Four new free zones in El Salvador are in the process of being established

Google and others have decided to invest in the country

According to Hayem, besides Google, which recently opened its offices in El Salvador, other companies are investing in the country, such as Nestlé, Unilever, PriceSmart, Telus Internacional, and Industrias La Constancia. This group of companies represents an aggregate investment of more than $56.2 million.

“We see growth in companies already established in the country, which we are pleased to see. It is a growth that extends throughout the national territory,” Hayem stressed.

The Law on Industrial and Marketing and Free Zones facilitates the establishment of free zones in El Salvador.

Since 1998, the Law on Industrial and Marketing Free Zones has been in force in El Salvador, whose regulations define these projects as places where the establishment of companies and the introduction of merchandise is allowed as if they do not enter the national customs territory. These conditions speed up the process of the import and export of products.

The 1998 Law on Industrial Marketing Free Zones in El Salvador provides several provisions to attract and facilitate foreign direct investment (FDI) in the manufacturing sector. These provisions help create a hospitable environment for investors by offering a range of incentives and protections. Here are the key contributions:

1. Tax Incentives

• Income Tax Exemptions: Companies operating within the free zones are exempt from income tax for a specified number of years, significantly reducing business costs and increasing potential profitability.
• Import and Export Duty Exemptions: Businesses in free zones benefit from exemptions on import duties for raw materials, machinery, and equipment, as well as export duties on finished goods. This lowers production costs and makes exports more competitive.
• Value-Added Tax (VAT) Exemptions: Exemptions from VAT on goods and services used in production further reduce costs and streamline operations.

2. Simplified Customs Procedures

• Streamlined Import/Export Processes: The law facilitates more accessible and faster customs procedures for companies operating in free zones, reducing bureaucratic delays and allowing for quicker turnaround times in the supply chain.
• Customs Inspections: There are often special arrangements for customs inspections within the free zones, which can be less stringent and more efficient than those outside.

3. Legal and Operational Certainty

• Stable Legal Framework: The law provides a stable and predictable legal environment crucial for long-term investments. Investors are assured that the incentives will not be arbitrarily changed or revoked.
• Protection of Investments: Provisions are in place to protect foreign investments, including guarantees against expropriation and mechanisms for dispute resolution that can reassure investors of the safety of their capital.

4. Infrastructure and Services

• Developed Infrastructure: Free zones often come with developed infrastructure, including transportation links, utilities, and communication facilities, reducing initial setup costs for investors.
• Access to Services: Companies in free zones can access various services such as logistics, warehousing, and business support, enhancing operational efficiency.

5. Employment and Training Incentives

• Labor Market Flexibility: The law often provides more flexible labor regulations within free zones, making it easier for companies to manage their workforce.
• Training Programs: There are sometimes incentives for training local employees, which can help companies develop a skilled workforce suited to their needs.

6. Promotion and Facilitation of Investment

• Investment Promotion Agencies: The law supports establishing agencies dedicated to promoting and facilitating FDI, providing information, and assisting investors in navigating the regulatory environment.
• One-Stop Shops: These agencies often provide one-stop services for permits, licenses, and other regulatory requirements, simplifying starting and operating a business in the free zones.

7. Export Orientation

• Encouragement of Export Activities: The law encourages companies to focus on export activities, which can lead to increased foreign exchange earnings and economic growth. This aligns with the interests of foreign investors looking to serve international markets.

Overall, the 1998 Law on Industrial Marketing Free Zones in El Salvador creates a favorable investment climate by offering substantial financial incentives, ensuring operational efficiencies, providing legal protections, and developing supportive infrastructure. These factors collectively make El Salvador an attractive destination for foreign direct investment in manufacturing.

Free Zones in El Salvador are vital in attracting FDI

The establishment of new free zones in El Salvador, alongside the 17 existing ones, underscores the country’s commitment to fostering a dynamic and attractive environment for foreign direct investment. The 1998 Law on Industrial Marketing Free Zones provisions have been pivotal in this endeavor, providing substantial financial incentives such as income tax exemptions, import and export duty exemptions, and VAT exemptions. These incentives reduce operational costs and enhance profitability for businesses. Simplified customs procedures and streamlined import/export processes within the free zones in El Salvador ensure that companies can operate with greater efficiency and fewer bureaucratic delays.

Legal and operational certainty is another cornerstone of the law, offering a stable legal framework and protections against expropriation, which reassure investors about the safety and longevity of their investments. The well-developed infrastructure and access to essential services within these zones further reduce setup costs and enhance operational efficiency. Employment and training incentives also play a crucial role, as labor market flexibility and local training programs help create a skilled workforce tailored to the specific needs of manufacturing companies.

The efforts of investment promotion agencies and the provision of one-stop shops streamline the process of establishing and operating businesses, making the free zones in El Salvador even more appealing to foreign investors. The focus on export activities boosts foreign exchange earnings and aligns with international investors’ strategic interests to expand their market reach.

The growth of companies like Google, Nestlé, Unilever, and others investing over $56.2 million in El Salvador is a testament to the effectiveness of these free zones. These developments contribute to a robust economic growth trajectory that benefits the entire national territory. By creating a favorable investment climate with comprehensive incentives, streamlined processes, and a supportive infrastructure, the free zones in El Salvador stand as a model of how targeted policy measures can attract and sustain foreign direct investment in the manufacturing sector.