Incorporate a Company in El Salvador

In addition to the excellent coffee bean that the nation is famous for, the Salvadoran economy produces sugar, gold, and textiles for exports. And due to increased participation of Indian investors, the Central American country has developed a promising pharmaceutical industry. Successes in these industries have created an influx of investors looking to incorporate a company in El Salvador.

In total, exports make up 64% of Salvador’s GDP, making them the country’s most important driver of economic growth. The government under president Sánchez Cerén -who left office in 2019-, sought to obstruct some parts of the private sector. But policies that support international trade are active, and El Salvador remains an attractive place for company incorporation by foreigners.

The international trade sector in El Salvador is bolstered because the country is part of the multilateral agreement CACM between Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, and the Free Trade Agreements (FTA) with the European Union, México, Colombia, Taiwan, and the United States. El Salvador is an overlooked yet attractive commercial jurisdiction that offers some valuable opportunities for international investors looking to start a business.

Annual GDP growth has remained at 2.3% (2017) and the government is attempting to do away with all taxes on technological advancements. El Salvador is the first nation to recognize Bitcoin as legal currency, which the Salvadoran president, Nayib Bukele, regarded as a way to fight hyperinflation. Since legalizing Bitcoin in September of 2021, El Salvador has reorganized its Bitcoin investments and on several occasions has reinvested capital profits into the country. This move has contributed significantly to increasing foreign investment and incentivizing investors to incorporate companies in El Salvador. Bukele’s continued initiatives to remake El Salvador’s economy also include promoting tourism, fighting terrorism, and creating regional commercial hubs.

Company Formation / Incorporation Process in El Salvador

Companies in El Salvador can take on various legal structures, depending on their business needs. Usually, a legal entity en El Salvador falls into one of three types: Limited Liability Companies, Corporations (S.A. de C.V.), or foreign branch offices.

The Sociedad Anónima de Capital Variable (S.A. de C.V.), is a limited liability corporation with variable shares and a minimum requirement of two shareholders. It is the most widely used legal entity among foreign and local investors looking to incorporate a company in El Salvador. One great advantage of this legal entity type is that the shareholders can indicate several business activities, even if only a small number of those are ultimately executed.

FAQ’s with Company Formation in El Salvador

In this overview, we have outlined the main steps of the incorporation process and explained the most important requisites that foreign/local investors must meet.

Incorporation Steps

1. Obtain local tax ID numbers for shareholders.
2. Create and sign the company bylaws.
3. Pay 5% of the share capital.
4. Register the company bylaws, initial balance and obtain the license of commerce.
5. Obtain a local company tax ID number (NRC).
6. Open a corporate bank account.
7. Deposit of the required minimum capital to activate the corporate bank account.
8. Register the company with all relevant government authorities.

Required Company Information

If you have decided to incorporate a company in El Salvador, you will need to provide possible company names and a list of business activities you plan to undertake. In addition, the following main points must be taken into consideration.

• Company Shareholders: A shareholder is a natural or legal person (i.e. an individual or a company) that owns part of the company corresponding to the share contribution the person has made. Shareholder regulations in Central America differ by country, so it is a good idea to become well acquainted with regulations specific to El Salvador. Since the shareholder’s liability is limited to their share contribution, this contribution may be significant. In El Salvador, corporate law denotes requires an S.A. de C.V. to have two or more shareholders. Local banks will request additional documentation if the company shareholder is a legal person (i.e. a company) when you attempt to set up a bank account at a later step in the incorporation process.
• Company Share Capital: In order to incorporate a company in El Salvador, investors need a minimum of USD$2,000 share capital. The share capital contribution is the company’s starting capital. It also becomes important when requesting highly-graded bank loans or entering a joint venture. If desired, the share capital may be increased or decreased at any point during or after the incorporation process, but the amount should reflect the company’s size and business operations. 5% of the share capital must be paid at the moment of company formation and the remaining 95% must be paid within the first year of the company’s start of operations. Please note that depending on the type of business activities, local authorities may require additional registration.
• Company Local Director / Legal Representative: The local director/legal representative represents the company and its operations. They play an important role in ensuring that the company operates in accordance with local law and regulations. Once the legal representative certificate has expired, it can be renewed for another 7 years. A legal substitute for the local director must also be appointed.
• Fiscal / Legal Address: All legal entities incorporating a company in El Salvador require a fiscal address and the address must be recorded by the Salvadoran tax authority (Ministerio de Hacienda). In turn, the newly established company receives its unique taxpayer number (NRC), which acts as general identification and will be used for all tax purposes and other official communication.
• Corporate Bank Account: One of the last steps to finish incorporating a company in El Salvador is opening a corporate bank account with a Salvadoran bank. Depending on the local bank chosen, the minimum required capital may be between USD$100-USD$500. DON’T FORGET: All newly opened bank accounts have restrictions on sending and receiving money internationally for the first 3 to 6 months.

Common FAQs when Forming a Company in El Salvador

Answers to some of the most common questions we get asked by our clients.

1. Can a foreigner own a business in El Salvador? Yes, a business can be 100% foreign owned by either legal persons (“legal entities”) or natural persons (“individuals”).
2. How long does it take to register a company in El Salvador? It takes 4 weeks to register an operating company in El Salvador.
3. What does an S.A. de CV company name mean in El Salvador? In El Salvador, an S.A. de CV is known as “Sociedad Anónima de Capital Variable (S.A. de C.V.)”. It is a type of business entity where the liability of its members (shareholders) is limited to their contributions to the company’s capital. This means that the personal assets of the members are protected from the company’s debts and liabilities.
4. What does an SRL company name mean in El Salvador? In El Salvador, SRL means “Sociedad de Responsabilidad Limitada,”, which translates to “Limited Liability Company” in English. This distinct legal construct operates independently of its shareholders, providing them with valuable limited liability protection. The prominence of SRL companies can be attributed to their simplified requirements, establishing them as a highly sought-after preference for structuring businesses.
5. What entity types offer Limited Liability in El Salvador? In El Salvador, both Sociedad Anónima de Capital Variable (S.A. de C.V.) and “S.R.L” (Sociedad de Responsabilidad Limitada) are limited liability entity types.
6. What are the differences between S.A. de C.V. and SRL in El Salvador?
   A. Share capital: In Sociedad Anónima de Capital Variable (S.A. DE C.V.) it consists of shares, while in Sociedad de Responsabilidad Limitada (SRL) it’s represented by “cuotas.”
   B. Transfer of Shares: It is more difficult for SRLs to transfer “cuotas” than SA DE C.V.s.
   C. Minimum partners/shareholders: S.A. DE C.V. requires a minimum of 2 shareholders, and SRL requires at least 2 partners.
   D. Administration: SRL can have partners or external managers, while S.A. DE C.V. has Directors or Sole Administrators appointed by shareholders.
   E. Capital: SRL’s capital is constituted by partner contributions, which can be…

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