Investment Climate Statements for 2016 - El Salvador

Executive Summary

El Salvador is located on the Pacific Coast of Central America. The government of El Salvador (GoES) is eager to attract greater foreign investment and is taking steps to improve its investment climate. In recent years, El Salvador has lagged behind the region in attracting foreign direct investment (FDI). The Salvadoran Central Reserve Bank (“Central Bank”) estimated FDI inflows of $428.7 million in 2015, significantly less compared to the almost $1 billion average to other countries in the region. Political uncertainty, burdensome commercial regulations, a sometimes ineffective judicial system, and widespread violent crime are often cited as elements that impede investment in El Salvador.

In 2011, El Salvador and the United States initiated the Partnership for Growth (PFG), a new cooperative development model, to help improve El Salvador’s economy and investment climate. November 2015 marked the fourth anniversary of the PFG implementation, which has included measures to foster a more favorable environment for business and investment, and improve human capital and infrastructure. For more information on PFG, please access the link on the Embassy’s website at http://sansalvador.usembassy.gov/.

On September 9, 2015, El Salvador’s second Millennium Challenge Corporation (MCC) Compact entered into force. With its “More Investment, Less Poverty” theme, the $277 million Compact (plus $88.2 million from El Salvador in counterpart funding) includes projects to improve the investment climate ($42.4 million from MCC, $50 million from El Salvador), logistical infrastructure ($109.6 million from MCC, $15.7 million from El Salvador), and human capital ($100.7 million from MCC, $15 million from El Salvador) over the next five years. Compact projects will follow MCCs guidelines and policies, including those that emphasize the environment, social inclusion and dialogue, gender, fiscal accountability, transparency, and citizen participation

For Fiscal Year 2016, the U.S. Congress has made available up to $750 million for the United States to implement its Strategy for Engagement in Central America in support of the Northern Triangle Countries’ Alliance for Prosperity Plan, and other regional priorities. The goal of the Alliance for Prosperity is an economically-integrated Central America that is more democratic, provides greater economic opportunities to its people and effective public institutions, ensuring the security of its citizens. The success of the Alliance for prosperity will depend greatly on the political will of the Central American governments.

CAFTA-DR, the free trade agreement among Central American countries, the Dominican Republic, and the United States, entered into force for the United States and El Salvador in 2006. El Salvador also has free trade agreements with Mexico, Chile, Panama, Colombia, and Taiwan. El Salvador, jointly with Costa Rica, Guatemala, Honduras, Nicaragua, and Panama, signed an Association Agreement with the European Union that includes the establishment of a Free Trade Area. El Salvador is also negotiating trade agreements with Canada, Peru, Belize, and South Korea.

The GoES continues to take measures to improve the business climate. In January 2015, in its five-year planning document (Plan Quinquenal), the government identified 44 geographic areas for prioritized economic development efforts. During the course of the year, the Legislative Assembly passed relevant legislation, e.g., better regulation and oversight of remittances, strengthening penalties against bulk cash smuggling, and increasing financial inclusion by improving access to financial services and “e-money” for individuals and small/medium enterprises. The Assembly also approved an electronic signature law and reformed the country’s fiscal incentive law in order to promote increased investment in renewable energy. The Ministry of Economy took steps to facilitate access to and improve both its physical and online “one-stop window” for investors that facilitate the processing and approval of required permits necessary to set up new businesses. New taxes on telecommunications transactions and income over $500,000, however, have been identified as barriers to new investment by the private sector.

Table 1

Measure	Year	Index or Rank	Website Address
TI Corruption Perceptions index	2015	72 of 168	transparency.org/cpi2014/results
World Bank’s Doing Business Report “Ease of Doing Business”	2016	86 of 189	doingbusiness.org/rankings
Global Innovation Index	2015	99 of 141	globalinnovationindex.org/content/page/data-analysis
U.S. FDI in partner country ($M USD, stock positions)	2014/2015	$2.81 billion (2014)/$2,64 billion (2015)	BEA/http://www.bcr.gob.sv/bcrsite/?cdr=139&lang=es
World Bank GNI per capita	2014	$3,920	data.worldbank.org/indicator/NY.GNP.PCAP.CD

Millennium Challenge Corporation Country Scorecard

The Millennium Challenge Corporation, a U.S. Government entity charged with delivering development grants to countries that have demonstrated a commitment to reform, produced scorecards for countries with a per capita gross national income (GNI) of $4,125 or less. A list of countries/economies with MCC scorecards and links to those scorecards is available here: http://www.mcc.gov/pages/selection/scorecards. Details on each of the MCC’s indicators and a guide to reading the scorecards are available here: http://www.mcc.gov/pages/docs/doc/report-guide-to-the-indicators-and-the-selection-process-fy-2015.

1. Openness To, and Restrictions Upon, Foreign Investment

Attitude toward Foreign Direct Investment

The GoES recognizes that attracting foreign direct investment (FDI) is crucial to improving the economy. Over the past two years it has passed investment promotion legislation. However, FDI levels are still paltry and lag far behind regional neighbors. The Central Bank reported FDI inflows at $428.75 million in 2015. Meanwhile, in 2014 El Salvador’s regional neighbors attracted, on average, $1.1 billion per country.

Political uncertainty, inconsistent and burdensome commercial regulations, a sometimes ineffective judicial system, and widespread violent crime undermine El Salvador’s investment climate. CAFTA-DR, the free trade agreement among Central American countries, the Dominican Republic, and the United States, includes an investment chapter and other provisions that have strengthened investment dispute resolution for member state companies with interests in El Salvador.

In November 2014, Presidents Salvador Sanchez Ceren of El Salvador, Otto Perez Molina of Guatemala and Juan Orlando Hernandez of Honduras presented a plan to promote economic, social and institutional development in their countries, the Alliance for Prosperity in the Northern Triangle. The plan involves joint efforts to promote economic integration in the Northern Triangle of Central America; to invest in human capital; to provide greater opportunities to all citizens; to ensure more accountable, transparent, and effective public institutions; and to guarantee a safe and secure environment for their people, with a particular focus on the underlying conditions driving migration to the United States. The three Northern Triangle countries allocated over $2.6 billion from their national budgets to support the Alliance for Prosperity in 2016.

For Fiscal Year 2016, the U.S. Congress has made available up to $750 million for the United States to implement its Strategy for Engagement in Central America in support of the Alliance for Prosperity, and other regional priorities. This figure more than doubles U.S. assistance to Central America and represents a thirty-four percent increase over the $560 million allocated to the region in Fiscal Year 2015. Under the $750 million approved by the U.S. Congress, the Administration is able to provide the region up to $299 million in Development Assistance, $222 million in International Narcotics Control and Law Enforcement funding towards the Central America Regional Security Initiative (CARSI), $184 million in Economic Support Funds for CARSI and regional prosperity, economic opportunity, and governance programs, $26 million in Foreign Military Financing, and $4 million in International Military Education and Training, in addition to funds for global health, demining, and other programs, including the Overseas Private Investment Corporation.

Under the Alliance for Prosperity, GoES achievements include:

The creation of a National Council for Public Safety, bringing together diverse sectors of society and generating an integrated approach to addressing crime and violence prevention called “Plan El Salvador Seguro” (El Salvador’s Security Plan).
A renewed focus on fighting extortions through the establishment of a new Business Crimes Task Force, where police and prosecutors work with business owners to prosecute extortions, leading to a 93 percent conviction rate. Overall, Salvadoran prosecutors obtained a total of 1,034 convictions for extortion-related charges in 2015.
The government launched a “Youth Employment and Employability Program,” focused on programs for health, education, and job market opportunities for young people.
The government demonstrated its commitment to strong institutions by working with the Legislative Assembly on important actions, such as the consensus election of an Attorney General committed to combating corruption.

Other Investment Policy Reviews

El Salvador has been a World Trade Organization (WTO) member since 1995. The latest trade policy review performed by the WTO was published in March 2010 (document: WT/TPR/S/226/Rev.1). On February 4, 2016, the Legislative Assembly approved the ratification of the WTO Trade Facilitation Agreement.

https://docsonline.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=103057,87169,1750,40298&CurrentCatalogueIdIndex=0&FullTextHash=

The latest investment policy review performed by the United Nations Conference on Trade and Development (UNCTAC) was published in 2010: http://unctad.org/en/Docs/diaepcb200920_en.pdf

Laws/Regulations on Foreign Direct Investment

El Salvador has various laws that promote and protect investments, as well as providing benefits to local and foreign investors. These include: the Investments Law, the International Services Law; the Free Trade Zones Law; the Tourism Law, the Renewable Energy Incentives Law; the Law on Public Private Partnerships; the Special Law for Streamlining Procedures for the Promotion of Construction Projects; and, the Legal Stability Law for Investments. Recent legislation designed to attract more investment includes the Electronic Signature Law, the Financial Inclusion Law and tax incentives for renewable energy projects. In September 2014, the Legislature approved reforms to address shortcomings in the country’s Public-Private Partnership (PPP) Law. The law and associated reforms were designed to provide a legal framework for the development of PPP projects and stimulate investment. To date, although some are being evaluated under the auspices of MCC, no large-scale PPP projects have come to fruition.

The 1999 Investments Law grants equal treatment to foreign and domestic investors. With the exception of limitations imposed on micro businesses, which are defined as having 10 or fewer employees and yearly sales of $121,319.40 or less, foreign investors may freely establish any type of domestic businesses. Investors who begin operations with 10 or fewer employees must present plans to increase employment to the Ministry of Economy’s National Investment Office. The Investment Law provides that any mined resource is the exclusive property of the state. The government may, however, grant private concessions for resource extraction, but there have been no new permits issued in recent years.

Per the Salvadoran constitution, there are no special restrictions on ownership of rural land by citizens of other countries, unless Salvadoran citizens are restricted in their rural land ownership in those countries. If rural land will be used for industrial purposes, the reciprocity requirement is lifted.

Business Registration

Per the World Bank, eight steps taking an average of 16.5 days are necessary to register a new business in El Salvador.

In November 2015, the GoES inaugurated the Business Services Office (Oficina de Atención Empresarial) to cater to entrepreneurs and investors. The new office has two important components: "Growing Your Business" (Crecemos Tu Empresa) and the National Investment Office (Dirección Nacional de Inversiones, DNI). “Growing Your Businesses” provides business and investment advice, especially for micro-, small- and medium-sized enterprises. The DNI administers investment incentives and facilitates business registration registration.

Contact information:

Business Services Office
Telephone: (503) 2590-9000
Address: 3 calle Poniente, entre la 71 y 73 avenida Norte, N.° 3729, edificio Bel Air, colonia Escalón, San Salvador. Schedule: Monday-Friday, 7:30 a.m. - 3:30 p.m.
Crecemos Tu Empresa
E-mail: crecemostuempresa@ minec.gob.sv
Website: www.minec.gob.sv/crecemostuempresa

The National Investment Office:

Luisa Valiente, National Director of Investments, lvaliente@minec.gob.sv;
Roberto Salguero, Deputy Director of Administration, rsalguero@minec.gob.sv
Special Investments; Christel Schulz, Business Climate Deputy, cdearce@minec.gob.sv
Monica Aguirre, Deputy Director of Investment Facilitation, maguirre@minec.gob.sv.
Telephone: (503) 2590-5806.

Miempresa is the Ministry of Economy’s website for new businesses in El Salvador. At Miempresa, investors can register new companies with the Ministry of Labor, Social Security Institute, pension fund administrators, and certain municipalities; request a tax identification number/card; and perform certain administrative functions.

Website: https://www.miempresa.gob.sv/

The country’s eRegulations site provides information on procedures, costs, entities, and regulations involved in setting up a new business in El Salvador.

Website: http://elsalvador.eregulations.org/

The Exports and Investment Promoting Agency of El Salvador (PROESA) was created to attract domestic and foreign private investment, promote exports of goods and services produced in the country, evaluate and monitor the business climate and drive investment and export policies. PROESA provides direct technical assistance to all investors, regardless of size of investment or number of employees, interested in starting up operations in El Salvador.

Website: http://www.proesa.gob.sv/

The National Commission for Micro and Small Businesses (CONAMYPE) supports micro and small businesses by providing training, technical assistance, financing, venture capital, and loan guarantee programs. CONAMYPE also provides assistance on market access and export promotion, marketing, business registration, and the promotion of business ventures led by women and youth.

The Micro and Small Businesses Promotion Law defines a microenterprise as a natural or legal person with annual gross sales up to 482 minimum monthly wages, equivalent to $121,319.40 and up to ten workers. A small business is defined as a natural or legal person with annual gross sales between 482 minimum monthly wages ($121,319.40) and 4,817 minimum monthly wages ($1,212,438.90) and up to 50 employees. To facilitate credit to small businesses, Salvadoran law allows for inventories, receivables, intellectual property rights, consumables, or any good with economic value to be used as collateral for loans.

Website: https://www.conamype.gob.sv/

Industrial Promotion

The Exports and Investment Promoting Agency of El Salvador (PROESA) promotes investment in the following nine sectors: Specialized Textiles and Apparel; Offshore Business Services; Tourism; Aeronautics; Agro-Industry; Medical Devices; Footwear Manufacturing; Logistic and Infrastructural Networks; and Healthcare Services.

Website: http://www.proesa.gob.sv/investment/sector-opportunities

The Directorate for Coordination of Productive Policies at the Ministry of Economy focuses on five areas: Productive Development, Capacity Building, Trade Facilitation, Taxation, and Export Promotion.

Website: http://www.minec.gob.sv/fomento/

The Productive Development Fund (FONDEPRO) provides grants to small enterprises to strengthen competitiveness.

Website: http://www.fondepro.gob.sv/

Limits on Foreign Control and Right to Private Ownership and Establishment

No single natural or legal person – whether national or foreign – can own more than 245 hectares (605 acres) of land. Per the Salvadoran Constitution, there is no restriction on the ownership of rural land by foreigners in El Salvador, unless Salvadoran nationals face restrictions in the corresponding country. If, however, the rural land will be used for industrial purposes, the reciprocity requirement does not apply. Foreign citizens and private companies can freely establish businesses in El Salvador, with some extra requirements for small business start-ups. Foreigners may engage in commercial fishing anywhere in Salvadoran waters provided they obtain a license from Center for the Development of Fishing and Aquaculture (CENDEPESCA), a government entity.

Privatization Program

Several decades ago, the government privatized the banking system, telecommunications, part of the electricity sector, and pensions. No further privatizations are anticipated at this time.

Screening of FDI

Foreign direct investments are not screened by the government.

Competition Law

The Competition Law entered into force in 2006 and established the Office of the Superintendent of Competition. According to the Organization for Economic Co-operation and Development (OECD) and the Inter-American Development Bank (IDB), the Office of the Superintendent of Competition employs enforcement standards that are consistent with global best practices and has appropriate authority to enforce the law effectively. Appeals of decisions made by the Office of the Superintendent of Competition are made directly to the country´s highest court, the Supreme Court.

Website: http://www.sc.gob.sv/appsc/home/

2. Conversion and Transfer Policies

Foreign Exchange

There are no restrictions on transferring investment-related funds out of the country. Foreign businesses can freely remit or reinvest profits, repatriate capital, and bring in capital for additional investment. The 1999 Investment Law allows unrestricted remittance of royalties and fees from the use of foreign patents, trademarks, technical assistance, and other services. Tax reforms introduced in 2011, however, levy a five percent tax on national or foreign shareholders’ profits. Moreover, shareholders domiciled in a state, country or territory that is considered a tax haven or has low or no taxes, will be subject to a tax of twenty-five percent.

The Monetary Integration Law dollarized El Salvador in 2001, and the U.S. dollar accounts for nearly all currency in circulation and can be used in all transactions. Salvadoran banks, in accordance with the law, must keep all accounts in dollars. Dollarization is supported by family remittances – almost all from the United States – that totaled $4.3 billion in 2015.

Remittance Policies

There are no restrictions placed on investment remittances. The Caribbean Financial Action Task Force report on monitoring remittances, www.cfatf-gafic.org/index.php/member-countries/d-m/el-salvador, was generally positive and noted that El Salvador has strengthened its remittances regimen, prohibiting anonymous accounts and limiting suspicious transactions. On July 23, 2015, the Legislature approved reforms to the Law of Supervision and Regulation of the Financial System so that any entity sending or receiving systematic or substantial amounts of money by any means, at the national and international level, falls under the jurisdiction of the Superintendence of the Financial System.

3. Expropriation and Compensation

The 1983 Constitution allows the government to expropriate private property for reasons of public utility or social interest, and indemnification can take place either before or after the fact. There are no recent cases of expropriation. In 1980, a rural/agricultural land reform established that no single natural or legal person could own more than 245 hectares (605 acres) of land, and the government expropriated the land of some large landholders. In 1980, private banks were nationalized, but were subsequently returned to private ownership. A 2003 amendment to the Electricity Law requires energy generating companies to obtain government approval before removing fixed capital from the country, which is intended to prevent energy supply disruptions.

4. Dispute Settlement

Legal System, Specialized Courts, Judicial Independence, Judgments of Foreign Courts

Foreign investors may seek redress for commercial disputes through local domestic courts but some investors have found the slow-moving legal system to be costly and unproductive. The handling of some cases has demonstrated that the legal system may be subject to manipulation by diverse interests, and final judgments are at time difficult to enforce. The Embassy recommends that any person thinking of investing in El Salvador carry out proper due diligence by hiring competent local legal counsel. In recent years, there have been several U.S. firms tied up in litigation associated with their investments. Local investment and commercial dispute resolution proceedings in El Salvador routinely last many years.

El Salvador's commercial law is based on the Commercial Code and its corresponding Commercial Code of Procedures. There is a specialized commercial court that resolves these disputes. All documents and payments can be submitted electronically to the Commerce Registry.

Bankruptcy

The Commercial Code, the Commercial Code of Procedures, and the Banking Law all contain sections that deal with the process for declaring bankruptcy. However there is no separate bankruptcy law or court. According to data collected by the World Bank's Doing Business, report, resolving insolvency in El Salvador takes 3.5 years on average and costs 12 percent of the debtor’s estate, with the most likely outcome being that the company will be sold piecemeal. The average recovery rate is 33.2 cents per U.S. dollar. El Salvador scores 2 out of 3 points on the commencement of proceedings index, 4 out of 6 points on the management of debtor’s assets index, 0 out of 3 points on the reorganization proceedings index, and 3 out of 4 points on the creditor participation index. El Salvador’s total score on the strength of insolvency framework index is 9 out of 16. Globally, El Salvador ranks 79 out of 189 on Ease of Resolving Insolvency.

Website: http://www.doingbusiness.org/data/exploreeconomies/~/media/giawb/doing%20business/documents/profiles/country/SLV.pdf?ver=3

Investment Disputes

An investment dispute between the GoES and a multinational mining company remains pending before the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). In 2009, Pacific Rim, a Canadian mining company with a small U.S. subsidiary, filed an international arbitration proceeding against the GoES alleging various violations of the obligations in Chapter Ten of the CAFTA-DR. Pacific Rim’s lawsuit claimed El Salvador had unfairly denied its mining permit after it had already begun an exploration process for gold mining, costing it millions of dollars in potential profits. The GoES claimed the company had failed to deliver the required environmental tests and administrative steps of land acquisition to continue. Australian mining concern OceanaGold purchased a controlling stake in Pacific Rim in 2012, and continued the ICSID arbitration. In June 2012, the ICSID determined that the U.S. subsidiary lacked sufficient business activities in the United States to qualify for the guarantees under CAFTA-DR. However, the tribunal determined it had jurisdiction to proceed on an evaluation of the merits of the OceanaGold’s claims under Salvadoran investment law. The case is still pending a decision from ICSID.

Another investment dispute within the past several years involved La Geo, a geothermal company, previously a joint venture between Italian concern Enel Green Power and the GoES. New investment in La Geo had been stunted by lengthy legal disputes between the GoES and Enel. While international arbitration proceedings had ruled in favor of Enel, the Salvadoran Supreme Court ruled in 2012 that the original geothermal concession to La Geo was unconstitutional. In November 2013, the Attorney General’s office filed criminal charges against EGP and the former GOES officials alleging corruption and fraud. As part of the 2014 settlement agreement GOES agreed to indemnify Enel and drop the criminal case against the parties involved in signing the original partnership agreement.

International Arbitration

Amended Article 15 of the 1999 Investment Law limits a foreign investor’s access to international dispute resolution and may obligate them to use national courts, if the foreigner comes from a country without a pre-existing trade agreement with El Salvador. The rights of investors from CAFTA-DR countries are protected under the trade agreement’s dispute settlement procedures. Submissions to national dispute panels and panel hearings are open to the public, and interested third parties have the opportunity to be heard. In 2002, the government approved a law that allowed private sector organizations to establish arbitration centers for the resolution of commercial disputes, including those involving foreign investors.

El Salvador approved the Mediation, Conciliation and Arbitration Law in 2002. However, in 2009, El Salvador modified its arbitration law to allow parties to arbitration disputes the ability to appeal a ruling to the Salvadoran courts. Investors have complained that the modification dilutes the fundamental efficacy of arbitration as an alternative method of resolving disputes. According to the Law, arbitration is performed at the Arbitration and Mediation Center which is organized as a branch of the Chamber of Commerce and Industry of El Salvador.

Website: http://www.mediacionyarbitraje.com.sv/

ICSID Convention and New York Convention

El Salvador ratified is a member state to the International Centre for Settlement of Investment Disputes (ICSID Convention). ICSID is included in a number of El Salvador’s investment treaties as the forum available to foreign investors. Within the domestic legal framework it is also mentioned in the Investment Law, with the limitations mentioned above regarding the change to the Arbitration Law in 2009.

El Salvador is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) and the Inter-American Convention on International Commercial Arbitration (The Panama Convention).

Duration of Dispute Resolution – Local Courts

Local investment and commercial dispute resolution proceedings in El Salvador routinely last many years. The Salvadoran Foundation for Economic and Social Development (FUSADES), an internationally-recognized think tank and research entity, characterizes domestic courts as being unwilling to enforce arbitration awards and instead opting to politicize conflicts between the government and the investors.

5. Performance Requirements and Investment Incentives

WTO/TRIMS

The February 2013 reforms to the country’s Free Trade Zone Law made it compliant with World Trade Organization (WTO) regulations. The reforms eliminate permanent tax exemptions based on export performance and instead grant tax credits based on number of employees and investment levels. El Salvador's Investment Law does not require investors to meet export targets, transfer technology, incorporate a specific percentage of local content, or fulfill other performance criteria. Foreign investors and domestic firms are eligible for the same incentives. Exports of goods and services are levied zero value-added tax.

Investment Incentives

The 1998 Free Trade Zone Law is designed to attract investment in a wide range of activities, although the vast majority of the businesses in export processing zones are textile plants. A Salvadoran partner is not needed to operate in a foreign trade zone, and some textile operations are completely foreign-owned.

The 1998 law established rules for export processing zones and bonded areas. The foreign trade zones are outside the nation's customs jurisdiction while the bonded areas are within its jurisdiction, but subject to special treatment. Local and foreign companies can establish themselves in a foreign trade zone to produce goods or services for export or to provide services linked to international trade. The regulations for the bonded areas are similar.

Qualifying firms located in the foreign trade zones and bonded areas may enjoy the following benefits:

Exemption from all duties and taxes on imports of raw materials and the machinery and equipment needed to produce for export;
Exemption from taxes for fuels and lubricants used for producing exports if these are not domestically produced;
Exemption from income tax, municipal taxes on company assets and property; the exemptions are for 15 years if the company is located in the metropolitan area of San Salvador and for 20 years if the company is located outside of the metropolitan area of San Salvador. After that, the user would still be able to obtain partial exemptions.
Exemption from taxes on real estate transfers for the acquisition of goods to be employed in the authorized activity.

Companies in the foreign trade zones are also allowed to sell goods or services in the Salvadoran market if they pay applicable taxes for the proportion sold locally. Additional rules apply to textile and apparel products.

Under the 1990 Export Reactivation Law, firms were able to apply for tax rebates ("drawbacks") of six percent of the FOB value of manufactured or processed exports shipped outside the Central American Common Market area. This benefit was eliminated in 2011. However, later that same year the Salvadoran government approved new regulations to support producers. The regulations include a new form of “drawback,” approved by the WTO, which consists of a refund of custom duties paid on imported inputs and intermediate goods exclusively used in the production of goods exported outside of the Central American region. The regulations also included the creation of a Business Production Promotion Committee with the participation of the private and public sector to work on policies to strengthen the export sector, and the creation of an Export and Import Center. Since 2011, all import and export procedures are handled by the Import and Export Center (Centro de Trámites de Importaciones y Exportaciones - CIEX El Salvador). More information about the procedures can be found at: http://www.ciexelsalvador.gob.sv/registroSIMP/

The International Services Law, approved in 2007, establishes service parks and centers with incentives similar to those received by El Salvador's free trade zones. Service park developers are exempted from income tax for 15 years, municipal taxes for ten years, and real estate transfer taxes. Service park administrators will be exempted from income tax for 15 years and from municipal taxes for ten years.

Firms located in the service parks/service centers may receive the following permanent benefits:

Tariff exemption for the import of capital goods, machinery, equipment, tools, supplies, accessories, furniture and other goods needed for the development of the service activities (goods and services, i.e., food and beverages, tobacco products, alcoholic beverages, rental fees, home equipment and furniture, cleaning articles, luxury goods, transportation vehicles, and hotel services are not exempted from taxation);
Full and indefinite exemption from income tax and municipal taxes on company assets.

Service firms operating under the existing Free Trade Zone Law are also covered. However, if the services are provided to the Salvadoran market, they cannot receive the benefits of the International Services Law.

The following services are covered under the International Services Law: international distribution, logistical international operations, call centers, information technology, research and development, marine vessels repair and maintenance, aircraft repair and maintenance, entrepreneurial processes (i.e., business process outsourcing), hospital-medical services, international financial services, container repair and maintenance, technology equipment repair, elderly and convalescent care, telemedicine, and cinematography postproduction services.

The Tourism Law establishes fiscal incentives for those who invest a minimum of $25,000 in tourism-related projects in El Salvador, including: value-added tax exemption for the acquisition of real state; import tariffs waiver for construction materials, goods, equipment (subject to limitation); and, a ten-year income tax waiver. The investor also benefits from a five-year exemption from land acquisition taxes and a 50 percent break in municipal taxes. To take advantage of these incentives, the enterprise must contribute five percent of its profits during the exemption period to a government-administered Tourism Promotion Fund.

The Renewable Energy Incentives Law promotes investment projects that use of renewable energy sources. On October 15, 2015, the Legislative Assembly approved amendments to the Law in order to encourage the use of renewable energy sources and reduce dependence on environmentally-unfriendly fossil fuels. These reforms extended the benefits and tax for new investments in projects to install power generation plants and for projects expansion, using renewable energy sources, such as hydro, geothermal, wind, solar, marine, biogas and biomass.

The incentives include full exemption, during the first 10 years, from customs duties on the importation of machinery, equipment, materials, and supplies used for the construction and expansion of substations, transmission or sub-transmission lines. Revenues directly derived from power generation based on renewable sources enjoy full exemption from income tax for a period of five years in case of projects above 10 MW and 10 years for projects below 10 MW. The Law also provides an exemption from payment of any type of income tax derived directly from the sale of certified emission reductions (CERs) under the Mechanism for Clean Development of the Kyoto Protocol, or carbon markets (CDM).

Research and Development

The Government does not finance or subsidize research and development programs.

Performance Requirements

Investors who plan to live and work in El Salvador for an extended period will need to obtain temporary residency, which may be renewed periodically. Under Article 11 of the Investment Law, foreigners with investments totaling more than $1 million have the right to obtain an Investor's Residency status, which allows them to work and remain in the country. This type of residency may be requested within 30 days after the investment has been registered. The residency status covers the investor and their family, and is issued for a period of one year, but may be extended annually.

It is customary for companies to employ local lawyers to manage the process of obtaining residency. The American Chamber of Commerce in El Salvador can also provide information regarding the process. Website: http://www.amchamsal.com/?lang=en

Current labor laws require that 90 percent of the workforce in plants and in clerical positions be comprised of Salvadoran citizens. These restrictions regarding nationality and percentages are more lax for professional and technical jobs.

U.S. companies have complained of indiscriminate customs valuations and inconsistent enforcement of both customs regulations and CAFTA-DR preferential treatment for goods coming from CAFTA-DR countries aside from the United States. While advances have been made to implement a fast-track system for shipments via express courier companies, it has not been fully implemented. The clearance procedures for samples which arrive via express shipments are also unclear. Failures in Salvadoran custom’s computer systems in February and March 2016 led to significant delays and traffic back-ups at border points with Guatemala and Honduras.

The International Services Law establishes benefits for businesses that invest at least $150,000 during the first year of operations, including working capital and fixed assets, hire no fewer than 10 permanent employees, and have at least a one-year contract. For hospital/medical services, the minimum investment in fixed assets must be $10 million, if surgical services are provided, or a minimum of $3 million, if surgical services are not provided. Hospitals or clinics must be located outside of major metropolitan areas, and medical service must also be provided only to patients with insurance.

Data Storage

El Salvador's Investment Law does not require investors to incorporate a specific percentage of local content, to turn over source code or provide access to surveillance, or to fulfill other performance criteria.

6. Protection of Property Rights

Real Property

Private property, both non-real estate and real estate, is recognized and protected in El Salvador. Companies that plan to buy land or other real estate are advised to hire competent local legal counsel to advise them on the property's title prior to purchase.

No single natural or legal person--whether national or foreign--can own more than 245 hectares (605 acres) of land. Per the State's Constitution, a principle of reciprocity is applied regarding the ownership of rural land, i.e., there are no restrictions on the ownership of rural land by foreigners in El Salvador, unless this restriction is applied to Salvadoran nationals in the corresponding states. If the rural land will be used for industrial purposes, however, the reciprocity requirement is lifted.

Real property can be transferred without government authorization. For title transfer to be valid vis-à-vis third parties, however, it needs to be properly registered. Real estate lease law tends to heavily protect the interests of tenants, e.g., the law allows tenants to remain on property after their lease expires, provided they continue to pay rent. Likewise, the law limits the amount of rent that can be charged and makes eviction processes extremely difficult.

Squatters occupying private property in good faith can eventually acquire title. If the owner of the property is unknown, squatters can acquire title after 20 years of good faith possession through a judicial procedure; if the owner is known, squatters can acquire title after 30 years.

Squatters may never acquire title to public land, although municipalities often grant the right of use to the squatter.

Zoning is regulated by municipal rules. Municipalities have broad power regarding the use of property within their jurisdiction. Zoning maps, if they exist, are generally not available to the public.

The ineffectiveness of the judicial system discourages investments in real estate and makes execution of real estate guarantees difficult. The real property lease law provides extensive protection to tenants, but landowners’ interests often go unprotected. Securitization of real estate guarantees or titles is legally permissible but does not occur frequently in practice.

In April 2012, the Legislative Assembly passed a constitutional reform recognizing the existence and the rights of indigenous peoples. However, there are no provisions for traditional use of lands or for indigenous peoples to share in revenue from exploitation of natural resources, as the government does not specifically demarcate any lands as belonging to indigenous communities.

According to the latest agricultural census (2007-2008), agricultural land in El Salvador totals 2,283,444.48 acres, of which 1,695,653.4 acres are owned (74 percent), 478,127.32 acres are rented (21 percent), and 109,665.48 acres (5 percent) are not clearly defined.

Website: http://www.censos.gob.sv/

El Salvador ranks 56th of 189 economies on the World Bank's Doing Business 2016 report in the Ease of Registering Property category. According to the collected data, registering a property takes on average of five steps over a period of 31 days, and costs 3.8 percent of the reported value of the property.

Intellectual Property Rights

El Salvador revised several laws to comply with CAFTA-DR's provisions on intellectual property rights (IPR). The Intellectual Property Promotion and Protection Law (1993, revised in 2005), Law of Trademarks and Other Distinctive Signs (2002, revised in 2005), and Penal Code establish the legal framework to protect IPR. Investors can register trademarks, patents, copyrights, and other forms of intellectual property with the National Registry Center's Intellectual Property Office. Reforms extended the copyright term from 50 to 70 years. In 2008, the government enacted test data exclusivity regulations for pharmaceuticals and agrochemicals, which will be protected for five and 10 years respectively, and ratified an international agreement extending protection to satellite signals.

In May 2015, the Constitutional Chamber of the Salvadoran Supreme Court, finding that no treaty could commit the Salvadoran Legislative Assembly to ratifying, or acceding, to another treaty, declared unconstitutional Article 15.1:5(a) of CAFTA-DR in which all parties (except Nicaragua and Costa Rica) committed to the ratification of, or accession to, the International Union for the Protection of New Varieties of Plants (UPOV Convention 1991) by January 1, 2006. Nonetheless, in El Salvador, plant and animal varieties are protected under the country's Intellectual Property Law and may be patented for 20 years from date of application.

In March 2012, El Salvador passed a new Medicines Law to regulate the production, sale, and distribution of pharmaceuticals. The law created the National Directorate of Medicines to oversee implementation, including the drafting of regulations and establishment of price controls on the sale of pharmaceuticals. The new regulations were published by the Directorate in December 2012. The National Directorate of Medicines reviews maximum prices annually and releases revised parameters, which covers trademarked products and generics, every January.

In November 2014, the Ministry of Economy and the National Registry Center, with support from the World Intellectual Property Organization, unveiled the National Intellectual Property Policy. The Policy recognizes protection of intellectual property rights as a key element for the future development and competitiveness of the Salvadoran economy and calls for the establishment of an Intellectual Property (IP) National Council supported by a Technical Committee. The Policy also specifically addresses geographical indicators (GIs) with an eye toward the promotion of Salvadoran products. In January 2015, the GoES established a National Intellectual Property Council consisting of various government officials. Per the Salvadoran Intellectual Property Association (Asociacion Salvadoreña de Propiedad Intelectual, or ASPI) implementation of the policy has been slow, ostensibly due to a lack of resources.

On February 12, 2015, the National Registry Center, in conjunction with counterpart national IP authorities in Central America and the Dominican Republic, introduced a Harmonized Trademark Manual. The main objective of the document, again with the support of the World Intellectual Property Organization, is to provide individuals and businesses, relevant governmental entities, and lawyers an overview of trademark laws and practices in the region and serve as a common reference for trademark law in order to standardize regional procedures and best practices.

On October 1, 2014, the National Registry Center inaugurated a public online non-real state (fixed asset) registry. This public registry was created as a result of the Non-Real Estate Secured Transaction Law, passed by the national Legislative Assembly in 2013. The Law was designed to facilitate credit access to micro, small, and medium businesses, allowing them to obtain loans using collateral other than real estate. The collateral can be tangible or intangible assets such as inventories, receivables, intellectual property rights, consumables, and in general, any good with an economic value. The public registry tracks the transactions and related collateral. Creditors are able to choose a preferred enforcement mechanism: arbitration, out-of-court notarized process, or the traditional judicial process.

The Software Alliance (BSA) published a study in July 2014 estimating that 80 percent of the software in El Salvador in 2013, with a value of about $2 million, was being used without a proper license.

The Attorney General's office and the National Civilian Police enforce trademark and intellectual rights by conducting raids against distributors and manufacturers of pirated CDs, cassettes, clothes, and computer software. The 2005 reforms authorize the seizure, forfeiture, and destruction of counterfeit and pirated goods and the equipment used to produce them. They also allow authorities to initiate these raids ex-officio, and piracy is now punishable by jail sentences of two to six years. However, using the criminal and mercantile courts to seek redress of a violation of intellectual property is often a slow and frustrating process.

Judiciary and regulatory enforcement continue to be the weakest pillars of intellectual property protection in El Salvador. Despite growing recognition of the importance of IPR, the piracy of optical media, and both music and video, remains a concern. Optical media imported from the United States into El Salvador are being used as duplication masters for unauthorized copies of copyrighted works. The business software industry continues to report very high piracy rates and inadequate enforcement of cable broadcast rights places legitimate providers of this service at a competitive disadvantage.

El Salvador was removed from the Special 301 Watch List in July 1996. A September 2014 “out-of-cycle” U.S. Trade Representative’s Watch List review of El Salvador determined that the country did not need to be re-listed. El Salvador is not listed in the notorious market report.

El Salvador is a signatory of the Berne Convention for the Protection of Literary and Artistic Works; the Paris Convention for the Protection of Industrial Property; the Geneva Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication; the World Intellectual Property Organization (WIPO) Copyright Treaty; the WIPO Performance and Phonograms Treaty; the Rome Convention for the Protection of Performers, Phonogram Producers, and Broadcasting Organizations; and the Beijing Treaty on Audiovisual Performances (2012), which grants performing artists certain economic rights (such as rights over broadcast, reproduction, and distribution) of live and recorded works.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/details.jsp?country_code=SV

Embassy point of contact: office.sansalvador@trade.gov

Resources for Rights Holders

USG Contact:

U.S. Trade Center
Calle Liverpool # 31, Col. Juárez
Mexico City, 06600
Tel: + 52 (55) 5080-2000 ext. 5207
Fax: + 52 (55) 5566-1115

Country/Economy resources:

American Chamber of Commerce of El Salvador
Office Location:
AmCham El Salvador, Edificio World Trade Center, Torre II, Nivel 3, Local 308, 89 Av. Norte, Col. Escalón, San Salvador, El Salvador
Phone: (503) 2263-9494,
Fax: (503) 2263-9393,
E-mail: amchamsal@amchamsal.com
Website: www.amchamsal.com/index.php?lang=en

List of local lawyers: http://sansalvador.usembassy.gov/local-information/list-of-attorneys.html

7. Transparency of the Regulatory System

The laws and regulations of El Salvador are relatively transparent and generally foster competition. However, the government controls the price of some goods and services, including electricity, liquid propane gas, gasoline, fares on public transport, and medicines. The government also directly subsidizes water services and sets the distribution-service tariff.

Bureaucratic procedures have improved in recent years and are relatively streamlined for foreign investors. Regulatory agencies, however, are often understaffed and inexperienced, especially when dealing with complex issues. New foreign investors should review the regulatory environment carefully.

The Superintendent of Electricity and Telecommunications (SIGET) oversees electricity rates, telecommunications, and distribution of electromagnetic frequencies. In 2003, the government amended the 1996 Electricity Law with the intention of reducing volatility in the wholesale market and thereby stabilizing retail electricity prices and encouraging new investment. The reforms allowed SIGET to develop a cost-based pricing model for the electricity sector, which it introduced to the marketplace in 2011. The new system requires the adoption of additional long-term contracts and should alleviate various market distortions. The Salvadoran government subsidizes consumers using up to 99 kWh monthly. The electricity subsidy costs the government upwards of $141.8 million annually. Energy sector companies have warned that ever-changing subsidies and the government’s inability to pay the subsidies in a timely manner have eroded the financial stability of the power sector and discouraged needed investment in new generation capacity.

The GoES publishes some of its draft laws and regulations for public comments online, especially the ones that affect the financial sector, and some other economic laws that pertain to the Minister of Economy. However, some pending legislation, such as the Fiscal Responsibility Law for the Sustainability of Public Finances and Social Development that is under study at the Legislative Assembly, has not been circulated. There were also delays in the publication of a draft pension reform plan based on the creation of a mixed system, under which a large portion of contributions would pass to the public system and the remainder would be managed by the private companies. The discussion on this reform is still underway. Companies have complained of laws that have passed without the proper notification process and are not in accordance with CAFTA-DR and WTO regulations. There are opportunities to provide comments when the government forms committees to discuss the laws and regulations when they are being developed at the respective government agencies.

El Salvador is a member of the U.N. Conference on Trade and Development’s international network of transparent investment procedures: http://elsalvador.eregulations.org/. Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal bases justifying the procedures. Accounting systems are generally consistent with international norms.

8. Efficient Capital Markets and Portfolio Investment

The Superintendent of the Financial System supervises individual and consolidated activities of banks and non-bank financial intermediaries, financial conglomerates, stock market participants, insurance companies, and pension fund administrators. Interest rates are determined by market forces. Foreign investors may obtain credit in the local financial market under the same conditions as local investors. According to the legislation, the maximum interest rate for credit cards and loans is 1.6 times the simple average effective rate established by the Central Bank.

On July 31, 2014, the Legislative Assembly approved the Financial Transactions Tax Law. The law assesses a 0.25 percent tax on many financial transactions such electronic, check or wire transfers and payments exceeding $1,000; loan or disbursements; and transactions between entities of the financial system. There are also several exemptions from the tax, such as end-use credit card payments; social security, pensions, and insurance payments; and transactions made by the state, NGOs, diplomats, or international organizations. The 0.25 percent withholding tax is designed to capture some revenue from the informal sector and expand the tax base. The taxes withheld are credited against any obligation due to the tax authorities within a two-year period of the withholding date.

The 1994 Securities Market Law established the present framework for the Salvadoran securities exchange, which opened in 1992. The Salvadoran securities exchange has played an important role in past years in the privatization of state enterprises and more recently in securitizations and facilitating foreign portfolio investment. Stocks, government and private bonds, and other financial instruments are traded on the exchange, which is regulated by the Superintendent of the Financial System.

Foreigners may buy stocks, bonds, and other instruments sold on the exchange and may have their own securities listed, once approved by the Superintendent. Companies interested in listing must first register with the National Registry Center's Registry of Commerce. Between 2014 and 2015, the exchange averaged daily trading volumes of about $10.2 million. Government-regulated private pension funds, Salvadoran insurance companies, and local banks are the largest buyers on the Salvadoran securities exchange.

Money and Banking System, Hostile Takeovers

El Salvador's banks are among the largest in Central America and many are owned by foreign financial institutions. The banking system is sound and generally well-managed and supervised. The banking system's total assets as of February 2016 totaled $15 billion. Under Salvadoran banking law, there is no difference in regulations between foreign and domestic banks and foreign banks can offer all the same services as domestic banks.

The Non-Bank Financial Intermediaries Law regulates the organization, operation, and activities of financial institutions such as cooperative savings associations, nongovernmental organizations, and other microfinance institutions. The Money Laundering Law requires financial institutions to report suspicious transactions to the Attorney General and the Superintendent of the Financial System.

The Insurance Companies Law regulates the operation of both local and foreign insurance firms. Foreign firms, including U.S., Colombian, Canadian, and Spanish companies, have invested in Salvadoran insurers.

The Monetary Integration Law of January 1, 2001, made the U.S. dollar the principal legal currency by affixing the exchange rate of the Salvadoran colon (SVC) at 8.75 to every $1. The Central Bank tracks macroeconomic statistics, s regulates the financial system, administers international reserves, manages the payments system and financial services, functions as the financial agent of the state, carries out economic and financial research, and provides services to exporters and importers through the Export and Import Center (Centro de Trámites de Importaciones y Exportaciones CIEX El Salvador).

9. Competition from State-Owned Enterprises

El Salvador has successfully liberalized many sectors where the government previously exerted monopoly control, effectively limiting most forms of direct competition from state-owned enterprises. El Salvador maintains state-owned enterprises (SOEs) in energy production, water supply and sanitation, ports and airports, and the national lottery.

While energy distribution was privatized in 1999, the Salvadoran Government maintains significant energy production facilities through state-owned Rio Lempa Executive Hydroelectric Commission (CEL), a significant producer of hydro-electric and geothermal energy. The primary water service provider is the National Water and Sewer Administration (ANDA), which provides services to 40 percent of the total population of El Salvador. As an umbrella institution, ANDA defines policies, regulates and provides services. The Autonomous Executive Port Commission (CEPA) operates both the ports and the airports. CEL, ANDA and CEPA Board Chairs hold Minister-level rank and report directly to the President.

The Law on Public Administration Procurement and Contracting (LACAP) covers all procurement of goods and services by all Salvadoran public institutions, including the municipalities. Exceptions to LACAP include: procurement and contracting financed with funds coming from other countries (bilateral agreements) or international bodies; agreements between state institutions; and the contracting of personal services by public institutions under the provisions of the Law on Salaries, Contracts and Day Work. The government has a website where tenders by government institutions are published.

Website: https://www.comprasal.gob.sv/comprasal_web/.

Alba Petroleos (AP) is a joint-venture between a consortium of mayors from the left-leaning Farabundo Marti National Liberation Front (FMLN) party and a subsidiary of Venezuela's state-owned oil company PDVSA. AP operates dozens of gasoline service stations across the country and has expanded into a number of other industries, including energy production, food production, medicines, micro-lending, supermarket, bus transportation, and aviation. Because of its official relationship with the ruling FMLN party, critics have charged that AP receives preferential treatment from the government. Critics have also alleged that AP commercial practices, including financial reporting, are non-transparent.

OECD Guidelines on Corporate Governance of SOEs

While El Salvador does not formally adhere to the OECD Guidelines on Corporate Governance for state-owned enterprises, all State-owned enterprises have boards comprised of members from both the public and private sectors. The Chairs of the SOEs hold cabinet-level rank and is appointed, and reports directly to, the President of El Salvador.

The government of El Salvador has no formal policy of encouraging foreign and local enterprises to follow the generally accepted CSR principles of the OECD Guidelines for Multinational Enterprises or the United the United Nations Guiding Principles on Business and Human Rights, endorsed by the UN Human Rights Council in 2011.

Sovereign Wealth Funds

El Salvador does not have a sovereign wealth fund.

10. Responsible Business Conduct

The private sector in El Salvador, including several prominent U.S. companies, has embraced the concept of corporate social responsibility (CSR). There are a number of local foundations that promote CSR practices, entrepreneurial values, and philanthropic initiatives. El Salvador is also a member of international institutions such as Forum Empresa (an alliance of CSR institutions in the Western Hemisphere), AccountAbility (UK), and the InterAmerican Corporate Social Responsibility Network. Businesses have created CSR programs in the workplace that provide education and training, transportation, lunch programs, and childcare. In addition, CSR programs have provided assistance to surrounding communities in areas such as health, education, senior housing, and HIV/AIDS awareness.

The Secretariat of Transparency and Corruption was launched in 2009 with the mandate to develop guidelines, strategies, and actions to promote transparency and combat corruption in government. In 2011, the Law on Access to Public Information was approved. Also in 2011, El Salvador joined the Open Government Partnership, becoming one of the first countries to do so. The Open Government Partnership promotes government commitments made jointly with civil society on transparency, accountability, citizen participation and use of new technologies.

El Salvador’s Legislative Assembly passed the Special TIP Law Against Trafficking in Persons (La Ley Especial Contra la Trata de Personas in Spanish or Special TIP Law) in October 2014. The law took effect January 12, 2015, and strengthens the TIP Council which is responsible for the coordination and evaluation of a national policy, and created National Plan of Action on Trafficking in Persons. The Special TIP Law increases prison terms for TIP convictions from four to eight years to 10 to 14 years, and from 20 to 25 years in aggravated circumstances. In 2015, the government renewed its National Action Plan to cover 2016-2019. The Plan includes eight objectives: prevention, victim identification, protection of victims, and prosecution of traffickers, inter-agency coordination, public cooperation, and training. The National Action Plan involves several government agencies, including the Ministry of Foreign Affairs, The Ministry of Justice and Public Security, the National Civil Police, the Attorney General’s Office.

Websites:

http://gobiernoabierto.abiertoalpublico.org/

http://www.opengovpartnership.org/country/el-salvador

El Salvador does not waive or weaken labor laws, consumer protection, or environmental regulations to attract foreign investment.

11. Political Violence

El Salvador's 12-year civil war ended in 1992 upon the signing of peace accords. Since then, there has been no political violence aimed at foreign investors, their businesses, or their property.

12. Corruption

U.S. companies operating in El Salvador are subject to the U.S. Foreign Corrupt Practices Act.

Corruption can be a challenge to investment in El Salvador. El Salvador ranks 72 out of 168 countries in Transparency International's Corruption Perceptions 2015 Index. El Salvador has laws, regulations and penalties to combat corruption, but their effectiveness is questionable. Soliciting, offering, or accepting a bribe is a criminal act in El Salvador. The Attorney General's Anticorruption and Complex Crimes Unit handles allegations of corruption against public officials. The Constitution establishes a Court of Accounts that is charged with investigating public officials and entities and, when necessary, passing such cases to the Attorney General for prosecution. Executive-branch employees are subject to a code of ethics, including administrative enforcement mechanisms, and the government established an Ethics Tribunal in 2006.

Corruption scandals at the federal, legislative, and municipal levels are commonplace and there have been credible allegations of judicial corruption. El Salvador has an active, free press that reports on corruption.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

El Salvador is not a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. El Salvador is a signatory to the UN Anticorruption Convention and the Organization of American States’ Inter-American Convention against Corruption.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Doctor Marcel Orestes Posada, President of the Court of Government Ethics

Court of Government Ethics (Tribunal de Etica Gubernamental)

Tribunal de Etica Gubernamental, Calle Los Espliegos #30, Colonia San Francisco, San Salvador

(503) 2560-6400
Mo.posada@teg.gob.sv
http://www.teg.gob.sv/

Contact at "watchdog" organization (international, regional, local or nongovernmental organization operating in the country/economy that monitors corruption, such as Transparency International):

Roberto Rubio-Fabián
Executive Director
National Development Foundation (Fundación Nacional para el Desarrollo)
Fundación Nacional para el Desarrollo, Calle Arturo Ambrogi #411, entre 103 y 105 Avenida Norte, Colonia Escalón, San Salvador
(503) 2209-5300
direccion@funde.org
http://www.funde.org/transparency

13. Bilateral Investment Agreements

Bilateral Taxation Treaties

El Salvador has bilateral investment treaties in force with Argentina, Belize, BLEU (Belgium-Luxembourg Economic Union), Chile, Czech Republic, Finland, France, Germany, Israel, Republic of Korea, Morocco, the Netherlands, Paraguay, Peru, Spain, Switzerland, Taiwan Province of China, United Kingdom, and Uruguay.

The Dominican Republic-Central American Free Trade Agreement (CAFTA-DR FTA), between the United States, Central American countries and the Dominican Republic entered into force on March 1, 2006. CAFTA-DR's investment chapter provides protection to most categories of investment, including enterprises, debt, concessions, contract, and intellectual property. Under this agreement, U.S. investors enjoy the right to establish, acquire, and operate investments in El Salvador on an equal footing with local investors. Among the rights afforded to U.S. investors are due process protection and the right to receive a fair market value for property in the event of an expropriation. Investor rights are protected under CAFTA-DR by an effective, impartial procedure for dispute settlement that is fully transparent and open to the public. The government of El Salvador now recognizes CAFTA-DR as a multilateral agreement, as opposed to a bilateral agreement with the United States. In the past, the government has been unclear on its interpretation regarding this point.

El Salvador has free trade agreements with Mexico, Chile, Panama, Colombia, and Taiwan. El Salvador, jointly with Costa Rica, Guatemala, Honduras, Nicaragua, and Panama, signed an Association Agreement with the European Union that includes the establishment of a Free Trade Area. The agreement includes a provision for Central American countries to receive access to a wider range of EU development aid, which entered into force with El Salvador in August 2013.

The five Central American Common Market countries, which include El Salvador, have an investment treaty amongst themselves.

The free trade agreements that El Salvador has with Mexico, Chile, and Panama include investment provisions. El Salvador is also negotiating trade agreements with Canada, Peru, South Korea, and Belize that are expected to contain investment provisions. The Salvadoran government signed a Partial Scope Agreement (PSA) with Cuba in 2011 and is negotiating another with Ecuador.

El Salvador does not have a bilateral taxation treaty with the United States.

On June 1, 2015, El Salvador signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, becoming the 86th signatory. El Salvador is the 8th Latin American country and the 3rd member of the Central American Common Market - after Costa Rica and Guatemala - to join the Convention.

El Salvador became a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes in 2011. El Salvador’s Phase 1 peer review report, which demonstrates its high level of commitment to the international standard for tax transparency and exchange of information, was published in March 2015. The 86 jurisdictions participating in the Convention can be found at: www.oecd.org/ctp/exchange-of-tax-information/Status_of_convention.pdf

14. OPIC and Other Investment Insurance Programs

Overseas Private Investment Cooperation (OPIC) has an agreement with El Salvador that requires it to approve all insurance applications. This agreement is being re-negotiated and it may eliminate this requirement. In 2006, OPIC signed an agreement with the El Salvador’s National Investment and Exports Promotion Agency (PROESA) to improve outreach to U.S. small business investors in El Salvador. Because El Salvador uses the U.S. dollar, full inconvertibility insurance may be unnecessary, but investors are protected against the inability to transfer funds. El Salvador is a member of the Multilateral Investment Guarantee Agency (MIGA).

15. Labor

In 2014, El Salvador had a labor force of approximately 2.85 million, according to the Ministry of Economy. While Salvadoran labor is regarded as hard working, general education and professional skill levels are low. According to many large employers, there is also a lack of middle management-level talent, which sometimes results in the necessity to bring in managers from abroad. Employers do not report labor-related difficulties in incorporating technology into their workplaces.

The Salvadoran Constitution guarantees the right of employees in the private sector to organize into associations and unions. In practice, unions are independent of the government and employers. Unions may strike only to obtain or modify a collective bargaining agreement or to protect professional rights. They must also engage in negotiation, mediation, and arbitration processes before striking, although many groups skip or go through these steps quickly. The law prohibits workers from appealing a government decision declaring a strike illegal. Employers are free to hire union or non-union labor. Closed shops are illegal. Labor laws are generally in accordance with internationally-recognized standards, but are not enforced consistently by government authorities. Although El Salvador has improved labor rights since the implementation of CAFTA-DR in 2006 and the 2014 Special Trafficking in Persons Law, much work still remains. The current administration has committed to promote labor rights and has linked labor rights to its efforts to increase economic productivity and boost employment. Challenges include a need to elaborate policies protecting the right to unionize in order to meet international best practices, improving regulations guaranteeing the right to a safe workplace, and adequate government resources to conduct inspections. Workplace discrimination, related specifically to disability and gender, is also a significant issue. According to labor unions, government sources, and the private sector, the Ministry of Labor (MOL) has serious budget constraints, which affect its ability to thoroughly inspect for labor violations.

16. Foreign Trade Zones/Free Ports/Trade Facilitation

There are 17 free trade zones operating in El Salvador. They host more than 200 companies operating in areas such as textiles, distribution, call centers, business process outsourcing, agribusiness, agriculture, electronics, and metallurgy. Owned primarily by Salvadoran, U.S., Taiwanese, and Korean investors, as of November 2015 the firms employed a labor force of approximately 73, 350 people. Section 5, above, on Performance Requirements and Incentives, outlines the incentives available to investors in these zones.

17. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

	Host Country Statistical source		USG or international statistical source		USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data	Year	Amount	Year	Amount
Host Country Gross Domestic Product (GDP) ($M USD)	20015	$ 25.85 billion	2014	$25.16 billion	www.worldbank.org/en/country http://www.bcr.gob.sv/esp/
Foreign Direct Investment	Host Country Statistical source		USG or international statistical source		USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions)	2015	$2.64 billion	2014	$ 2.81 billion	BEA data available at http://bea.gov/international/direct_investment_ multinational_companies_comprehensive_data.htm http://www.bcr.gob.sv/esp/
Host country’s FDI in the United States ($M USD, stock positions)	2014	N/A	2014	-$18 million	BEA data available at http://bea.gov/international/direct_investment_ multinational_companies_comprehensive_data.htm
Total inbound stock of FDI as % host GDP	2015	10.2%	2014	11.2%	N/A

Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment			Outward Direct Investment
Total Inward	8,504	100%	Total Outward	3	100%
United States	2,414	28%	Mexico	1	33%
Panama	2,056	24%	Guatemala	1	33%
Mexico	971	11%	Nicaragua	0	0%
Colombia	703	8%	Costa Rica	0	0%
Spain	542	6%	Honduras	0	0%
"0" reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment

There is no IMF data for portfolio investment assets available for El Salvador.

18. Contact for More Information

U.S. Embassy San Salvador
Address: Final Blvd. Santa Elena, Antiguo Cuscatlán, La Libertad, El Salvador
Phone: + (503) 2501-2999
Email: webmasterss@state.gov
Website: http://sansalvador.usembassy.gov/index.html

To reach the U.S. Foreign Commercial Service (FCS) Office, please email: san.salvador.office.box@trade.gov

ecoi.net-Beschreibung:: Jahresbericht zum Investitionsklima, inkl. Informationen zum Rechtssystem, zu politischer Gewalt, Korruption, Wirtschaftslage, etc. (Stand März 2016)

Land:: El Salvador
Quelle:: USDOS – US Department of State (Autor)
Veröffentlicht:: 5. Juli 2016
Originallink:: http://www.state.gov/e/eb/rls/othr/ics/2016/wha/254529.htm
Dokumentart:: Periodischer Bericht
Sprache:: Englisch
Dokument-ID:: 1135930 (frühere ID 332559)