Sanitary and economic crises are challenging Chile’s modernization. Great leadership to guide Chile in combining the right experiences from the past and adapting the country to new demands and reality will be needed to overcome social and economic difficulties Chile is currently facing.

Chile is generally regarded as South America’s most stable and prosperous country, renowned for competitiveness, political stability, economic freedom, and low perception of corruption. Its market-oriented economy, based on a neo-liberal model implemented in the 70’s, is characterized by a high level of foreign trade, open market policy and sound financial institutions and policy. Chile is member of the OECD, being the only South American member (together with Brazil) with a GDP worth USD$282.3bn, and a GNI of USD$15,010, similar to countries like Poland or Croatia. It has the second-lowest tax burden in the OECD and the government maintains a tight rein on fiscal spending, ensuring the highest credit rating among the major economies of Latin America. It is an active member of the Pacific Alliance, the principal regional multilateral trade platforms, and has bilateral free trade agreements with basically all of the major economies in the world.

Being primarily a mining-based economy, Chile enjoyed for several years high economic growth figures of about 5%. Growth rates were, pre-COVID-19 , between a more modest 2% and 4% and similar rates are expected for 2021.

Chilean economic policies favor foreign investments. FDI increased by 63% from USD$7bn to USD$11bn in 2019, sustained by investment in utilities, mining and services. FDI stocks reached USD$268bn, a rise of more than USD$100bn if compared to 2010. Investments are mainly oriented towards mining, finance and assurance, transportation, energy and manufacturing.

The coronavirus crisis and simmering discontent over inequality in a neo-liberal economic model have forced the conservative government under President Sebastian Pinera to adopt measures that both allow for political reforms and stimulate the economy. It announced a constitutional referendum which will be held in October, which may lead to a new model that minimizes social disparities and equalizes the distribution of wealth, and is in the process of implementing a fiscal stimulus package worth USD$11.8bn (4.7% of GDP) to increase productivity and innovation in key sectors.

The stimulus package covers, among other things, increased investment in infrastructure, implementing protective measures to protect workers against a loss of income, providing support through tax measures and the creation of social funds and state backed credits. In parallel, the parliament just adopted a controversial reform, not backed by the government, allowing citizens to have 10% of their pensions savings paid out as emergency coronavirus aid and is discussing legislation prohibiting utilities companies to cut basic services (water, gas, electricity and internet) in case of non-payment by their clients. The Central Bank of Chile, for its part, reduced the fiscal policy interest rate to 0.5% and announced an increase of its bond purchase program of USD$4bn as well as measures loosening regulatory credit requirements.

An injection of over USD$8bn is projected into water and other infrastructure, including short-term projects worth USD$150m starting in 2020. The projects include road maintenance, the building of irrigation systems, drinking water facilities, hospitals, ports, airports, and inland water management systems. Most of these projects will be carried out through private or public concessions and the Ministry of Public Works has already initiated the first tenders in the public health care sector worth USD$2.5bn.

The temporary tax measures, loosened credit requirements and government reliefs include, amongst others: 0% stamp tax rate for credit, financial and refinancing transactions (until October 2020); expenses incurred in Covid-19 related measures will be deductible for income tax purposes; deferral of VAT payable with 0% interest; deferral of annual income tax payment for small and medium sized companies; early return on income tax; deferral of payment of real estate tax; deferral of mortgage backed loans; flexibilization of loan maturities for small and medium-sized companies; increase of the credit capacity of the National Bank to mainly support citizens and micro businesses; creation of a social fund for micro businesses; state support to finance credits for micro businesses; and subsidies and socials fund for citizens without formal employment and unemployment insurance.

In addition, and in order to generate additional resources to the State, opposition deputies of the opposition presented a draft constitutional reform that would allow to establish a capital tax, a project currently under discussion in Congress and which has received strong criticism from experts, taking into account the lack of clarity of the tax to be established, lack of clarity in the determination of the associated tax base and the effects that taxes of this kind have generated in legislation, and that are associated with wealth and capital flight.

Employment and security related measures adopted or underway include: temporary unemployment insurance; the possibility for an employer and employee to agree on a suspension of the labor relationship or reduction of the work hours with a proportional reduction of the salary, cases in which the affected employees access to the benefits of their unemployment insurance; suspension of working contracts in case of a mandate by the competent authority with access to the same benefits; safety obligations to assure the health and wellbeing of the employees. New regulation on ‘teleworking’ (Law N° 21.220) was adopted regulating remote work and work by technological means, establishing rights and duties for workers and employers. The adopted measures have been a relief for employers and employees, as they intend to prevent the termination of the labor contracts and the increase of unemployment, and numerous companies has applied those measures. However, projections show that the companies will not be able to reintegrate all the suspended employees, and will have to dismiss them, in which case their unemployment insurances will be depleted, as they already make use of them during the suspensions.     

On the other hand, aid to large corporations has been difficult. Latam Airlines Group, Latin America’s largest air carrier, sought bankruptcy court protection in New York after the COVID-19 pandemic grounded flights across the region. The government has been reluctant to come to the rescue, very much like other governments in the region, although discussions are ongoing. These discussions seem to stall government support to other large corporations as well.

The implementation of these measures and the direct effects of the economic slowdown on businesses are providing legal practices with a vast stream of advisory work. Additional work comes from significant legislation or legal modifications. Most noteworthy, on a fiscal level, is the adoption in February of law N° 21.210, modernizing the tax legislation. It is aimed to grant certainty to taxpayers regarding audit processes, the possibility of conducting out-of-court transactions in respect of ongoing litigation, and the digitization of processes, among other things. Moreover, it introduced a new tax on digital services provided by suppliers residing abroad, so that depending on the tax quality of the local beneficiary of the service, these will be affected by either VAT (at a rate of 19%) or withholding tax. At the income tax level, a number of amendments are being made, the most relevant being the following: corporate tax of 27% for large companies and 25% for small and medium-sized companies under a simplified income determination system;  the is the possibility for small companies of opting for a ‘pass-through’ system, so that the rents generated by the company are taxed directly at the level of its owners. Other modifications relate to changes to the concept of accepted expenditure for tax purposes; incorporation of legal definitions for the determination of the possible establishment of a permanent establishment in Chile; the establishment of a new entity to support and guide taxpayers; and incorporation of a new tax or contribution applicable at the regional level for certain investment projects.

Other recent or upcoming modifications include a recent update of banking regulations, modernization of the criminal code, and strengthening of anti-trust and anti-corruption regulation, amongst others. In parallel, there is a growing emphasis on compliance, corporate governance, data protection and data privacy, stimulating companies and the business community to adopt higher standards of corporate governance and business ethics. 

See more from Schwencke & Cia at: www.schwenckecia.com

According to official figures, Nicaragua has maintained a growth rate of 4.7% and 4.5% in 2016 and 2017 respectively. However, due to the social and political unrest that the country has experienced since April 2018, the economy has slowed down. According to the Central Bank of Nicaragua, for 2018 the economy contracted by 5.016%.

Despite this, Nicaragua offers significant tax incentives in many industries, including import duty exemptions, property tax incentives and income tax relief. The country has a well-established free trade zone regime with significant foreign investments in textiles, car harnesses, medical equipment, call centers and back-office services. The construction sector has also attracted significant investments, driven by large infrastructure and housing projects, as well as by the telecoms sector, resulting in increased coverage of mobile telephony and broadband.

In reference to the current crisis derived from the arrival of COVID-19, the State of Nicaragua has not issued pronouncements or decreed the application of labor measures. For this reason, the employment sector has been implementing the tools or measures established by the Labor Code for events of force majeure and that affect the survival of workplaces. The main measures are:

1. Collective suspension of employment contracts.
2. Individual suspension by mutual agreement for a specified period.
3. Cancellation of employment contracts as a result of the company’s request for definitive cease.
4. Partial hiring to continue operations with a minimum of workers.
5. Bilateral vacation enjoyment agreement between employer and worker.
6. Reduction of shifts. The employer may decide on a shorter working day without a salary reduction.

Additionally, telecommuting is largely being applied despite the fact that it is not regulated by current labor legislation. Telecommuting can be implemented taking into consideration the same minimum rules and rights and guarantees for the benefit of workers established in local laws.

When it comes to the post-pandemic job market opportunities, it is very difficult to be able to predetermine Nicaragua’s short-term future. Many companies have been reducing operations. Despite this, the Government of Nicaragua has not decreed any special regulation, nor has it been made known if there is a plan to alleviate the situation in the short or medium term.

There are companies that, having access to information technologies, have been able to adapt and face new challenges. E-commerce platforms are in high growth due to their legal possibilities to operate in the local market.

In the financial sphere, the board of directors of the Superintendency of Banks and other Financial Institutions (SIBOIF), issued a statement in June establishing temporary conditions that financial Institutions can grant to debtors of all types of credits in all sectors of the economy.

The temporary conditions range from:

• The deferral of payments.
• Extending the original payment term.
• Granting grace periods of up to 6 months for principal and interest.
• Conducting an assessment of an individual case based on the institution’s internal policies.

This is subject to certain classification criteria of the portfolio or debt. All requests for temporary conditions have to be made before 31 December 2020.

Additionally, the crisis has forced the business sector to adopt e-commerce modalities and measures, which are not particularly regulated in local legislation. However, the legal basis of e-commerce is found in the political constitution on the principles of the right to protection and respect for privacy and freedom of business, that serve as a basis for contractual parties to freely agree on their contracts, provided that they do not contravene express law, morality or good customs.

In this sense, despite the fact that Nicaragua does not have legislation related to e-commerce, anyone who wishes to undertake contracting and activities related to e-commerce will have this possibility with public limitations, such as those related to consumer rights and data privacy.

The rights of consumers are regulated in Law No. 842 ‘Law for the Protection of the Rights of Consumers and Users’ and its regulations, contained in Executive Decree No. 36-2013. The protection of personal data is regulated in Law No. 787 ‘Law on Protection of Personal Data’ and its regulations, contained in Executive Decree No. 36-2012.

In the current circumstances, from the contractual standpoint, it is favorable to incorporate and apply the ‘rebus sic stantibus’ principle within the clause of the contracts in force and those that will be formalized in the future, since the crisis has had a direct impact on economic stability and compliance of contractual obligations. This leads to reviews of the repercussions and effects that the pandemic may cause to each of the contractual parties, with the objective of avoiding breach of contracts and finding healthy alternatives to face contractual obligations, particularly in service and lease contracts.

At EY LAW Nicaragua, we are currently advising all those companies and investors to adjust to changes in the current times and providing our support in advising and accompanying them in all legal and regulatory processes related to the above aspects.

See more from EY at: www.ey.com

Though not exactly a household name, Sergei Magnitsky has come to symbolize the American and Western efforts to combat foreign corruption and money laundering across the globe. Understanding these recent efforts is critical for general counsel operating in international markets.

Sergei Magnitsky was a Russian tax accountant who worked closely with one of Russia’s largest foreign investment firms. Magnitsky eventually uncovered a highly complex $230m fraud, whereby Russian officials used forged documents to claim ownership in the foreign fund and then sued the Russian government for millions in ‘overpaid taxes’, upon which the Russian courts speedily agreed and ‘repaid’. Magnitsky sued the Russian state and paid dearly: he was arrested at home in front of his children, imprisoned, contracted gall stones and pancreatitis, and was eventually beaten to death. What followed was an aggressive series of anti-corruption measures by the United States, the first of which included the Sergei Magnitsky Rule of Law Accountability Act of 2012. Commonly referred to as the Magnitsky Act, the law imposed economic sanctions on Russian officials thought to be responsible for his assassination.

So why is this so important for general counsel?  First, the scope. The original iteration of the Magnitsky Act froze Western assets of specific Russian oligarchs and officials, including finances and real estate, and also barred entry into the United States. But the Magnitsky Act has since evolved far beyond the borders of Russia. On 23 December 2016, the United States passed the Global Magnitsky Human Rights Accountability Act (Global Magnitsky Act), which authorizes the president to impose economic sanctions on human rights abusers and corrupt government officials anywhere in the world.

Second, the Magnitsky Act and its global successor are about money, which is enforced on the international stage through economic sanctions. Economic sanctions are used by the United States to accomplish foreign policy and national security goals. The administration and enforcement of these sanctions are delegated to the Office of Foreign Assets Control (OFAC), a financial intelligence agency that operates under the US Department of the Treasury. Basically, economic sanctions are imposed on countries, governments or individuals that are hostile to US interests. The Cuban embargo and the Iran nuclear-related sanctions are probably the most famous examples of these sanctions. OFAC regulates activity within the Global Magnitsky Act and Magnitsky Act under 31 C.F.R. Parts 583 and 584, respectively.

General Counsel must therefore maintain a basic understanding as to how these laws operate in practice. An individual or entity sanctioned under the Magnitsky Act or the Global Magnitsky Act is summarily included in the Specially Designated Nationals and Blocked Persons (SDN) List, a ‘blacklist’ maintained by OFAC. This occurs after an administrative investigatory process where the subject individual or entity has very limited opportunities, if any, to intervene in order to avoid being sanctioned.

Once an individual or entity is blacklisted by OFAC, all of its assets in the United States, or in possession or control of US persons, are blocked and cannot be dealt with in any way. A Magnitsky sanction is the equivalent of a blanket prohibition to engage in any transactions with the sanctioned individual or entity. These sanctions can be seen already, for example, in Latin America. In 2018, the United States used these sanctions to target government officials in Latin America, most recently against Nicaraguan officials of the Ortega regime (including Ortega’s wife, Vice President and First Lady Rosario Murillo) accused of committing serious human rights violations during the recent anti-government protests where hundreds of Nicaraguans where killed. And in 2017, the parent company for famed jeweler Cartier reached a $334,800 civil settlement with the United States after it shipped jewelry to Shuen Wai Holding Limited, an entity in Hong Kong that had been added to the SDN list in 2008. In 2018, OFAC added 17 Saudis to the SDN list following the killing of Washington Post journalist Jamal Khashoggi.

In light of these enforcement frameworks, here are some of the things that general counsel for companies involved in international business need to be aware of:

Companies engaged in international transactions must exercise great care to refrain from doing business with any individual or entity subject to Magnitsky sanctions. To complicate things further, OFAC has said that, pursuant to its so-called ‘50 Percent Rule’, the sanctions are also applicable to any entities directly or indirectly owned 50% or more in the aggregate by a sanctioned individual or entity. Even if the blacklisted individual or entity does not have an ownership interest in another entity, OFAC has warned that the mere fact that a sanctioned person is representing a non-sanctioned entity (albeit in a non-personal capacity) may lead to a violation.

Companies are strictly liable for violating these sanctions. ‘We did not know’ no matter how sincere, is not a defense. The penalties could be very harsh, including significant fines and imprisonment. Civil penalties of $295,141 or twice the amount of the transaction could be imposed under the Magnitsky Act. The Global Magnitsky Act proscribes penalties of up to 20 years in prison and a $1m fine. The Magnitsky sanctions make for risky business in many areas of the world.

Particular industries could be more susceptible to being identified under the Global Magnitsky Act. One general rule of thumb for identifying at-risk industries is FCPA compliance. Industries susceptible to Global Magnitsky Act violations often mirror those FCPA violations, such as energy, oil and gas, pharmaceuticals, and telecommunications.

Countries with a history of public corruption and human rights abuses warrant heightened scrutiny.

Strong compliance measures ensure adequate prevention and a swift reaction when a violation occurs. Like FCPA compliance, GCs should oversee a risk-based approach tailored to the business operations. And strong compliance begins with comprehensive screening.

Use experienced third-parties. Commercially available screening tools can aid effective screening. Some entities, particularly those owned or represented by a sanctioned individual or entity, can be harder to trace, because their names may not be included in OFAC’s SDN List.

These laws leave little room for error (and zero excuses). Significant investments in a robust compliance program that can conduct the most comprehensive due diligence available, while timely and expensive, will often pale in comparison to the price of violations that could have been avoided. 

See more from Polsinelli at: www.polsinelli.com

I have been a lawyer for 24 years, originally specialising in tax law. I became an in-house lawyer by chance. I began my corporate career as legal manager for Central America and the Caribbean at British American Tobacco. It was an incredible experience, but one day I received an offer I could not turn down. So, I went to work for Colgate-Palmolive. This is a really interesting company that deals with consumer goods and products that focus on oral health, personal care and home care. We also have a division that manufactures and sells pet food. It is a very diverse and interesting company.

I manage six countries: Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama. I oversee all the legal issues including tax, environmental law, government relations and advertising law. One of the most important things that has set Central America apart from the rest of the world when it comes to COVID-19 is the implementation of curfews. We have been under lockdown and had strict controls placed on our movements over the last five months.

Despite this, Colgate-Palmolive has not had to shut down  its operations. We sell our products throughout Central America, Dominican Republic, some parts of Europe, Mexico and the United States. We have not stopped even for one day. The goods we sell have been considered essential by every government in the region. Ensuring our people are able to do their job in a safe manner has been key. While this work has involved many departments, the legal team has made sure everything is done in a fully legal and compliant way.

The truth is, in-house legal work is usually done behind the scenes. I am fine with that, [because it] means when we do our work in the best way, everything goes smoothly. For example, in order for our employees to travel during curfew times we had to apply for special legal permits. In the end, nobody raised any issues. This means we did our job well.

This is a consumer goods company, it is a company whose main area of focus is to manufacture, sell and market products. We as legal are a support function, and our main goal is to operate in such a way that people do not know what we are doing behind the scenes. [Our lack of visibility] is a measure that the legal function, not only in Central America but worldwide is working effectively. Colgate-Palmolive has done a terrific job as we continue to manufacture and sell products safely.

Another, major change in my role is I am working from home all day. Apart from a quick visit into the office, I have not seen my leadership and management team for the past five months. This means we have had to change how we deal with everyday issues.  Previously, I would spend some time of the year in each country, making at least two visits per country a year. If something was urgent I would just hop on to a plane. These days I have to handle everything over the telephone or over a computer screen.

One of the biggest challenges during this pandemic has been brand protection, and I believe we have been doing a great job. We pursue and take action against imitation of products, counterfeiting and smuggling of products that do not conform to our requirements. During this pandemic, right from the beginning, we have had to deal with people trying to sell products and mislead consumers into believing products are from our company, when they are not. In the past, we would send our brand protection team, comprised of lawyers and private investigations to looking into to these kinds of issues. We would run an investigation, submit a case for breach of intellectual property and prosecute the case. As many of the countries in our regional cluster are now closed we have had to come up with creative ideas to deal with such issues. For example, gel alcohol (sanitizer) which is advertised using one of our brands on Facebook marketplace, is not a product we manufactured. We let Facebook know the product is not ours, and they need to shut the account down. We also sent a cease and desist letter [to the manufacturer of this product].

We have had to find a lot of creative ways to protect the company’s trademark, as well as protecting consumer rights. In the past, we would go into a street and look for the product, collect samples and just gather as much information as possible to prosecute those cases. Now, we have had to be more creative, and find other ways to have the product removed from the market without us involving private investigators.

My personal opinion is that we have managed our resources very efficiently. We can respond to matters effectively, whether we are sitting in an office or at our homes, and provide the same results. I believe the legal profession will become more flexible as we look for smart and creative solutions, whilst respecting the processes of the law. The reason people are hesitant to approach lawyers is that we can sometimes take too long to address issues.

Overall, we as lawyers want the legal profession to advance. When I was at school, there was a philosophical discussion regarding the law and whether the legal profession was a science or just a body of dead knowledge  that continued to follow the same statutes and cases over and over again. This pandemic has made us stop for a moment to take a look at our profession from a scientific standpoint. As in-house lawyers we have to reinvent ourselves, and find alternative answers to make things easier. The law can evolve, and the legal profession can evolve just as other sciences do. 

Regardless of the fact that Ecuador’s economy is the eighth largest in Latin America and the Caribbean (among 33 countries), Ecuador has amazing potential of business activities in the mining, energy, tourism and agriculture industries. With large natural mineral reserves (in gold, cooper and iron), amazing conditions for the development of energy projects, especially photovoltaic and hydroelectric energy, incredible tourism locations such as the Galapagos Islands, beautiful highlands, and considered to be one of the most bio-diverse countries in the world, Ecuador is also one of the top exporters worldwide of bananas, shrimp, flowers and cacao.

Due to all these interesting factors and many others like a dollarized economy, the government’s current policy has been focused in promoting attractive conditions for foreign investors and working on improving the benefits that were already granted in the Organic Code of Production, Commerce and Investment (COPCI) published in December 2010, but had little or none effect during the previous government (aligned to Hugo Chavez ideology).

The Law of Productive Development, Attraction of Investment, Employment Generation and Fiscal Stability (Investment Law) enacted in august 2018, offers to investors the possibility of obtaining interesting benefits such as: tax exemptions (income tax and currency remittance tax), reduction of custom tariffs, legal stability and entering into arbitration agreements while entering into Investment Agreements with the State, which has given law firms a new scope of work that involves project finance, tax, regulatory matters and contracts.

Furthermore, Ecuador offers investors a dollarized economy and a much more transparent State which has promoted transparency and the implementation of ISO 37001 anti-bribery among its government institutions and companies. These benefits have caused almost a 130% increase in foreign direct investment in comparison to the former government as per studies of the Central Bank of Ecuador.

However, despite the new foreign investors that came in different industries due the favorable conditions of the Investment Law and the effort of the current government to solve the extremely high debt left by the former government (which in addition to other matters caused a division among the elected political party, some in favor of the previous government and some in favor of the actual government), the economy of Ecuador was affected again by a combination of different factors.  These are the social unrest events that occurred not only in the country but also in the Latin American region around October 2019, followed by the oil crisis (price-drop), the damages in the local oil pipelines due to massive landslides and COVID-19.

COVID-19 impact not only revealed the deficit in the country’s health system but also caused the lockdown of the country and the suspension of most economic activities for a couple of weeks. As a consequence, certain small businesses have faced bankruptcy or many other, have had to reduce their production capacity and employment force, generating many opportunities for law firms in debt restructuring, ADR and labor advice, that had to innovate their services to provide legal assistance while working from home.

In addition, Ecuador has upcoming presidential elections on February 2021, and the political scenario is uncertain due to the fact that most of the high public official (President, Vice President and some ministries) of the former government have been prosecuted in relation to corruption allegations, and there is low probability that they can run for a public position. As such, after 14 years of having the same political party in government, there is a high probability of having a different political party achieving the presidency.

Some of the key aspects take into account while deciding to invest in Ecuador are the following:

Key Indicators for 2020 and forecast

Current Business Environment

Tax Regulation

Bellow a brief description of the main taxes applicable to commercial activities in Ecuador:

a) Income Tax

Income tax taxes the rent obtained by persons and local and foreign companies. Under the Ecuadorian law, income refers to:

Income from Ecuadorian source obtained free of charge of from work or capital.

Income obtained from abroad by persons domiciled in Ecuador or by Ecuadorian companies.

The tax basis is the total taxable income, less returns, discounts, costs and expenses deductible and attributable to such income. In general terms, the rate for companies is of 25%.

b) Value Added Tax

Tax on the value of transfer of ownership or import of goods, services, copyrights, industrial property and related rights. A 12% rate is applied over the price of goods and services. Some exceptions may apply to certain goods and services that will be taxed with a 0% rate.

c) Currency Remittance Tax (ISD)

The Currency Remittance Tax (ISD) taxes transfers in cash, through money orders, bank transfers, shipment, withdrawals or any payment of any kind, of currencies sent abroad, with the exception of an account clearing made with or without the intermediation of financial institutions.

The tax rate of 5% is applied over the value of the currency transfer. This tax is declared and paid by the financial institution by which the financial operation is carried out.

d) Capital Gains Tax or Property Transfer Tax

The tax rate for Capital Gains Tax and Property Transfer Tax ranges from 2% to 10%.

Labor – Profit sharing

15% of the net earnings of a company are distributed to all employees in the payroll. It can also apply to employees of companies that provide the company complementary services such as catering, security, cleaning and courier services. From the 15%, 10% is divided and distributed to all employees. The remaining 5% is distributed in accordance with the employee’s household.

Profit Sharing in mining, oil, and hydroelectric companies: as an exception to the general profit sharing rule, that the 15% of the annual profit must be distributed to all employees, in the case of mining, oil and hydroelectric companies it is only distributed 3% to all employees in the payroll, and 12% is distributed to the state.

Public Private Partnerships

The government has promoted Public Private Partnerships (PPP) which can be established for the provision of goods, building infrastructure, or services. All terms and conditions of PPPs are set out in a contract that must be signed with the public entity.

The PPPs have, among others that might be agreed upon the contractual parties, the following incentives:

a) Legal stability.

b) Income tax Exemption: Income tax exemption for ten years in projects in the prioritized sectors determined by an inter-institutional committee, period which starts from the first fiscal year in which the company generates operating income.

c) Currency Tax Remittance Exemption:  All companies that participate in an PPP will be exonerated from ISD in the following scenarios:

• In the importation of goods for the execution of the public project, whatever the import regime used.
• In the acquisition of services for the execution of the public project.
• The payments made by the company to the financiers of the public project, including capital, interest and commissions, provided that the agreed interest rate does not exceed the reference rate at the date of registration of the credit. The benefit extends to subordinate loans, provided that the borrowing company is not in a situation of undercapitalization in accordance with the general regime.
• The payments made by the company for distribution of dividends or profits to its beneficiaries, notwithstanding where they have their fiscal domicile.
• Payments made by any person or company due to the acquisition of shares, rights or participations of the structured company for the execution of a public project in the PPPs modality or for transactions that fall on securities representing obligations issued for the financing of the public project.

d) Reduction of tariffs: Customs tariffs that are related to the PPP projects will also be exonerated

e) International or domestic arbitration agreements

The incentives mentioned above may be enjoyed for the term agreed upon in the contract, with the exception of the income tax exemption, which can only be 10 years.

Investment Contracts

The Investment Law and COPCI benefits are directed to those new investments (either made by foreign or local investors) that meet the criteria of new productive investments in prioritized sectors of the economy that increases production and generates new employment.

The benefits granted by the government will depend on the investment project, its location, its industry, whether is a new company or an existing one, amongst other criteria, as shown bellow:

a) Total or partial income tax reduction from 8 to 15 years.

b) Currency Remittance Tax (“ISD”) exemption for the payment of imported machinery and raw materials, and for the payment of profits to foreign shareholders.

c) Tax stability for up to 15 years of the current applicable income tax rate. This provision does not provide stability for municipal, customs nor VAT Taxes.

d) Temporary exemption of custom tariff.

e) International or domestic arbitration is available for investors.

Initially, the aforementioned benefits apply for those investments made up to August 2020, but the President has recently extended the benefit for 2 years more, until 2022.

See more from Paz Horowitz at: www.pazhorowitz.com

I am from Venezuela and for most of my career I was based there. I moved to Panama five years ago when 3M relocated me to takeover legal responsibilities for countries across Central America and the Caribbean. After two and a half years I relocated to Mexico to become general counsel there. In 2020, I moved back to Panama as general counsel for Latin America, overseeing legal operations in the health care, transportation and electronics sectors.

I started this new role during the pandemic and have overseen the company’s involvement in a range of initiatives during this period. 3M has been very focused on increasing production of respirators. As a company are working together to get things where they need to be, utilising our own distribution channels. It is important to note the company has not increased the price of respirators. In fact, 3M has been fighting against price gouging and many other types of fraud in both the United States and Latin America. There have been fewer cases in Latin American than in the US.

Legally, we have taken a global approach, rather than a local one. Legal departments across the company have aligned their goals for Latin America, USAC (United States and Canada) and Europe.

One of the biggest challenges that I have experienced in recent months has been dealing with the speed of change. Governments have generally relaxed their rules to allow healthcare products to come into countries easier,  while some jurisdictions have made it harder to export products deemed necessary during the pandemic. Dealing with different jurisdictions and trying to standardise the way in which we work has been our biggest goal. It is a challenge when deciding how to balance multiple jurisdictions – you cannot work with 15 countries in 15 different ways. We need to find a midpoint that works across varying countries.

For example, if I am drafting an agreement that I would like to be used as a template for both Mexico and Argentina, I cannot put into that agreement the initial part of the document, as the format will be different for each country. If I insist on having that part of the document done in one single way for Latin America it would simply fail. If I focused on the little things, I would lose sight of the bigger picture.

No matter what jurisdiction we are dealing with, general counsel need to be more business minded  than external counsel. Being part of a company is very different to being part of a law firm. Your state of mind needs to be focused on what the company needs, and on how the company’s goals  can be achieved through different tools. That is where the IT team here at 3M steps in and integrates those tools, sometimes even delivering new tools on demand. When I was in Venezuela I asked the IT team to develop a tool for my internal client agreements. I was tired of people coming to my office to request an agreement with a range of stipulations, without giving me the details that I would need in order to draft the agreement.  The IT team developed technology that would make it easier to extract the relevant information I would need to draft that agreement. However, as things evolved, that particular technology is not efficient enough anymore.

At the moment, there are a number of tools on the market that companies can purchase. They can then adapt those tools to the company’s needs. That is exactly the case for 3M. We have been working with management tools for agreements as well as repository tools to be more efficient. We as a legal department are very much like a sponges. We need to be aware of and absorb a lot, whilst always adapting to the needs of the business. Our goal is to serve the business – there is no question ever about that. We then have to be innovative, and we need to be fast. We aim to help business teams do what they need to do – which in the end is to sell our products.

To that extent, it is really important to adapt to the needs of the business and to take advantage of all the tools we have to make work easier. But I have to admit that the legal department does complain in order to get the technologies that help us become more streamlined. That is the nature of being human, if we did not complain we would not be able to improve things.

I miss being able to go into to work and see people in our Panama office. Looking to the future, I think this moment of time has accelerated things within the industry. We definitely need to move towards becoming more efficient, and to find a balance between being compliant with the law and doing the right thing. I know doing the right thing is a subjective concept, but it is important to try and do what is right at a particular moment when you are faced with a particular situation. As a lawyer, the personal values you have and believe in, are a big part of it.

Of course, you also need support from the business. In a company like 3M, when a lawyer says something is not right, the issue will be heard and observed. Legal departments do not only report to their businesses, but also to a wider legal code. Everybody knows the opinions of lawyers matter – and although lawyers can sometimes get it wrong – companies trust their legal departments. 

As a macroeconomic preamble, Guatemala is a developing country highly dependent on agricultural products, textile manufacturing, remittances sent by expats and a strong informal economy (which represents 22% of the overall GDP). The country enjoys a stable currency without drastic inflation, even with the COVID-19 crisis, the cumulative inflation rate is at 2.16% and has inflationary rhythm of 2.39%. This strong currency has had a negative impact on exports’ revenue, another extremely relevant economic sector.

Interestingly, on May 2020, Guatemala reported a 2.2% increase in exports compared to May 2019. Guatemala’s main export products are: i) textiles and apparel (10%); ii) cardamom (8.2%); iii) coffee (8.1%); iv) sugar (7.7%); and v) bananas (7.6%). These five products accrue for 41.6% of overall exports. On the import side, on May 2020 Guatemala reported a -9.5% decrease on imports compared to May 2019. This is mainly due to a -35% decrease on the imports of fuel and lubricants and a -17.3% decrease on consumer products. Although exports play a critical role, from 2018 to 2020 Guatemala has maintained a trade deficit of an averaged US$3,93bn. From a trade in services perspective, Guatemala’s balance of payments reflects an overall reversion of the trade deficit with a significant increase in the export of manufacturing services. However, this trade surplus rhythm went from 2013 until 2018 and was interrupted in 2019, when Guatemala reported a trade deficit of US$46.8m.

Despite these not so negative numbers, due to the current COVID-19 economic crisis, the Guatemalan Central Bank has adjusted its economic yearly growth projection from 3.5% to 0.5%-1.5% for 2020. From a microeconomic perspective, both social distancing and transit limitation dispositions rendered by the government have significantly impacted the services sector. For example, projections show a negative impact in hotels and restaurants with an estimated reduction of -24.3%, transportation with -14.7%, basic services (water, electricity and gas) with -9.4% and real estate services with -8.4%. Even though it may seem that the supply chains have not been substantially strained, they reported a turnover decrease of 20%-40% in March 2020. Depending on the length of the crisis, Guatemala could be facing a loss of 97,000 to 177,000 formal jobs.

To mitigate this crisis, the Guatemalan government has increased the national budget on Q19bn quetzales (around US$2.5bn) in order to create public funds for social and economic purposes that will inject liquidity to the economy. 80% of the Q19bn was financed by the emission of treasury bonds and the remaining 20% was covered via institutional loans. These measures have increased the fiscal deficit by 5.7% in comparison with 2019. Surely, this will have an impact on the macroeconomic indicators of the country. Furthermore, the government has also suspended: i) certain tax obligations reducing collection by 3.3% (which will intensify this fiscal deficit); ii) the payment of Bono 14, a yearly mandatory bonus that employers pay to employees. Such provisions, along with the social distancing and transit limitations guidelines, have impacted the conducting of business of our clients; influencing their business projections in a short- and long-term perspective. They turn to their trusted legal advisors and appreciate a holistic approach in their everyday challenges.

Within this context, the Guatemalan legal market is going through a very pressing and critical time. COVID-19 has, not only disrupted the way legal services are rendered, but also drastically shaped our clients’ current needs. The new reality has forced law firms to migrate to a full home office model, challenging the in-office stereotype enshrined in the legal profession.

As many law firms have moved to a mandatory home office, it is important to closely monitor the working culture of their employees and substantially rely on their technological platforms to enable a smooth transition. Before the COVID-19 outbreak, the home office standard had a limited and informal presence within the law practice. Many law firms allowed lawyers to work half a day from home, but it was not formally stated as an internal policy. At EY, employees have always enjoyed a mandatory policy requiring them to work from home at least once a week. This has nourished the home office culture and facilitated the migration to a full home office model overnight without compromising efficiency.

Our clients have constantly relied on our services in order to help them better understand the impact changing COVID regulations could have on their daily operations. We have created multidisciplinary service packages where EY’s legal division works closely with other service lines within our multidisciplinary teams, advising our clients to tackle most of their COVID necessities from a legal, financial and tax perspective. Within the legal element of this full package, we have detected a strong need for advice in the labor, contractual, tax and regulatory areas.

The M&A market has also been impacted by the current situation. The buy side M&A practice has observed dynamism triggered by big companies. Certain groups are using this crisis as an opportunity to expand their operations by acquiring smaller companies in distress for a better price. This has generated several opportunities for our transactional practice.

The COVID-19 crisis has brought uncertainty. It is an ongoing crisis with unpredictable effects continuously unfolding without a clear projection, affecting all sectors of the economy – and the legal market is no exception. However, with change as the only constant, organizations are forced to keep up with this roller coaster by rapidly evolving their internal administration and the manner in which they are addressing their clients’ needs. Survival depends on resiliency and the ability to adapt.

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The Promised Energy and Infrastructure Investment Opportunities

In the early months of this year before COVID-19 became a global pandemic, all indications were that 2020 would be another record-setting year for investment in energy and infrastructure throughout Latin America. Significant institutional capital was being raised by debt and equity funds with an increasing appetite for and interest in Latin America. More and more global companies and strategic investors were lining up to pursue the development of renewable energy and infrastructure projects throughout the region. Renewable generation was increasingly cost-competitive with other generation without government subsidies, distributed generation was expanding rapidly, and commercial and industrial (C&I) businesses in Latin America were increasingly interested in direct contracting for renewable power. Governments were proposing new policies and reforms: advancing the evolution and diversification of Latin American energy markets, addressing climate change concerns through various investments, tackling urban congestion and pollution with public-private partnerships (P3s) to increase the electrification of public transportation, and structuring a pipeline of P3s to address other infrastructure gaps. Investment returns were better and opportunities more plentiful in Latin America than in most advanced economies. A growing roster of commercial banks and other lenders offering financing for those projects followed, also drawn, in part, by the better returns.

The Aftermath of the Pandemic

Then, the global pandemic spread to the Americas and led to a rapidly cascading shutdown of economic and human activity across the region resulting in an unprecedented deceleration of ongoing construction and an indefinite pause in new projects and investment. Quarantines resulted in a dramatic drop in electricity demand and substantially disrupted logistics for the construction and operation of projects. Government orders mandating uninterrupted supply of essential services coupled with suspensions of payment to private operators and the overall emergency have led to disruptions across value chains, including widespread force majeure claims, all of which have raised questions about the financial health of companies in these sectors despite mitigating efforts by countries like Brazil, Chile and Colombia. In short, the pandemic has set the region back economically, brought about a number of challenges for private and public sector plans for energy and infrastructure projects, and created uncertainty about the post-pandemic future.

It remains to be seen how these various dislocations will be resolved. Force majeure claims, in particular, have been asserted by parties across value chains and may raise a number of questions given the legal intricacies of the provisions that need to be interpreted, the economic consequences of contract milestones, term extensions, performance metrics and related payments, and the impact of these disputes on future contracts. The litigation generally arising from the pandemic, including claims for increased costs due to the pandemic and for the suspension of private operators’ rights to charge tolls or exercise remedies for nonpayment, will take time to be resolved and may produce outcomes that are inconsistent from project to project. Most importantly, investors will be watching the outcomes of these disputes, particularly those associated with government actions requiring private owners and operators to continue to provide services without compensation, in order to reassess political risks and the strength of investor rights under contracts in the different countries in the region.

The Opportunities Remain with Challenges

As the Inter-American Development Bank stressed in this year’s Development in the Americas report, Latin America and the Caribbean should ‘invest more and better’. Countries there/in the region have historically invested much less in energy and infrastructure than other developing regions and closing that gap will require greater and more effective public and private investment to produce better quality public services. The pandemic may shift aspects of how we live our lives and conduct business – and by extension whether we invest more in technology, media, and telecoms (TMT) and digitalization of services – but the need for investment in energy and infrastructure in Latin America has never been greater. Per IRENA’s Global Renewables Outlook, recovery measures that employ technologies consistent with long-term climate sustainability, like renewable generation, flexible power grids, efficiency solutions, electric vehicles, energy storage, and ‘green’ hydrogen, can help drive socio-economic development and create new private sector investment opportunities while addressing climate change goals.

Certain Latin American governments have already adopted policies designed to attract foreign investment in energy and infrastructure and make it a centerpiece of economic recovery efforts. Chile has introduced major initiatives on renewables, green hydrogen and electrification of public buses. Brazil has even reversed decades of prohibitions on the dollarization of contracts to increase the bankability of projects. Additionally, the United States has expressly made it a foreign policy goal to promote investment in energy and infrastructure in Latin America and the Caribbean in order to encourage a geographic shift in key suppliers to the United States from China and Asia to the Americas.

Further, the fundamental factors that promised opportunities prior to the pandemic – availability of capital, appetite for greater returns and need for investment – remain. There has been a reassessment of risk among investors and lenders and recent reports estimate that only a small percentage of newly raised capital is earmarked for Latin American investments. The International Energy Agency has cautioned that sponsors and investors will find that governments have focused their attention and resources on addressing the immediate impacts of the pandemic. As a result, government sponsorship of projects will be limited and public sector processes, including tenders, permitting and regulatory procedures, will be subject to delays. Moody’s predicted in July that future financing of energy and infrastructure will come from multilaterals and institutional investors given governments’ fiscal constraints and commercial banks’ focus on strengthening their balance sheets. Consequently, financing projects will be more difficult, particularly projects viewed as being riskier.

Nevertheless, from the perspective of Latin American companies, investments to ensure more reliable and affordable supply of electricity and infrastructure are essential to competitiveness and profitability and by extension economic growth. The pandemic has also underscored, if not accelerated, the public’s focus on climate change, ESG and sustainability concerns, including environmental and social costs, the importance of a diversified, reliable supply of energy, and the broad impacts of choices made with respect to infrastructure. As IRENA and OLADE stated in announcing their expanded collaboration this past July, ‘accelerating the development of sustainable energy’ as part of the economic recovery following the pandemic ‘could provide the Latin American region with a long-term strategy to address social inequality, energy access and energy security’. Companies seeking to encourage investment can support broad adoption of renewable generation or contract directly with developers and project owners seeking creditworthy buyers for their electricity. They can also partner with those developers as has happened in the United States to provide capital while mitigating political risks in this uncertain time. Consequently, we remain optimistic that there will be good investment opportunities in Latin America and that Latin American companies with access to industry expertise and seasoned counsel experienced in structuring and negotiating successful investments can play an active role in ensuring these positive changes continue. 

Maria-Leticia Ossa Daza is a partner in the Corporate & Financial Services Department and head of the Latin America Practice at Willkie Farr & Gallagher LLP. Jorge Kamine is a partner and Matt Vitorla is an associate in the Corporate & Financial Services Department of Willkie Farr & Gallagher and both are members of the Latin America Practice focusing on the energy and infrastructure sector.

See more from Willkie Farr & Gallagher at: www.willkie.com

This article aims to show the legal environment that El Salvador is experiencing, both before the pandemic, at the present time, and how it might look in the future once COVID-19 is learned to live with.

Amidst the COVID-19 pandemic, the smallest country in Central America is being threatened with an economic recession like never before, but the legal market may be on its way to thriving this year. Before COVID-19, legal markets were stable, the majority of legal teams were working in-office, had a normal 8-hour working day, had a regular amount of contentious issues and disputes, any changes in regulations were made occasionally, tax benefits were predetermined, and an increase in technological advances and resources were not a priority or being used as well as they should.

Nonetheless, for many, the pandemic has transformed the legal markets into a helping hand that has allowed many industries and companies to keep up with the new normal and hold their pillars stable. El Salvador’s GDP growth reached 2.3% last year, but the country is still suffering from previous persistent low levels of growth, and this year that number might not change in a positive way. COVID-19 struck hard enough that it is expected that the country’s level of growth will change to a negative number.

Low levels of growth of the economy were ‘the normal’ panoramic for El Salvador, but a pandemic of this size has caused an enormous amount of uncertainty, reaching the point where the ‘new normal’ has brought with it a new modern way of working for many – if not all – private companies and public entities. Many legal teams all over the country have been dealing with numerous questions from clients on a daily basis regarding employment matters, new and provisional regulations on any legal subject, tax advice, new working protocols, contract compliance and migration; and it is these matters that have kept the legal market flourishing in these hard times.

In a matter of days, the world stopped, and change came with it; a change not many people were open to but have been obliged to digest. There is no question fear has taken over many minds, and Salvadorans are no exception. Fear for the country’s levels of public debt has increased (as the country has never been prepared to deal with a pandemic, much less one this size and length) leading to even more placement of bonds and loans through multilateral organizations, and leaving us with foreign interest in investment at its lowest point.

Although a reduction in moderate poverty has been reported, with COVID-19 still living among us and the death toll rising on a daily basis, the poverty rate is expected to rise again; both moderate and extreme poverty. This has led various start-ups and low-level income companies to stop their businesses or even shut down. Unemployment has increased, working contracts have been suspended in numerous companies, and although there have been new laws placed in action during the last four and a half months to help these small businesses (and the informal working class) there is still a lot of uncertain ground to discover. The question is whether there is a chance of the economy opening back up, and therefore, if employment will rise to where it was before COVID-19. If not, the new normal brings more difficulties than those projected.

Moreover, new regulations have been placed since March in order to alleviate the tax burden in a series of industries, especially those concerning tourism. The current environment of uncertainty on the duration and control of the coronavirus, implies that more and more doubts and queries will rise on ‘how to proceed’ from now on. This is hope that ‘uncertainty’ will lead legal markets to thrive this year.

The expectations of having an increase in contentious issues and disputes are rising, as well as litigations. There is a basic need for this area of expertise right now, specifically in areas like labor, insurance, tax, regulations in general, and contract compliance, but projections can change from one day to another as a result of any change in the spread of the virus; changes that are being monitored continuously, for example, another outbreak further in the year, which could again paralyze the execution of economic activities and, therefore, cause even more uncertainty.

Regarding technology, both the government and private organizations have implemented digital solutions in order to deliver services; they have joined the use of new technologies, implementing the use of online banking, electronic signatures, digital deliverables, home office, client meetings, rapid response via emails; and have taken into account that the new normal has brought with it new technologies that are here to stay.

There is no question that social distancing is an obligation in order to slow down the curve, but time has told us that mental health issues are also rising, and resources around these issues are still not being taken as seriously as they should. There are many appropriate resources, but still not enough, and the legal market has not taken this issue into account.

Although the legal market in El Salvador expects to continue thriving during COVID-19 and after, there is still a lot to tackle in the months to come.

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