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On October 17, 2025, Decree No. 430 was published in the Official Gazette, enacting the Law on Private Alternative Investment Funds (PAIF). This regulation establishes the legal framework for the creation and supervision of new investment vehicles aimed at sophisticated investors in El Salvador.

The law seeks to attract domestic and foreign capital, diversify investment options, and strengthen El Salvador’s financial system through advanced and flexible structures.

PAIFs are private investment vehicles that pool contributions or assets from multiple investors and are professionally managed under specialized legal structures. These funds:

• Are exclusively targeted at sophisticated investors, defined as those with the experience, knowledge, and financial capacity to assess risks.
• Require a minimum investment of US $250,000.00 per participant.
• May be structured under two modalities:

  • Subordinated PAIF: managed by an Alternative Private Investment Fund Management Company.

  • Autonomous PAIF: incorporated as a Fixed Capital Investment Company (SICAF).

• Must have a minimum equity of US $50 million from inception.

PAIFs may invest in a broad range of assets, including securities, movable and immovable property, stablecoins, and digital assets.

Authorities responsible for implementation and supervision

Although PAIFs are not part of the traditional financial system, they are subject to a specialized supervisory framework:

• Central Reserve Bank (BCR): will issue technical regulations governing the operation, transfer, liquidation, and dissolution of the funds and their management companies.
• Financial System Superintendence (SSF): will exercise proportional supervision, ensuring regulatory compliance and sound management and risk practices.

Inclusion of digital assets

The law allows PAIFs to invest in digital assets in accordance with the Digital Assets Law, expanding diversification opportunities and aligning El Salvador with international trends in alternative investments. This includes:

• Cryptoassets, stablecoins, investment tokens, or tokens representing real-world assets.
• Specific custody and risk management mechanisms for these operations.

Tax regime

• PAIFs are exempt from Income Tax (ISR) on profits, dividends, royalties, income, or capital gains derived from their operations.
• If a PAIF invests in another PAIF, the profits received are also tax-exempt.
• SICAFs (autonomous funds) are not subject to income tax withholding at source, nor are they required to file or pay advance income tax payments.
• Autonomous PAIFs must apply a final income tax withholding, at the rate established in Article 156 of the Tax Code, on payments to their technical or administrative staff when monthly remuneration is equal to or less than US $100,000.00.
• Remuneration exceeding that amount is not subject to withholding.
• Income, dividends, or gains paid to investors are not subject to withholding when payments are equal to or greater than US $1 million.
• Tax benefits are not cumulative and may not be combined with other tax regimes.
• The Ministry of Finance is the authority responsible for oversight and control of the PAIF tax regime and may issue administrative rulings or clarifications regarding its application.

Fund management

The Alternative Private Investment Fund Management Company must:

• Be incorporated as a corporation or limited liability company.
• Have a minimum share capital of US $10 million, fully subscribed and paid.
• Obtain prior authorization from the SSF.
• Maintain a minimum guarantee of US $500,000 or 1% of assets under management.

Key obligations of the management company include:

• Acting in the best interests of investors.
• Maintaining separate accounting records for each fund.
• Implementing risk management and anti–money laundering policies.
• Ensuring transparency and access to the funds’ financial information.

Exclusive legal framework

The Law on Private Alternative Investment Funds constitutes a legal regime independent from the Investment Funds Law currently in force (2014) and from regulations applicable to public funds. Additionally:

• PAIFs are not considered part of the financial system, although they are subject to regulation by the BCR and the SSF.
• Management companies may not use designations such as “National” or terms implying government backing.
• External auditors may be international firms, without the need to be domiciled or registered in El Salvador.

Participation of foreign shareholders

The law allows the participation of foreign investors and shareholders, who may:

• Use trade names in a foreign language if they hold a majority interest in a management company.
• Incorporate global brands or subsidiaries under the conditions established by local regulations.

This provision aims to facilitate the inflow of international capital and promote integration with foreign investment markets.