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Editorial

After the turmoil created by the corruption scandals and political crisis of 2015, when former president Otto Perez Molina was arrested and political newcomer Jimmy Morales was elected president, 2016 was an unusual and somewhat disjoined year for Guatemala. High levels of uncertainty continue to characterise the country’s business environment, yet it is slowly seeing a recovery in economic activity. Guatemala’s Central Bank expects 4.9% GDP growth in 2017, while Fitch Ratings forecasts around 3.4% in 2017, rising to 3.7% in 2018 as the effects of 2015’s political crisis gradually fade, confidence rises among investors, and new administrators and processes become established. The inflow of remittances from the US -which has been a key driver of consumption growth and support to the economy- had a record year in 2016 and surged by more than 20% at early 2017, a spike thought to be driven by preoccupation as to the possible future restriction of transfers by the Trump administration.

In an environment where fighting corruption has taken on increased importance and led to the questioning of business practices, corporate governance, accountability and compliance have become key issues providing firms with a steady flow of instructions, even while M&A and financing matters remain at a low. With great pressure for administrative tax cases to be handled as criminal matters, fear of criminal prosecution is running high and a number of large projects have been stalled or cancelled. While there is a prevailing feeling that the judicial system is not reliable, many companies –particularly local players– are simply not prepared for the impact of the reforms to the tax system that are being implemented as part of the clamp-down on corruption (even though there is a general acknowledgement – and hope – that these changes will ultimately leave Guatemala with jurisprudence, judicial institutions and equal conditions for locals and foreigners).

As part of efforts to strengthen the fiscal transparency and governance of the tax administration and fight tax evasion, a controversial law entered into force in February 2017 allowing the tax authorities to access both individuals’ and companies’ banking information with a court order when there is sufficient doubt about activities or operations to warrant an investigation process. In response, banks are modifying their processes in order to respond more quickly to requests from the Superintendency of Tax Administration (SAT). As part of the audit plan, the SAT has announced it will be verifying all real estate transactions, as well as carrying out audits on companies that submit losses in consecutive periods, those which have been operating for five years without being monitored; and on taxpayers who are subject to observing transfer pricing guidelines, among others.

Controversy also surrounds the Emergent Act for the Conservation of Employment, which came into force in April 2016. The legislation amended both the Law of Promotion and Development of Export and Maquila Activities and the Free Trade Zones Law, thereby establishing a list of activities and products that free zone companies can no longer make or sell. Regulatory shortcomings resulted in goods being trapped in a legal vacuum as companies were prevented from selling relevant goods manufactured before the law came into effect. The union of free zones has filed a suit arguing the law’s unconstitutionality with the aim of re-including the 25 different sectors affected by the new law. Nevertheless, 2016 saw several companies close down and/or depart Guatemala, and the law has clearly impacted negatively on companies operating under the free zone regime and the maquiladora incentive law.

Another development that will impact commerce, M&A and the economy more broadly is the new competition law, which congress is in the process of enacting –albeit with some delays due to criticisms that the project does not incorporate international best practices. Unlike elsewhere in Latin America, specific competition legislation and a competition authority does not yet exist in Guatemala.

Meanwhile the energy sector has also suffered a blow, as the Constitutional Court upheld the suspension of the Oxec I and II hydroelectric stations. The government had granted authorisations to build and operate the plants, however, these were annulled for allegedly failing to consult the indigenous-peoples resident in the area before initiating the projects, and additional legal confusion around the implementation of ILO Convention 169 (which was ratified by congress and came into force in June 1997). These developments are seen by the private sector as another threat to legal security in the country, not only because of the projects at stake, but also due to the effect it will have on other investments that may no longer be made in Guatemala if suspension orders continue to occur in the mining and energy sectors. With the consequent shortfall in new projects, firms are expecting dispute resolution matters to dominate in coming years. Parallel to the difficulties surrounding energy generation projects, obstacles continue to beset attempts to expand the country’s electricity system due to delays in confirming the routes of the transmission lines and the location of pylons.

Labour lawyers are expecting increased work resulting from the various labour reforms the government and congress have been implementing in 217 to meet the requirements of the US government, since the latter recently brought an arbitration case against Guatemala arguing non-compliance with Dominican Republic–Central America Free Trade Agreement’s labour law obligations.

In the IP arena, a noteworthy development is the establishment of a new chamber of intellectual property CAMPI, which will focus on improving the rules on patenting and the protection of intellectual property in general; it is led by Karina Calderón from Comte & Font – Legalsa and includes other prominent IP lawyers in the country.

An unusually busy year saw considerable movement in the law firm landscape, including both individual partner moves and departures, but also -at the firm level- divisions, spin-offs and new openings – in large part these are attributable to the trend towards regionalisation in Central America. Arenales & Skinner-Klée – LatamLex ceased operations in October 2016 and the bulk of the team, including former founding partner Alejandro Arenales Farner, moved to Costa Rican heavyweight BLP, successfully establishing the firm’s first office in the Guatemalan market. LatamLex – Skinner-Klée & Asociados continues as smaller entity led by Alfredo Skinner-Klée; and the former head of tax, Verena Kushiek struck out on her own, establishing boutique firm Kushiek & Asociados. Further afield, what is credited as being the first regional firm Arias & Muñoz, was dissolved in 2016 with the departure of part of the firm’s Costa Rica office (along with some lawyers from Guatemala and Panama) to form Muñoz Global, which subsequently entered into an association with Dentons and now operates as Dentons Muñoz. What is now known as Arias retains capability in all Central American jurisdictions and the team in Guatemala was unaffected by these developments. Another regional player, Pacheco Coto, is expected to further strengthen its offering and recently hired Elizabeth Cardona from the Ministry of the Environment and Natural Resources as practice head for the office’s energy, natural resources and environmental practice. As other firms in the country are considering regional mergers, Guatemalan market-stalwart Mayora & Mayora, S.C. has led with its expansion into Honduras and El Salvador; there is little doubt we will see further movements of this kind in the coming years.

International Legal Professionals Set to Gather at NYSBA International Section 2017 Seasonal Meeting in Antigua, Guatemala

New York, June 7, 2017 – The International Section of the New York State Bar Association has released the agenda for its 2017 Annual Seasonal Conference, which will take place from September 12-14 2017, at Casa Santo Domingo in Antigua, Guatemala. The theme for the Conference is Enhancing Compliance and Ethics while Growing Markets: Development, Enforcement and Technology.

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