliance with securities regulations, as well as AML and counter-terrorism financing legislation.

Investment returns are exempt from taxation for individual investors up to an average monthly amount of USD25,000.00.

Participation quotas of foreign investment funds may be marketed only if previously registered with the SSF. The registration process may be initiated by local investment fund managers and must comply with specific legal and regulatory requirements.

The Superintendence of Competition is the authority responsible for overseeing economic concentrations. Mergers or acquisitions involving total assets exceeding USD219 million or total revenues exceeding USD262.8 million between two or more economic agents are subject to prior review by this institution.

This control must take place before the transaction is finalised. Therefore, it is advisable that any acquisition or merger agreement be made subject to the corresponding approvals from the competition authority. Even when the thresholds are not met, it is common practice to submit a request to the Superintendence of Competition, so that the authority may confirm whether the transaction constitutes an economic concentration or if it restricts competition.

Regarding mergers, a recent amendment to the Commercial Code grants public notaries the authority to conduct a preliminary review and declare, under their responsibility and within the public deed of merger, that authorisation from the Superintendence of Competition is not required, provided that the transaction does not meet the legal thresholds. However, in practice, formally requesting confirmation from the competition authority is still recommended. The same amendment now allows mergers between local and foreign companies.

The process of authorisation is initiated by submitting a request, which may be filed individually by any of the economic agents or jointly. The request must include, among other documents:

• a description of the transaction;
• the financial statements of the economic agents involved for the most recent fiscal year;
• information on other economic agents that directly or indirectly participate in the share capital of the entities involved in the concentration; and
• details of the establishments of the involved economic agents.

Although the law establishes reasonable timeframes for a resolution – approximately four months – in practice, these periods tend to be longer due to suspensions that may arise from requests for additional information or the need for technical analyses or studies in complex cases.

The analysis of economic concentrations is generally based on determining whether such a concentration could significantly restrict competition. To assess this, the relevant economic agent’s position in the relevant market is considered, and the following factors are analysed:

• the possibility of the good or service being substituted with another;
• distribution costs and supply time;
• the market share in the relevant market and the ability to set prices unilaterally without competitors being able to counteract such power;
• the existence of entry barriers;
• the presence and market power of competitors; and
• economic efficiency.

The Competition Authority may condition its authorisation on the following:

• carrying out or refraining from a specific type of conduct;
• the transfer of certain assets to third parties;
• eliminating a specific production line; or
• modifying the terms or conditions of the proposed transactions.

In any case, the Superintendence cannot deny the request if the interested parties demonstrate that the transaction will result in significant efficiency gains, leading to cost savings and direct consumer benefits that cannot be achieved through other means, and provided that it is ensured that the transaction will not result in a reduction of market supply.

The penalty for failing to obtain merger authorisation is a fine, which is imposed following a sanctioning procedure initiated by the Competition Authority. This process guarantees the right to respond for the economic agent involved.

Fines are determined based on criteria such as:

• the harm caused;
• the market share of the infringing party;
• the impact on third parties;
• the size of the market; and
• recidivism.

In general, violations of the Competition Law are subject to a maximum fine of approximately USD1.82 million. However, in cases of particular gravity, the Competition Authority may impose the highest of the following penalties:

• up to 6% of the annual sales obtained by the infringer in the last fiscal year prior to the sanction;
• up to 6% of the value of its assets in the last fiscal year prior to the sanction; and
• between two and ten times the estimated profit derived from the anti-competitive practice.

Additionally, if the conditions established in the authorisation request are not met, a fine of up to USD1.82 million per business day may be imposed for each day of non-compliance. Sanctions may be challenged through the legal remedies provided by law.

Regarding foreign investments, refer to 1.2 Regulatory Framework for FDI in relation to ONI, which is responsible for the registration of such investments. Regarding national security, there is no special office in relation to foreign investments.

Regarding criteria for review, please refer to 7.1 Applicable Regulator and Process Overview.

Regarding remedies and commitments, please refer to 7.1 Applicable Regulator and Process Overview.

Regarding enforcement, please refer to 7.1 Applicable Regulator and Process Overview.

As previously mentioned, El Salvador has regulations to prevent money laundering, asset laundering and the financing of terrorism. These regulations impose obligations on companies, including:

• registering as an obligated entity on the platform provided by the Financial Investigation Unit (Unidad de Investigación Financiera; UIF) of the Attorney General’s Office (Fiscalía General de la República);
• appointing compliance officers (both a principal and an alternate officer);
• developing and approving a compliance manual, which must be approved by the company’s governing body; and
• conducting training programmes on AML and counter-terrorism financing measures.

Additionally, companies are required to:

• report suspicious or unusual transactions; and
• conduct due diligence on clients and suppliers, including identifying the ultimate beneficial owner when an individual holds more than 10% ownership.

Although there is no clearly defined sanctioning regime for non-compliance with these obligations, financial institutions and other key service providers act as indirect enforcement mechanisms, since their own due diligence processes often require companies to provide documentation proving compliance with these regulations.

El Salvador applies the principle of source-based taxation, meaning that income is subject to tax when it is:

• earned within the country;
• derived from assets located in El Salvador;
• generated from activities carried out or capital invested in the country; and
• the result of services rendered or utilised within the national territory, even if received or paid outside the Republic.

Regarding Salvadoran-source income paid to non-resident entities, a withholding tax rate of 20% applies, except for dividend payments, which are subject to a 5% withholding tax, regardless of whether the investors are local or foreign. However, if income or dividends are paid to entities incorporated or domiciled in jurisdictions classified by the tax authority as low-tax or tax havens, the withholding rate increases to 25%.

For local companies, corporate taxation includes:

• 30% corporate income tax for companies with taxable income exceeding USD150,000 per year – a reduced rate of 25% applies to companies with taxable income below this threshold;
• an advance income tax payment of 1.75%;
• capital gains tax at a rate of 10%, except in specific cases; and
• VAT at 13%, applicable to the transfer of goods, provision of services and importation of goods and services.

Certain special taxes apply to specific industries, such as the production and commercialisation of alcoholic beverages, tobacco products, carbonated drinks, energy drinks and soft drinks.

There is no recurring real estate property tax; however, a real estate transfer tax of 3% applies to the portion of the purchase price exceeding USD28,571.43. Notaries who authorise real estate transfer deeds must report all such transactions to the tax authority.

Local companies are also subject to municipal taxes, which are calculated based on the company’s assets within the relevant territorial jurisdiction and the business sector in which it operates.

To encourage investment in the historic centre of San Salvador, certain tax incentives are currently available for real estate investments in this area, including municipal tax exemptions.

The applicable withholding tax on dividends is 5%, with the previously mentioned exception of entities incorporated or domiciled in jurisdictions classified by the tax authority as low-tax or tax havens, for which a 25% withholding tax applies.

Full or partial tax exemptions are established under special laws. For example, the Law on International Services grants income tax exemptions to qualified service centres for income derived from the incentivised activity. This exemption extends to shareholders or partners with respect to dividends originating from the incentivised activity.

Similarly, the Digital Asset Issuance Law provides a tax exemption on all types of taxes, including income tax on returns derived from digital assets. Furthermore, issuers, certifiers and digital asset service providers that are duly registered will also benefit from VAT exemptions. In this case, the exemptions apply to the local entity – and to its shareholders or partners individually – with respect to profits or dividends derived from such activities.

Regarding deposits, the same withholding tax rates (20% or 25%) apply to non-domiciled entities.

It is common to use holding structures subject to other jurisdictions, ensuring that these jurisdictions are not included in the list published annually by the Ministry of Treasury, which identifies countries, states and territories classified as low-tax or tax havens.

A transfer is usually executed through the sale of shares or ownership interests in holding structures outside of El Salvador’s territory, meaning that the income is considered foreign-sourced and not subject to taxation.

In El Salvador, there is generally no exemption on capital gains, except in specific cases provided by law such as the issuance of digital assets. The capital gains tax rate is 10% unless the asset is transferred within 12 months of its acquisition, in which case the gain is added to the taxable net income.

Transfer pricing regulations apply to transactions between related parties, and also to transactions conducted with entities domiciled, incorporated or located in countries, states or territories with preferential tax regimes or low or no taxation. El Salvador adheres to the OECD transfer pricing guidelines.

The Labor Code of El Salvador establishes the rights and obligations applicable to private-sector employees and employers, further developing fundamental labour rights established in the Constitution of the Republic.

A written employment contract is required, and a copy must be submitted to the General Directorate of Labor under the Ministry of Labor and Social Welfare.

The primary employer obligations, in addition to salary payment, include:

• providing decent working conditions;
• granting paid maternity (12 weeks) and paternity leave (3 days);
• enrolling employees in the social security system;
• paying severance compensation in cases of dismissal without just cause; and
• paying the mandatory year-end bonus (aguinaldo) and annual vacation pay.

Labour laws also include specific protections for female workers. Additionally, employers with 100 or more employees are required to ensure access to early childhood care centres (CAPIs) for their employees’ children, either by subsidising this benefit, establishing and maintaining their own facility or contracting an authorised centre.

Employers with ten or more permanent employees must draft an internal workplace regulation, which must be submitted for approval by the General Directorate of Labor. This regulation must comply with labour law provisions.

Employers are also required to make contributions to the social security system and pension fund on behalf of their employees. Failure to comply with this obligation carries severe penalties, including potential criminal liability.

Salaries must be paid in legal tender, as mandated by the Labor Code. Salary payments cannot be offset. Other mandatory minimum benefits include the year-end bonus (aguinaldo), annual vacation pay and contributions to the social security system and pension fund.

The right to a minimum wage is guaranteed for all private-sector workers. Minimum wage rates are set by the National Minimum Wage Council, a body under the Ministry of Labor and Social Welfare, and are approved by the executive branch through a decree. The right to freedom of association and collective bargaining agreements is recognised.

In mergers, acquisitions or changes in corporate control, it is common practice to assess any significant labour liabilities and verify compliance with social security and pension fund contribution obligations. During acquisition processes, companies are often required to present solvency certificates issued by the Social Security Institute (Instituto Salvadoreño del Seguro Social; ISSS) and pension fund administrators (administradoras de fondos de pensiones; AFP), confirming that all required contributions have been paid.

In cases of acquisitions or changes in corporate control, employer substitution is applicable. This does not terminate existing labour contracts; instead, they continue under the new employer. In such cases, the new employer assumes joint and several liability with the previous employer for all obligations arising before the substitution. For this reason, due diligence is crucial in acquisition processes, including a thorough review of ongoing labour-related litigation and the verification of social security compliance certificates.

Employer substitution must be formally communicated to employees through the General Directorate of Labor Inspection.

If the decision is made to terminate labour contracts, the corresponding severance payments must be made, including proportional payment of year-end bonuses (aguinaldo) and accrued vacation pay where applicable.

While intangible assets, such as intellectual property rights, are included in the definition of “investment” under the Investment Law, no distinct regulatory framework or specific criteria apply exclusively to intellectual property.

El Salvador has a comprehensive legal framework that ensures intellectual property protection. Moreover, a new Intellectual Property Law is set to take effect, further strengthening such protection by modernising the registration processes.

In November 2024, the Personal Data Protection Law was enacted, regulating the manner and processing of personal data. Additionally, it establishes the obligation for entities engaged in personal data processing activities to appoint a data protection officer. The law also mandates that the processing of personal data be limited in accordance with the consent granted by the data subject. The law does not have an extraterritorial scope.