Due to a significant decrease in crime, a rise in tourism, and investments in education– El Salvador entered this year in a strong financial position, this means that El Salvador tech industry is also in a strong position.
Its GDP is projected to grow by 2.4 percent in 2023 driven by the tourism sector, public investment, and the government’s digital transformation policies.
The government continues to make efforts to attract foreign investment and has taken measures to streamline bureaucracy and improve security conditions.
In late March, El Salvador’s President Nayib Bukele announced on Twitter that:
“Next week, I’ll be sending a bill to congress to eliminate all taxes (income, property, capital gains, and import tariffs) on technology innovations, such as software programming, coding, apps, and AI development, as well as computing and communications hardware manufacturing.”
In this piece, we will analyze why the government is lifting taxes on the El Salvador tech industry and what this means for the market and business formation in El Salvador.
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Why did the President remove taxes on the El Salvador tech industry?
On Friday, March 31, President Nayim Bukele introduced a bill into congress to remove tax on the El Salvador tech industry.
This bold move by its popular leader is fueled by the President’s belief in making the Central American country a cryptocurrency hub. In September 2021, El Salvador became the first country in the world to establish Bitcoin as a legal tender.
The bill adds to a broader effort to modernize the economy of the country and decrease its dependence on traditional sectors such as agriculture and manufacturing.
Local technology companies have supported this latest move by the President believing that it will lead to the expansion of the El Salvador tech industry. It is hoped that this step will help a new wave of foreign investment in the country.
Mayer Mizrachi, an entrepreneur who established a marketplace called Geeky Drop in Panama that enables users to buy or sell gaming and technology products rapidly and securely, posted on social media that he would redirect his expansion efforts from Costa Rica to El Salvador if the proposed legislation is enacted.
“Given that El Salvador is dollarized, this incentive will likely put it at the forefront of technology in Latin America […] If this bill is passed, I will expand Geeky Drop to El Salvador and cancel plans to go to Costa Rica,” he said.
(his tweet is HERE)
Many other technology business leaders stated they were now interested in setting up or moving their companies to El Salvador.
Which global companies work in the industry?
Worldwide credit card giant Visa plans to invest more than $270 million over the next five years in the digital infrastructure in El Salvador, Guatemala, and Honduras. While Mastercard has stated its plans to support one million small businesses in the region.
Microsoft continues to work on expanding broadband access to the people in El Salvador. It currently has a 71 percent internet penetration rate.
El Salvador has become a popular destination for Business Process Outsourcing (BPO.) It offers competitive pricing and little regulation alongside tax-free opportunities.
Global customer support companies including OfficePartners360, Pronto BPO, and Worldwide Call Centers all have large operations in El Salvador.
Which local companies lead the El Salvador tech industry?
The El Salvador tech industry continues to grow and the new tax-free policy should only boost this in the years to come. Let’s take a look at some of the leading tech companies in El Salvador.
SPOT specializes in developing AI and ML-powered corporate solutions. Their mission is to lead the innovation of AI to drive the future of retail around the world. In 2019, they were named on Forbes’s Top 30 Promising Companies in Latin America.
ATSGroup is a software development company based in San Salvador. They develop mobile apps, chatbots, and websites and provide IT services. Their platforms are contained in green servers, without waste; every aspect is built to be energy efficient, contributing to the reduction of its carbon footprint.
Ravn is another leading software company in the El Salvador tech industry. They have a team of experienced digital architects, technical designers, software developers, and project managers. Ravn has worked with well-known brands such as Google, Sephora, BestBuy, and Skullcandy.
The ideal time to invest in the El Salvador tech industry
El Salvador’s government continues to invest in and support the tech sector. It started in 2020 with the Digital Agenda 2020-2030 and President Bukele´s latest tax-free bill progresses this plan.
The Central American nation offers excellent nearshoring opportunities with its proximity to North America and growing skilled labor pool.
It places El Salvador at the forefront of locations for foreign tech companies to invest in. As one tech entrepreneur said… “It’s a no-brainer.”
Biz Latin Hub can help you and your business
At Biz Latin Hub, we provide a range of market entry and back-office services in El Salvador and throughout Latin America and the Caribbean.
Our broad coverage enables us to assist with business investment in the El Salvador tech industry.
We specialize in hiring and PEO, accounting and taxation, company incorporation, and corporate legal advice.
Our offices are located in major cities across the region. In addition, we have established partnerships in numerous other markets, providing our clients with an extensive network of resources.
Please contact our expert team to explore how we can support your business operations across El Salvador and beyond.
