Things to Know About the Business and Taxation System in El Salvador
This article studies all the financial obligations and most especially the business and taxation system in El Salvador. It is a country in Central America, with a population of just 6.5 million habitants. Also known as the “30-minute country or the 45minutes country’’. It has a good business relationship with the US. It hosts big companies like FedEx and General Motors. Both countries share a lucrative business exchange of nearly USD$6 billion in goods. It is actually a good business destination facilitated by the use of the dollar in the economy. Some of the prominent markets here are the printing and graphics, security equipment and tourism. They are the most encouraged as promoted by the US government.
Principal Taxation System in El Salvador
According to the type of company and the type of activity, you are going to establish in El Salvador, you need to have the adequate tax return files since there are many taxes applied in different situations. Here are the main tax types:
- The VAT, set at 13% is placed on the purchase of goods and services
- Income Tax is a tax placed on companies’ earnings and it ranges between 25-30%
- Tax on dividends usually 10%
- The Limited Liability Companies, tax rate usually 25-35%
Note that, companies must register at the Treasury Department to receive a Tributary ID Number (NIT) and their Unique Registration and Contributor Number (NRC)
Tax Measures
The tax measures mentioned above applies to all companies operating in El Salvador, however, the following measures concern some investors:
- Partners and Shareholders of a company must register as individuals and get their personal NIT with the Treasury
- Company Shareholders and Partners must share the total capital of the company according to the number and value of shares. They do it at the registration of the company. The treasury is notified of any change in the values of shares
- A tax of 3% applies to any transfer of real estate property with a value of more than USD$ 28,571.43
- Any financial transaction worth more than USD$1000 have a levy of 0.25%
- Employers must withhold between 10-30% as income tax for any worker with a net monthly salary of USD$ 500. This percentage varies on the salary of the employee
- Companies willing to import into El Salvador will pay an importation tax, which ranges from 5-40% depending on the type of good
It is preferable to employ two legal representatives to carry out all legal, accounting and administrative responsibilities as it may prove to be very stressful for one person even though the El Salvador legal system allows it.
Accounting Requirements and Duties for Companies in El Salvador
Unlike any other business and taxation system are determinant to the implantation process of a company in any country, the accounting requirements in El Salvador is not an exception. However, it is better to engage an authorized public accountant who will take care of all the companies’ accounts and this includes:
- Management of Auditing: Detail documentation of all different corporate transactions that flow through the company
- Tax Management: Keep a record of all operations of the company and make all tax payments on time
- Fiscal Auditing: Make sure your company’s activities are in line with tributary requirements. Recruit a fiscal auditor depending on the size and income of the company
- All accounting registers and requirements must be submitted in accordance with the International Financial Reporting Standards
All these requirements are applied to nearly every type of companies operating in El Salvador, with the exception of very cases in which some regulations are been added or removed. A local agent can help you understand if you fit in the exemptions.
You wish to know more about the business and taxation system coupled with the accounting requirements in El Salvador
El Salvador offers so many benefits for those who wish to open a business affair in the region. So taking the time to understand the local business and taxation system with the accounting requirements coupled with a good network of legal and accounting staff can ensure and guarantee the success of your business.
We at Biz Latin Hub, have a team of experts in both fields who have great experience in supporting businesses to start their corporate adventures across the Latin region through a wide range of multi-lingual or back-office services. If you have any questions concerning El Salvador or any other country’s accounting information, kindly contact our Bi-lingual Country Coordinator, Diego at our El Salvador office.
Do you wish to recruit employers in Latin America? Check out the short presentation and find out the options you have.
