Why You Should Start Your Business in El Salvador in 2023

Why You Should Start Your Business in El Salvador in 2023

From its favorable business environment to its strategic location, El Salvador has emerged as one of the best countries to launch a business.

One key factor why you should start your business in El Salvador is its pro-business policies and regulations. The government has implemented various measures to encourage foreign investment and business, including tax incentives, streamlined registration processes, and a supportive legal framework. 

El Salvador has 8 trade treaties and 3 agreements with countries such as the United States, Mexico, Taiwan, and the European Union. This gives it access to a potential market of approximately 1.049 billion consumers.

El Salvador’s strategic location in Central America also provides easy access to regional markets such as Mexico, Guatemala, Honduras, and Nicaragua. This geographical advantage opens up opportunities for trade and expansion into neighboring countries.

Furthermore, the country boasts a skilled workforce with competitive labor costs. With a growing pool of talented professionals across various industries, businesses can find qualified employees at affordable rates.

In this blog post, we will delve deeper into the reasons why you should start your business in El Salvador.

From the thriving startup ecosystem to government support programs, we will explore all aspects that make this country stand out as a hotspot for new business.  

See also: Company formation in El Salvador

"How to register a company in El Salvador" infographic by Biz Latin Hub for an article on "start your business in El Salvador".
If you want to start your business in El Salvador, it is crucial to understand the legal process for establishing a company in the region. Start your business in El Salvador

Why You Should Start Your Business in El Salvador?

The government continues to attract foreign investors by reducing bureaucracy and improving the security conditions in the country. It has also proposed several large-scale infrastructure projects to attract new investors. 

El Salvador is strategically located, only a couple of hours’ flight from major North and South American cities. It is on U.S. Central Standard Time which offers crucial collaboration and communication crossover with North American companies. 

6 reasons why El Salvador is worth investing in 

  • Free market economy
  • Fast-growing marketplace 
  • Significant trade opportunities 
  • Low tax regime
  • Minimal entry barriers
  • Startup ecosystem 

Below are five strong reasons why it’s a great idea to start your business in El Salvador. 

Agribusiness in El Salvador. Start your business in El Salvador

1 – Free market economy

With its free market economy, El Salvador offers a favorable investment climate. The absence of excessive government regulations allows businesses to thrive and compete in an open marketplace.

2 – Fast-growing marketplace 

The country’s fast-growing marketplace is another compelling reason to invest. With a young and tech-savvy population, there is a growing demand for various goods and services, creating ample opportunities for businesses to expand and succeed.

3 – Significant trade opportunities

The country has established trade agreements with various countries, providing access to larger markets and facilitating international business transactions.

4 – Low tax regime

The low tax regime in El Salvador is another compelling reason to invest. The government has implemented policies that promote investment by offering competitive tax rates, allowing businesses to maximize their profits and reinvest in further growth.

5 – Minimal entry barriers

El Salvador boasts minimal entry barriers for investors. The government has streamlined bureaucratic processes and implemented investor-friendly policies that facilitate establishing businesses, reducing red tape and making it easier for investors to enter the market.

6 – Startup ecosystem

The small Central American country ranks just outside the world’s top 100 startup locations. However, With the recent enactment of the Innovation and Technological Manufacturing Promotion Law, San Salvador has entered the prestigious Global Startup Ecosystem Index (GSEI.) This new law is designed to encourage more foreign investment in El Salvador by offering significant tax benefits.

What are the top business industries in El Salvador?

El Salvador is a country with a diverse range of industries offering excellent investment opportunities. Here are some key sectors where investors can benefit:

1) Manufacturing: El Salvador boasts a mature plastics and textile industry that has evolved. With its well-established infrastructure, the country presents a prime destination for the outsourcing needs of international companies. It exports over USD 7M of medical devices each year.

2) Agribusiness: El Salvador’s tropical climate and diverse microclimate make it an ideal location for agribusiness. As well as catering to specific market niches, it offers opportunities for food production and processing. Agribusiness produced a 19% share of total exports in 2022.  

3) Tourism: The country is known for its amazing waves, recognized worldwide as some of the best for surfing. It has many natural attractions, including beaches with some of the best surfing breaks on the Pacific Coast, lush forests shrouded in cool temperatures with abundant wildlife, scenic mountain-top vistas, and over 2,000 known archaeological sites, mostly of the Maya and Olmec cultures.

4) Energy: El Salvador is a prime destination for investment in the energy sector, with transparent processes and clear rules that provide stability in rates. This makes it one of the most competitive markets in Central America, with a thriving participation in the regional electricity market (MER) born within the framework of the Electrical Interconnection System of the Countries of Central America (SIEPAC). 

6 reasons why El Salvador is worth investing in. Start your business in El Salvador

El Salvador: No taxes to tech innovation for economic growth

Recently, the Legislative Assembly celebrated a resounding victory as they approved the groundbreaking “Law for the Promotion of Innovation and Technology Manufacturing” with an overwhelming majority of 69 votes. This landmark legislation holds a primary objective of bolstering El Salvador’s economic growth and fostering sustainable development by propelling innovation and technological manufacturing, particularly in the realm of microelectronic and semiconductor components. One of the critical aspirations behind this law is to position El Salvador as a trailblazer in advanced technology manufacturing within Latin America, while simultaneously diversifying and expanding the nation’s pool of skilled talent in the technological manufacturing domain. 

The passing of this transformative law paves the way for the attraction of foreign direct investment and the establishment of state-of-the-art technological operations within the country’s borders. The potential unleashed by this tech-driven development is projected to bring about a positive and profound impact on El Salvador’s overall transformation process, charting an exciting path toward a more vibrant and robust economy.

With a clear focus on advancing the technology sector, the Law for the Promotion of Innovation and Technology Manufacturing offers a slew of fiscal benefits to companies operating within this domain. Among the most significant advantages is the coveted tax exemption, which serves as a potent catalyst for these companies’ growth and enhanced competitiveness. Additionally, choosing El Salvador as their headquarters opens up an array of new business possibilities, providing seamless access to South and Central American markets, thereby enticing potential clients and elevating regional business prospects.

It’s important to highlight that in order to access valuable tax benefits, companies must diligently follow a streamlined process. They are required to request an authorization agreement from the Ministry of Economy of El Salvador, effectively demonstrating that their activities align with the eligible categories outlined for tax exemption. Furthermore, companies must be incorporated in El Salvador, either as a Salvadoran entity or a duly registered branch of a foreign company, ensuring that the intended operations take place within the country’s national territory. An essential criterion for availing these benefits is a commitment to a labor force that is predominantly composed of at least 90% Salvadorans, reinforcing the law’s intent to foster local employment and contribute to the development of talent and the labor force within the nation. 

The benefits offered by this visionary law are truly transformative. Accredited technological service providers enjoy a sweeping array of advantages, including total exemption from income tax concerning incentivized activities, as well as relief from all types of income tax withholdings related to these activities. Additionally, these companies are granted complete exemption from municipal taxes based on their net assets, and they are relieved from paying Capital Gains as stipulated in articles 14 and 42 of the Income Tax Law. Importantly, they are also provided total exemption from import duties and taxes on crucial goods, inputs, machinery, equipment, and tools essential for the development of incentivized activities. 

Through this dynamic legislation, El Salvador takes a bold stride toward a more vibrant technological landscape, opening doors for groundbreaking innovation, foreign investments, and economic prosperity. By promoting local employment and nurturing talent within its borders, the government exhibits its dedication to fostering a sustainable and thriving tech-driven economy. As the nation sets its sights on a future filled with possibilities, the Law for the Promotion of Innovation and Technology Manufacturing stands as a testament to El Salvador’s determination to embrace a path of progress and transformation.

Biz Latin Hub Can Help You Launch Your Business in El Salvador

At Biz Latin Hub, we offer a wide range of market entry and administrative support services in El Salvador, Latin America, and the Caribbean.

Our areas of specialization include outsourcing for hiring and recruitment in El Salvador, accounting and taxation, company formation, and legal counsel for businesses.

Having offices in key cities throughout the region and established partnerships in various other markets, our network of resources allows us to facilitate cross-border operations and market entry in multiple countries. 

Contact us today to learn more about our services and how we can help you start your business in El Salvador. 

If you found this article on back office services in El Salvador interesting, check out the rest of our coverage of this thriving South American market. Or read about our team and expert authors.

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The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.