Doing business in Guatemala
- Guatemala
- 02/25/2008
- Central Law - Guatemala
Legal Framework for Foreign Investment
Guatemala’s legal framework is that of an open market that accommodates both entrepreneurial activity and foreign investment inflows. The Guatemalan legal framework actively promotes investment and includes provisions that recognize and guarantee private property rights for both national and foreign investors. Additionally, Guatemalan law grants Favored Nation status to foreign investment through the Foreign Investment Law (Decree 9-98 and its Regulations (Decree 893-98)).
All sectors of Guatemala’s economy are open to both local and foreign investment and ownership. Other than applicable taxes, no restrictions apply on remittance of profits and repatriation of capital.
Foreign Direct Investment in Guatemala
Forming a local corporation or establishing a branch of a foreign corporation accomplishes foreign direct investment in Guatemala. There is no specific requirement for registration of foreign investment.
Registering a Local Corporation
Forming a local corporation is a relatively quick procedure, taking two to five working days for provisional registration and a maximum of four months to achieve final registration. Corporations may initiate operations under provisional registration. A lawyer must draw up the papers.
Forming a local corporation includes the following requirements:
• A minimum of two persons, individual or corporate, is necessary to form a corporation. There are no restrictions on the origin of the parties.
• The charter of the corporation must be executed in a public deed.
• A certified copy of the public deed must be filed at the Commercial Registry within thirty days of the corporation’s charter.
• After verifying compliance with legal requirements, the Mercantile Registry provisionally registers the corporation. One notice of the registration request must be published in the Official Gazette. If no opposition is tendered, the Registry proceeds with final registration.
Legal Organization of Guatemalan Companies
Guatemala’s Commercial Code provides for the establishment of the following types of companies:
Types and General Characteristics
General Partnership (Socledad Colectiva): all partners are equally responsible for all of the debts of the partnership to an unlimited extent. This form of organization is equivalent to the simple partnership in the United States.
Limited Liability (Sociedad de Responsabilidad Limitada): a maximum of twenty partners in which liability is limited to the amount of equity paid by each partner.
Limited partnership (Sociedad en Comandita Simple): formed by two types of partners: one or more general partners who direct business and are jointly and severally liable for debts, and one or more limited partners whose liability is limited to the amount of equity paid in. Limited partners have no management voice in the firms’ operation.
Special limited partnership (Sociedad en Comandita por Acciones): same as limited partnership except shares represent equity.
Stock corporation (Sociedad Anónima): this type of organization compares with an incorporated enterprise in the United States. Equity is divided and represented in equal value shares. Stockholder responsibility is limited to the amount of shares purchased. The corporation must have a board of directors, or a sole administrator, and must record annual stockholders’ meetings in a minute’s book duly authorized by the Ministry of Finances and the Mercantile Registry.
No limitations are placed on the number or percentage of foreigners serving on the board of directors of a Guatemalan corporation. Corporations are required to have a resident manager who can be a resident alien with a work permit or a Guatemalan citizen. Shares may be issued to the bearer or made out to the stockholders’ name.
Establishing a Branch of a Foreign Corporation
A corporation legally established in a country other than Guatemala may obtain registration and approval to operate in Guatemala by meeting the following requirements before the Commercial Registry:
• Demonstrate it has been duly organized in accordance with the laws of the country of origin.
• Present a certified copy of its articles of incorporation, by-laws, and amendments.
• Submit an authenticated copy of the minutes containing the corporation’s resolution to operate in Guatemala and to file for registration and approval.
• Appoint a representative, either a foreign resident with a work permit or a Guatemalan citizen, to conduct business and represent the corporation in all business and legal matters locally. However, only Guatemalan lawyers may exercise a judicial power of attorney.
• Deposit the operating capital in an authorized bank and agree to be liable for business conducted locally by establishing a bond for US$50,000.00 extended by a Guatemalan bonding company registered with the Ministry of Economy.
• Agree to submit to the jurisdiction of Guatemalan law and courts.
• Submit a declaration of commitment to fulfill legal obligations prior to withdrawing from Guatemala.
• Present certified copies of the latest corporate financial statements (balance sheets, profit and loss statement).
All documents must be notarized and translated into Spanish by an accredited translator, authenticated at a Guatemalan Consular office and subsequently legalized by the Ministry of Foreign Affairs. The documents must then be entered into the records of a registered Guatemalan notary (lawyer) prior to submission to the Commercial Registry. The Commercial Registry must verify compliance with all legal requirements and establish that charter provisions are not contrary to Guatemalan law. Subsequently, one notice of the registration request is published in the Official Gazette (Diario de Centroamerica) and one other newspaper. If no opposition is tendered, the Commercial Registry proceeds with registration, after verifying that the operating capital has been deposited in an authorized commercial bank.
Operations must be initiated within a year of the date of registration. The process of filing for registration and achieving final approval is regularly completed in approximately 4 months.
Registration with the Internal Revenue Service (Superintendency of Tributary Administration (SAT))
Registration at the Unified Revenue Registry of the SAT is required to obtain the necessary tax identification number (NIT). The following are required for registration:
• Affidavit of provisional registration from the Commercial Registry.
• Copies of the public deed and legal representative’s appointment filed before the Commercial Registry.
• Form No. SAT-0011, provided by the Internal Revenue Service, supplying the corporation’s general information.
Disclosure Obligations
Any changes of the corporation’s by-laws, capital, legal representative or purpose must be reported to the Commercial Registry. Liquidation or bankruptcy in the country of origin must also be reported to the Internal Revenue Service.
Temporary Operations
Foreign corporations may request approval for temporary operations for a period of less than two years at the Commercial Registry. Corporations are required to post a US$50,000.00 bond and provide proof of being duly organized in their country of origin and must appoint a legal representative in Guatemala.
Operations Requiring No Registration or Authorization
Foreign corporations do not require registration and/or approval to engage in the following:
• Sell to or purchase from independent commercial agents legally established in Guatemala.
• Seek orders through agents legally established in Guatemala, provided such orders are subject to confirmation or acceptance abroad.
• Open or maintain accounts in authorized banks.
• Acquire real estate or other property, with the exception of land near international borders and waterfront properties, as long as this is not the company’s principal activity.
• Grant loans to businesses established in Guatemala.
• Draw, endorse, or protest credit instruments in Guatemala.
• Participate in any legal action or proceeding before a Guatemalan court or public office. It is sufficient to extend a power of attorney to an accredited Guatemalan lawyer.
Taxation
Income Tax
According to Guatemalan law, taxable income is all income generated by capital, property, services, and rights invested or used in the country as well as income derived from any type of activities taking place in Guatemala. All individuals, corporations and businesses, domiciled or not in Guatemala, are subject to income tax. Income tax filing must be presented 90 days after the end of the accounting year. Companies may choose fiscal year closure at December 31 or June 30. Individuals must file by June 30 of each year for the preceding calendar year.
Taxable Personal & Corporate Income Intervals Tax Payable
From To Fixed Sum Percentage On excess of taxable income
Q 00.00 Q 36,000.00 Q 00.00 0 per cent Not applicable
Q 36,000.01 Q 65,0000.00 Q 00.00 +25 per cent Q 36,000.00
Q 65,000.01 Q unlimited Q 7,250.00 +30 per cent Q 65,000.00
Withholding tax for individuals or businesses that are not domiciled in Guatemala applies as follows:
• 10 per cent on dividends, profits, income, or other benefits paid or credited by corporations or businesses established in Guatemala, except if the company who distribute them has paid its own income tax.
• 10 per cent on payment or credits of interests, fees, commissions, bonuses, salaries, and other benefits.
• 27.5 per cent for payment or credits for royalties and other retributions for the use of patents and trademarks and for scientific, economic, and technical counseling.
Note: Tax percentages for the Q65,000.01 plus range will increase to 31 per cent during 2001.
Depreciation Rates
Depreciation in Guatemala is determined on a straight-line basis. Authorization to exceed the maximum rates established by law may be obtained under special circumstances.
Standard Yearly Depreciation Rates:
Buildings and improvements: 5 per cent
Forestry, fruits and vegetable plants: 15 per cent
Furniture and fixtures: 20 per cent
Machinery, equipment and vehicles: 20 per cent
Tools and computer equipment: 33.33 per cent
Any other depreciable assets: 10 per cent
Foreign Loans
Loans from foreign financial institutions are allowed and interest produced is deductible without tax withholding if the foreign currency was sold in the domestic banking system.
Royalties
Royalties paid for trademarks and patents duly registered in the Guatemalan Industrial Property Registry and use of formulas and production rights are deductible up to 5 per cent of gross income.
Capital Gains
Capital gains are subject to a 10 per cent of tax. Capital losses can only be deducted from capital gains produced within the next five years.
Carry Forward Losses
Losses incurred from operations can be deducted from profits obtained within the next two years.
Annual Business Tax
Corporations domiciled in Guatemala must pay a 2.5 per cent tax quarterly on one quarter of the amount resulting after subtracting depreciation and accrued amortization, bad debt reserves, and fiscal credits owed from total assets. The annual business tax can also be calculated by applying a 1.25 per cent rate on total revenues. Companies have the option to select one of the following options:
• Annual business tax may be accredited towards the corporation’s annual income tax for the next calendar year.
• Income tax paid can be accredited to the annual business tax of the same calendar year. In this case, annual business tax paid in previous years cannot be accredited towards income tax, but is considered as a deductible expense.
Value Added Tax
Value Added Tax (VAT) is levied at a uniform rate of ten per cent and is applied, among others, to the following:
• Sale of movable assets and rights regarding those assets.
• Rendering of services in the country.
• Imported goods.
• Sale of real estate.
VAT collected is regarded as a tax debit while VAT paid is considered a tax credit. Companies engaging in export activities are eligible to obtain tax credit reimbursements. VAT accounts are rectified monthly.
Stamp Tax
A three per cent tax rate of the value stipulated in legal documents is applied. Transactions subject to Value Added Tax are not subject to the Stamp Tax.
Import Taxes
Except for items covered by special industrial incentives or purchased directly by governmental agencies, imports from outside the Central American region are subject to a tariff ranging between zero and seventeen per cent ad valorem on CIF value. Capital goods imported from outside Central America are subject to a zero per cent tariff.
Foreign Exchange Regulations
All foreign currency transactions must be completed through approved financial institutions. A form must be filled out for all transactions involving foreign investments, remittance of dividends and repatriation of capital. Other than compliance with applicable taxes, no further control and restrictions apply for the remittance of profits and repatriation of capital. The foreign currency exchange rate floats freely and is determined by the market.
Immigration Legislation
All immigration matters are regulated by Decree 95-98, which governs the admission of immigrants and their activities. Unless otherwise exempt from visa requirements pursuant to international agreements, immigrants should apply for a visa to enter Guatemala at a Guatemalan Consulate. Most immigrants choose to enter the country with a tourist visa (tourist card) and later apply for an ordinary visa should they decide to reside in Guatemala. Business visas are available for temporary residence up to two years, and can be extended upon request.
Trademark and Patent Legislation
Trademark protection is granted by registration with the Patent and Trademark Office of the Ministry of Economics and extends for a renewable ten-year period. Items presented for patent must be new, have a level of inventiveness, and be capable of industrial application. Patent registration extends for a maximum term of fifteen years. The Guatemalan Congress passed a new Industrial Property Rights Law in September 2000.
Labor Legislation
The Guatemalan Labor Code regulates the rights and obligations of employers and employees. Services rendered by an employee must be remunerated in local currency (Quetzales) and may be calculated by time unit, work unit or by sharing profits, sales or collections made by the employer. Salaries must not be below the minimums established by the government depending upon trade and location (urban or rural). In addition to monthly salaries, employers must pay one month’s pay as a bonus in December (Christmas bonus - aguinaldo) and July (Fourteenth month – bono catorce). On labor termination by an employer, an employee is entitled to compensation equivalent to one month’s salary for each year worked, calculated on the average salary of the six months prior to employment termination. Severance payment must include proportional calculations of vacations, and Christmas and July bonuses.
Labor Policies
Standard workweek:
Day shifts: 44 hours
Night shifts: 36 hours Foreign personnel allowance:
Maximum percentage of employees: 10 per cent; Maximum percentage of payroll: 15 per cent •
Minimum wages (per day):
Agriculture: US$3.07
Commerce: US$3.38
Construction: US$3.38
Specialized: US$6.00 Maternity leave: 84 days ••
• Other rules apply to top management positions, and Ministry of Labor is empowered to authorize exceptions
•• Legislation also provides for one hour daily for breast-feeding for new mothers for 300 days after giving birth.
Legislation that Promotes Foreign Investment
Drawback Industries Law (Decree 29-89)
Primary benefits:
Exemption of import duties on raw materials, machinery, equipment and spare parts.
Value added tax exemption on imports.
10-year exemption on income tax.
Exemptions on export taxes.
(The Ministry of Economy provides on demand a list of products that do not qualify for these benefits)
Companies interested in operating under Decree 29-89 must submit an application to the Ministry of Economy enclosing an economic study and an environmental impact study.
Free Trade Zones Law (Decree 65-89)
Primary benefits:
Exemption of import duties on raw materials, machinery, equipment and spare parts.
Exemption on income tax for 5 years for commercial activities and 10 years for industries and services activities.
Exemption on value added tax on operations inside and between free zones.
(A register of activities that do not qualify for free zone benefits is available at the Ministry of Economics.)
Law of the Industrial Free Zone of Santo Tomás de Castilla – ZOLIC (Decrees 22-73 & 15-79)
Primary benefits:
Exemption on import taxes.
Exemption on value added tax on imports.
Exemption on income tax for 10 years.
Exemptions on export taxes.
Products ultimately commercialized in the country outside of free trade zones are treated as imports and duties must be paid.
Law for the Promotion of Forestry Developmen (Decree 101-96)
This Decree replaces the former Forestry Law (Decree 70-89). Those projects that were initiated under Decree 70-89 will maintain the benefits granted by that Decree until their conclusion.
Primary benefits granted by Decree 70-89:
Forestry investment certificates can be used to compensate for up to 50 per cent of income tax and vehicle circulation tax. Certificates are valid for up to 4 years.
Exoneration of payment of property taxes for up to 10 years to landowners that reforest 50 per cent or more of their property.
Primary benefits of Decree 101-96:
The state will furnish incentives for up to five years to those engaging in reforestation projects of more than two hectares through the National Forestry Institute (INAB) and the Ministry of Public Finance. The Board of Directors of INAB will determine on a year-to-year basis the cost to reforest and maintain one acre of land.
Retired Residents Law (Decree Law 95-98)
Primary benefits:
Exemption on duties of household goods, furniture and equipment imported during the first year of residency. (Ruling of maximum amount is pending)
Exemption on Income Tax and any other tax from income received from sources outside the country (certain remunerated activities performed inside the country are allowed, provided corresponding taxes are paid).
Exemption on import duties for vehicles every 5 years; Value Added Tax must be paid.
Other Pertinent Laws:
Petroleum Law (Decree 109-83)
Commercialization of Petroleum and Derivatives (Decree 109-97)
Mining Law (Decree 48-97)
General Law of Electricity (Decree 93-96 and Government agreement No.256-97)
