Residency in El Salvador, a paradise for crypto investors?

El Salvador is a small Central American country bathed by the Atlantic Ocean that has managed to become El Dorado for crypto-investors, or so it might seem to some.

For more than 20 years, El Salvador has been working to get rid of the crime that unfortunately plagued the country and to build a strong economy in this small territory of 6 million inhabitants. It first adopted the US dollar as its official currency and is now betting heavily on the cryptocurrency Bitcoin. In 2001, El Salvador’s currency was scrapped and the dollar became the official currency.

More recently, in September 2021, El Salvador made headlines by launching its own cryptocurrency, known as the Salvadoran Crypto Initiative, making bitcoin legal tender. To do so, President Nayib Bukele passed a law in the National Assembly that obliges any natural or legal person to accept bitcoin as a form of payment (something that we, of course, do not support, as we think that each person should be free to decide which currencies they want to accept).

In this short article that some of you have asked us for, we are going to talk about how you can become a resident or even a national of El Salvador, as well as briefly explaining its taxation.

Living in El Salvador

El Salvador’s main arguments for attracting new residents are simple, but powerful:

• No fentanyl (opioid) crisis
• No shootings
• No robberies
• Low crime rate (especially compared to neighbouring countries)
• Dollar and bitcoin are legal tender
• No foreign exchange costs
• Excellent coffee
• Fantastic weather
• Stunning beaches
• Salvadoran hospitality

El Salvador offers a pleasant tropical climate, with variations between the coast and the highlands. This is an important factor for those who value quality of life linked to climate. While the coast has a warm and humid climate all year round, the highlands have cooler and more pleasant temperatures.

Compared to many western countries, living in Salvadoran cities such as San Salvador can be significantly cheaper. Rent and utilities are generally quite affordable, but imported goods and specialised services can carry a higher price tag than in Western countries. Of course, if you opt for local produce and traditional markets, you will be able to keep daily expenses at a reasonable level, allowing for a comfortable quality of life without overspending.

As for security, El Salvador was until recently one of the worst countries in the world, but now things have changed —the Bukele government has made great strides in this regard.

Residency options in El Salvador

As in the case of other countries, El Salvador also offers different types of residencies for foreigners, which vary according to the purpose of stay and the length of time you plan to live in the country. These include temporary, permanent, investment, annuity, or pension residency —each with its own requirements and benefits.

The Retirement visa can be applied for at any age, you just need to have regular income from a pension and be able to prove it. The required amount is 3 times the Salvadoran minimum wage. At the time of writing, the minimum wage is $365, so you must have a monthly income of about $1,100. This visa category grants a temporary right of residence for one to two years, renewable indefinitely.

Point by point, these would be the requirements:

• Proof of receiving a permanent pension or income of three times the statutory minimum wage from a reliable and verifiable source.
• Present official documentation verifying the amount and permanence of the pension, such as letters from the paying institution or bank statements.
• Have no criminal record and be in good health, which may require appropriate medical certificates and police clearance.
• Register the pension in the country, following the procedures determined by the competent Salvadoran authority to ensure that the income is legally recognised for residency purposes.
• Accept and comply with the immigration policies in force in El Salvador, sign the residency commitment and go through a review and approval process by the national immigration authorities.

The application fee is $140 for a one-year permit and $260 for two years.

The annuitant visa has similar requirements to those for pensioners, with some particularities specific to this category. You are not allowed to work in the country, so your income must be sufficient to support yourself without working. You will have to prove that you have an income 4 times the minimum wage to qualify for this category (currently $1460). This income can come from any legitimate source, such as a business in another country or regular transfers from retirement savings.

In short, these would be the requirements:

• Demonstrate stable and permanent income from a source other than a pension, such as investment or property income.
• Provide documented evidence of income, such as income statements, leases or investment certificates and their performance.
• Have an income of at least three times the national minimum wage to ensure you can maintain an adequate standard of living in the country.
• Comply with the processes of registering their income with the corresponding entities in El Salvador.
• Not possess a criminal record and be in good health, which will require the submission of supporting documentation such as medical certificates and criminal records.

The application fee is $140 and is only valid for one year.

The investment residency option is a good option for those who want to invest in El Salvador’s economy. You must have an important role in a Salvadoran company, for example, be an administrator or a member of the board of directors. You can also be an owner or director of a local company. In either case, such a company will have to exceed a minimum sales threshold, currently set at USD 4,000.

Once you have held the temporary permit for three years, you can convert it to a permanent permit. A permanent permit grants greater rights, such as an indefinite stay in the country and often the ability to work without restrictions. In addition, permanent residents have an easier path to naturalisation compared to temporary residence holders.

Again, you will need to provide proof of income and criminal record, as well as proof that you have resided in El Salvador as a legal temporary resident for the past three years.

The application fee for permanent residence is $345.

On how to obtain citizenship in El Salvador

As you may already know, if you have been following us for a long time, the Flag Theory is about internationalising the most important aspects of your life in order to have more options and reach your goals more easily.

Although most people are not aware of it, nationality is one of the points that can affect us most strongly, and is therefore an aspect of our lives that we should not forget when applying the Flag Theory. If we can get a second, third or fourth citizenship, it will give us more options and therefore be positive for our freedom and stability.

In the case of the country that concerns us today, if you have lived there for 5 years, you can opt for Salvadoran citizenship —although Spanish or Latin American nationals can access it after only one year of residence.

These are the requirements you must meet according to the official text to obtain a Salvadoran passport:

1. Persons originating from Spain or a Latin American country who have been permanently resident in the country for one year.
2. Foreigners of any origin who have five years of residence in the country, counting temporary and definitive residences.
3. A foreigner married to a Salvadoran national who can prove two years of residence in the country, before or after the celebration of the marriage, counting temporary and permanent residence.
4. Refugees or stateless persons in accordance with the provisions of this law.

The cost of the procedure is $700. As in the case of the application for residence permits, they will be interested in your criminal record. In addition, you will have to present a certificate from your embassy stating that your country allows dual nationality and you will have to be in possession of a permanent resident card.

Incidentally, it is important to note that if you are absent from the country for too long (5 years), there is a great risk that you will lose your naturalised citizenship.

Bitcoin-based citizenship programme

In addition to the traditional way to obtain a Salvadoran passport after 5 years of residence, the government is reportedly considering a citizenship-by-investment programme in which a passport could be purchased with bitcoin. It remains to be seen whether it will be adopted and implemented.

Initial rumours about the purchase of a Salvadoran passport involved an investment of 3 bitcoins. Later there was talk of $100,000 instead of 3 bitcoins. Now there is talk of other investment options such as real estate and businesses.

Taxes and tax residency in El Salvador

We could not end this article without talking about the taxes you would pay as a resident in El Salvador.

For those of you who are thinking of going to El Salvador and setting up a street business there, there is bad news. The corporate tax rate is very high, from 25% (if income is below $150,000) to 30%. However, if you are going to do business abroad, things are very different, as you can enjoy their territorial taxation, i.e. you do not pay tax on foreign-source income.

And, as you may have heard, if your business is in the technology field, you are in luck —an April 2023 law eliminated income tax for companies that develop technology for 15 years. Technological innovations such as software programming, app and AI development, and the manufacture of computer and communications hardware fall under this law.

However, if you have a business in this field, it is still very unlikely that El Salvador is your best option to start or relocate your business, as the infrastructure (human resources and so on) is not going to appear overnight.

As an individual, you could also enjoy the country’s territorial taxation, i.e. as long as you keep your business and investments outside El Salvador, you will not be taxed. Domestic income would be taxed in a range from 0 to 30%, with the maximum range starting at $22,857. Domestic capital income would be taxed at a flat rate of 10%.

By the way, it is also interesting to know that in El Salvador, you do not become a tax resident unless you stay for an uninterrupted period of at least 200 days.

Conclusions

El Salvador has many detractors, but no one can deny that the situation has improved in some of the areas that most concerned those who lived there. It has become one of the safest countries in Central America and has thus achieved the stability that every country needs to prosper.

Of course, we are not claiming that El Salvador is going to become a financial or business centre —despite its president’s intentions, it is light years away. However, if you like the tropical climate, you can find good reasons for a comfortable living option and low or no taxes. Of course, if you are a bitcoiner, you will feel at home in El Salvador. It is clear that the president is doing everything he can to make his country fiscally attractive and to bring you technological know-how by attracting cryptocurrency and technology experts.

If you would like to book a consultation for a more in-depth analysis of your situation or to see if El Salvador is a good fit for you, we will be happy to help you with your project to escape the oppression in terms of freedom and taxation in your country. Because your life is yours!