Damalion Guatemala desk
Doing business in Guatemala
Known globally for its tourist allure and its tax and banking shelters, Guatemala, officially the Republic of Guatemala (República de Guatemala) has stood out as one of the most important markets in Central America. Guatemala is one of the largest economies in Central America, and this is indicated by its GDP which has been growing steadily over the last few years.
With its consistently thriving economy and tax-free economic zones, doing business in Guatemala might be the right choice for International entrepreneurs and investors.
In addition, the competitive reasons that made Guatemala desirable to investors include its investment-friendly administration, stable macroeconomy, regionally competitive structure to access large markets such as the United States and the rest of South America, and young human talent.
The main advantages of doing business in Guatemala
- Due to its beneficial geographical location, doing business in Guatemala allows companies to establish themselves in a primary regional logistics hub. Guatemala also has visa-free access to both Eastern and Western Europe and this is quite amazing from a business perspective.
- In addition to its macroeconomic vitality and low public debt, Guatemala has high multinational monetary reserves and a credible financial system.
- Adding to its strategic geography, Guatemala has a strong telecommunications infrastructure of a highly competitive, free-market telecommunications district.
- There are very few obstacles for foreigners who are looking to do business in Guatemala. Tr country is an open, free-market economy and most of its sectors are receptive to foreign investment.
- Beyond relevant taxes, Guatemala places no limitations on remittances and repatriated capital.
- There are free trade agreements that the Guatemalan government has negotiated that those doing business in the country can take advantage of.
- Also, there is a thriving segment of the workforce that is adequately educated and highly skilled, and this boosts the country’s competency further.
Guatemala operates under a civil law legal system, and this is most legal provisions codified and justice is applied on the rationale of codified law. Although Guatemalan business law is regulated by the Civil Code and Commercial Code, this system applies equally to companies and individuals, so no difference is made from one to another, only as to specific procedural issues which might vary little.
Guatemala has three main bodies of government: the executive, the judicial, and the legislative.
Entity choice in Guatemala
Generally, Guatemala doesn’t put limitations on doing business with other countries’ organizations, entities, or individuals. Guatemala’s laws pertaining to foreign investment create an open environment for overseas entrepreneurs and investors.
For new investors and entrepreneurs looking to expand their companies or start a new one in Guatemala, the most common legal forms to choose from are the following:
This business structure is for individuals who want to engage in commercial activities without getting into much legal hassle in Guatemala.
- It requires just a single individual
- The owner will have unlimited liability
- There is no legal difference between the proprietor and the business in Guatemala,
- To be registered, it must be entered into the Guatemala Mercantile Registry
- A registered Guatemalan sole proprietorship can employ staff and withdraw payroll taxes.
- a sole proprietorship is recognized under its national Company Act in Guatemala.
Guatemala limited liability company (Sociedad de Responsabilidad Limitada)
A Guatemalan limited liability company includes various partners who are only expected to pay their contributions.
- It is a legal entity established for commerce and has commercial activities as its goal
- Only a maximum of 20 partners are permitted and all the partners have to be natural
- Participation is denoted in contributions from each partner that cannot be joined with any titles
- The company will perform under a brand or company name.
Guatemala corporation (Sociedad anónima)
A Guatemala corporation is a business entity in which its capital is divided and represented by shares.
- It imposes a minimum of 2 shareholders for the incorporation but no fixed maximum
- The liability of each shareholder is restricted to the payment of the shares that each of them has confirmed.
- It’s controlled by the will of the majority
- Its capital is divided into Shares (Acciones)
- The name of the company can be freely established, but it must carry the word “Corporation”
Guatemala Sociedad Colectiva’ (Cía Ltda.)
Under this company structure, the partners are responsible for all the company’s duties and responsibilities.
- It requires a minimum of two partners and a maximum of 20
- The partners have unlimited liability
- The company’s name must include the full name of one of the partners, followed by the abbreviation ‘Ltda.’.
- This company structure is often used in small businesses
- It has an adaptable administration and simple operation.
Branch of a foreign company
A branch is an expansion of a foreign corporation in Guatemala. A Foreign Company Branch is for companies legally constituted abroad who wish to operate in the country. The incorporator needs to prove the existence of the primary company.
- It is considered the same as the parent company.
- It carries out the functions of the parent company but can function independently
- It must have a registered office address in Guatemala.
- It must have a Guatemalan permanent Legal Representative who acts on behalf of the parent company.
Are you interested in establishing your company in Guatemala? Contact your Damalion expert now and let us help.
Guatemala has a strong financial system, outstanding international reserve levels, and the lowest foreign debt in the Latin American region.
Although it is conservative and heavily regulated, the banking system in Guatemala is stable overall. The system is regulated by the Banco de Guatemala (”Central Bank of Guatemala – BG”). The BG does not perform commercial activities but oversees (through the Superintendence of Banks) the country’s financial and banking system to guarantee its soundness, and monitors all multinational accounts in order to prevent money laundering.
Guatemala is home to several non-bank financial institutions and these includes investment funds, insurance firms, credit-makers, etc., and these institutions offer investors a variation of financial services with the highest standards of quality.
Additionally, Guatemala has financial entities that provide high-quality services in specialized areas such as specialized investments, among others.
Bank account in Guatemala
If you’re planning on relocating to, or are already living in Guatemala, having a bank account is suitable for getting by.
Banks in Guatemala have different bank account options for users, and the one chosen will depend on what you’re using the account for. Here are the common types available:
- Guatemala checking account (Cuenta monetaria): this is a type of bank account that permits immediate access to your money. It’s where individuals usually keep the money they use for day-to-day expenses.
- Guatemala savings account (Cuenta de ahorro): this type of account makes savings productive as they’re stored in the bank. It also generates interest with time.
- Guatemala investment account (Cuenta de inversión): these accounts are for individuals who wish to deposit large sums of money into the bank through fixed deposits. It also generates interest.
Opening a bank account in Guatemala
The process is setting up a bank account in Guatemala starts by choosing the appropriate Guatemalan bank and type of account you wish to open based on your requirements and objectives.
Next is presenting the required personal documents (this varies but all you need to open a current or savings account is your passport and proof of address), filling out the essential paperwork, and registering your signature.
Following is a wait of two to three business days for the account to activate, you can’t then pick up (or receive at home the checkbook, bank booklet, or debit card). And start using the account.
Due to the strict anti-money laundering law implemented in Guatemala, opening a bank account has become quite hard for non-resident foreigners, but with your Damalion expert by your side, it will be a stress-free process.
Aside from the great climate, beautiful landscape, and delicious food. There are several other reasons why foreigners choose Guatemala. It is also a desirable location for foreign investors and entrepreneurs searching for second citizenship. The Guatemalan passport ranks in the world’s top hundreds, and its second citizenship program is one of the most reasonable in today’s market.
There is a valid loophole that enables foreigners to legally stay in Guatemala beyond the 90 days authorized for tourists without a residence permit, but for individuals who wish to stay in Guatemala long-term, getting a residency permit is recommended. Guatemala offers a two-tier residence system in which first-time applicants are only authorized to a two-year temporary permit, which can later be changed into a permanent one upon renewal.
Type of Guatemala residence permits
Guatemala temporary residence permit
Guatemala temporary residence permit allows a foreigner to stay in the country for two years, in order to perform a specific activity
A Guatemala temporary residence permit is issued for different objectives, such as:
- for work
Guatemala permanent residence permits
The holder of a Guatemala temporary residence permit can apply for permanent residence upon the expiry of the document. To be entitled to a Guatemala permanent residence permit, the applicant can either be retired, an investor, a dependant of a Guatemalan national, or someone indicating outstanding performance in the realms of technology, art, or science.
Among all these, residency by Investment is by far the most interesting and most chosen by foreign entrepreneurs.
Citizenship by investment in Guatemala
The Citizenship by Investment program in Guatemala is a life-changing process where applicants will gain citizenship and a passport by just making a financial investment in this Country. Guatemala’s citizenship by investment program is one of the most reasonable in the Latin American market and will cost less than $75,000. To start your residency program journey in this country, you require the right advisor by your side in order to simplify the process. Contact your Damalion expert now and let us help.
The Guatemalan tax system includes of both direct and indirect taxes, that are applicable on both a federal and a local level. The tax authority in Guatemala is the central government through the Superintendence of Tax Administration. The central government collects and administers nearly all taxes and leaves the municipal governments to collect contributions of a municipal essence.
The main taxes payable in Guatemala are:
Corporate income tax
Both residents and nonresidents are subject to tax in Guatemala. Residents are subject to income tax on their Guatemala-source earnings, and nonresidents are taxed via withholding on their Guatemala-source income.
Guatemala’s corporate tax rate will depend on the administration the corporation opted to be taxed under. The different regimes available in Guatemala include the simplified optional tax regime, with a rate of 5% or 7%, the general tax regime, with a rate of 25%, and a solidarity tax at a rate of 1% on total gross revenue.
Individuals involved in trade or business are also taxed the same as companies.
Capital gains tax
Capital gains in Guatemala are taxed at a rate of 10%.
- Real property tax: this tax is charged yearly at progressive rates up to 0.9%.
- Inheritance tax: this tax is charged at progressive rates, but the rate will depend on the degree of relationship between the deceased and the inheritor.
- Stamp duty: this tax is charged on several documents at a rate of 3%.
- Social security: both Guatemala employees (4.83% for the employee) and the employer (12.67% for the employer) must pay social security taxes.
- Real property tax: this tax is charged yearly at progressive rates up to 0.9% in Guatemala.
Indirect taxes in Guatemala
Value-added tax (VAT)
This is an indirect tax charged mainly on consumption. It applies to most sales of goods, imports the provision of services, and the first transfer of the real estate. Guatemala standard VAT rate is 12%. Also, the VAT return must be filed monthly.
Guatemala also levies a land tax yearly on the value of the land. Its rates will vary depending on the land´s value.
Double tax treaties in Guatemala
Although various double tax treaties have been drawn up for negotiation, Guatemala has not finalized any bilateral or multilateral tax treaties.
Contact your Damalion expert now for tax compliance in Guatemala
Intellectual property law deals with a vast spectrum of legal issues pertaining to the rights, application, and registration of all elements of intellectual property ownership, including trademarks, inventions, trade secrets, patents, and copyrights.
The Intellectual Property Registry is the organizational authority in charge of facilitating, promoting, and providing protection to intellectual creations in Guatemala. And regarding the importance of Intellectual Property, Guatemala is a member of WIPO (World Intellectual Property Organization) and has approved the WIPO Copyright Treaty, as well as the Performances and Phonograms Treaty.
In Guatemala, intellectual property is divided into the following categories:
- A patent is a designation that acknowledges the rights of an inventor to their invention.
- To be granted a patent, the invention must either be novel, consisting of a creative step, or be capable of industrial application.
- Patents must be registered with the Intellectual Property Registry in Guatemala.
- Patents are granted for a period of 20 years in Guatemala.
- Trademarks include a vast variety of words, symbols, signs, or varieties of these, which acquire a unique character regarding the products covered by the trademark.
- Trademarks in Guatemala can be registered with the Intellectual Property Registry in order to be protected and unregistered trademarks are not protected unless they are protected by treaty.
- Trademarks in Guatemala are approved for a period of ten years and are renewable for additional ten years.
- Industrial designs are extensively interpreted to include the plans and/or characterizations of industrial and/or artisanal commodities.
- Industrial designs in Guatemala must be registered with the Intellectual Property Registry to be protected.
- Its protection is for a term of ten years and renewable only once for an extra five years.
- Unregistered industrial designs, on the other hand, are also legally protected on disclosure and are granted protection for three years from the date of disclosure.
- Copyright pertains to the moral and economic rights to the authorship, quality of, and profit from created works which range from traditional written works to choreography, audio-visual works, lectures, illustrations, and architecture, among others.
- Copyright ensues out of the creation of the work and its attribution to the creator.
- Registration is not mandated for the protection of copyright but these rights can be registered with the Intellectual Property Registry.
- Although subject to different extra conditions, copyright protection lasts for 75 years.
For experienced representation in intellectual property issues, contact your Damalion expert now.
LABOR AND EMPLOYMENT
Guatemala Employment law is overseen by the Ministry of Labor and Social Welfare, and it applies to all employment contracts and relationships in the country.
Guatemala’s employment laws ratify the employee-employer rights and duties. It also covers all employees irrespective of their ethnicity.
Employment contract in Guatemala
Employment contracts under Guatemala labor law must be in the local language (Spanish) and contain essential details including benefits, termination laws, and personal details.
Also, the Guatemala employment act counsels employers to register the contract to the Labor minister within 15 days of enactment.
Types of employment contracts in Guatemala
- Fixed-term contracts: this type of employment contract run for a set period stipulated within the contract itself.
- Indefinite-term contracts: these types of contracts in Guatemala have no particular termination date and only end depending on the common agreement between the employer and employee. The first two months of this contract are considered a trial period.
- Specific work contracts: these types of employment contracts are used for the completion of a specific task. The parameters and criteria must be stated within the contract.
Employee benefits and law in Guatemala
- Working hours: working hours under Guatemala employment law vary based on whether an employee is a daytime (limited to 44 hours a week), nighttime (limited to 36 hours a week), or mixed-shift worker (limited to 42 hours a week). In essence, Guatemala’s labor law requires employers not to make employees work more than 12 hours per day. There are overtime working hours in Guatemala labor law which is limited to 12 hours per day. And there is compensation for each hour of overtime in Guatemala.
- Maternity leaves and paternity leave: Guatemalan employment law authorizes pregnant mothers are entitled to have twelve weeks of maternity leave. This is usually allocated to 30 days before childbirth and 54 days after birth. Guatemala employment law also mandates 2 days’ paternity leave for male employees whose wife has given birth.
- Annual leave: Guatemala employees are entitled to 15 days of paid annual leave after finishing 150 days of employment. Per the employment law, annual leave must be paid in advance and public holidays that overlap with annual leave do not count as paid leave.
- Bereavement leaves: Guatemala employment law mandate employers to give three days of paid leave to employees in the circumstance of the death of the employee’s immediate family members.
- Sick leave: Guatemalan employers registered with the national social security program must give 5 days of sick leave permission to employees.
- Health & safety duties: Guatemala employment law imposes employers to have both Health and Safety Committee and Plan in place.
Under Guatemala employment law, the termination of employment must be fair, and the employer must provide a reason for doing so. The termination action letter must be in writing and the notice period is not binding on the employees unless explicitly mentioned in the employment contract.
So, are you thinking of entering the Guatemala market?
If you need assistance in starting a business in Guatemala, your Damalion expert is here for you. We provide integrated market entry services and various integral business solutions throughout Latin America. We also have the expertise and experience that allows us to guide clients during the activity of building a company in Guatemala.
If you wish to learn more about our services and how we can assist you in making your Guatemala company a success, contact us today.
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