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Legal 500 Doing Business in Guatemala

Contributed by EY Law Central America

Doing Business in Guatemala graphic

Introduction

Guatemala is considered the largest economy in Central America, with growth above 3% since 2012, reaching 4.1% in 2015, and 3.2% in 2017. State entities forecast a 3.4% growth.  Although it is Central America’s largest economy, it is the one with the highest inequality, with high poverty rates, and even some of the highest chronic malnutrition and mother-infant mortality rates in the region.

Rating agencies did not modify their debt scores for the Republic of Guatemala, but instead maintained their ratings, positive factors, risk factors and country challenges from the last revisions.

Guatemala’s total consolidated public debt as of January 2018 was US$19,071.0 million (23.8% of the GDP), of which US$10,906.5 million correspond to consolidated domestic debt (57.2% of the total) and US$8,164.5 to foreign debt (42.8%). Two months ago the public debt was US$17,229.8 million, which represented a 10.7% year on year growth.

Positive Factors

• Improvements in governance indicators over its peers.
• Moderate tax deficit and manageable external deficit.
• Inflation expectations within the target.

Risk Factors

• The restricted tax revenue base limits any tax flexibility.

 

Quick facts

Population: 4.2 million

Unemployment:

GDP:

$24.300 MM

Annual growth 5,3% (2017)

 

Inflation: 0,9% (2017)

 

Language: Spanish

Ease to doing business:  79 of 190 (2018)

 Panama City

Competitiveness index: 50

 

Source: http://www.bancomundial.org

 

Legal considerations to open a business in Guatemala.

  • The possibility of creating a corporation with a minimum capital of USD. 30.00  (US$1.00 X Q7.30)
  • The term for the definitive registration of a corporation takes about 3 weeks, including tax records and books.
  • The possibility of conducting General Shareholder Assemblies and Board of Directors Meetings virtually.
  • The possibility of having nationals or foreigners take on roles as partners and legal representatives, without any restrictions.
  • You must have a tax residence, local bank account and accountant.

Basic labor laws to consider

  • Political Constitution of the Republic of Guatemala
  • Labor Code
  • Decree 42-92: Law of Annual Incentives for Private and Public Sector Workers
  • Decree 76-78: Law Governing the Thirteenth Month Benefit for Private Sector Workers.
  • Decree 78-89: Decree of Incentive Bonus and its amendments;
  • Government Agreement 229-2014 Rules on Health and Occupational Safety;
  • Government Agreement that regulates the minimum annual salary, issued each December: for minimum salary, the effective agreement is 297-2017.
  • Government Agreement 528-2003: Requirements to hire foreigners.
Procedures to obtain work visas

 

Limits on corporations regarding the hiring of foreigners:

  • they cannot hire more than 10% of their total payroll in foreign workers, or exceed 15% of the salaries;

Permits required:

Foreign workers must being their temporary residence and tourist visa process before they can begin to apply for a work permit.

The requirements or steps for the temporary residence or tourist visa will depend on the country of origin and the existence of immigration agreements with Guatemala. 

Once the temporary residence or tourist visa process has been initiated, the employer can begin (as employment guarantor) the process before the Ministry of Labor and Social Security (Mintrab) to obtain the corresponding permit. This process takes 2-4 months. Documents that must be presented:

  • Legalized copy of the foreigner's passport;
  • Legalized copy of the proof of having initiated the temporary residence or visa
  • Legalized copy of the identification document of the employer’s legal representative;
  • Legalized copy of the appointment of the employer’s legal representative;
  • Foreign worker’s appointment to the corresponding position, with a description of the job.
  • Request form to be submitted to the Ministry of Labor and Social Security.
  • Accounting certificate that verifies that the foreigner does not exceed the salary or payroll representation percentages mentioned above.
  • Payment of an indirect training required by Mintrab, for US$405.41 (at an exchange rate of $US1.00 X Q7.30)

Environmental regulations

Although today there are numerous environmental regulations that a corporation must consider in order to operate, the most relevant ones are:

  • Law of Protection and Improvement of the Environment (Congressional Decree 68-86)
  • Forest Law (Congressional Decree 101-96)
  • Law of Protected Areas (Congressional Decree 4-89);
  • Rules of Environmental Assessment, Control and Monitoring (Government Agreement 23-2003); and
  • Rule of Discharge and Reuse of Residual Waters and Disposal of Mud (Ministry Agreement 236-2006)

Site or Place of Operation

The legal requirements are determined by the land’s geographic location. In most cases, companies purchase land to develop a Project without considering all of the implications and contingencies. The most common problems related to the selection of the land include:

  • No alternatives are considered.
  • The land is socially highly conflictive
  • The land is located in an area catalogued as risky.
  • The existence of natural forests in very hilly areas that prohibit the change of use.
  • Unawareness of rules related to the land: territorial organization plans and their different levels. Protected Areas (SIGAP), Forest Protection Areas, Cultural Heritage, Authorities of Sustainable Lake Management, lands in coastal areas and navigable rivers, Municipal Land Organizational Plans, Location in or near the Parks and Community Forests, etc. 
  • Lands with particular geological or hydro-geological situations that require specific studies that are usually costly. 
  • Unawareness of institutional procedures for the approval of Projects. Numerous technical opinions and reports are necessary, and these prolong the period for the resolution of the files. 
  • Environmental and social criteria are not considered in the Project development stages and environmental studies are seen as a requirement. 
  • Develop Projects in risk zones.  In these situations, investments could be lost, or in extreme cases even compromise the individuals’ physical safety. 

Prior assessments should be considered: whether it is convenient to purchase land, or whether it is feasible to develop the Project with the costs of implementing environmental and social measures.  

How intellectual property is protected

In Guatemala, the Constitution recognizes the right to freedom of industry and commerce, as well as copyrights and invention rights as inherent to the person, guaranteeing them exclusive ownership over their creations.   These rights are therefore regulated in Congressional Decree 33-98 “Law of Copyright and related rights” and in Congressional Decree 57-2000 “Law of Industrial Property” and its amendments.  Domestic laws are complemented by international laws and treaties on matters of intellectual property to which Guatemala is part, such as the Berne Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Agreement on Trade Related Aspects of Intellectual Property Rights (ADPIC), the DR-CAFTA, and others.

  • According to our laws, copyright and related rights enjoy full declarative protection as opposed to constitutional.   That is, their practice is not contingent upon the formality of registration.   The right of national treatment for works published overseas is also contemplated.
  • In matters of industrial property, our laws are intended to protect and promote intellectual property that is applicable in the commercial arena.   They therefore regulate distinctive signs, invention patents and profit models, industrial designs, as well as corporate secrets and provisions related to unfair competition. Except for certain specific signs such as the trade name and the industrial design, the exercise and enjoyment of industrial property rights are contingent upon the registration of the distinctive sign
  • Locally, intellectual property is regulated through: The Industrial Property Law (Decree 57-2000) and its rules, which regulate marks, patents, advertising signs, etc; and the Law of Copyright and Related Rights (Decree 33-98) and its rules.
  • Internationally, Guatemala is part of the following treaties:
    • The Central American Convention for the Protection of Industrial Property
    • The Cooperation Treaty on Patents
    • The Paris Convention for the Protection of Industrial Property
    • The Convention for the protection of phonogram producers against the unauthorized reproduction of their phonograms.
    • The General Inter-American Convention for Trademark and Commercial Protection.

Tax Rules

The tax rules to be complied with in the country are:

  • The Tax Code (Decree 6-91)
  • Tax Update Law (Decree 10-2012) and its rules
  • Law on Value Added Tax (Decree 27-92) and its rules
  • Law on the Single Property Tax (Decree 15-98)

Routes for Dispute Resolution

There are three routes to resolve disputes:

  • The judicial route: mainly governed by the procedural laws of each subject.
  • The arbitration route: In Guatemala, the Law of Arbitration (Decree 67-95) governs, and there are two private institutions that specialize in arbitration: 
  • The Commission of Dispute Resolution of the Chamber of Industry of Guatemala - CRECIG
  • The Center of Arbitration and Reconciliation of the Chamber of Commerce of Guatemala - CENAC-.
  • Mediation: through Mediation Centers duly authorized by the Judicial Body, as well as administrative mediations prior to a judicial stage 

Laws on data protection:

  • Guatemala currently lacks any special laws related to the protection of data in the private arena; however, the Constitutional Court has recognized the existence of habeas data that protects personal data stored in private databases.  Habeas data is derived from the human right of privacy contained in the human right of integrity.
  • In the public arena, the Law of Access to Public Information (Decree 57-2008) regulates aspects on the protection of personal data held by State entities.  This law considers all data relating to the physical or moral characteristics of individuals or to events or circumstances of their private life or private activities as sensitive data, and some examples include:   their personal habits, racial or ethnic origin, their ideologies and political opinions, their religious beliefs or convictions, their health, their sexual preference or sexual habits, their mortal and family situation and other similar aspects; and it forces these data to be protected.  

Customs regime: import and export of merchandise

  • The main rules on customs are the Central American Uniform Customs Code - CAUCA - (Agreement 0469-2008), and the Rules of the Central American Uniform Customs Code - RECAUCA (Agreement 0471-2008), since these establish the basic standards that apply in the Central American Common Market as well as in the different customs regimes, which include:

    • Definitive regimes: definitive import and export and its modalities; 
    • Temporary or suspensive regimes: customs transit; temporary import with reexport to the same state; temporary admission for active operation; customs deposit or customs warehouse; temporary export with reimportation in the same state; and temporary export for passive operation; and
    • Exemption regimes: Free Zones; reimportation and reexportation.
  • Among the main aspects to consider for the import and export of merchandise is that Guatemala is part of the World Trade Organization, so it is subject to GATT provisions.  In parallel, Guatemala is part of the Central American Integration and has signed 8 FTAs with i) USA; ii)UE; iii) Mexico; iv) Taiwan; v) Colombia; vi) Chile; vii) Dominican Republic; and viii) Panama. 

Telecommunications market

The Telecommunications Market opened up at the end of the century, generating a market regulatory law, and the implantation of a regulatory body, the Superintendence of Telecommunications, which is governed by the Internal Organic Rules of the entity, created through Resolution SIT-553-2015. Laws on this matter include:

    • The General Telecommunications Law (Decree 94-96)
    • The Radiocommunications Law (Law Decree 433)
    • Law that Regulates the Use and Capture of Signals Via Satellite and its Cable Distribution (Decree 41-92)
    • General Rules for the Rendering of International Telephone Service (Government Agreement 408-99)
    • Rules for the Exploitation of Satellite Systems in Guatemala (Government Agreement 574-98)

Insurance market

Like the telecommunications market, it is a free and private market that is fully regulated through a modern legislative framework.  Insurance and reinsurance companies are under the inspection and oversight of the Superintendence of Banks, and are ruled by the Law of Insurance Activity (Decree 25-2010) and by the resolutions issued by the Monetary Board on insurance matters.

Energy production and sale

Guatemala has a robust legal infrastructure and an exemplary institutional framework that regulates and oversees generation, marketing, transportation, distribution and sale of energy; it is one of the world leaders in the production and sale of energy, due largely to its variety of renewable natural resources that allow for the generation of energy.    Its main oversight bodies are:

    • Ministry of Energy and Mines (MEM)
    • The National Commission of Electric Energy (CNEE)
    • The Wholesale Market Administrator (AMM)

The main legal standards related to the sale of energy are: 

    • The General Electricity Law (Decree 93-96) and its rules (Government Agreement 256-97)
    • Rules of the Administrator of the Wholesale Market (Government Agreement 299-98)
    • Law of the Social Rate for the Supply of Electricity (Decree 96-2000)
    • Law of incentives to develop renewable energy projects (Decree 52-2003)

 

Links:
https://www.banguat.gob.gt/

 

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