El Salvador’s New Private Alternative Investment Funds Law
Julissa Castro, Senior Counsel in ARIAS El Salvador, shares this article on how the Law on Private Alternative Investment Funds creates a new legal framework for the incorporation and operation of investment funds aimed at sophisticated investors.
On October 25, 2025, the Law on Private Alternative Investment Funds entered into force, creating a new legal framework for the incorporation and operation of private investment funds aimed at sophisticated investors, which are investors with the level of financial knowledge, experience, and economic capacity to participate in more advanced investment opportunities.
The law creates the figure of the Private Alternative Investment Funds ("PAIF”), private investment vehicles formed by the aggregate of contributions or assets from "sophisticated investors” as defined in the Investment Banks Law, also recognizing as such those investors with the experience, knowledge, and competence necessary to make informed investment decisions and adequately assess the risks they assume, and that invest at least two hundred fifty thousand US dollars.
PAIFs may invest in a wide variety of assets, including digital assets, and may be structured as subordinated PAIF (managed by a Private Alternative Investment Funds Management Company) or as autonomous PAIF (constituted through a Fixed Capital Investment Company – SICAF).
The Superintendency of the Financial System will be responsible for authorizing the operation of the PAIF, which from the moment of their formation must have minimum equity of fifty million US dollars and at least two investors. The minimum contribution is two hundred fifty thousand US dollars. Investors who participate in the establishment of a PAIF or who wish to make contributions to one may do so through cash, domestic or foreign securities, movable or immovable property, stablecoins, digital assets in general, and any other asset.
With respect to tax treatment, PAIFs will be exempt from Income Tax on profits, dividends, royalties, income, capital gains, or any type of economic benefit obtained in the course of their operations. Also, the income, dividends, or gains that a PAIF pays or credits to its investors will not be subject to the withholding applicable to the payment or crediting of profits regulated under the Income Tax Law when the amounts paid or credited are equal to or greater than one million US dollars.
The Law on Private Alternative Investment Funds represents an important step in the modernization of El Salvador’s financial framework, as it introduces vehicles designed to attract sophisticated capital and enable participation in alternative assets, including digital assets. Its approval reflects the country’s interest in diversifying the investment ecosystem and boosting market activity.
This new regime expands structuring possibilities, offering flexible and specialized schemes that, to be used safely and efficiently, require an adequate understanding of the applicable regulatory, operational, and tax framework. At ARIAS, we are at your disposal to provide the legal support necessary to properly structure your operations and maximize the benefits that this law offers.
The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, and does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.
On October 25, 2025, the Law on Private Alternative Investment Funds entered into force, creating a new legal framework for the incorporation and operation of private investment funds aimed at sophisticated investors, which are investors with the level of financial knowledge, experience, and economic capacity to participate in more advanced investment opportunities.
The law creates the figure of the Private Alternative Investment Funds ("PAIF”), private investment vehicles formed by the aggregate of contributions or assets from "sophisticated investors” as defined in the Investment Banks Law, also recognizing as such those investors with the experience, knowledge, and competence necessary to make informed investment decisions and adequately assess the risks they assume, and that invest at least two hundred fifty thousand US dollars.
PAIFs may invest in a wide variety of assets, including digital assets, and may be structured as subordinated PAIF (managed by a Private Alternative Investment Funds Management Company) or as autonomous PAIF (constituted through a Fixed Capital Investment Company – SICAF).
The Superintendency of the Financial System will be responsible for authorizing the operation of the PAIF, which from the moment of their formation must have minimum equity of fifty million US dollars and at least two investors. The minimum contribution is two hundred fifty thousand US dollars. Investors who participate in the establishment of a PAIF or who wish to make contributions to one may do so through cash, domestic or foreign securities, movable or immovable property, stablecoins, digital assets in general, and any other asset.
With respect to tax treatment, PAIFs will be exempt from Income Tax on profits, dividends, royalties, income, capital gains, or any type of economic benefit obtained in the course of their operations. Also, the income, dividends, or gains that a PAIF pays or credits to its investors will not be subject to the withholding applicable to the payment or crediting of profits regulated under the Income Tax Law when the amounts paid or credited are equal to or greater than one million US dollars.
The Law on Private Alternative Investment Funds represents an important step in the modernization of El Salvador’s financial framework, as it introduces vehicles designed to attract sophisticated capital and enable participation in alternative assets, including digital assets. Its approval reflects the country’s interest in diversifying the investment ecosystem and boosting market activity.
This new regime expands structuring possibilities, offering flexible and specialized schemes that, to be used safely and efficiently, require an adequate understanding of the applicable regulatory, operational, and tax framework. At ARIAS, we are at your disposal to provide the legal support necessary to properly structure your operations and maximize the benefits that this law offers.
The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, and does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.