A number of mergers and acquisitions in recent years have resulted in more multinational companies conducting business in El Salvador through the companies they have acquired. As a result, the commercial sector has come under pressure to internationalize the corporate governance regulations that apply to local subsidiaries of foreign companies.
In recent years a bill to replace the Financial System Superintendency and its stock market and pension counterparts with a new super-regulator has been on and off Congress's legislative agenda. However, new efforts to approve the bill before the end of 2007 follow a wave of recent acquisitions of local financial institutions by foreign groups.
El Salvador has signed the Patent Cooperation Treaty. Its accession is expected to prompt an increase in applications from both Salvadoran and foreign parties. In 2006 the country's IP authorities received around 270 patent applications, only seven of which were submitted by Salvadoran nationals.
Since January 2006 the Integral Business Shop has provided individuals and entities with a simpler and more efficient procedure for incorporating and registering a business. Registration can now be completed at one agency, thereby considerably shortening the timeframe for incorporation.
The Central Reserve Bank of El Salvador has issued new regulations applicable to financial institutions domiciled outside El Salvador which wish to qualify to receive income tax benefits on interest received from loans granted to Salvadoran entities or individuals residing in El Salvador.
Pharmaceuticals for human use and agrochemicals must be approved by regulatory agencies before they may be sold in El Salvador. The national health registration regime protects the rights of innovators by preventing unauthorized third parties from commercializing new products on the basis of clinical test data submitted by innovators.
The entry into force of the Competition Law prompted a transformation in national commercial practice. Its most significant measure was the creation of a new public entity, the Competition Superintendency, established to prevent and eliminate practices which limit or restrict competitive commercial activity or impede an economic agent's access to the Salvadoran market.
Corporations and partnerships must file their annual income tax returns by May 2; the applicable rate is 25% of the taxable income for the period between January 1 and December 31, regardless of the nature of the business, its capital or other circumstances. Measures introduced in early 2006 prevent banking institutions from financing any entity or individual with an outstanding tax debt to the Treasury.
The Commerce Code requires that all corporations and partnerships hold at least one ordinary general meeting by May 31 of every year. The purpose of the meeting is to inform the shareholders or partners of the financial status of the entity over the preceding tax year, so that they can decide on corrective measures - if necessary - and make the necessary provisions for the next year.
The Legislative Assembly of El Salvador has authorized Decree 921, which allows the issuance of notes up to the aggregate principal amount of $664 million to be listed on the national or international stock markets. The notes issuance will be the largest since El Salvador began issuing public debt in external capital market transactions in 1999.
Non-use cancellation, registration requirements for licence agreements, counterfeit software, music and audiovisual works and data exclusivity provisions for chemical and pharmaceutical products are among the issues targeted by recent amendments to IP legislation, some of which were introduced to implement the compromises reached in the Central America-Dominican Republic-United States Free Trade Agreement and other treaties.
An amendment to Salvadoran commercial legislation, originally introduced in January 2000, set a minimum capital stock requirement for all new and existing companies, to be met within three years. The deadline was deferred by a succession of extension periods, the latest of which expires in April 2006. Non-compliant companies risk losing their legal status and may be subject to voluntary or judicial liquidation.
The principle of the exhaustion of rights prevents a rights holder which has put goods on the market from prohibiting a third party from doing the same. In trademark law, 'putting goods on the market' is deemed to cover the national market only, whereas patent and copyright law extends the definition to the international market. Proposed amendments to the Patent and Copyright Law will remove this inconsistency.
The Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR) provides an innovative regulatory environment for cross-border trade in financial services between countries with differing systems of civil and common law. The agreement encourages greater transparency, provides dispute resolution mechanisms and limits the market access restrictions on financial institutions.
The government plans to submit the Financial Services Supervising and Controlling Bill to the Legislative Assembly. If the bill becomes law, the three supervising bodies of El Salvador's financial system will be merged into one. Improved supervision of financial conglomerates will bring El Salvador's system into line with global standards and aid its growing financial markets.
The Commerce Code establishes different terms for the lapse of legal actions that are the result of various mercantile contracts. Following the approval of amendments to Article 995 of the code, the term for the lapse of legal actions over a credit agreement is five years, commencing from the date of the last acknowledgment of debt granted by the debtor in favour of the borrower.
In El Salvador, trademark ownership is acquired by registering a trademark at the Salvadoran Intellectual Property Office rather than by using it. Users of unregistered trademarks cannot oppose the use or registration of an identical or similar trademark unless the trademark is considered to be well known.
The Legislative Assembly of El Salvador has authorized Decree 585, which allows the issuance of notes up to the aggregate principal amount of $541.8 million to be listed on the national or international stock markets. The Ministry of Finance, the body authorized to execute the transaction, decided that the majority of the notes should be listed on the international stock markets.
Proposed reforms to the Income Tax Law provide clarification on the definition of 'income earned within El Salvador' and impose a cap on the amount of tax-deductible donations a debtor can make in a given tax year. Reforms to the value added tax legislation are also in the pipeline.
Once new amendments to the tax laws take effect, a new precondition of fiscal solvency must be satisfied in order to incorporate, transform, merge, dissolve or liquidate a Salvadoran company. Fiscal solvency will be recognized as long as the company does not have tax returns pending to be filed or due taxes unpaid.