El Salvador is globally known amongst surfers for its incredible coastlines and is well-located in Central America, bordering Guatemala, Honduras, and Nicaragua. Recently, more entrepreneurs are venturing into the exciting markets that El Salvador has to offer. Foreign Direct Investment (FDI) increased by 24.1% in the third quarter of 2018, compared to the same quarter of the previous year. This is just one statistic that confirms the great business opportunities that El Salvador provides savvy investors and foreign companies.
Incorporating a company in El Salvador can be challenging without the right knowledge and support, for this reason, it is key to have a local partner. This article will define the key corporate requirements for a corporation and steps for you to successfully operate in El Salvador.
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Corporate Requirements – Why Should You Register a Corporation in El Salvador?
The nations open economy and focus on trade have led to the development of an attractive business environment for foreign companies looking to engage in commercial activities. Recently, through a revision and subsequent modification of legislation, El Salvador now offers foreign companies operating in El Salvador with fiscal benefits such as exemption of tariff duties and reduced income and municipal taxes.
The country´s strategic location in Central America and heavy investment in infrastructure has greatly contributed to the increased of exportation to both North and South America. The Free Trade Zones, located in special industrial sites grant export-focused manufacturing companies with attractive fiscal benefits and tax-free imports of raw materials. With a raft of trade agreements with nations and regions such as the Americas, Europe, and Asia, El Salvador has put itself on the map as a global trading power.
The S.A. de C.V.
El Salvador has a range of different legal structures, however, the S.A. de C.V. is the most popular legal entity that El Salvador has to offer, partly because it is the easiest legal entity to incorporate. Some characteristics of the S.A. de C.V. include:
- 100% foreign ownership is allowed.
- The legal entity must have at least (2) shareholders.
- Shareholders and their corporate capital are based on stocks.
- The financial liability of the shareholders is limited to their capital contribution.
- The sponsorship of visas for foreign employees is permitted.
Additionally, this business structure offers great growth and expansion opportunities due to possibilities of raising capital in the stock market.
Corporate Compliance Requirements
Before you decide to establish an S.A. de C.V., you will need to meet some corporate compliance requirements:
- Legal Representation – The company must be represented by either a Board of Directors or a Unique Administration. The Board of Directors should be constituted by a minimum of two persons and one substitute. The Unique Administration, or Single Administration, should be formed by one person and a respective substitute. Smaller companies will most likely opt for the latter, whereas larger companies will need a Board of Directors.
- Company Name – There are several requirements for the companies’ name. The name is not allowed to be similar to other existing companies – this can be confirmed at the Commercial Registry. Furthermore, companies are obliged to include the words ‘Sociedad Anónima de Capital Variable’ in their title. A minimum of three optional names should be provided during the company registration process.
- Shareholders – Commercial Law in El Salvador requires that all companies must have at least 2 shareholders, who can either be individuals (natural persons) or companies (legal persons). The shareholders may reside in El Salvador or abroad. The number of shares doesn’t have to be equally divided between the company shareholders.
- Company Capital – A minimum company share capital of USD$2,000 is required in order to incorporate this type of company. At least 5%, of this capital, must be paid at the moment of registration, and the remaining should be paid within the following year of operations.
- Corporate Purpose – All companies need to have a corporate purpose directly related to the company’s principal commercial activities. For example, if you are a marketing company, your corporate purpose must align with your specific marketing activities.
- Public Notary – In order to incorporate the company, the shareholders must appear before a public notary in order to sign the Incorporation Deed. However, it is possible to grant Power of Attorney (POA) to another individual to appear before the public notary in their name. The Incorporation Deed contains all the information of the company, such as the shareholders, corporate purpose and the name.
Registering the Company
After the company has been officially legalized through the signing the Incorporation Deed, either the public notary or one or more of the shareholders must register with a number of governmental entities. The first registration is with the Chamber of Commerce, followed by the Ministry of Finance in order to obtain a company’s local tax ID. The last registration is with the Municipality Hall.
IMPORTANT: Depending on the size of the business, the company may have to register before the Ministry of Labor. Businesses that contract local employees should also register before the Institute of Social Security of El Salvador and the Pension Fund Administration.
How Can We Help You?
It is important to obtain a deep understanding of the requirements and processes involved in registering a corporation in El Salvador. This understanding, combined with the support of a local partner will ensure your commercial success in the region. For those familiar with the local processes in El Salvador, establishing an S.A de C.V is a straight-forward and painless procedure.
To learn more about the Salvadoran economy, the business opportunities to form a company in Salvador, and how you might take advantage of these political shifts, please contact us today.
El Salvador offers foreign companies with an unexploited market with unique commercial opportunities. Check out our video below to learn more…