El Salvador for entrepreneurs in 2026

A territorial system that now excludes foreign income

El Salvador has always taxed on a territorial basis: income is taxed where the activity is carried out, the capital is invested or the service is used. The 2024 reform went further. It added to the Income Tax Law that all amounts received from abroad, for any reason, are not income for tax purposes, and it repealed the articles that used to tax foreign interest and dividends.

In practice, this means that a resident individual or a Salvadoran company that earns income abroad pays no Salvadoran income tax on it. Income earned inside El Salvador is still taxed normally.

How companies are taxed

The key question for a company is therefore where its income is obtained. Services rendered or used in El Salvador, goods located there and capital invested there generate Salvadoran income. Services provided to clients abroad, foreign investments and foreign subsidiaries are where the reform makes the difference.

Tax residency for individuals

You are tax resident in El Salvador if you stay more than 200 consecutive days in a calendar year, or if your main source of income is in El Salvador. Being tax resident there does not by itself mean you have stopped being resident in your home country: you have to break those ties as well.

Residency: the 2026 reform

Immigration residency and tax residency are different things. Since 31 March 2026, a reform of the Special Law on Migration and Foreigners requires temporary residents to spend at least 90 calendar days a year in the country, consecutive or not. Before, they had to stay nine months a year. Missing the threshold can lead to the residency being cancelled, unless the absence is due to force majeure and justified to the immigration authority.

Other routes worth knowing:

• Naturalisation: Spaniards and Spanish-American nationals by birth can naturalise after one year of residence; other foreigners after five.
• Residency for people with their own income (rentistas), for those living on income from abroad.
• The USD 1 million programme in bitcoin or USDT announced in 2023: its legal basis has been questioned and its status is unclear, so do not plan around it.

Who El Salvador suits

El Salvador fits digital businesses, consultants and entrepreneurs whose clients are outside the country, investors living from foreign dividends and interest, and Latin American and Spanish founders who value the cultural closeness, the US dollar and the fast route to citizenship.

It fits less well businesses that sell mainly inside El Salvador, which pay 25% or 30%, or companies that need an EU base and a wide treaty network, which is where Cyprus is stronger.

Setting it up

1. Decide the structure: residency for you only, a Salvadoran company, or both.
2. Apply for residency with the immigration authority and plan your 90 days a year.
3. Incorporate the company, register it in the commercial registry and with the Ministry of Finance for tax and VAT purposes.
4. Open bank accounts and document the foreign origin of the income.
5. Keep evidence of where income is obtained: contracts with foreign clients, invoices and where the services are used.

Before you move: what to check at home

• Exit tax: if your country taxes unrealised gains when you leave, calculate it first. See our exit tax guide.
• Your tax residency at home: days, family, home and economic interests.
• Treaties: El Salvador has very few double tax treaties. Spain is one of the countries that has one.
• Controlled foreign company rules in your home country, if you keep living there.

Comparing destinations? Read Cyprus, Dubai or El Salvador.

This guide is general information, not tax or legal advice. Every case needs individual analysis.