When searching for answers as to why El Salvador has become a strategic investment hub in Central America, you have to look no further than “Government Leadership.” Over the last decade, El Salvador has been steadily improving aspects of their country that directly affect the investment and business communities.
Take public safety, for example. On every level, Salvadoran citizens are seeing positive trends in homicides and crime. According to Business Insider, the homicide rate fell by 60% from 51 to 20 murders per 100,000 people from 2015 to 2021. As a result of this reform, foreign direct investment has increased as investors recognize El Salvador’s improvements and stability.
Seeing these clear strides in government leadership has set a tone that El Salvador is open for business and welcomes investors as a strategic investment hub in Central America. By implementing regulatory reforms that meet the demands of today’s digital economy, embracing technologies such as cryptocurrencies, and providing companies with generous tax incentives, El Salvador is paving the way for itself to become a true investment hub in Central America.
Read on to learn why El Salvador should be considered your next destination for foreign direct investment.
Competitive Tax Breaks
In addition to tax exemptions and benefits offered by Salvadoran Municipalities and development zones such as free trade zones (FTZ), the Salvadoran Government offers companies tax holidays for Foreign Direct Investment. Companies investing in El Salvador are exempt from:
- Income Taxes
- Municipal Taxes
- Import Duties on Machinery, Equipment, and Materials
In fact, technology companies can qualify for tax exemptions of up to 15 years.
Comparatively speaking, other Central American countries such as Costa Rica offer tax exemptions for 8 years, Panama for 6 years, and Honduras for 5 years. This is another reason why El Salvador is becoming a strategic investment hub in Central America.
Why are more tech companies moving to El Salvador?
Remote Working Visa
When traveling to El Salvador for work, you may apply for a remote working visa. This temporary visa grants you access to stay in El Salvador for up to two years. If you plan to work for yourself or own a business in El Salvador, you can apply for a Salvadoran Investment Visa.
Increasing Talent Pool
“Central America is a region that punches above its weight.”- Jose Villalobos, Head of Innovations at Microsoft LATAM.
Historically, countries like India and China have been seen as top destinations for outsourcing. The growth of these regions can be attributed to their large English-speaking workforce and availability of talent. But what makes Central America competitive in the grand scheme of offshoring and outsourcing?
A hidden advantage of Central America is the availability of a highly skilled talent pool. With cheaper labor costs compared to the U.S and higher than Asian competitors, Central America provides companies with bilingual professionals. As many countries in Central America continue to modernize their education system, specifically focused on STEM, these countries provide yet another advantage: a growing pool of talent.
Top Growing Industries in El Salvador
As more companies continue to turn to Central America for offshoring and outsourcing services, certain industries are starting to bloom. Tourism, technology, and aeronautical sectors are some of the top industries rapidly growing in El Salvador.
Tourism
Tourism Industries in El Salvador are booming. From 2019 to 2025, international visitor growth reached a staggering 92%. For the hotel industry specifically, growth rate averages are expected to exceed 8% annually until 2030.
Technology
Tax exemptions of up to 15 years are one of the many reasons technology companies are migrating their operations to Central America. El Salvador, in particular, has been attracting many startups because of its openness towards digital assets. In addition to tax breaks, technology companies can take advantage of:
- A clear legal framework to operate a digital asset business.
- An AI law fosters innovation and doesn’t overregulate the technology.
- Electronic government services.
- Transparency when applying for permits.
Aeronautical
The aeronautical industry is another prime sector growing in El Salvador. With established infrastructure in aircraft maintenance, repair, and overhaul, El Salvador offers many companies a chance to outsource their manufacturing and logistics operations.
Geographic Advantage
You might be wondering what makes Central America desirable compared to its Asian and African counterparts. Central America has many hidden advantages that make it one of the top regions for outsourcing and offshoring services. Proximity to the United States and trade partnerships are just some of the benefits that make Central America a prime location for companies looking to expand.
South of the United States and Mexico lies Central America. What’s the advantage of being located there? Distance. El Salvador shares a border with Guatemala to the west and Honduras to the north. Having direct access to these countries allows companies to reduce shipping distances drastically. Not only does short distance translate to cheaper costs, but lead times are shorter compared to shipping from Asia or even South America.
El Salvador’s Trade Partners
While Central America, the United States, and Mexico make up a substantial portion of El Salvador’s imports and exports. Colombia and Chile have recently signed trade agreements that open the doors for future commerce.
Conclusion
When looking for a place to invest, El Salvador is a great option. Whether you are looking to open a hotel, your own tech startup, or outsource your manufacturing operations. Whatever your needs, El Salvador can provide your business with what it needs to flourish in this sunrise economy. Interested in learning more? Contact LATAM FDI.