El Salvador: Overview

RENTAL YIELDS

Yields are excellent in San Salvador

A 400-sq. m. house in San Salvador would cost around US$275,000; while rents are around US$3,000 per month, a rental yields of 13%. Rental yields for other sized houses or mansions in San Salvador are around 6.5% to 10%.

Most foreigners are located in the capital, San Salvador (pop. 2 million) and its surrounding suburbs due to the protection offered by gated villages (El Salvador is infamous for its extremely violent street gangs, known as ‘maras’).

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TAXES AND COSTS

Taxes are generally high in El Salvador

Effective Tax Rate on Rental Income
Monthly Income	US$1,500	US$6,000	US$12,000
Tax Rate	22.4%	22.8%	23.8%
Click here to see a worked example
Source: Disclaimer

Rental Income: Non-residents are charged 25% tax on net income derived from leasing properties.

Capital Gains: Capital gains earned by nonresidents from selling property in El Salvador are taxed at 25%.

Inheritance: There are no inheritance taxes in El Salvador.

Residents: Residents are liable to pay tax on their net income at progressive rates, from 10% to 30%. Resident individuals are entitled to certain deductions.

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BUYING GUIDE

Total transaction costs are low in El Salvador

The total round-trip transactions cost is around 8.78% – 9.63 %, inclusive of the 5% agent’s fee. Five procedures are needed to register a property, completed in about 52 days.

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LANDLORD AND TENANT

Rental laws are pro-tenant in El Salvador

El Salvador’s rental law and practice are pro-tenant.

Rent: Although the rent and rent adjustments can be determined freely by mutual consent, the rent court may intervene if the rental contract is silent on these terms. The tenant may also petition the court to adjust the rent if the parties cannot reach an agreement.

Tenant Security: The tenant cannot be evicted upon the expiration of the contract as long as he pays the rent. The contract can only compel the tenant to pay the rent for the whole period stated. The court system is permanently saturated.

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ECONOMIC GROWTH

Civil war and calamities wreck economy

El Salvador (GDP/capita US$2,600) is the smallest Latin American country at 20,720 sq. km. But with 6.7 million people, it is the most densely populated country in Latin America.

About 2 million Salvadorians live and work in the United States. The economy is heavily dependent on remittances, about US$ 2 billion annually, from U.S-based Salvadorians. They are now being encouraged by the government to invest in their homeland as part of an ongoing process of economic and social development.

El Salvador’s civil war during the 1980s was the result of gross inequality which pits a small wealthy elite against the majority of the population. The war left around 70,000 dead and caused damage worth US$2 billion, but also precipitated important political reforms. Real GDP per capita fell by 14.5% from 1980 to 1982.

With the signing of the Peace Accords in 1992, the country began to recover. Tony Saca won a five-year term in Presidential elections in March 2004, the fourth successive victory for the right-wing Arena party. Arena backs the free-market policies of his predecessor Francisco Flores, and supports the regional free-trade pact with the US.

The average annual GDP growth rate from 1992 to 1995 was 6.85%. Real GDP per capita grew by 23% from 1992 to 1999. The economy grew by an average of 2.1% annually from 1999 to 2005, but real GDP per capita was flat over the same period, largely due to natural calamities.