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Doing Business in Guatemala: Overview
Practical Law Country Q&A 9-554-4025 (Approx. 29 pages)
Doing Business in Guatemala: Overview
by Eduardo A. Mayora, Carmen Escobar, Juan Carlos Casellas and Vanessa Castro*, Mayora & Mayora, S.C.
| Law stated as at 01 Jan 2022 • Guatemala |
A Q&A guide to doing business in Guatemala.
This Q&A gives an overview of key recent developments affecting doing business in Guatemala as well as an introduction to the legal system; foreign investment, including restrictions, currency regulations and incentives; and business vehicles and their relevant restrictions and liabilities. The article also summarises the laws regulating employment relationships, including redundancies and mass layoffs, and provides short overviews on competition law; data protection; and product liability and safety. In addition, there are comprehensive summaries on taxation and tax residency; and intellectual property rights over patents, trade marks, registered and unregistered designs.
Overview
Economy
Guatemala is the largest economy in Central America, with an average growth rate of 3.5% between 2015 and 2018 and GDP per capita of USD4.603 in 2020. The country has elevated rates of poverty and inequality.
Despite the impact of the novel coronavirus disease (COVID-19) pandemic, Guatemala’s economy suffered one of the lower GDP contractions in 2020 and economic activity recovered to pre-pandemic levels in the first quarter of 2021, backed by a record of foreign remittances. The percentage of the population living in poverty slightly increased to 47% in 2020.
Although economic recovery outperformed expectations in 2021, with official sources citing 7.5% growth, the country still has the challenge of generating wider and more inclusive development for its population.
Dominant Industries
The country’s dominant industries are:
- Agriculture. Guatemala is among the world’s leading exporters of cardamom, bananas, sugar, and coffee.
- Tourism.
- Construction and services, which have grown in importance in recent years.
Population and Language
The last official census, conducted in 2018, reported a population of nearly 15 million, though other sources estimate it is currently nearer 18 million. The official language is Spanish, with 22 Mayan languages, as well as the xinca and garífuna languages, also spoken and recognized.
Guatemala is a very diverse country, with 41.7% of its population identifying as one of various Maya peoples, 0.1% as garífuna, 1.8% as xinca, 0.2% as black, creole, or of mixed African heritage, 56% as ladino (a term peculiar to Guatemala used to designate both descendants of white Spaniards and individuals of both European and indigenous descent), and 0.2% of foreign descent.
Business Culture
Office hours in Guatemala are generally structured around a Monday through Friday work week, typically with eight hour working days. Some businesses also work half a day on Saturdays, while sectors including entertainment, dining, leisure, and retail activities have longer hours and provide service seven days per week.
The public holidays in Guatemala are:
- 1 January (New Year's Day).
- Maundy Thursday, Good Friday, and Black Saturday of the Christian Holy Week (Easter).
- 26 April (Secretaries' Day: for secretaries only).
- 1 May (May Day and International Workers' Day).
- 2 May (Social Workers' Day: for social workers only).
- 10 May (Mothers' Day: for mothers only).
- 30 June (Day of the Guatemalan Army, commemoration of the Revolution of 1871).
- 1 July (Bank Workers' Day: for bank workers only).
- 15 September (Independence Day).
- 20 October (commemoration of the Revolution of 1944).
- 1 November (All Saints' Day).
- 30 November (Journalists' Day: for journalists only).
- 24 December (Christmas Eve). Employees are entitled to a half-day holiday commencing at noon.
- 25 December (Christmas Day).
- 31 December (New Year's Eve). Employees are entitled to a half-day holiday commencing at noon).
- The day of each town's local feast day (usually the Roman Catholic feast day of the town's patron saint or the saint after whom the town is named), which applies depends on the town where work is carried out.
Key Business and Economic Events
The COVID-19 pandemic had a negative impact on Guatemala but there have been optimistic recovery measurements from 2021 (see Question 1, Economy). The US government has implemented a series of plans and measures to fight corruption and promote economic prosperity in Guatemala, with the aim of reducing emigration. For example, seeking to promote US investment in the country to generate employment, and installing a special office to investigate the use of the US banking and financial system to launder money from corruption in Central America.
Political Events
In January 2020 a new government and legislature were installed. In April 2021, the new appointments to Constitutional Court were completed. The court plays an important role in some economic and political matters.
In addition to policies and legislation aimed at responding to the pandemic, the government has concentrated on efforts to boost economic activity, for example:
- Simplifying administrative procedures in offices of the executive branch.
- Improving the customs-free zones regime.
- Implementing public-private alliances for infrastructure development.
There has been tension within Guatemala and between Guatemala and the international community, especially the US government, arising from the ouster or transfer of former prosecutors and impeachment proceedings against judges. This has been considered some, including the US government (as publicly announced by the State Department) as a backlash against recent investigations into widespread corruption.
Legal System
The legal system of Guatemala is based on civil law, although there are certain laws, for example, the Chattel Mortgage Act (Ley de Garantías Mobiliarias), that have been inspired by legislation in common law jurisdictions. Judicial precedent is formally granted binding authority only when an opinion is cited across a qualified number of rulings from the higher courts (the Supreme Court and Constitutional Court). However, non-binding rulings from these courts have also increased their legal influence and relevance in recent years.
The Civil Code is based on the French civil law system and is the fundamental basis of private law, however certain aspects of private law (mainly issues related to family and minors, or consumer protection) are linked to additional legislation with significant public law elements.
Business law is regulated by the:
- Civil Code (which provides, among other things, the framework and main elements for contract law).
- Commercial Code, which covers:
- corporate law;
- the law on negotiable instruments;
- the law on commercial agreements; and
- the law on commercial agency, distribution, brokerage and business establishments.
There are specific statutes for financial organizations and activities, for example commercial banking and insurance, public offerings, and exchanges of securities. Intellectual property (for example trade marks and patents) is also regulated by a specific statute (see Question 31).
Certain industrial activities are subject to specific legislation and regulatory authorities, in particular those related to:
- The extraction of oil and mining.
- Energy.
- Telecommunications.
- Broadcasting.
Although Guatemala is a unitary and not federal jurisdiction, municipal governments enjoy a considerable degree of autonomy. For businesses, municipal autonomy is relevant mainly regarding permits for:
- Construction.
- The operation of a business establishment open to the public.
- The operation of businesses in specific types of location that may have to comply with additional local zoning rules.
Foreign Investment
Guatemala's laws relating to foreign investment create an open environment for overseas investors. The general rule is that foreign investors can wholly own investment vehicles and real estate in Guatemala free of any legal requirements concerning local partners, co-investors, or any restrictions concerning a maximum proportion of foreign shareholders.
There are a few exceptions, where some restrictions apply, for example:
- Open TV (TV broadcasted through state concession channels) and satellite broadcasting, where foreign nationals are prohibited from owning or holding title to ground stations.
- Owning property along the country’s borders, which can only be held by Guatemalan nationals.
5. Are there any restrictions or prohibitions on doing business with certain countries, jurisdictions, entities, organisations or individuals?
6. Are there any exchange control or currency regulations or any registration requirements under anti-money laundering laws?
There are no exchange control or currency regulations beyond the reporting requirements, which apply to banks and currency bureaus for statistical purposes. Dividends and capital invested in Guatemala can be freely moved and foreign currency can be used in any kind of agreement and in transactions. An entity’s beneficial ownership must be recorded, and there can be no anonymous stockholders in corporations. Special regulations for banking and specific industries also require reporting of beneficial owners.
The main principle concerning foreign investment is that of equal treatment for local and foreign investors (Foreign Investment Protection Act). This applies to the few investment incentives that are available, for example incentives for:
- Lowering tariffs on the import of raw materials and machinery, among others, for the purpose of exporting manufactured products from those materials outside Central America, to the US, and other jurisdictions.
- Forestry projects.
There are certain tax holidays and exemptions available under the Duty-Free Areas legislation. However, this is currently under revision to comply with World Trade Organization treaty requirements.
Business Vehicles
Main Business Vehicles
The main business vehicles used are the:
- Stock company (Sociedad Anónima) (SA).
- Limited liability company (Sociedad de Responsabilidad Limitada) (SRL).
- Branch (sucursal).
Trusts are also available for almost any legal purpose. However, the cost of organising and running a trust might not be justifiable for smaller size transactions and/or operations, as only banks and credit institutions can act as trustees. There is a specific type of agreement (Contrato de participación), which is similar to a joint venture. Joint ventures are not regulated in Guatemalan law as they are in other jurisdictions, therefore they are usually structured through a stock company.
SA
This is the most common form of business vehicle used by foreign investors. It offers the most flexibility, allowing shares to be freely transferred, which is not the case for an SRL. The costs are reasonable. The minimum capital required is the equivalent of about USD26, and the cost of setting up the company is about USD1,850 (including legal fees). The shareholders of the SA are not personally liable for the SA's obligations beyond the amount of capital each shareholder subscribes to and pays. The SA's obligations are guaranteed by the company's assets and the shareholders' subscribed and paid-in capital.
SRL
SRLs are used less commonly by foreign companies than SAs, although the start-up costs are lower, as SRLs do not require a minimum paid-in capital (see above, SA). It is, however, more difficult to transfer ownership in a limited liability company. This requires the:
- Amendment of the company's articles of association.
- Registration of a certified copy of the deed needed to make the transfer with the Commercial Registry.
An SRL is often used where a tick the box tax arrangement is preferred by US corporations where taxes are paid only at the level of the partners and not of the vehicle. Only the SRL (and the assets belonging to it) is liable for its obligations in Guatemala.
Local Branch
Local branches are usually accorded tax transparency in the jurisdiction of the parent entity, as the branch is merely an extension of a foreign legal entity into Guatemala. The branch is subject to the same taxation as any other business firm. Unlike the SA and SRL, a foreign corporation is fully liable for the obligations of its branch in Guatemala and risks any assets it has, both in Guatemala and anywhere else.
9. What are the main formation, registration and reporting requirements for the most common corporate business vehicle used by foreign companies in your jurisdiction?
Registration and Formation
An SA is the most common form of corporate business vehicle used by foreign companies in Guatemala (see Question 8).
To avoid any delays with the registration process, for example opposition from third parties, a name search should be carried out. This search can take between two and three business days.
An SA should be set up by the actual shareholders of the company. It legally requires a minimum of two shareholders, each of which can hold any percentage of the company's shares (Commercial Code).
Power of attorney. Generally, a foreign investor will grant a power of attorney to an individual or legal entity that is resident in Guatemala to appear before a notary public to incorporate the SA. This will also be done for the second shareholder.
If the power of attorney originates in a jurisdiction party to the HCCH Convention Abolishing the Requirement of Legalization for Foreign Public Documents 1961 (Apostille Convention), this part of the process will require less time, since the apostille will eliminate the need for further legalisation. If not, the process is as follows:
- The power of attorney must be authenticated in accordance with the law of the jurisdiction where the document is issued.
- The power of attorney must be legalized by a Guatemalan consul located in that jurisdiction.
- The document must be sent to the Ministry of Foreign Affairs, which will certify the signature of the Guatemalan consul abroad.
After either the apostille or the legalisation process (as applicable), the power of attorney is notarized in Guatemala and registered with the Registry of Powers of Attorney and with the Commercial Registry. Once the power of attorney is in Guatemala, the process of authentication and registration will take about ten days. Legal (sworn) translation will be required if any part of the document to be notarized (the power of attorney, the apostille, or the legalisation) is not in Spanish.
Paid-in capital. The power of attorney and the paid-in capital must be deposited in a local bank in the name of the new entity. Recent amendments to the Commercial Code make it unnecessary (optional) to deposit the capital prior to executing the articles of association as a deed, if it is lower than the equivalent of about USD270. Where this applies, the entity's bank account can be opened after the entity is registered, which speeds up the creation and registration process. However, this rule mainly applies to small businesses. Foreign investors usually have paid-in capital higher than the legal threshold, therefore making it necessary to open an account before the deed (the equivalent to articles of association) is executed before a public notary.
Articles of association. In addition to the paid-in capital, which must be paid at the outset, it is necessary for the deed to specify:
- The SA's capital including:
- the subscribed capital, which is a firm commitment that future capital contributions will be paid (at least 25% of the subscribed capital must be paid at the outset by each stockholder on each subscribed share); and
- The authorized capital, which is the maximum number of shares that can be issued without any amendment to the articles of association.
- The SA's governance structure which includes the:
- shareholders of the company (generally, there are no prohibitions against foreign individuals and/or corporations being shareholders of an SA);
- board of directors or a sole administrator.
- general manager (CEO) of the company.
It is possible to impose substantive limitations, conditions, and/or special majorities to take any corporate action or to adopt resolutions.
Registration. Once the company's articles of association are authorized, that is, signed by the notary public, the registration process can begin by filing a certified copy of them at the Commercial Registry. Unless there is some formal omission on filing, registration occurs about six working days after filing. Once registered, the company can begin operations.
Registration is published in the Commercial Registry's online notification website, so that any potentially affected party can object to it within three working days of publication. The main source of objections is similarity between the company name of the new entity and another name that is already in use. These objections are usually settled, so as not to incur delays and expense. There are no specific naming requirements, but some rules regarding, for example, the liability assumed by partners when an entity carries their name or surname.
This procedure also applies, with necessary changes, to SRLs.
Reporting Requirements
SAs and SRLs whose corporate purpose is not subject to a specific regulatory regime, must file their balance sheet and profit and loss statements annually with the Commercial Registry and publish them in the registry’s online bulletin. Additional financial and/or operating requirements apply to companies subject to special regulatory regimes, for example such as:
- Financial institutions.
- Insurance companies.
- Publicly traded companies or those that have issued securities in the securities markets.
- Telecommunications operators.
- Distributors of electric energy.
Share Capital
The paid-in capital for an SA is a minimum of about USD26. SRLs have no minimum capital requirement (see above, Registration and Formation).
Non-Cash Consideration
Shares can be issued for non-cash consideration. Real property, equipment, patents and other intangible property, feasibility studies, and third-party credits can be contributed to the company and shares issued in exchange. All these must be detailed and appraised by the shareholders, who are separately liable if they overvalue any of those assets.
Rights Attaching to Shares
Restrictions on rights attaching to shares. All shares within the same class must give their holders the same rights. Additionally, shares are indivisible and even if not fully paid, their holders have a right to vote (unless the company's bye-laws provide otherwise). The right to vote can also be limited for special classes of shares and for preferred shares where the bye-laws provide that certain shareholders can only vote on specific matters.
Automatic rights attaching to shares. Shares automatically grant a right:
- To the distribution of dividends.
- To the distribution of the company's capital upon partial or total liquidation.
- Of pre-emption in relation to new shares issued by the company.
- To vote in shareholders' meetings.
10. What is the standard management structure and key liability issues for the most common form of corporate business vehicle used by foreign companies in your jurisdiction?
Management Structure
An SA can operate with a single director (Administrador Único), or through a board of directors, including a CEO. Other managers and committees in charge of supervising company business can be appointed (as provided for in the bye-laws or as mandated by a shareholders' meeting).
Board members can meet anywhere in the world, depending on the company bye-laws, and can have members and alternate members. Board members may attend the meetings either physically or through any method of distance communication, for example telephone conference or videoconference, if these means are provided for in the bye-laws. Directors can be represented by other directors at a board meeting, also if provided for in the bye-laws.
The chairman is the company's legal representative, so their actions that are within the scope of the general corporate object, as defined in the bye-laws, will bind the company. Legal representation can also be granted to other board members, jointly or severally, or for specific areas of business or administrative matters (for example, labor, tax, and financial transactions).
Generally, the board of directors sets policy under the rules and framework given by the law and bye-laws of the company, and the general manager and/or any other managers handle the day-to-day business of the company to achieve the goals and objectives set by the board.
Usually, the CEO is also a legal representative of the company and, as with the chairman, the CEO's actions will bind the company if they are within the scope of the general corporate object. Legal representation can be granted to other managers, jointly or severally, and/or for more specific matters or areas of business.
Management Restrictions
Up to two foreign managers can be appointed without authorization from the Ministry of Labor. More foreign managers can be appointed, but it is necessary to show to the labor authorities that the skills or expertise of the foreign manager is not available in Guatemala. The number of foreign workers in any company must not exceed 10% (see Question 14).
The shareholders can restrict the powers of company managers through the bye-laws or through resolutions at shareholders' meetings. However, bona fide third parties can rely on the company's legal representatives as having the requisite power and authority to act and bind the company in any matter within the ordinary course of business (basically the corporate object (see above, Management Structure)). Any specific limitations must be included in the deed of appointment (which must be recorded before a notary public and registered with the Commercial Registry (see Question 9, Registration and Formation).
Directors' and Officers' Liability
Directors and officers are liable for any damages caused intentionally or through negligence and any provision to the contrary is null and void. Although they are generally jointly liable, a director or officer who votes against the prevailing decision is exempted from liability. Directors and officers are specifically liable for ensuring that:
- The company's accounting system is run in accordance with the law and is true and correct.
- Capital contributions are made in a timely and exact manner.
- Any dividends distributed are based on real profits.
- Resolutions from shareholders' meetings are executed and complied with.
Directors and officers are subject to certain fiduciary duties. Their individual interests must not prevail over or adversely affect those of the company. They must disclose any personal interest in any matter before the board or their office and, if put to a vote, excuse themselves and leave the meeting room.
Unless the bye-laws provide otherwise or the shareholders consent, they:
- Cannot engage the company for their own account or the account of a third party in the same line of business.
- Delegate their responsibilities.
Parent Company Liability
One of the main differences between the establishment of a branch or an agency versus the organization of a subsidiary is that the parent company is not generally liable for the business and obligations of the subsidiary. The liability of the shareholders in an SA is limited to the subscribed capital, except where, under general law, the subsidiary has been set up with the intent of defrauding third party creditors by interposing a legal entity between the parent company and the other party.
Environment
11. What are the main environmental regulations and considerations that a business must take into account when setting up and doing business in your jurisdiction?
Guatemala’s main pieces of environmental legislation are:
- Environmental Protection and Improvement Act (Ley de Protección y Mejoramiento del Medio Ambiente, Decree 68-86).
- Protected Areas Act (Ley de Áreas Protegidas, Decree 4-89).
The regulating authorities also issue administrative regulations on various topics. The main administrative regulations on environmental protection are the:
- Regulation for Environmental Evaluation, Control and Monitoring (Reglamento de Evaluación, Control y Seguimiento Ambiental) No. 137-2016, issued in July 2016 by the Presidency and the Environment and Natural Resources Ministry (Ministerio de Ambiente y Recursos Naturales) (MARN).
- Regulation for Protected Areas Act (Reglamento de la Ley de Áreas Protegidas) Government Agreement 759-90.
Separate environmental permits are required, depending on the activity that is to be carried out and the area in which it will occur. For example, the MARN issues 19 different types of permits (licencias ambientales) related to the following general categories:
- Projects, works, industries, or activities (approved environmental instruments).
- Import or export of products, substances, and raw materials.
- Import of refrigeration and air conditioning equipment.
- Controlled final disposal.
- Environmental consultants (for individuals or companies).
The Environmental Protection and Improvement Act requires an EIA (estudio de evaluación de impacto ambiental) to be carried out for all projects, works, industries, or any other activities that can potentially damage natural resources or the environment, or introduce harmful or notorious alterations to the landscape and cultural resources.
Regulation 137-2016 classifies projects, works, industries, and activities based on their potential environmental impact or risk, which serves as a guideline for determining the scope of the EIA. An environmental permit is required before a project can start. Also, depending on the type of project, it could require other permits issued by other regulators and consultation with indigenous populations under ILO Convention 169.
Employment
Overview
The Labor Code is the main source of labor law. Other rules can be found in:
- The Constitution.
- Specific statutes, which have either amended the Labor Code or created new obligations.
- International treaties ratified by Guatemala.
The application of labor laws does not necessarily depend on the parties' preference or will as expressed in any services agreement but will depend on the facts of the situation. A labor judge is likely to find an individual service contract is subject to labor laws where there is any agreement, memorandum, accounting documents, or any other evidence establishing facts for example employment hierarchy and direction, working time, and disciplinary measures.
The parties can only agree to override provisions of the Constitution, Labor Code, treaties, or collective agreements, if these contractual provisions improve the employee's rights and conditions. Rights and conditions can also be improved by custom or practice at the labor place.
Employment contracts must be executed in writing. The burden of proof of the written agreement lies on the employer and, if no written contract can be produced as evidence before a labor judge, the employment conditions argued by the employee will be taken as a fact.
The same rules apply to national, resident, and foreign employees working in Guatemala.
Work Permits
Foreign employees need work permits to work legally in Guatemala in addition to a migrant worker's residence visa. To obtain a work permit, the main conditions are that the employer declares that the employee will be hired on the granting of the work permit, and that the employer agrees to guarantee that the employee's legal obligations in Guatemala are fulfilled. In practice, this guarantee is rarely enforced.
Foreign Employment Policies
Frequently, when foreign companies wish to reproduce the employment policies that apply in their original jurisdiction, employee benefits are considered to be in addition to, rather than in replacement of, benefits already established by applicable Guatemalan law. It is not legally possible to relinquish or renounce any benefit already established by law, convention, or custom in Guatemala.
Main Terms
Written employment contracts are required. A copy of the contract must be sent to the competent division of the Ministry of Labor. The main terms of a labor contract are:
- The object of the services (job description).
- The manner of providing the services.
- The time for their realization (schedules and working hours).
- The workplace location.
- The renumeration.
According to law, these may not be fundamentally altered unilaterally by the employer. Therefore, it is important to align them adequately with the employer’s policies and requirements.
Implied Terms
The contract is based on a standard form provided by the Ministry of Labor and all of the legally established employee benefits are considered to be automatically included. If a different format is used or if no written contract is signed, the minimum legal terms and conditions apply by default, unless custom or practice in the workplace or an applicable collective agreement includes any term that would improve the employment conditions for the employee. In absence of a written contract, the terms and conditions argued by the employee will be taken as fact by labor judges, which may be superior to the minimum legal provisions.
Some implied terms include:
- 12 monthly salaries per year, plus a mid-year and a Christmas bonus. The bonuses are equivalent to one monthly salary that the employer pays in the middle and at the end of the year.
- 301 working days a year, not including public holidays.
- Ordinary and extraordinary working hours (44 hours a week for the ordinary working hours).
- A productivity bonus, which should be agreed between companies and employees, in accordance with the systems of productivity and efficiency that they establish, and which should be paid to the employees with the monthly salary. The minimum is GTQ250.
- The right to a severance pay equivalent to roughly one monthly salary for each year of work, in case of dismissal without just cause.
- Where applicable, maternity leave.
Foreign workers require a work permit and a migrant worker's residence visa (see Question 12, Work Permits). The employer who sponsors the foreign employee applies for the work permit to the Ministry of Labor, and to the Guatemalan Institute of Immigration for the migrant worker's residence visa. If the required documentation is in order, the visa is obtained in about two months (from date of filing) and the work permit is obtained in about three months. The costs are as follows:
- The Immigration Authority charges a fee of between USD200 and USD500, depending on the period for which the foreign national's residence is granted.
- The Labor Ministry charges about USD400 for the work permit.
Any foreign hire must be approved by the Ministry of Labor on the basis that the skills or expertise of the foreign employee are not available locally. No more than 10% of a company's total workforce can be composed of foreign nationals at any time (excluding foreign managers).
15. Are employees entitled to management representation and/or to be consulted in relation to corporate transactions (such as changes in control, redundancies and disposals)?
Fair Dismissal
Justified dismissal, or just cause, consists of termination on the failure of the employee to fulfil their obligations or on committing any illegal or unbecoming acts against the employer or their fellow employees. Even for justified dismissal, the employee can bring the matter before a labor judge to require legal proof of the just cause.
Statutory minimum notice. There is no statutory minimum notice period for fair dismissal. There is a minimum notice period for employee resignations, which will depend on how long the employment relationship has lasted.
Severance payment. There is no requirement for severance pay for fair dismissal. All salaries, bonuses, and other applicable employee benefits must be paid to the employee up to the date of their dismissal, whether through just cause or not. Some companies do offer universal severance pay as an additional benefit, not required by law.
Unfair Dismissal
Grounds for unfair dismissal. A dismissal will be unfair if it is not preceded by a just cause or, even if just cause is invoked, the employer fails to prove it when challenged to do so by the former employee before a labor court.
Severance payment. If no just cause for termination exists then a severance pay is due, which amounts to roughly one monthly salary for every year of work at the company (see Question 13).
Remedies. When an employee is dismissed without just cause and not given severance pay, they can take the matter to a labor judge and claim the payment of the severance pay (plus litigation costs). One important procedural element is that the employee is not required to prove their dismissal was not justified, but instead the employer has the burden of proving that the dismissal was justified.
Tax
Employees are taxed on Guatemalan-sourced income. The definition of Guatemalan source is broad, including not only the employee's salary but any income derived from capital investments, interest, capital gains, or property leased, in all cases, within the jurisdiction of Guatemala.
Tax Residence
A different tax treatment applies to resident and non-resident employees (see Question 19). Presence in the country for more than 183 days a year would usually give rise to tax residence. Other situations may give rise to withholding tax obligations (regardless of whether the income is characterized as derived from a labor law relationship) (for example, see Question 22, IP Royalties Paid).
19. What income tax, social security and other tax or contributions must be paid by the employee and the employer during the employment relationship?
Tax Resident Employees
Tax resident employees are liable to pay income tax at 5% or 7%, depending on the amount of the taxable income. Employees with income above the equivalent of USD37,975 are taxed at 7%; other employees are taxed at 5%. The only deductions allowed include:
- Cost of living allowance at about USD6,076 per year.
- Social security contributions and contributions to pension funds.
- Life insurance premiums, which do not provide for a rescue value.
The employer must calculate the monthly withholding to be made through the year, but a final payment is made at the end of the fiscal year, if more or less than the required tax would have been withheld. Employers file and pay the tax before the Tax Authority, which has implemented online filing and payment through banks.
Social security contributions amount to a total of 17%, of which 12.67% must be contributed by the employer and 4.83% must be contributed by the employee.
Tax Non-Resident Employees
A 15% withholding tax rate applies to income for tax non-resident employees' whose employment falls under the general category of remuneration for services. The employer must withhold the tax on credit or payment for the services and pay it on behalf of the employee to the Tax Administration within the next ten working days of withholding. No filing requirements apply to tax non-resident employees.
Employers
Employers must withhold and pay on behalf of their employees the applicable income tax and social security contributions, including employer's social security contributions (see above, Tax Resident Employees).
Tax Resident Business
A business vehicle must pay income tax in Guatemala on Guatemalan-sourced income, regardless of nationality or residence. However, the tax regime applicable to residents differs from that applicable to non-residents:
- Tax resident vehicles are taxed according to the nature of their income (whether, for example, derived from their main business activity or from capital investments). Tax resident businesses are not liable to pay tax on worldwide income.
- Tax non-resident vehicles are subject to withholding taxes, the rates of which vary according to several categories of income (for example, interest, dividends, remuneration for services, and royalties on IP).
Residence depends, broadly, on:
- Physical presence in Guatemala for more than 183 days in a year.
- Carrying on business activities in Guatemala on a habitual basis.
- Having the company's main business interests or administrative headquarters in Guatemala.
- Becoming organized under the laws of Guatemala and establishing its tax residence in Guatemala.
21. What are the main taxes that potentially apply to a business vehicle subject to tax in your jurisdiction?
The main taxes applicable to a business vehicle in Guatemala are:
- Corporate income tax. Corporate business vehicles are generally subject to a 25% tax rate on net income. There is an alternative regime available to all taxpayers where gross income is taxed at 7% or 5%, depending on whether the taxable income surpasses a threshold of GTQ300,000.01 or not. For those taxpayers with an effective tax rate of 7% or more, this may be the best choice as administrative costs are very low (meaning that there is no need to determine applicable deductibles or their amount). The default and main method of payment of income taxes consists of a quarterly interim payment (calculated on the previous fiscal year's results or, alternatively, on a forecast for the current fiscal year) to be liquidated at the end of the fiscal year when compared to the definitive results. The alternative method, calculated on gross income, consists of either a withholding applicable to every amount paid to the taxpayer or a direct monthly payment by the taxpayer of the 5% or 7% on gross income.
- Value added tax (VAT). There is one rate of 12%, which is applicable to all sales of services and goods, except for real estate and motor vehicles, where the seller's trade is other than those transactions. VAT is paid on a monthly basis.
- Import duties. Guatemala's economy is fairly open, and therefore the average import duty rate is 7%. Guatemala, however, has secured free trade agreements with all of its major commercial partners (see Question 26). Therefore, close to 90% of all imports are subject to rates lower than 7%.
- Social security contributions. These contributions are a total of 17%, of which the employer contributes 12.67% and the employee 4.83%. The employer has a legal obligation to withhold and pay, on behalf of the employee and itself, the relevant contribution. Withholdings and payments are made on a monthly basis.
- Excise taxes. Excise taxes apply to certain areas of business (soft drinks (GTQ0.8 to GTQ0.18 per litre), alcoholic beverages (6% to 8.5%), gasoline (GTQ4.70 per US gallon), diesel oil (GTQ1.30 per US gallon), cigarettes (100% of the 75% of the suggested retail price for each packet of ten packs of 20 cigarettes), among others).
- Property tax. Property is taxed on the recorded value of real property (at 0.9%, 0.6%, and 0.3%, depending on the value of the property).
22. How are the following taxed:
- Dividends paid to foreign corporate shareholders?
- Dividends received from foreign companies?
- Interest paid to foreign corporate shareholders?
- Intellectual property (IP) royalties paid to foreign corporate shareholders?
Dividends Paid
Dividends distributed to shareholders, whether resident or non-resident, are taxed at 5% and withheld by the paying company.
Dividends Received
Dividends received from Guatemalan companies are usually subject to withholding tax (see above, Dividends Paid). Dividends received from foreign companies, that do not operate or have a permanent establishment in Guatemala, are considered to be foreign source income and therefore not subject to taxation in Guatemala.
Interest Paid
As a general rule, the payment of interest is subject to 10% tax, whether paid to residents or to non-residents, with some exemptions, for example:
- Government bonds.
- Insured mortgage-backed securities, for the development of low-income housing projects.
- Interest on loans made by fully licensed foreign banks or financial institutions to Guatemalan companies is also exempt (though it is recommended that a ruling is sought from the Tax Administration).
However, if the resident regularly derives income from financial transactions, the income will be subject to corporate income tax.
24. Must the profits of a foreign subsidiary be imputed to a parent company that is tax resident in your jurisdiction (controlled foreign company rules)?
There are transfer pricing rules applicable to transactions between related parties, for both products and services. The system follows the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2010 on transfer pricing, including valuation methodology, reporting requirements, and criteria on company groups.
Guatemala is part of the Central American Integration System, which is based on a series of treaties that regulate, among others, international trade among the member states and between the member states and non-member states. The other members of the system are El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Belize, and the Dominican Republic. There is a Central American Uniform Customs Code and a common customs product nomenclature across the region. Both have been developed to comply with basic WTO rules and policies. Trade among the member states is now basically free of any import duties, except for a few products that have a sensitive character for the member states' economies.
In addition, there are several free trade agreements, in particular between:
- The Central American states (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua), the Dominican Republic and the United States (Central American Free Trade Agreement (CAFTA)).
- The Central American states and Mexico.
- The Central American states and the EU.
- The Central American states and Chile.
- Guatemala, El Salvador, Honduras and Colombia.
- Guatemala and Taiwan.
All of these agreements create a fairly open international trade environment with only a few products subject to import duties, which will gradually be reduced.
There are no export duties, but there are products, for example, sugar, which are subject to export quotas.
Competition
28. Are restrictive agreements and practices regulated by competition law? Is unilateral (or single-firm) conduct regulated by competition law?
Competition Authority
There is no competition authority because no competition legislation has been enacted. Several bills have been submitted to Congress that, to varying degrees, reflect the standard regulations in Latin America. There is no timeline for when the competition legislation is likely to be enacted, as this is contingent on the congressional agenda, which will depend on political circumstances. There are, however, constitutional and legal provisions contained in several statutes that regulate matters concerning monopolistic activities, cartels, price fixing, and dumping. For example:
- The Constitution contains a general provision prohibiting monopolies and concentrations.
- The Commercial Code contains a provision against discrimination in contracting.
- The Criminal Code establishes certain crimes including speculation and hoarding.
Conduct can also be subject to criminal sanctions, where there is an intention to affect the national economy. Most disputes have been filed in relation to the terms and conditions of interconnection agreements between telecommunications operators.
Restrictive Agreements and Practices
Competition legislation has not been enacted by Congress (see above, Competition Authority). However, under general law, there are certain rules concerning excessively burdensome contractual provisions on topics including usury, unforeseeable circumstances that make obligations excessively burdensome, and similar situations. For example, interest charges on credit card balances that are higher than the rates published by the Central Bank have been challenged as being excessively burdensome.
There are no rules concerning merger control, although a merger or an acquisition of a bank or financial institution must be approved by the banking regulator. There is a bill on competition law, including merger control, pending before Congress (see Question 28, Competition Authority).
Anti-Bribery and Corruption
Guatemala has a local law, the Anticorruption Act (Ley Contra la Corrupción), Decree of Congress No. 31-2012, which amended various laws (including the Criminal Code, the Organized Crime Act, and the Asset Forfeiture Act). It defines crimes and establishes penalties for public officials and private actors, including corporate representatives and personnel, and criminal liability for corporations, in areas including bribery, fraud, and influence trafficking.
Other rules on matters including gifts, exchanges, payments, and use of public goods are contained in Decree No. 89-2002, the Probity and Liability of Public Officials and Employees Act (Ley de Probidad y Responsabilidad de Funcionarios y Empleados Públicos) and its regulation.
The country is also a party to the United Nations Convention against Corruption 2003 (Decree No. 91-2005) and the Inter-American Convention against Corruption 1996 (Decree 15-2001).
Based on these legal liabilities, and other guidelines and best practices, companies have begun to design and implement compliance and anticorruption regulations with the aid of legal counsel. Some sectors, for example banking and finance, are subject to further specific regulations and reporting obligations through money laundering and tax evasion legislation. These provide specific requirements for companies in their banking and financial activities.
Intellectual Property
Patents
Definition and legal requirements. A patent is a title which recognizes the rights of an inventor to their invention. To be granted a patent, the invention must:
- Be novel.
- Consist of an inventive step.
- Be capable of industrial application.
In practice, the main types of patents protected relate to pharmaceutical products.
Legal provisions covering the patenting of plant varieties were removed from the Industrial Property Law by Decree 19-2014. Congress is expected to enact a new law for the protection of plant varieties to comply with the country's obligations under the International Convention for the Protection of New Varieties of Plants.
Registration. Patents must be registered with the Intellectual Property Registry, whose website provides guidance on the applicable procedure.
Enforcement and remedies. Patents can be enforced by those named in the Patent Title or certificate, or by their registered assignees or successors, where applicable. A number of actions can be taken to enforce a patent, including actions seeking:
- Injunctive relief against infringers.
- The nullity of another patent that has been granted, where it partially or completely infringed an earlier patent.
Additionally, Guatemala is a signatory of the following major international treaties on patents, which provide additional protection:
- WIPO Paris Convention for the Protection of Industrial Property 1883.
- Patent Cooperation Treaty 1970.
- Convention establishing the World Intellectual Property Organization 1979.
- WTO Agreement on Trade-Related Aspects of Intellectual Property Rights 1994 (TRIPS).
- Convention on Biological Diversity 1992.
- Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure 1977.
Length of protection. Patents are granted for a term of 20 years, counted from the patent application's filing date.
Trade Marks
Definition and legal requirements. Trade marks comprise a broad variety of words, symbols, signs, or combinations of these, including odours and sounds, which acquire a distinctive character in respect of the products or services covered by the trade mark. Trade marks can also consist of national or geographical denominations, if these bear a direct connection with the corresponding product or service.
Protection. Trade marks can be registered with the Intellectual Property Registry and the relevant procedures are described on the registry's website. Unregistered trade marks are not protected, unless they are protected by treaty or they are well-known trade marks under Article 6bis of the Paris Convention.
Enforcement and remedies. The owner of the registered trade mark can bring actions to, among other things:
- Seek injunctive relief to make infringers cease and desist.
- Nullify trade marks that infringe pre-existing trade marks or trade marks subject to treaty protection (for example, well-known trade marks).
In addition, actions can be brought in the context of unfair competition, where trade marks are infringed through references, imitation, or similar activities.
Length of protection and renewability. Trade marks are granted for a period of ten years and are renewable for further periods of ten years.
Registered Designs
Definition. Utility models and industrial drawings and designs are broadly defined to comprise the plans and/or depictions of industrial and/or artisanal products. They are subject (with the necessary changes) to the same rules that apply to patent registration (see above, Patents: Definition and legal requirements).
Registration. Industrial designs must be registered with the Intellectual Property Registry.
Enforcement and remedies. Registered industrial designs and drawings can be enforced in practically the same way as patents (see above, Patents: enforcement and remedies).
Length of protection and renewability. Industrial designs and drawings are protected for a term of ten years and renewable only once for an additional term of five years.
Unregistered Designs
Definition and legal requirements. Unregistered industrial designs are also legally protected on disclosure, that is, the first time the industrial design is made public by any means and in any place by the designer, the owner, or by any third party that may have acquired the design.
Enforcement and remedies. Generally, the enforcement of unregistered industrial designs is the same as for patents (see above, Patents: Enforcement and remedies).
Length of protection. Unregistered industrial designs are granted a protection of three years from the date of disclosure.
Copyright
Definition and legal requirements. Copyright concerns the moral and patrimonial (that is, economic) rights to the authorship, integrity of, and to profit from a created work. Copyright arises out of the creation of the work and the attribution to it of the name or the known pseudonym of the creator.
Works are defined very broadly and range from traditional written works to audio-visual works, choreography, lectures, illustrations, applied plastic, architecture, among others.
Neighbouring rights include the rights of performers, phonogram producers, and broadcasting organizations to the moral and economic interests in their performances, phonographs, and broadcasts.
Protection. Although registration is not required for the protection of a copyright, or a neighbouring right, these rights can be registered with the Intellectual Property Registry, which gives a formal determination that the right legally exists.
Enforcement and remedies. Several actions, including injunctive relief to get an infringer to cease and desist, are available to the copyright or neighbouring right holder. Additionally, Guatemala grants protection under copyright treaties including the:
- WIPO Berne Convention for the Protection of Literary and Artistic Works 1971.
- WIPO Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of Their Phonograms 1971.
- WIPO Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations 1961.
- Convention Establishing the World Intellectual Property Organization 1979.
- WIPO Copyright Treaty 1996.
- WIPO Performances and Phonograms Treaty 1996.
- Inter-American Convention on the Rights of the Author in Literary, Scientific and Artistic Works.
- TRIPS.
- UN Universal Copyright Convention.
Length of protection and renewability. Copyright protection relating to the patrimonial right lasts for 75 years from the death of the author. If the copyrighted work has more than one author, the term of protection is 75 years from the death of the last author. Computer programs and collective works are protected for a term of 75 years from the first publication date. Audio-visual works are protected for 75 years from the first public exhibition of the work. Moral rights are recognized in perpetuity.
Other
Other IP rights include protection for:
- Trade names and publicity signs including slogans or designs displayed on newspapers, magazines, or any digital media, that are protected roughly on the same grounds that trade marks are protected, and subject to the same rules of enforcement.
- Software, which is protected by copyright. Software programs are not considered patentable inventions on their own, but they can be in conjunction with hardware that is itself a patentable invention.
- Trade dress, that can be protected as a form or group of trade marks, or through provisions against unfair competition.
- Trade secrets, that are protected through specific provisions against unfair competition, which require the disclosing party to take prior reasonable measures to safeguard the secret, for example, confidentiality agreements or clauses within service or employment contracts. However, the protection against unfair use of trade secrets is not limited to the parties of the original agreement or duty breached. It extends to third parties who acquire or use the trade secret through these breaches with either knowledge or constructive knowledge (that is, they should have known how the trade secret was obtained), or through dishonest conducts for example industrial espionage.
Under Guatemalan law, a creation can be subject to protection by more than one form of intellectual property. An example is an industrial drawing that can be protected both as a work of graphic art (under copyright law), or as a work of applied art with a functional value (that can constitute an industrial design or utility model).
Expressions of folklore are subject to specific regulation under the Cultural Heritage Act.
Marketing Agreements
Agency
An agent (through an agency agreement), can promote or execute commercial agreements:
- On behalf or on the account of one or more principals.
- On their own account.
Agency agreements do not have to be registered with any authority and can be granted on an exclusive or a non-exclusive basis, and for a specific term.
General contract law applies to agency agreements, except that unilateral termination by the principal can lead to an obligation to indemnify the agent, if the agreement's term has not expired or the agreement has not been breached. The nature and amount of the indemnification can vary widely and it is recommended that the agreement is as specific as possible. If no provision is made for this, the principal must usually indemnify the agent for:
- Any legitimate profits that have been lost as a result of termination.
- Promotions and publicity expenses for the last year.
- Investments made by the agent for the promotion of the business of the principal that would not be of use to the agent after termination.
- The cost of inventory that will not be sold on termination.
Another important characteristic of agency agreements is that, unless expressly provided to the contrary, disputes are subject to commercial arbitration. Arbitration need not take place in Guatemala. There are no nationality restrictions for local representatives. Some legal rules are intended to protect them, regardless of their nationality.
Distribution
A distribution or representation agreement is subject to the same rules as an agency agreement (see above, Agency). This agreement, however, is entered into for the sale and distribution of the products of one or more principals.
E-Commerce
The Electronic Signature and Communications Act regulates the legal effects of agreements entered into through email communications or over the internet. In general, the Act recognizes and governs the use of electronic telecommunications and the internet to enter into transactions and to give and receive legally binding notices or communications. It determines the conditions necessary for electronic messages to be deemed sent and delivered or received and those online services through which the parties can enter into agreements. It also regulates the effects of electronic communications as evidence in judicial procedure. These rules are the same for selling to consumers and online selling to businesses, though further provisions on consumer protection apply for matters, for example, standard form contracts.
Guatemala, along with the other Central American states and the Dominican Republic, entered into a free trade agreement with the US (known as DR-CAFTA), Chapter 14 of which establishes some general provisions on electronic commerce.
Advertising
Advertising is not specifically regulated in Guatemala, although there are certain provisions concerning:
- Unfair competition in the Code of Commerce, which cover general aspects of advertising.
- General advertising provisions in the Consumer Protection Act. These include the:
- basic information that must be provided to consumers;
- obligation to abide by advertised terms and conditions; and
- provisions and sanctions against misleading advertising.
- Advertising of products that may have adverse effects on human health, for example, alcoholic beverages and tobacco products.
There is a Code of Ethics in Advertising agreed on by advertising agencies and media private associations. Since it is not a general law enacted by Congress or other competent public authority, it is only enforceable within the limits of the signing parties. However, it could be argued that it reflects private industry standards and commercial practices. Therefore, it could have a potential legal effect where certain rules of commercial law provide for private standards and practices to be taken into account.
A promotion is any temporary commercial practice by which goods and services are offered to the public under more favorable conditions than usual, except those which imply an offer. An offer is defined as any temporary commercial practice by which goods and services are offered to the public at lower prices than usual within the respective establishment. Consumers and users are entitled to offered or promoted prices being honoured, and providers are bound to respect such terms. (Consumer Protection Act.)
In publicity related to offers, promotions, or seasonal liquidations, providers must state the period, or quantity, or volume of merchandise promoted, and the conditions in which they are offered. If the period is not stated, it will be understood as lasting for at least one month from dissemination of the last advertisement.
In promotions where the incentive consists of the opportunity to take part in contests or draws, the advertiser must inform the public of the amount, form of the contest or draw, number of prizes. what the prizes are, and the terms for claiming them. The advertiser must also disseminate the results of the contest or draw immediately after having carried them out.
If the provider fails to comply with the advertised terms of an offer or promotion, the consumer or user is entitled to require specific performance, accept another good or service of equal or higher price without paying any difference, or to rescind the contract and be reimbursed.
Violation of rules related to seasonal promotions or liquidations, and a general failure to comply with legal obligations, may result in a fine between 15 to 75 UMAS. (An UMA is equivalent to the monthly minimum wage in force for non-agricultural activities.) Charging a price higher than the one exhibited, informed, or published may result in a fine between 15 to 20 UMAS. Although fines cannot exceed 100% of the value of the good or service.
Data Protection
37. Are there specific data protection laws? If not, are there laws providing equivalent protection?
The national Freedom of Information Act (Ley de Acceso a la Información Pública) regulates:
- Access to public registries and records.
- Transparency of public offices.
- Habeas data, or the right of persons to:
- know which personal information of theirs exists in public files, records, or registries;
- know the purpose for which this information is used; and
- to protect, correct, rectify, or update this information.
This law also establishes provisions against the:
- Commercial use of personal data without prior consent.
- Commercial use of sensitive private data.
The legal definition of sensitive private data includes persons' physical or moral characteristics and the facts or circumstances their private lives and activities, including:
- Personal habits.
- Racial or ethnic origin.
- Ideology and political opinions.
- Religious beliefs or convictions.
- Physical or mental health.
- Sexual orientation or sex life.
- Moral or family situations.
- Other intimate aspects of a similar nature.
Product Liability
Product liability is governed by:
- General civil law.
- The Consumer Protection Act.
- Regulations concerning specific products or services (for example, combustibles, tobacco, and alcohol).
For example, under the Health Code, all products for human consumption are subject to registration. If any Administrative Law requirement is omitted, this gives rise to fault under civil law liability rules. There are various rules that apply to several different circumstances, but liability generally derives from negligence concerning defective products or services.
Liability applies to both the manufacturer and the seller, although Guatemalan law allows for contractual limitations on liability. Therefore, the manufacturer can limit its liability to products sold by authorized agents or commercial representatives only. Defective products or services supplied negligently generally involve liability.
Regulatory Authorities
39. What are some of the key regulatory authorities relevant to doing business in your jurisdiction?
Environment
Main activities. The Environment and Natural Resources Ministry (Ministerio de Ambiente y Recursos Naturales) (MARN) is in charge of environmental issues and natural goods and services. Its main activities regarding business include the approval of EIAs, the issuing of environmental permits for projects and activities, and supervising compliance with environmental protection regulations.
Financial Services
Main activities. The Banking Superintendence (Superintendencia de Bancos) (SIB) is a [division?] of the Central Bank in charge of overseeing and inspecting banks, credit institutions, financial enterprises, insurance, and securities companies.
Other
Main activities. The Commercial Registry (Registro Mercantil) is an office of the Economy Ministry in charge of registering and certifying local and foreign commercial entities and individual merchants, their legal representatives, commercial enterprises, and their modifications.
Main activities. The Intellectual Property Registry (Registro de la Propiedad Intelectual) is an office of the Economy Ministry in charge of registering and certifying trade marks, patents, the right of authors, artists and producers, and authorising and supervising collective management organizations.
Contributor Profiles
Eduardo A. Mayora, Managing Partner
Mayora & Mayora, S.C.
T +502 2223 6868
F +502 2366 2540/41
E [email protected]
W www.mayora-mayora.com
Professional qualifications. Attorney at Law and Notary Public, Guatemala, 1980
Areas of practice. Arbitration; banking law; securities exchange law; civil law; constitutional law; corporate law; financial law; commercial law; international finance; mergers and acquisitions; corporate governance; foreign investment; capital markets; wealth planning and family enterprises; administrative law; telecommunications; tax law; international taxation; tax planning; administrative litigation; constitutional litigation.
Carmen Escobar, Associate
Mayora & Mayora, S.C.
T +502 2223 6868
F +502 2366 2540/41
E [email protected]
W www.mayora-mayora.com
Professional qualifications. Attorney at Law and Notary Public, Guatemala, 2005
Areas of practice. Civil and commercial agreements; commercial law; labor law; immigration law; health and pharmaceutical registrations.
Juan Carlos Casellas, Partner
Mayora & Mayora, S.C.
T +502 2223 6868
F +502 2366 2540/41
E [email protected]
W www.mayora-mayora.com
Professional qualifications. Attorney at Law and Notary Public, Guatemala, 2000
Areas of practice. International trade; tax taw; tax litigation.
Vanessa Castro
Professional qualifications. Attorney at Law and Notary Public, Guatemala, 2009
Areas of practice. Intellectual Property; unlawful competition; human rights; corporate law; civil and commercial agreements.
*The authors wish to thank Rafael Briz, Claudia Pereira, Sandra Castillo, Odín Guillén Leiva, María Fernanda Morales Pellecer, Suzel Obiols, Conchita Villeda, Ana Cristina Garita, Carlos Roberto Ortega, Ana Raquel Villeda, Juan Carlos Foncea Ferraté, Luis Fernando Méndez, José Ramos, Hugo Menes, Kristin G. Volpicella and Juan Pablo Gramajo for their help in writing the article. Juan Pablo Gramajo was in charge of updating this current version. Vanessa Castro, who co-authored the original version, is no longer a member of the firm.