Doing Business in Guatemala

^{Legal framework for foreign investment}

^{All sectors of Guatemala's economy are open to both local and foreign investment and ownership. Other than applicable taxes, no restrictions apply to remittance of profits and repatriation of capital. Guatemala's legal framework is that of an open market that maintains a healthy respect for both entrepreneurial activity and foreign investment. The Guatemalan legal framework actively promotes investment and includes provisions that recognize, reaffirm 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).

Direct foreign investment in Guatemala
Direct foreign investment in Guatemala is accomplished by registering a local corporation or establishing a branch of a foreign corporation.

Registering a local corporation
Registering a local corporation is a simple and quick procedure, taking close to 48 hours for provisional registration and a maximum of four months to achieve final registration. Corporations may initiate operations under provisional registration.
Registering 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 Commercial Registry provisionally registers the corporation. One notice of the registration request must be published in the Official Gazette and one other local newspaper. 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 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 US.}

^{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 the incorporated business in the U.S. 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 Commercial 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 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. 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 establishing a bond for US$50,000.00 extended by a Guatemalan bonding company issued to the Ministry of Economics.}
^{Agree to submit to the jurisdiction of the Guatemalan courts and law.}
^{Submit a declaration of commitment to fulfill legal obligations prior to withdrawing from Guatemala.}
^{Present certified copies of the latest financial statements (balance sheets, profit and loss statement).}

All documents must be notarized and translated into Spanish by an accredited translator and authenticated at a Guatemalan Consular office and then legalized by the Ministry of Foreign Affairs. Subsequently they must be entered into the records of a registered Guatemalan notary 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 and one other newspaper. If no opposition is tendered, the Commercial Registry proceeds with registration, after verifying that the operating capital has been duly deposited in an authorized bank.
Operations must be initiated within a year of the date of registration. The process of filing for registration and approval is usually 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 representatives appointment filed before the Commercial Registry.}
^{Form No. SAT-0011 provided by the Internal Revenue Service, supplying the corporations 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 also 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 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 companys 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 taxAccording 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. For companies the fiscal year ends in December or June. Individuals must file by June 30 of each year.}

^{Taxable Personal Income Intervals}

^{Tax Payable}

^From	^To	^{Fixed Sum}	^Percentage	^{On excess of taxable income}
^{Q 00.00}	^{Q 65,000.00}	^{Q 00.00}	^{+15 per cent}	^{Q 00.00}
^{Q 65,000.00}	^{Q 180,0000.00}	^{Q 9,750.00}	^{+20 per cent}	^{Q 65,000.00}
^{Q 180,000.00}	^Unlimited	^{Q 32,750.00}	^{+27.5 per cent}	^{Q 180,000.00}

^{Corporations are currently taxed at a flat rate of 27.5 per cent.
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 individuals and corporations will decrease from 27.5% to 25 % in the year 2000.}
Depreciation ratesDepreciation in Guatemala is determined on a straight-line basis. Authorization to exceed the maximum rates established by law may be obtained under special circumstances.Yearly depreciation rates allowed:}

^{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 loansLoans from foreign financial institutions are allowed and interest 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 10 per cent of income tax. Capital losses are only 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 corporations 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, therefore 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.
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 do pay a zero per cent tariff.Foreign exchange regulations
All foreign currency transactions must be made 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 22-86, which oversees 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 the nearest Guatemalan Consulate. Most immigrants enter the country with a tourist visa and later apply for an ordinary visa should they choose to reside in Guatemala.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. Patentable inventions must be new, have an inventive level and be capable of industrial application. Patent registration extends for a maximum term of fifteen years.Labor legislation
The rights and obligations of employers and employees are regulated by the Labor Code. 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 minimum established by the government. In addition to the salary, employers must pay one month's pay as a bonus for each full year's work (Christmas bonus). This bonus is usually paid in equal parts in the months of December and January. Additionally, employees must be paid an extra monthly salary in July of each year (July Bonus).
On labor termination by an employer, an employee is entitled to a compensation equal to one month's salary for each year worked, calculated on the average salary of the six months prior to employment termination. Proportional vacations, Christmas and July bonus' calculations must be included in severance payment.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 *}

^{* Legislation also provides for one hour daily for breast-feeding 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 Economics provides on demand a list of products that do not qualify for these benefits)
For those interested in obtaining the benefits of Decree 29-89 an application must be submitted to the Ministry of Economics enclosing an economic study and an environmental impact study.Free Trade Zones Law (Decree 65-89)
Primary benefits:

^{Exemption on import duties on machinery, equipment, tools and raw materials.}
^{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 (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 any export tax.}

Products ultimately utilized in the country are treated as imports and duties must be paid.Other 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)}

There are no specific tax incentives for industries of these sectors. Law for the promotion of forestry development (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 reforests at least 50 per cent 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 Finances. 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 outside sources (certain remunerated activities performed inside the country are allowed paying the corresponding taxes).}
^{Exemption on import duties for vehicles every 5 years, except Value Added Tax.}}