Travel and Business in Guatemala

Whether you are looking for a Guatemala travel guide, Guatemala safety information, or want to know about doing business in Guatemala, there is a lot of good information you can find that we have summarized for you.  Guatemala City and close by cities like Antigua are not as highly traveled as cities in neighboring countries like Costa Rica, but there are plenty of reasons to get to know Guatemala.

Market Overview

Guatemala is the northernmost country in Central America with Mexico to the north and west, Belize and the Atlantic Ocean to the east, Honduras and El Salvador to the southeast and the Pacific Ocean to the south. Famed for its volcanoes, textiles, Mayan ruins, and temperate climate in the highlands, Guatemala is at the center of a large regional market for U.S. goods and services.

The United States is Guatemala’s main trading partner. Guatemalan GDP reached an estimated USD 53.7 billion in 2013, a 3.7% growth rate from 2012. The United States and Guatemala enjoy a strong and growing trade relationship, especially under the U.S.- Central America-Dominican Republic Free Trade Agreement (CAFTA-DR). The United States is Guatemala’s largest trading partner accounting for nearly 40 percent of Guatemala’s trade.

Country and Population

With an estimated population of approximately 16.5 million and a GDP growth rate of 3.0 percent since 2012 and 4.1 percent in 2015, Guatemala has one of the strongest economies in Central America.

Guatemala City is the business hub of the country, wherein a western, modern way of life is observed. Guatemalan people are generally hospitable, but private. They appreciate politeness and responsiveness to letters, emails, and calls. When they receive no response, the Guatemalan buyers quickly look for alternate sources/suppliers.

For business meetings, attire is formal. As in most Latin American countries, local contacts generally appreciate the visitor’s effort to speak some Spanish. An interpreter should always be hired for meetings with Government officials, unless otherwise indicated.

Some key factors to success include: conducting preliminary market research, comprehensive research of market niches, diligent searching for the right partner, and competitive pricing. Price is an important element in Guatemalan buying decisions; however, Guatemalans are also aware of global brands and often willing to pay extra. In the local market, product sales at the retail level are sold at a price several times higher than in Canada or the USA.

It is essential to work with a Guatemalan partner/agent/representative to:

     -Complete financial and contracting with ease;

     -Receive updates on changes with local clients and opportunities;

     -Participate in Guatemalan Government tenders.

Investment

While, Guatemala’s laws provide a relatively hospitable climate for trade and investment and there are no restrictions on foreign ownership of a company, the bureaucratic approval process can be cumbersome. Generally most sectors of Guatemala's economy welcome foreign investment and business relationships. Other than applicable taxes, no restrictions apply to the remittance of profits and repatriation of capital. Guatemala's structure is that of an open market that respects foreign investment and due to Guatemala’s proximity to the USA and the number of Guatemalan expats, the business community is familiar North American business practices.

The Guatemalan legal structure promotes investment and includes provisions that recognize and protect private property rights for both national and foreign investors. Additionally, Guatemalan law favours foreign investment under the Foreign Investment Law (Ley de Inversión Extranjera-Decree 9-98). http://www.lexadin.nl/wlg/legis/nofr/oeur/arch/gua/investment_law.pdf

Residents and non-residents may hold foreign exchange accounts. There are no restrictions or controls on payments, transactions, and transfers. Since 2001, Guatemalan companies and individuals are allowed by, law, to sign contracts in foreign currencies, but the one normally used is US Dollars.

Foreign investors technically receive national treatment, but a variety of regulatory hurdles can serve as a barrier to investment. Some professional services may be supplied only by those accredited locally to do so. Mining activities face additional restrictions as minerals and petroleum are the property of the state.

How to establish a company

The Ministry of Economy‘s website (in Spanish) provides a one-stop online portal with information for company registration.

The most popular registration in Guatemala is the corporation (Sociedad Anónima/ S.A.). Another option is the limited-liability company (Sociedad de responsabilidad Limitada - SARL), in which ownership is limited to 20 persons, and the managing director must be a legal resident.

In March 2013, Guatemala introduced Mi Negocio a one-stop portal that enables businesses to register simultaneously with the Mercantile Registry (Registro Mercantil), the tax authority (SAT), the social security institute (IGSS) and the Ministry of Labour. This online platform has significantly eased the business-creation process for entrepreneurs by reducing the time required to obtain registration, tax and social security numbers, and the authorization to print invoices.

In order for a foreign company to establish a local branch it Guatemala, it must meet certain requirements: contracting with a local legal representative who must be a Guatemalan lawyer; submitting legal documents from the home country in order to register the company in Guatemala; opening a local bank account; and announcing the establishment of the branch in the country’s official daily gazette, Diario de Centroamérica.

Labor Regulations

Labor regulations in Guatemala are rigid. The non-salary cost of employing a worker is moderate, but dismissing an employee is relatively costly. A large portion of the workforce is employed in the informal sector. http://www.leylaboral.com/guatemala/intronormasguatemala.aspx.

The Código de Trabajo (Labour Code), enacted in 2001, includes minimum standards for working conditions, including pay, hours, bonuses and mandatory holiday-leave time; rules for strikes and lockouts; severance terms; and legal jurisdiction in disputes. There is a system of special labour courts, but implementation of labour laws is spotty. The Labour Code requires all companies, both national and foreign, to employ a workforce that is composed of at least 90% Guatemalan nationals. No more than 15% of a company’s total payroll can be paid to foreigners. However, Article 16 of the 1998 Foreign Investment Law (Ley de Inversión Extranjera, Legislative Decree 9/1998) excludes from these provisions general managers, directors, administrators, superintendents, company presidents and owners.

Taxation, tariffs and regulations

Taxes: Value Added Tax rate is 12% (a.k.a. IVA - Impuesto al Valor Agregado) and it falls on sales of goods & services as well as on imports. The taxable basis in this case includes import duties paid. Exports of goods and services are VAT exempt. For regular commercial activities the compensation of VAT debits and credits operates, as derived from sales and purchases.

The Income Tax (a.k.a. ISR - Impuesto Sobre la Renta) system operates based on the territorial principle; that is, all Guatemalan source income is taxed. Two systems for payment of ISR exist, beginning July 1st of 2004; one calls for payment of 5% on gross income and the other for payment of 31% on Taxable income; tax payers choice. Tax is paid annually but advanced quarterly; three systems for determining quarterly payments exist (one is through monthly closings; the other is based on an estimated quarterly income of 5% of gross income; and the other is based on one fourth of prior years’ tax paid). Foreign investment in Guatemala is usually carried out by establishing a local company or a branch of a foreign company.

Tariffs: Five Central American countries (Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica) re-established a uniform external tariff range a few years ago, and are now working to establish a common external tariff system. Internally, they are striving to establish a true free trade zone, with duties eventually to be eliminated on all but four designated products. A revised protocol for economic integration, setting out broader goals such as financial market integration and macroeconomic coordination, was signed by six Central American countries (Belize is not included) in October, 1993. The integration protocol allows the countries of Central America to advance at varying rates toward more open trade, and the "Northern Triangle" countries -Guatemala, El Salvador and Honduras- have moved most rapidly to eliminate trade barriers among themselves.

Tariffs and quotas vary depending on the product. Tariffs could be anywhere from 0 percent for raw materials, up to 30 percent in some products, 15 percent being the usual tariff on finished products.

Guatemala, along with other Central American countries, has made a tariff reduction agreement. The agreement is intended to maintain lower costs of imported products. To obtain the tariff information of specific products, please visit the following website (in Spanish): http://www.sieca.int

Import/Export Documentation: All commercial invoices, bills of lading, certificates of free sale, and product specific laboratory testing for pathogens of products exported to Guatemala must be legalized at the Guatemalan Embassy or one of its Consulates in United States. All documents must be translated into Spanish.

Agreements

Most of Guatemala’s key trade and investment partners have trade and investment agreements with Guatemala (eg. Central America, USA, Mexico, European Union, many South American countries).

The U.S. and Guatemala do not have a Free Trade Agreement, a Foreign Investment Promotion and Protection agreement, an Open Skies Agreement or a Double Taxation Agreement.

Top challenges of doing business in Guatemala

Free trade, transparency and a reduction in red tape have all been placed at the forefront of Guatemala’s economic reform agenda, but navigating the complex business environment is notoriously tricky, which is why having local help on board is a major asset.

Guatemala’s strategic location acts like a magnet for international firms looking for access in lucrative economies in North America and developing nations in Latin America and the Caribbean. With privileged access to both the Atlantic and Pacific Oceans, Guatemala is developing into a nucleus for global trade between Asia, North America and Europe, as well as local markets around its periphery.

To reform economic fortunes, the government has turned its attention to cutting red tape and promoting overseas trade by being more transparent and open. Steady economic growth is returning to the Central American nation as exports to the US pick up, and international businesses are once again considering growth strategies in the country as custom barriers are reduced or removed and legal certainty is restored.

Despite the obvious appeal of Guatemala as an investment destination, it still ranks poorly for ease of doing business and economic freedom. The 2013 Index of Economic Freedom ranks it as the 85th freest in country in the world after declines in the ‘freedom from corruption’ and ‘labor freedom’ indices pushed the country down. The World Bank and International Finance Corporation (IFC) have improved its rank by five places in 2013, but that still leaves it in a lowly position of 93rd in the world in terms of ease of doing business.

Starting a Business

Starting a business is a process shrouded in red tape and can take over 40 days to complete. A notary is required for many stages and several government bodies are to be consulted to set up, from the Mercantile Registry of Guatemala to the Commercial Registry and Department of Labor. A legal representative is also required to represent the company. The elongated nature of company formation in Guatemala prompted the World Bank and IFC to rank it 172nd in the world (out of 185 economies).

Dealing with Construction Permits

Construction permits take an average of 158 days to obtain thanks to various licenses, inspections and registrations that must be completed with several disparate governmental bodies. The cost of dealing with construction permits is considerably higher than elsewhere in Latin America and the Caribbean.

Getting Electricity

Empresa Eléctrica de Guatemala (EEGSA) deals with the formalities of electrical connections, although the company must hire a private contractor to lay out the underground cables and other work needed for the external connection. EEGSA finalizes the external connection and installs the meter.

Registering Property

Registration is by far the most streamlined process of the property process, taking less than a month to complete and with a limited amount of associated costs. The company must first obtain a property certificate before a lawyer or notary prepares the sale agreements and the public deed is delivered to the Property Registry for its recording. The Municipality and DICABI must be notified of the transaction.

Getting Credit

Guatemala's economy is dominated by the private sector, which generates nearly 90% of GDP. Getting credit is therefore a relatively easy task, and the World Bank and IFC rank it positively on all tracked indices.

Protecting Investors

Investor protection is a particularly weak aspect of the Guatemalan economy, and one that is constantly cited as being in need of an overhaul. In the 2013 Index of Economic Freedom, the ‘Rule of Law’ and ‘Regulatory Efficiency’ are both areas in which Guatemala ranks poorly.

Paying Taxes

There are 24 tax payments to make each year which take an average of 332 company hours to process. VAT payments alone can take up to 156 hours to file.

Trading Across Borders

Trading across borders is a timely and expensive procedure. It takes an average of 17 days to both export and import goods, and the cost of shipping is far more expensive than the OECD average. There are also several forms to process which can lead to a backlog of goods.

Enforcing Contracts and Resolving Insolvency

Enforcing contracts takes a massive 1,459 days (four years) to complete, and resolving insolvency is similarly burdensome, taking three years with a low recovery rate compared to the OECD norm.

Culture

Business is business in Guatemala, and topics surrounding the country’s heritage and culture are best avoided. Hierarchy is important so be sure to use titles and address the most senior member of the party when negotiating.

Sources and important Websites:

GUATECOMPRAS - Business Opportunities with the Guatemalan Government - www.guatecompras.gt

National Competitiveness Program - PRONACOM - www.pronacom.gt

Invest in Guatemala - www.investinguatemala.org

Public Private Partnership Agency - ANADIE - http://www.agenciadealianzas.gob.gt/

Secretaria de Integración Económica Centroamericana (Central American Economic Integration Secretariat) in Spanish - www.sieca.int

Superintendencia de Administración Tributaria (Tax Administration) in Spanish - www.sat.gob.gt

Ministerio de Finanzas Públicas (Public Finance Ministry) in Spanish - www.minfin.gob.gt

Fundación para el Desarrollo de Guatemala – FUNDESA - http://www.fundesa.org.gt/en/