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FDI in Figures

According to the UNCTAD's 2021 World Investment Report, FDI flows to El Salvador accounted for USD 200 million in 2020, down from USD 636 million in 2019, due to the global economic and health crisis triggered by the COVID-19 pandemic. The stock of FDI in the country was estimated at USD 10.1 billion in 2020. However, there have been some significant investments made in the country in recent years. In December 2019, it was announced that China would help build several major infrastructure projects in El Salvador in the following years, including a large sports stadium, a multi-story library and a water treatment plant. Although they didn't disclose the amount that was being invested in the country, the Chinese government called the investment “gigantic". On the other hand, Mexican company América Móvil was negotiating the acquisition of Telefonica Móviles from El Salvador throughout 2020, but the deal was cancelled due to the conditions imposed to obtain the regulatory authorisation required in the country, which is issued by the El Salvador Competition Superintendence. Overall, the main investing countries are the United States (one-third of the total volume of FDI), Mexico and Guatemala. The textile sector receives the highest amount of FDI into the country. Other key sectors are electricity production, tourism and telecommunications. The country has nine free-trade zones and seeks to attract textile companies (FDI Intelligence). El Salvador also uses export processing zones (EPZs) to receive preferential access to the U.S. market (UNCTAD).

According to the last Doing Business report, issued by the World Bank in 2020, El Salvador ranked 91st out of 190 countries, a six-spot decrease compared to the previous year. In the past few years, El Salvador made getting electricity easier by accepting electrical plans at the same time as connection requests. However, weak household purchasing power, scarcity of natural resources, limited size of the domestic market, insufficient infrastructure, vulnerable institutions - and above all high level of criminality - are real obstacles to investors. Still, El Salvador offers 'business friendly' taxation, a young and skilled labour force and a strategic geographical position. The government aims to promote FDI, as they have implemented a series of incentives to do so. This includes the nation’s Investment Law (which grants equal treatment to foreign and domestic investors), Free Trade Zone Law, and the Law of International Services. The country's membership in the DR-CAFTA (Dominican Republic-Central America Free Trade Agreement) as well as its reinforced integration into the C4 countries (Central America-4 Border Control Agreement between El Salvador, Guatemala, Nicaragua and Honduras) promote FDI.

 

Country Comparison For the Protection of Investors

  El Salvador Latin America & Caribbean United States Germany
Index of Transaction Transparency* 3.0 4.1 7.0 5.0
Index of Shareholders’ Power*** 7.0 6.7 9.0 5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

 
Foreign Direct Investment 201820192020
FDI Inward Flow (million USD) 826636200
FDI Stock (million USD) 9,665.69,980.810,075.1
Number of Greenfield Investments* 13.09.08.0
Value of Greenfield Investments (million USD) 215349180

Source: UNCTAD - Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 

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Tax Rates

Value Added Tax (VAT) - Impuesto al Valor Agregado (Local name)
13% (standard rate)
Exportation of goods and services, as well as the transfer of goods and services made to individuals or businesses authorized under the Free Trade Zone Law and the International Services Law are zero-rated.
Exempt items include: health services offered by public institutions; rental of houses and apartments for noncommercial purposes; public land transport; education provided by private or public institutions authorized by the Ministry of Education; certain financial services; importation by registered VAT taxpayers of machinery used as a fixed asset in the production of goods and services that are not exempt; water services offered by public entities; personal insurance services and reinsurance.
Company Tax
30%
Withholding Taxes
Dividends: 5% (non-resident)/25% (resident in a tax haven); Interests: 10% (on bank deposits)/20% (non-resident)/25% (resident in a tax haven); Royalties: 0 (resident companies)/10% (resident individual)/20% (non-resident)/25% (resident in a tax haven)
Bilateral Agreement
El Salvador and Spain have signed a Double Taxation Agreement on July 7th of 2008, and only ratified by Spain on December 3rd of 2008.
Download the treaty.<
Social Security Contributions Paid By Employers
Social security contributions (ISSS): 7.50% (for salaries up to USD 1,000, for salaries above this amount the employer's contribution is fixed at USD 51.49).
Contributions to the pension fund (AFP): 7.75%
Other Domestic Resources
Directorate General for Internal Revenues (DGII), in Spanish
Overview of El Salvador's tax measures in response to Covid-19
Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.
 
 

Individual Taxes

Income tax (domiciled individuals) Progressive rates
From USD 0  to USD 4,064 0%
From USD 4,064 to USD 9,142.86 USD 212.12 + 10%
From USD 9,142.86 to USD 22,857.14 USD 720 + 20%
Above USD 22,857.14 USD 3,462.86 + 30%
Non-domiciled individuals 30% flat rate
 
 

Country Comparison For Corporate Taxation

  El Salvador Latin America & Caribbean United States Germany
Number of Payments of Taxes per Year 7.0 28.2 10.6 9.0
Time Taken For Administrative Formalities (Hours) 168.0 327.5 175.0 218.0
Total Share of Taxes (% of Profit) 36.4 46.8 36.6 48.8

Source: Doing Business - Latest available data.

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Investment Opportunities

Tenders, Projects and Public Procurement
Inter-American Development Bank, Tenders in South America
DgMarket, Tenders Worldwide
Setting Up a Company
Consult Doing Business Website, to know about procedures to start a Business in El Salvador.
Useful Resources
Promoting Investment in El Salvador (PROESA) (in Spanish)
Contact the Cámara de comercio de España en San Salvador.
Contact the Spanish Embassy.
Contact the Embassy in Spain.
 

Business Setup Procedures

Setting Up a Company El Salvador Latin America & Caribbean
Procedures (number) 9.00 8.00
Time (days) 16.50 25.22

Source: Doing Business.

 
 
 

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Latest Update: April 2022

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