Fintech in El Salvador

Although the Fintech ecosystem is growing in El Salvador, following the global trend, there is still no specific legal framework for it. The absence of specific regulation has led these activities to develop within the free market, respecting the general financial regulations established for traditional financial participants. However, this has generated uncertainty for investors and consumers, who may feel insecure due to the lack of a clear legal framework.

Despite the absence of specific regulation, there are various laws related to these activities which, together, represent the current legal framework for their operation. These include:

1. 1. Consumer Protection Law (2005).
   2. Law to Facilitate Financial Inclusion (2015).
   3. Electronic Signature Law (2015).
   4. Electronic Commerce Law (2020).

More recently, the Bitcoin Law (2021) and the Digital Asset Issuance Law (2023) have been enacted to regulate operations related to these transactions. In 2023, the Innovation and Technology Manufacturing Promotion Law was also approved, aiming to promote the generation of advanced technological products and services, thereby strengthening participation in essential supply chains for the development of the global technology industry.

El Salvador’s interest in becoming a regional and international reference in the Fintech field is evident. The aim is to attract foreign investors and foster the development of innovative and disruptive financial solutions for local users. In this context, special relevance has been given to crypto assets and related technologies, as evidenced by the enactment of the laws mentioned in the preceding paragraph.

1- Bitcoin Law

It was enacted to facilitate financial inclusion for Salvadorans, stimulate economic growth, and provide benefits to the country’s population. This legislation establishes bitcoin as a legal tender, whose value is determined in the free market. Among its provisions, this law allows for the payment of tax contributions in Bitcoin, exempts Bitcoin exchanges from capital gains taxes, and obliges economic agents to accept this cryptocurrency as a form of payment. To ensure its effective implementation, the law is complemented by the Bitcoin Law Regulation and the Technical Standards to Facilitate the Participation of Financial Entities in the Bitcoin Ecosystem (NRP-29), which mainly regulates Bitcoin service providers under the Financial System Regulation and Supervision System.

2- Digital Asset Issuance Law (LEAD)

This law also aims to promote and foster economic development, as well as to create the appropriate conditions for the country’s economy to grow. This law seeks to provide legal certainty to operations related to digital assets, both to digital asset service providers and to public offerings made in the country. The implementation of the LEAD is the responsibility of the National Digital Assets Commission, an entity attached to the Ministry of Economy. This law regulates three fundamental actors: Digital Asset Service Providers (DASP), Issuers, and Certifiers. In this regard, the LEAD establishes registration requirements, the standards to be met, and the tax benefits granted to each of these subjects.

• • • DASPs offer and provide these types of services. The law determines the types of activities they can carry out, including digital asset exchange for fiat money, operating an exchange platform, digital asset marketing, subscription to digital asset issues, and placing digital assets on digital platforms or wallets. Likewise, the Digital Asset Service Providers Regulation develops the requirements and processes that these providers must follow for their registration, as well as the obligations and standards they must meet.
    • Issuers carry out public or private offerings, provided they comply with the requirements established in the LEAD. Issuers are also regulated by the Issuers and Public and Private Offerings Registration Regulation, which determines the information requirements for their registration and operation, the requirements and processes for the enabling, suspension, and cancellation of public offering issues, and the standards for protecting purchasers of digital assets related to the issue.

• • • Certifiers are responsible for conducting a comprehensive analysis of public offerings of digital assets and issuing a favorable or unfavorable report to be submitted to the National Digital Assets Commission. The registration requirements for certifiers are within the LEAD, and both their obligations as certifiers and the information that the report must contain are within the LEAD and the Issuers and Public and Private Offerings Registration Regulation.

•  3- Innovation and Technology Manufacturing Promotion Law

Its main objective is to promote economic development through technological innovation industries that contribute to the growth of productivity and the national economy. This law also seeks to promote economic growth and sustainable development by fostering innovation and the manufacture of locally developed technology, to generate advanced technological products and services related to the Fintech ecosystem. Among the activities incentivized by this law are programming, maintenance, analysis of computer systems or software, development and marketing of cloud computing and data flow services, artificial intelligence, massive data analysis, as well as cybersecurity solutions, among others.

The beneficiaries of this legislation are those who make new investments in innovation projects or technological manufacturing detailed in the law, and may – with a valid qualification agreement issued by the Ministry of Economy – access a series of tax benefits, such as total exemption from Income Tax concerning incentivized activities, total exemption from municipal taxes on net assets, exemption from Capital Gains tax, and total exemption from import duty payments, as well as taxes on the import of goods, equipment, and tools necessary for the development of incentivized activities.

Finally, under the initiative of the Central Reserve Bank and the Financial System Superintendence, the Financial Innovation Office (OIF) has been created, which serves Fintech ventures developed in the country and seeks to promote industry development and improve financial inclusion. Recently, the OIF has designed and promoted a document called the “National Fintech Strategy” to create a strategic roadmap that serves for the establishment of a financial and technological ecosystem suitable for promoting financial inclusion.

In summary, El Salvador is working to position itself as a reference center in the Fintech field by implementing regulations and promoting tax incentives to attract investments and foster innovation.