flag El Salvador El Salvador: Investing

FDI in Figures

According to the UNCTAD's World Investment Report 2023, FDI flows to El Salvador were negative by USD 99 million in 2022, compared to a positive inflow of USD 314 million one year earlier and a three-year average of USD 585 million in 2018-20. At the end of the same period, the total stock of FDI in the country was estimated at USD 10.5 billion, representing around 33.4% of GDP. The latest data from the Banco Central de Reserva show that the country received USD 759 million in net foreign investments in 2023. Transport led the influx of foreign capital, receiving over USD 285.4 million by the end of 2023, marking a 37.6% growth, with the financial sector following closely behind at USD 132.8 million. The electricity industry reported USD 98.3 million, while commerce and the information and communications sector received approximately USD 95.9 million and a little over USD 57 million, respectively. Panama emerged as the primary source of foreign direct investment, contributing over USD 297.4 million by the end of 2023. The United States followed as the second-largest destination, attracting USD 121.5 million. The United Kingdom accounted for USD 89.8 million, trailed by Mexico with USD 77.3 million, and Colombia with USD 72.3 million. Overall, the main investing countries are the United States (one-third of the total volume of FDI), Mexico, and Guatemala. The textile and retail sectors attract the most significant investment, while energy has seen notable growth over the past five years. The Bukele administration has outlined ambitious infrastructure projects that may offer opportunities for U.S. companies. These projects aim to improve road networks, logistics, airport capacity, and access to water, energy, and sanitation. Due to limited fiscal resources, the government intends to leverage Public-Private Partnerships (PPPs) for infrastructure development. 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).

El Salvador's strategic location, preferential trade terms under the Central American-Dominican Republic Free Trade Agreement (CAFTA-DR), and utilization of the U.S. dollar as legal tender position it favorably as an investment destination. However, challenges such as high levels of sovereign debt, longstanding issues with gang violence, and a lack of transparency in rulemaking pose significant obstacles. In 2021, El Salvador made history by becoming the first country to adopt Bitcoin as legal tender alongside the U.S. dollar. While this move garnered significant international attention and contributed to the country's growing popularity as a tourist destination, its impact on the Salvadoran economy has been relatively minimal. The Investments Law ensures parity between foreign and local investors. While there are restrictions on micro-businesses—defined as those with 10 or fewer employees and annual sales under USD 175,930—foreign investors are permitted to establish any domestic enterprise without hindrance. However, those initiating operations with 10 or fewer employees must submit employment expansion proposals to the Ministry of Economy’s National Investment Office. Regarding extractive resources, the Investment Law stipulates that they belong solely to the state. Although private concessions for resource extraction may be awarded by the GOES, such grants are rare. Notably, metal mining is outlawed in El Salvador. The country ranks 126th among the 180 economies on the 2023 Corruption Perception Index and 117th out of 184 on the latest Index of Economic Freedom.

 

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 202020212022
FDI Inward Flow (million USD) 293314-99
FDI Stock (million USD) 10,172.310,611.310,560.7
Number of Greenfield Investments* 8.016.07.0
Value of Greenfield Investments (million USD) 171309466

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)
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 British Embassy in El Salvador.
 

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: May 2024

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