EL SALVADOR Trends and Developments Contributed by: Héctor Torres, Annette Herrera and Daniel Leiva, Torres Legal
Torres Legal Calle Cuscatlán No. 4312
Col. Escalón San Salvador El Salvador
Tel: +503 25386300 Fax: +503 25386300 Email: contact@torres.legal Web: www.torres.legal
El Salvador as a Post-Offshore Jurisdiction: Tokenisation, Private Funds and the Future of Real-World Asset Finance For the past two decades, the architecture of private capital operated around a handful of familiar jurisdic- tions: the Cayman Islands, the British Virgin Islands, Delaware, Luxembourg and the Isle of Man. The logic for this was straightforward – fiscal neutrality, corpo- rate flexibility, standardised documentation and low friction for vehicles ranging from private equity to venture capital, real estate funds and private credit. That model served the industry well for much of the twentieth century. But the context has shifted decisively. International pressure against aggressive tax structures has inten- sified. Banks now demand real economic substance. Custodians have strengthened anti-money launder- ing standards. Regulators require traceability. Institu- tional investors no longer rely exclusively on private contractual arrangements as a governance backstop. The traditional offshore architecture has begun to lose practical efficiency: it is no longer enough to incor- porate a low-cost vehicle with nominal directors and artificial substance. The market demands operational transparency, legal clarity, fiduciary governance and low reputational friction. In this new landscape, El Salvador has emerged as a modern and functional jurisdiction for holding structures, private alternative funds, tokenisation, asset-backed finance and multipurpose private capi- tal, combining in a single legal system elements that previously had to be sourced from multiple jurisdic- tions. What seemed impossible five years ago – a
Latin American jurisdiction capable of competing with Cayman or Luxembourg in financial and patrimonial architecture – is now a legal and operational reality. The end of the offshore era and the rise of territorial efficiency The 2024 tax reform in El Salvador consolidated the territorial character of its income tax system. Income generated and obtained outside the country is exempt from local taxation, without the need for deferral mechanisms, hybrid instruments, treaty shopping or complex structuring. It is a simple, legally tested and defensible principle: if economic activity occurs in another jurisdiction, its results do not attract local tax. This creates what practitioners have begun to call the “Salvadoran Corporate Sandwich”: a holding com- pany incorporated in El Salvador that can serve as a regional or global parent entity, receive international dividends or yields, channel investments, and develop strategic platform functions without paying local tax on foreign-source income. The difference from tradi- tional offshore is decisive. The fiscal efficiency flows from the internal logic of the Salvadoran tax system, not from the absence of taxation. While an insular holding company achieves tax neu- trality through its offshore condition, El Salvador pro- duces the same economic result without the offshore stigma – because it is not a tax haven, it does not appear on OECD grey or blacklists, it operates as a supervised banking jurisdiction, and its fiscal neutral- ity is a natural consequence of its internal system design. For investors, banks, custodians and inter- national family offices, this narrative carries legal,
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