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 El Salvador.
General.

 Setting up a business in El Salvador.


What is the best way of setting up?

Franchising

As the economy has grown and investor confidence has increased, inquiries about franchises are more common. With a continued rise in consumer spending, opportunities in this sector are expected to increase.

Direct Marketing

Limited communications and mail delivery capacity in El Salvador are obstacles to direct marketing. However, with privatisation, telecommunications are improving and the government is making efforts to upgrade its mail system. Door to door sales and direct-from-television sales are increasing.

Joint ventures/Licensing

A joint venture is a contractual agreement in which "a merchant is bound to share, with one or more persons contributing goods or services, the profits or losses arising from one or more of his/her enterprise's operations or its turnover". Joint Ventures and the use of licenses of UK firms must be legally established in a contract signed by both parties. Both types of relationships are regulated by the Salvadoran Commercial Code.

Partnership

He commercial code recognises two different types of partnerships, the personal partnership and the capital partnership
The personal partnership has general and limited partners.
The general partnership is where two or more individuals enter into a written agreement to do business together. Partners are jointly and severely liable for all obligations relative to the business. Limited Partnership are made up of two or more individuals. There are general partners who run the day to day business and limited partners who are only investors. General Partners have unlimited liability to the firm's debts but limited partners are only liable to the extend of their investment.
The capital partnership is defined as a corporation or limited liability company. A capital partnership is similar to a public corporation where the equity of the firm is sold in equally valued stock shares. Shareholders are only liable up to the amount of stock owned.
In a limited stock company the equity is held by a limited number of shareholders and ownership if the equity is not easily traded or exchanged. The partnership is a private corporation. Up to 25 partners are allowed and their liability is only the amount of their investment.

 

Local Subsidiary or branch of a Foreign Company

Foreign companies may conduct their operations in El Salvador through local subsidiaries or branches. Companies need to present a deed authorised by a notary public detailing proof of legal incorporation of the parent firm, proof of ability to locate in a foreign country and proof of sufficient assets to cover establishment and operating costs. Approval must then be granted by the Ministry of Economy. That will in turn issue an operating authorisation.


Setting up a local base

The steps necessary for establishing a business office in El Salvador are:

  1. Find a legal representative or lawyer and appoint an auditor. A lawyer is necessary since there are a variety of legal requirements, documents and steps to complete at the Registro de Comercio and the Superintendencia de Empresas Mercantiles to obtain an authorisation to operate in El Salvador. The auditor registers the company with all the governmental agencies and creates and legalizes the accounting system and books. An example of a local auditing firm is Grant Thornton Castellanos Campos.
  2. Request a permit to operate in El Salvador from the
    Superintendencia de Empresas y Sociedades Mercantiles,
    Ministerio de Economia
    Complejo Maestro, Centro de Gobierno
    San Salvador, El Salvador, C.A.
    Tel (503) 281-11-22
  3. The Superintendencia de Empresas y Sociedades Mercantiles authorises all types of commercial activities that take place in El Salvador and establishes the minimum starting capital required for businesses to begin operations. These start at approximately US$25,000.
  4. Obtain an income and property clearance (this includes an income tax contributor number, as well as a Value Added Tax -VAT- collector number) from the Direccion General de Impuestos Internos from:
    Ministerio de Hacienda
    Avenida Alvarado y Diagonal Centroamerica
    Condominio Las Tres Torres Nº2
    San Salvador, El Salvador
    Tel. (503) 225-1022
    Fax: (503) 225-8175
  5. Request a License at the Commerce Registry (Registro de Comercio), in the Commerce and Industry License Registry Department. Industrial and/or commercial patent registry is also requested in this office. For the issuance of the license, the Registry must approve a Spanish version of the accounting system, and must also approve the accounting books. Your auditor must approve this system and books prior to registering at the Commerce. Once the Registry sees it is "legalized" and approved by and auditor they register it.
  6. Register the firm's board of directors and administrative personnel at the Commerce Registry.
  7. Obtain Municipal services clearance from the appropriate township or city.
  8. Obtain certification that the firm is properly registered in the Industrial and Commercial National Establishments Directory at:
    Direccion General de Estadistica y Censos
    Avenida Juan Bertis Nº 79, Ex-Instituto Geografico Nacional
    Ciudad Delgado.
    Tel. (503) 276-5900
    Fax: (503) 276-5900
  9. If the firm sells of manufactures pharmaceuticals, obtain a permit from:
    Consejo Superior de Salud Publica
    Paseo General Escalon Nº3551
    San Salvador, El Salvador
    Tel: (503) 245-3885, (503) 245-3886
    Fax: (503) 245-3886
  10. Publish the firm's license in a local newspaper.
  11. Register the investment at the Foreign Capital and Technology Transfer Department of the Ministry of Economy.H
  12. Hire both an accountant and an external auditor that has been certified by the Government of El Salvador.


Staffing

El Salvador has a labour force of approximately 1.5 million workers, of which 34 percent work in the agricultural sector, followed by services (21 percent), Commerce (18 percent) and Manufacturing (15 percent). The minimum wage in the industrial and commercial sectors is 1,260 colones, or US$144 a month. Urban Employees with minimal skills generally earn at least twenty percent more that the minimum wage. Although the minimum wage is less for agricultural workers, coffee plantation owners report that they pay above the minimum wage to attract workers during the harvest.

Official Unemployment was 7.8 percent in 1997. Underemployment is much higher, although there are no reliable estimates. However, some construction contractors cannot find sufficient skilled workers, due to the number of projects now underway in El Salvador.

Salvadoran labour is perceived as hard working and trainable. The general educational level is low, which may inhibit the development of industries needing skilled, educated labour. The current administration has made education one of its highest priorities. There is a lack of middle management-level talent, which sometimes results in foreigners being brought in to perform such task.


Labour legislation

Day Shift
(6:00 am to 7:00 pm) 44 hours
(not to exceed 8 hours per day)

Night Shift
(7:00PM TO 6:00AM) 39 hours
(not to exceed seven hours per day)

Overtime is remunerated with a 100% surcharge over the basic salary. The night shift is remunerated with a 25% surcharge over the basic salary


Recruitment Agencies

PRESELECCION EMPRESARIAL.

Local regulations

The Salvadoran Legislative Assembly approved October 1999, a new, clearer and more comprehensive investment law, which supersedes the former 1988 Foreign Investment Promotion and Guarantee Law. The objective of the law is to promote investment in general, and especially foreign investment, as means to support economic and social development, employment generation, production diversification, and the export of goods and services. The law clearly defines and protects tangible and non-tangible resources invested for the production of goods and services. It defines domestic as well as foreign investment, and provides for equal treatment for both. Among other features, it creates a new, unified office (the National Investment Office, or ONI) in the Ministry of Economy, to reduce and facilitate the steps to establish and register new investments in the country. It also sets forth clear procedures to resolve disputes between the government - or national partners- and foreign investors, and facilitates legal residence requirements for duty registered foreign investors.

The law contains limitations on foreign investors, who may neither engage in small business nor fishing activities within 8 miles offshore. Underground resources, i.e., minerals, belong to state, which may grant concessions for their exploitation. Rustic lands cannot be acquired by foreigners from countries where Salvadorans do not enjoy the same right. No single natural or legal person may own more than 600 acres of land. The state is empowered to regulate and monitor public services provided by private companies, including the tariffs charged to the public, except for what is provided under international treaties. The state may grant concessions to operate ports and railroads. Investment in banks and financial institutions is subject to the provisions contained in Salvadoran banking law.


Some of the most important treaties made by the Salvadoran Government are:

Free trade and economic integration agreement between the republics of El Salvador and Guatemala.

Nueva Ocotepeque agreement on trade and Investment

Free trade agreement and preferential exchange El Salvador- Panama.


Financial Assistance

Foreign investors are guaranteed quick repatriation of their funds and free convertibility at local banks (article 9) Such transferences include : Net profits and dividends; funds from total or partial liquidation of the investment; royalties; payments from indemnisations, and proceeds from dispute settlements establishes in the law. Foreign investors are obliged to comply with labour, tax and other requirements established in El Salvador's laws.

Foreign investors with investments over 4,000 minimum wages (currently US$570,00) have the right to receive "investors residence" permitting them to work and stay in the country (article 11). Such residence can be request within 30 days after the investment has been registered. Residence status can be acquire financing from local banks and institutions, in accordance with those institutions' internal regulations and polices.

Reflecting the government's economically liberal p0hilosophy, the banking system is largely privately owned and the market sets interest rates and fees for services. Regulation of the financial sector is performed by the Superintendencia del Sistema Financiero, an autonomous agency that performs auditing, supervision and authorisation functions. Monetary credit and foreign exchange policy is determined by the Central Bank, the Banco Central de Reseva de El Salvador. Despite interest rates of approximately 20%, short-term credit supplied by local commercial banks is growing.

In general, financing for business is available, but expensive in El Salvador. Currently, local currency interest rates range from 16 to 22 percent, and terms from one to ten years.

Regulations

(Local Representation/ agents and distributors agency legislation)

Retaining a local agent or distributor is strongly recommended in El Salvador, as business methods and legal requirements differ from those in the UK. As with all countries, care should be taken when appointing an agent as it can be costly to terminate the relationship prematurely and difficult to establish definitive reasons for doing so. It should be noted that redress for commercial disputes can prove difficult as a result of the damage suffered by the Salvadoran legal institutions during the war.

It may be prudent to hire a local attorney when preparing contracts or when considering opening a business in El Salvador.

British firms seeking an agent are advised to consult the nearest Business Link international Trade Team.

Agency legislation

Protection of the agent/principal relationship is enshrined in the Salvadoran Commercial Code (Sections B and C of chapters III, Title III). The code stipulates conditions under which an agency agreement can be terminated by the principal and also the terms of compensation that an agent can claim if the principal ends a relationship contrary to the provisions in the Code.

State Trading organisations / privatisation role and contacts / trade promotion organisations

State trading organisations:

Ministry of Agriculture and livestock
Calle y Col. Las Mercedes, San Salvador
Tel: (503) 245-2436/ 279-1949
Fax: (503) 279-1941

Ministry of economy
Calle Guadalupe y Alameda Juan Pablo II, Centro de Gobierno, San Salvador
Tel: (503) 281-0531
Fax: (503) 221-2797

Ministry of Finance
Edificio Las tres Torres, Avenida Alvarado y Diagonal Centroamerica, Urbanizacion Buenos Aires, San Salvador.
Tel: (503) 225-10-22

Ministry of Interior
Centro de Gobierno, San Salovador
Tel: (503) 222-5000
Fax: (503) 2712484

Ministry of Public Works
15 Calle Poniente, Edificios Centros Profesionales, Local 7-8, Centro de Gobierno, San Salvador.
Tel: (503) 222-9227
Fax: (503) 222-5810
E-mail: ucimop@ejje.com


Trade Promotion Organisations

Salvadoran Chamber of Commerce and Industry
9ª Avenida Norte y 5ª Calle Poniente, San Salvador
Tel: (503) 271-2055
Fax: (503) 271-4461

Fundacion Salvadoreña para el Desarrollo Economico y Social (FUSADES)
(Salvadorean Foundation for economic and Social Development)
Edificio FUSADES Boulevard y Urbanizacion Santa Elena, Antiguo Cuscatlan
Tel: (503) 224-1236
Fax: (503) 223-8932
URL: http://www.fusades.com.sv

National Association of Private Enterprise
1ª Calle Poniente y 71 Avenida Norte Nº 204, Colonia Escalon, San Salvador.
Tel: (503) 224-1236
Fax: (503) 223-8932
URL: http://www.anep.org.sv

Local Business Services

Auditors

Global Reach, Personal Touch
Grant Thornton is the leading global accounting, tax and business advisory firm dedicated to serving the needs of middle-market companies. Founded in 1924, Grant Thornton serves public and private middle-market clients through 50 offices in the United States, and in more than 600 offices in 110 countries through Grant Thornton International. Your contact in El Salvador is Grant Thornton Castellanos Campos and their web address is www.castellanoscampos.com.

Recruitment Agencies

PRESELECCION EMPRESARIAL.



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