General Framework of Guatemalan Law on Industrial
Property
Copyright 1996
InterAm Database
National Law Center for Inter-American Free Trade
General Framework of Guatemalan Law on Industrial Property
Provided by Rodriguez, Archila, Castellanos, Solares, and Arvilar
A ) GENERAL FRAMEWORK
1. CONSTITUTION OF THE REPUBLIC OF GUATEMALA
According to the Constitution of the Republic, Guatemala is a free, independent
and sovereign State, organized to guarantee its inhabitants the enjoyment of
their rights and freedoms. Its government is republican, democratic and
representative. Sovereignty belongs to the people, who delegate its exercise to
the three branches of government: Legislative, Executive and Judiciary.
Legislative authority is exercised by Congress, which is made up of deputies
and a President. The Executive is headed by the President, who is the Head of
State; the Vice President, Ministers, Vice Ministers and officials. The Judiciary
imparts justice based on the provisions of the Constitution and other laws of the
country. Judges are independent in the exercise of their duties and must judge
in accordance with the Law. Jurisdictional duties are exercised exclusively by
the Supreme Court of Justice and the other legally established courts. In
addition to the three branches of government, there are: the Court of
Constitutionality, the Supreme Electoral Court and the office of the
Ombudsman.
The Constitution of the Republic, which is the fundamental and preeminent
ruling body of our legal system, contains several fundamental declarations
which guarantee the development of economic activities.
Some of these declarations outline the freedoms of the people, be they
individual or legal, and some are obligations of the State.
Private property and the freedom to engage in industry, trade and work are
recognized in Guatemala as rights which are inherent to every person.1
Industrial rights and copyrights are also recognized specifically and
constitutionally as private property.2
Regarding the economic and social system of Guatemala, the Constitution
provides that among others, the fundamental obligations of the State are: "to
promote the economic development of the country by promoting initiatives in
agricultural, livestock, industrial, tourism and other activities; to protect the
generation of capital, savings and investment; to protect the orderly and
efficient development of domestic and foreign trade, by promoting markets for
Guatemalan products; and to create appropriate conditions to promote national
and foreign capital investment.
Under the Constitution, the general rule in Guatemala is to allow and promote
the investment of Guatemalan and foreign capitals and the orderly development
of domestic and foreign trade. To this end, the above public freedoms
regarding private property and the exercise of trade, industry and work are
recognized inter alia as essential freedoms.
Public freedoms are guaranteed for any person who lives in Guatemala,
regardless of whether the person is a citizen or an alien.
The Constitution provides a legal framework which permits the development of
investment and trade. Both activities can be carried out by natural or legal
persons, Guatemalan or foreign alike.
There are limitations which are exceptions to this general rule. In certain cases,
these limitations are applicable both to Guatemalans and foreigners and in
other cases, they are exlusively addressed at foreigners. Most of these
limitations are described in the specific analysis of the laws included in this
compilation.
Article Five of the Constitution of the Republic of Guatemala refers to
FREEDOM OF ACTION, which has traditionally been a part of Guatemala's
legislation. The spirit or intention of this rule is to prevent the State from
prohibiting any person in Guatemala from carrying out any activity without
legal justification to prevent it for its prohibition. It is guaranteed that any legal
activity can be carried out without the Guatemalan Government having the
authority to set arbitrary limitations.
2. CODE OF COMMERCE (relevant provisions)
The Code of Commerce applies to merchants in their professional activity, to
legal commercial businesses and commercial affairs. Merchants are persons
who carry out the following activities on their own behalf for profit: industry
for the production and processing of goods and the provision of services;
intermediation in the circulation of goods and the provision of services;
banking, insurance and bonds and activities related to these.
Trade and investment activities in Guatemala are considered to be profitable
activities. This classification automatically delimits the various options which
can be used to develop those activities in accordance with legal provisions in
force.
Generally speaking, those activities can be carried out:
a) individually or
b) by means of legal persons (i.e. corporations and and other
companies)
Regarding the first option, an individual person who wishes to carry out trade
activities must register in the General Commercial Registry of the Republic as
an individual businessman and in addition must register a commercial
company through which he/she will carry out his/her profitable activities.
There are no minimum capital requirements for the purposes of the registration
of a commercial company, and the company can be the property of one or
several individual businessmen. In this case, all of the co-owners must register
as individual businessmen.
Individuals can also carry out profitable activities through a participation
agreement, by contributing goods or services to a businessperson who owns a
commercial company, for the purpose of “participating” in the profits or losses
of one or more of the company's operations. In the case of a participation
contract, a legal person different from the parties to the agreement is not
created.
b) Commercial companies
This is the largest category of organizations. They are called collective
businesses and there are five (5) different types of organization:
COLLECTIVE COMPANY
COMMANDITE COMPANY
LIMITED LIABILITY COMPANY
STOCK COMPANY
JOINT STOCK COMPANY
All of the partners of a collective company have unlimited liability as regards
the company's corporate liabilities.
In the case of the commandite company, some partners have unlimited liability
(active partners) and the rest (the silent partners) are subject to limited
liabilities as regards the company's corporate liabilities.
In the case of limited liability company there cannot be more than twenty
partners and they are liable to the extent of their contributions for the
company's liabilities.
In stock companies, the corporate capital is divided into and represented by
shares and the liability of each partner is limited to the total amount of stock
purchased by him/her.
In a joint stock company, the corporate capital is also divided into and
represented by shares but the active partners have unlimited liability vis a vis
the company's liabilities whereas the silent partners are only liable to the extent
of the shares subscribed by them.
These five forms of corporate organization are the only ones which can be
adopted in Guatemala to create and set up a commercial company. In
accordance with Article 19 of the Code of Commerce, aliens and foreign
companies, even if they are not domiciled in Guatemala, may participate as
partners or shareholders of commercial companies in any one of their five
forms.
Thus a commercial company in Guatemala can be totally owned by foreign
individual or legal persons, except in special cases where specific percentages
of local capital is required (Guatemalan shareholders or partners). These
exceptions are outlined below, in the analysis of sectoral laws.
FOREIGN COMPANIES:
Additionally to these forms of organization, in the case of foreign investment,
foreign investors or business people may, if they deem it advisable, apply for an
operating license in Guatemala.
To this end, all the provisions of the Code of Commerce must be met. A
foreign company may be authorized to operate in the country because it will
have its principal office or the main object of the company in Guatemala, or
because, even if it will be headquartered or will have its main business outside
of Guatemala, it wishes to set up one or more branches or subsidiaries in
Guatemala.
The Code of Commerce also regulates all of the professional obligations of
businesses, commercial affairs and commercial contracts and obligations.
GENERAL COMMERCIAL REGISTRY OF GUATEMALA
This registry is in charge of registering: individual businessmen who have a
capital of not less than Q2,000.00; all commercial companies; commercial
companies and establishments; auxiliary business services; the issuance of
shares and other securities which involve liabilities for commercial companies,
including their serial number, value, amount of the issue, interest rates,
premiums and amortizations; the constitution, modification or extinction of real
rights over the company or its facilities and other facts and legal conditions are
outlined by the laws.
This Registry becomes particularly important with regard to investments, in
view of the fact that it is the State institution in charge of registering both
“Guatemalan” and foreign commercial companies as well as companies which
are the property of individual business people or which are corporate and any
other contract which may affect them.
For the time being, it is through this Registry that the temporary authorization
or registration for a local commercial company to start operating legally in the
country is provided.
There is a bill which would establish a ONE STEP INVESTMENT PROCESS
to which perhaps some of the duties of the commercial Registry can be
transferred.
3. THE CIVIL CODE
The Civil Code lays down the fundamental norms regarding legal status, the
family, assets and civil liabilities and contracts. The rules on legal status have
to do with the person itself; they govern the existence and capacities of physical
or individual persons and of legal persons. Norms on the family govern the
family organization and the rights and duties which arise from the kinship. The
standards on assets -rights and obligations quantifiable in money- govern that
which has to do with real rights, personal rights, inheritance rights in case of
death, et cetera.
Business relations are governed mainly by the Code of Commerce and by
special laws; however, the Civil Code is supplemental.
The right to property, as well as the right to use and dispose of goods within the
limits of and in accordance with the obligations established by law are
recognized in Guatemala. Compelled expropriation exists as an exception to
this general rule, and provides that property can be expropriated for reasons of
collective usefulness, social benefit or public interest, after paying a
compensation, which must be based on the "current value” of the expropriated
property, in accordance with the provisions of Article 40 of the Constitution.
The State's authority to expropriate is specifically ruled by the Expropriation
Law. There are other limitations to the right to property which are listed in the
Civil Code.
Real warranty rights such as mortgages and pledges are recognized with their
different modalities. In the case of mortgages, no unpaid balance is allowed; it
affects only the goods that it is imposed on. However in the case of pledge, an
agrement to the contrary is possible.
CIVIL REGISTRY
This is where the facts or acts which have to do with human beings and their
legal status are recorded: birth, mariage and death, as well as other
circumstances or acts which have to do with the person because they involve
family or social relations.
This public institution becomes important when dealing with the registration of
CIVIL CORPORATIONS and of CONSORTIUMS. For the registration of this
type of legal organizations, this registry follows basically the same procedure
followed by the General Commercial Registry in the case of commercial
companies.
PROPERTY REGISTRY
Both the CENTRAL PROPERTY REGISTRY and the SECOND PROPERTY
REGISTRY (divided by virtue of the departments (States) assigned to each) are
in charge of the registration, recording and cancellation of acts and contracts
dealing with the possession and other real rights over identifiable real and
personal property. All of its books, documents and acts are public.
This is where real rights are registered such as ownership, co-ownership, use,
usufruct, rights of way, rental (in specific cases), mortgages and pledges (on
identifiable personal property) as well as procedural acts which affect the
goods which are subject to registration, such as seizure and registration of
claims.
This Registry is of vital importance to the exercise of the right to private
property which is recognized by the Constitution itself.
OBLIGATIONS IN GENERAL
According to the general rules of Civil Law, for a legal business to be valid, the
subject who declares his will must be legally entitled to do so, the agreement
must not be flawed, and its object must be legal. The expression of will can be
declared or implied and can also result from legal presumption in the cases in
which the law expressly declares so. Every obligation resulting from an act or
declaration of will consists in giving, doing or not doing something.
PERSONAL obligation is guaranteed with the disposable goods which the
debtor possesses at the time when payment is demanded. Personal responsibility
is unlimited, while REAL responsibility is limited to the property to which it
refers, with exceptions. There are alternative obligations which may be
optional, joint, divisible and undivisible. Obligations can be transmitted
through the transfer of rights, subrogation and the transmission of debts. These
become extinct by compensation, novation, pardon, fusion and lapsing. There is
an indemnification obligation which results from the contractual relation, as
well as the obligation to compensate for damages.
PROVISIONS SPECIFICALLY ON CONTRACTS
The Civil Code covers the main private contracts, and enumerates special
requirements for each one of them. The provisions on civil contracts are
applicable as a supplement to those which govern commercial contracts.
4 . LABOR CODE - RELEVANT PROVISIONS
The more important labor laws are contained in the Labor Code, in Decree No.
1441 of Congress and its reforms, in Decrees numbers 1486, 1618, 1634, 86-71
and 76-78 and Decree-Law numbers 45 and 57 and Decree 64-92 of Congress.
This legal provision governs the rights and obligations that employers and
workers have in work relationships and creates institutions to solve conflicts.
Save for exceptions, every service performed by a worker for his/her employer
shall be compensated by the latter. Payment of said remuneration can be made
in one of the following manners:
-By unit of time (by the month, twice a month, by the week, day or hour)
-By unit of work (piecemeal, task or unit)
-Through participation in profits, sales, or collections made by the employer
Every worker is entitled to minimum wages to cover his/her basic material,
moral and cultural needs and allow him/her to meet his/her obligations as the
head of a household.
An ordinary day of effective work cannot consist of more than eight daytime
hours per day or exceed a total of forty-eight hours per week. The ordinary day
of effective work in a combined shift (day-night) cannot be more than seven
hours per day or exceed a total of forty-two hours per week.
Workers or employers, or persons in independent professions or occupations
who work in rural or urban areas, who are members of a permanent association,
are entitled the right to freely form unions, exclusively for the study,
improvement and protection of their economic and social interests. Unions are
allowed to participate in politics.
When a work contract is signed, once the test period has been completed -the
first two months on the job- if a worker is unfairly dismissed, or if he/she is
dismissed for any of the reasons contemplated by the law, the employer must
pay the worker compensation for the time he/she worked for the employer, at a
rate equal to one month's salary for every year of continuous service, and if the
service period doe not cover one year, the payment must be proportional to the
amount of time worked.
The employer is under the obligation to pay a year-end bonus equivalent to one
hundred percent of the monthly salary, or another agreed amount, if greater,
during the first fifteen days of the month of December to the workers who have
worked for him/her during one uninterrupted year prior to the date when the
bonus is due. If the period of time worked is not one year, and in the event of
dismissal, for whatever reason, the portion of the year-end bonus which is
proportional to the amount of time worked will be paid.
In accordance with Article 13 of the Labor Code, employers are forbidden from
employing less than 90% of Guatemalan workers and from paying them less
than 85% of the total salaries paid.
ANNUAL BONUS FOR PUBLIC AND PRIVATE SECTOR WORKERS
Decree 42-92 establishes the employers' obligation to pay their workers a mid-
year bonus equivalent to one ordinary salary earned by the worker. The bonus
must be paid during the first fifteen days of the month of July every year.
5. LAW OF THE JUDICIARY - RELEVANT PROVISIONS
The Law of the Judiciary contains general rules for the application,
interpretation and integration of Guatemala's legal provisions. Sources of law
are the jurisprudence established according to the law, and custom, which will
only apply in the absence of a law and only if it does not contradict public order
and moral standards, and which has been tested. The law is to be applied first,
however, and ignorance, obsolescence, custom or opposite practices cannot be
invoked as grounds for not applying it.
The scope of application of the law extends to every person, Guatemalan or
alien, a resident or in transit, and to the entire territory of the Republic, which
includes the land, the subsoil, the maritime land zone, the Continental shelf,
the area of economic influence and the air space.
PRIVATE INTERNATIONAL LAW STANDARDS
The State, persons capacity and family relations are governed by the laws of
their residence, while property is governed by the laws of the place where this
property is located.
Legal acts and businesses are governed by the law of the place chosen by the
parties, if and when this is not prohibited by the law or contrary to public order.
Guatemalan courts, however, are authorized to summon foreigners or
Guatemalans who are abroad when legal action has to do with legal acts or
businesses carried out in Guatemala; when this action has to do with property
which is located on Guatemalan soil, or when legal acts or businesses are
involved where it has been provided that the parties must submit to the
jurisdiction of Guatemalan Courts.
Guatemalan Courts shall apply the laws of other States when justified. In order
to be able to apply the laws of other States in Guatemalan Courts, it is
necessary for the party invoking the foreign law or who disagrees with the
person invoking the foreign law, must justify its text, validity and meaning,
using a duly-legalized certification provided by lawyers who practice in the
country of the law being invoked. Independently from the evidence submitted,
the Guatemalan Court can investigate, ex officio, or upon the request of a party,
through diplomatic channels or other means recognized by international law.
DOCUMENTS WHICH COME FROM ABROAD
For documents which come from abroad and shall take their effect in
Guatemala, to be admissible they must be legalized by the Ministry of Foreign
Affairs. If the documents are written in a foreign language they shall be
translated into Spanish under oath by a translator authorized in the Republic,
or, in the absence of such a translator, by two persons who speak and write both
languages, also under oath and with their signatures notarized. In addition to
these requirements, POWERS OF ATTORNEY and DOCUMENTS WHICH
ARE REGISTRERED need to be registered by a Notary Public. Before
registering these documents, or before processing the orignal, the appropriate
stamp tax shall be paid.
Guatemalan members of the diplomatic or consular corps who are Notaries, and
any other Guatemalan Notary Public, are authorized to attest to events they
witness and circumstances that they are aware of , and to authorize acts and
contracts abroad which will take effect in Guatemala.
6. IMMIGRATION AND ALIEN LAW
This law governs the relationship of foreigners with the Guatemalan State
when they are in Guatemalan territory for any reason.
The Migration Department is in charge of enforcing this law and of all of the
provisions which have to do with migration and the control of aliens.
Foreigners who have their residence in Guatemala are under the obligation to
register with the Migration Department. An exception to this rule are aliens in
transit, tourists, and persons who, without having their residence in the
country, have a special authorization to remain in it for up to six months. The
Migration Service can cancel or prohibit the immigration and permanence of
aliens for reasons of public order, national interest of security of the State, as
well as for reeasons of health, moral and good habits.
Aliens are persons who are not citizens. Aliens are classified as: in transit,
tourists, immigrants, residents, temporary, permanent or definite- persons in
asylum or refugees. An alien who so wishes can become a resident after two
years of continuous permanence in the country.
Property located in the country's territory, regardless of nature, are subject to
Guatemalan laws, even if their owners are foreigners.
Aliens -except those in transit- are under the obligation to pay alien taxes as
well as taxes on trade, industry, profession, or the property or the possession of
goods. The alien tax is up to Q200.00 per year.
Aliens can establish their residence in the country without losing their own
nationality. Aliens in the country are under the obligation to obey and respect
the laws, institutions and authorities of the country. However, the fulfillment of
obligations acquired abroad by temporary residents cannot be enforced in
Guatemala, unless the parties subject themselves willingly to Guatemalan
courts.
Every alien with permanent resident status can work freely and receive pay in
the country. But aliens are forbidden to practice any profession for which a
university degree is required without validating their credentials and registering
in Guatemala. Foreign professionals who do so and obtain the required
authorization from San Carlos University may teach in the universities of the
country without having to meet registration or affiliation requirements.
7. LAW OF STATE CONTRACTS
This law is applicable in the case of purchase of contracts involving goods,
supplies, works and services which State agencies, their decentralized,
autonomous or semiautonomous agencies, execution units created by
Government Resolutions, municipalities and municipal or State utilities might
require.
The public bidding system is established for the purchase and sale of and
contracting for goods, supplies, works and services required by the above
mentioned agencies.
Public agencies must program the purchaes, supplies and contracts that will be
required in a fiscal year, during the fiscal year prior to it.
This law allows for State agencies and other services mentioned above to
import goods directly when the goods are not produced in the country or in the
Central American region and when their price, including customs duties, taxes,
transportation, per diems, insurance, and other associated expenses is lower
than the price of the same goods in the Guatemalan market.
There are exceptions to the requirement of bids and quotations.
The public auction procedure will be used for the disposal and transfer of
property or goods or materials which are the property of the State, and for the
sale of goods and materials, after meeting the requirement of publishing the
auction and preparing the bidding documents.
The State is authorized to grant concessions to individuals so that they may, on
their own account and at their own risk, build, produce, set up, install, improve,
add, conserve, restore and manage public works, goods or services under the
control of the public agency, with or without the use of public property in
exchange for remuneration which the private party may charge the users of the
works, qoods or services.
A special feature of this law is that the parties to the contract are allowed to
include arbitration clauses in the contract.
8. INCOME TAX LAW
Article 171 (c) of the Constitution of the Republic provides that only Congress
can decree ordinary and extraordinary taxes on the basis of the needs of the
State, as well as to establish the procedures for their collection.
This basic principle of the State's financial system is further reinforced by
Article 239 of the Constitution which deals not only with ordinary and
extraordinary taxes but also with any other form of tax or special contribution.
Therefore, the source of any type of tax or contribution must always be set forth
in a specific law which provides for its creation or establishment.
The Income Tax law establishes that every individual or legal person,
Guatemalan or alien, whether a resident of the country or not must pay taxes on
income earned from capital investment, work or the combination of both.
Interest rates on bank accounts and public or private securities are also subject
to payment of income tax. However, instead of adding this revenue to the rest of
the operation, they will be withholding of 10% which will contitute full
payment of the tax.
TAXATION PERIOD
Generally speaking, the taxation period starts on the first of July and ends on
the 3Oth of June of the following year, but in the case of legal persons,
authorization from the Internal Revenue Service is not required to establish a
period which is different from the ordinary one.
The Service shall accept the taxation period which is indicated in the
instrument of incorporation or its amendment.
REVALUATION OF FIXED ASSETS:
Fixed assets may be revalued and depreciations may be calculated on the basis
of the new values, if and when the taxpayer has paid a revaluation tax on the
amount of the revaluation. The amount of that tax varies depending on the
nature of the revalued property (7% in the case of property; and the percentage
of the import duty for the case of machinery and vehicles).
DEPRECIATION PERCENTAGES:
* Buildings, constructions, etc. remain at 5
* Trees, bushes, etc. increase from 10% to 15%
* Furniture and office equipment, vessels, etc. increase from 10% to 20%
* Machinery, authomobiles, etc. remain at 20%
* Computer equipment, tools, etc. increase from 20% to 25%
* Intangibles: at the taxpayer's discretion, depending on the conditions of
acquision or creation, if and when the depreciation period is not less than 5
years
ROYALTIES
In order to be able to deduct royalties, authorization from the Ministry of
Economy is not required, but the deduction is limited to a maximwm of 5% of
the gross income.
RATES:
For individuals. imcome tax rates are:
* Up to Q20,000.00 of taxable income, Q0 fixed tax, plus 15% on the
excess over Q0 of taxable income
* From 20,001.00 to Q65,000.00, Q3,000.00 of fixed tax plus 20% on
the excess over Q24,000 of taxable income
* From Q65,000 on, Q12,000.00 of fixed tax plus 25% on the excess
over 65,000 of taxable income
In the case of LEGAL PERSONS, entities and estates, the rate was established
at 25%. It should be said here that this maximum percentage has gone down
considerably, in view of the fact that under the old law it could be of up to 34%.
WITHHOLDI NGS:
The following percentages will be withheld as THE FULL nt in the case of
persons who do not live in Guatemala:
* 12.5% on dividends, participation in profits, earnings and other
benefits paid or credited by associations or establishments that have their
domicile in Guatemala.
* 12.5% on payments or credits on earned interests, fees,
commissions, bonuses and other forms of taxable income including wages
and salaries; an exception here is interest rates on loans granted by financial
institutions, provided that the foreign currency was exchanged through
the Guatemalan banking system;
* 25% on payments or credits for royalties and other remunerations,
for the use of as well as on scientific, financial advisory services; patents
and trade marks economic, technical and financial advisory services.
* 25% on payments or credits on account for any other income of
Guatemalan source which is not covered by the above list.
ANNUAL ASSOCIATION FEES
These remain at one per thousand of the net asset, with a limit of Q20,000.00.
9. VALUE ADDED TAX LAW
The following tax generation events are included as the taxable basis:
-The sale of real and personal property and real rights over them;
-The performance of services on Guatemalan soil (be they personal or
non-personal services);
-Imports;
-The leasing of goods or real estate (the old law only taxed the rental
of goods).
In the field of EXEMPTIONS, in addition to constitutional exemptions, the
following are exempted:
- The import of goods by cooperatives (machinery, equipment and
inputs for their productive process); those covered by the temporary
import system and traveler's luggage;
- Exports (although exporters are entitled to fiscal credit for all their
local purchases);
- Transfer of title on possession of personal and real property in the
case of contributions to companies and mergers;
- Services performed by institutions controlled by the Banking
Authorities and stock exchanges (in the case of insurance companies, only
reinsurance is exempted);
-The retail sale of free foodstuffs and staple grains to final conswmers
in villages and municipalities (if the transaction does not exceed Q100.00).
The RATE remains at 7%, which must be included in the sale price.
In order to calculate the basis on which the tax is applied in the case of imports,
the CIF value plus import taxes will no longer be used, but rather the customs
value of the goods imported, or the CIF value.
Regarding the RIGHT TO FISCAL CREDIT we should underscore the
following:
The right to credit on all purchases, services, imports etc. exists, except when
these have no bearign on the economic activity of the taxpayer or are applied to
act which are not taxed by law.
Credit is also given for the tax which is evidenced by invoices, notes, receipts
and documents, if those documents are recorded in the book of purchases is
recognized.
Regarding the FISCAL CREDIT REPORTS, a return is filed every month. The
dates on the invoices and receipts for import duty payments must agree with the
month of the period for which payment is being made. In the case of imports,
the tax will be generated on the rate on which the payment of the taxes is made,
per the receipt which is issued.
For the FISCAL CREDIT REIMBURSEMENT to take place, under normal
circumstances, the tax payer would carry his credit balance to following
periods. However, when balances remain, the following rules apply to obtain
reimbursement:
- In order to be able to request a reimbursement, the taxpayer must
have maintained a balance in his/her favor at least during two
consecutive periods;
-The reimbursement can only be requested quarterly, in March, June,
September and December;
-Within the administrative process for the reimbursement, the concept
of FAVORABLE ADMINISTRATIVE SILENCE has been included,
where if the legal term goes by without the control authority making a
decision regarding the return request, interest in favor of the taxpayer is
generated if the reimbusement is not made in the appropriate period. This
interest can be included in the fiscal credit.
Regarding EXPORTERS, the evident purpose of the law is to prevent exporters
from charging the tax to the foreign buyer but allowing them to retain their
right to fiscal credit for their local purchases.
10. FISCAL-STAMP AND SPECIAL STAMPED-PAPER TAX ON
NOTARIAL REGISTER
This tax is paid on documents which contain acts and contracts established by
the law iself.
The passive subject is that or those who issue, sign or grant documents which
contain the taxable acts. This issuance, signature or grant represents the tax
generating event.
The tax rate is 3% over the value of the acts and contracts which are taxable. In
addition, there are specific rates for certain documents.
A tax exists now for Special Notarial Register Stamped Paper, with a specific
rate of Q1.00 for every sheet.
EXEMPTIONS
There are exemptions in the case of this tax, both in the case of persons and the
State, universities, etcetera, as well as on documents which contain acts or
contracts which are exempt. There are exemptions for banks, financial
companies, bonded warehouses, insurance and reinsurance companies, bond
companies and stock exchange operations.
Among others, all contracts and documents which containing acts on which
Value Added Tax is due and credits and loans granted by banks, financial
agencies and other authorized agencies are exempted from the payment of this
tax.
Generally speaking, the tax must be paid when the taxable document is issued.
The tax will be paid by pasting fiscal stamps on the document, with the use of
stamping machines or in cash at the tax payment cashier windows or in any
bank of the country, in accordance with the Stamp Tax Law and its regulations.
11. RESERVES OF THE NATION
- The reserves of the Nation are all the areas which belong to the State
according to the provisions of the Constitution:
i. 3 kilomenters along the oceans, measured as of the high-tide line;
ii. 200 meters along lake shores;
iii 100 meters on each side of the banks of navigable rivers;
iv. 50 meters around the sources of springs supplying water for the
population..
- Exceptions to these reserves are:
a) real estate located in urban areas;
b) property over which rights were registered in the Real Estate
Registry prior to March 1, 1956.
-Aliens will need authorization from the Executive to acquire the property of
real estate contained in the list of exemptions above. The State has preferencial
right to them.
- Only the State, municipalities, State agencies and native-born Guatemalans
and Guatemalan companies will be entitled to acquire real rights to real estate
which is totally or partially located within State Reserve areas. In urban
sections within those areas, aliens may acquire property rights without
detriment to the State's preferential rights.
-Notwithstanding the provision contained in the paragraph above, real estate
located within reserve areas can be leased out to any Guatemalan or alien
through a contract which must be authorized by the Ministry of Agriculture.
The contract will be signed by the Minister if the lesee lives in Guatemala City
or by the Department Governor if the lesee lives in the department where the
real estate is located.
-The size of the leased property cannot be greater than one "caballeria" (.449
sq. Kms.) in the maritime reserve area amd 1000 sq. mts. if the property is
located on the banks of in lakes and navigable rivers, except if the land is going
to be used for agriculture or for the construction of hotels or other tourist
facilities. The areas surrounding springs which supply water to the population
may not be leased. Contracts must be approved through a Government
Resolution.
- The maximum term of a lease is 35 years. In the case of hotels, the term can
be of up to 50 years.
-Subleasing is forbidden but leasing rights may be transferred or encumbered
and subsequent notice must be given.
12 . THE ENVIRONMENT
-Congress enacted the Environmental Protection and Improvement Law
(Decree 68-86) to protect the environment.
- For legal purposes, the environment includes:
i. atmospheric systems (the air);
ii. the hydric system (water);
iii. the lithic system trocks and minerals);
iv. the edaphic system (soils);
v. the biotic system (animals and plants);
vi. audiovisual elements;
vii. natural and cultural resources
-Before implementing projects, works, industries or activities which might
cause damage to the renewable or non- renewable resources or to the
environment, or bring about harmful or evident changes in the country's
landscape and cultural resources, an environmental impact study must be done
by experts in the field and approved by the National Environmental
Commission.
-The National Environmental Comission (CONAMA) is a government agency
that reports directly to the Presidency and is in charge of enforcing this law.
-The country's soil, subsoil and territorial water-cannot be used to dispose of
environmental or radioactively contaminated waste. Materials and products
which are forbidden in their country of origin may not be brought into
Guatemala, except for scientific, technological or commercial purposes, but
Government authorization is required in every instance.
- Human or animal excreta, household or municipal waste and its by-products,
treated or untreated slime or sewer muds, as well as toxic waste originating
from industrial processes, containing substances which can infect, pollute or
degrade the environment and endanger the inhabitants life and health,
including chemical mixtures or combinations, traces of heavy metals, residues
of radioactive materials, undetenmined acids and alkalis, bacteria, viruses,
eggs, larvae, spores and zoopathogenic and phytopathogenic fungii may not
enter the country either.
INVESTMENT GUARANTEES
The main guarantee offered to foreign investment in Guatemala are:
i. The Overseas Private Investment Corporation (OPIC) for U.S.
capital investment; and
ii. The Inter American Investment Corporation (CII).
I. OPIC:
- On August 9, 1960, Guatemala signed the Agreement on U.S. Investment
Warranties with the United States of America.4
-By virtue of this agreement, investments which are substantially from U.S.
sources may be protected in Guatemala against the risk of inconvertibility and
expropriation through the guarantees offered by the OVERSEES PRIVATE
INVESTMENT COROPORATION ( OPIC ).
-A Government Resolution containing the Regulation for the application of that
Agreement was issued on October 22, 1969, but the procedures described in the
regulations were extremely cumbersome and slow, which in fact made it
unattractive to apply for this guarantee.
-However, these Regulations were repealed by Government Resolution number
693-86 of September 19, 1986, and new ones were drafted, which sped up the
procedure, as provided in preambular paragraphs one and three of the
Agreement, to obtain approval by the host country of the investment
(Guatemala).
-In Guatemala, the Ministry of Economy is in charge of such requests and of
approving U.S. capital investment projects for their effective protection through
the OPIC guarantee.
-It is noted in the Regulations, however, that the Ministry of Economy is not
required to issue an opinion within a fixed deadline. Furthermore, a clear and
transparent procedure is not established. Article 5 only provides that the
Ministry may request opinions from other Government agencies or
decentralized, autonomous or semiautonomous agencies in addition to the
technical and legal opinions issued by its own offices.
II- INTER AMERICAN INVESTMENT CORPORATION (CII):
- CII is a multilateral financial corporation that promotes the economic
development of its member countries in the region by promoting the
establishment, expansion and modernization of private companies in Latin
America and the Caribbean, particularly small and medium-size ones. CII
operates directly with private companies, and does not require government
guarantees. CII is an autonomous agency affiliated to the Interamerican
Development Bank (IDB).
- In addition to providing loans in the regions where it is difficult to obtain
financing from other sources, the Corporation also offers medium and long
term guarantees.
- To this date, this agency has only given loans to private businesses for the
devlopment of specific projects in Guatemala, but it was mentioned in this
section because it is the possibile that it might also offer guarantees for such
investments.
14. ARBITRATION
-Generally speaking it can be said that in Guatemala arbitration is an
alternative available for the solution of civil and commercial disputes among
individuals.5
- The Code of Civil and Commercial Procedures regulates arbitration
procedures. For its part, the Civil Code also contains important rules regarding
this question, since it regulates the Commitment Contract, by virtue of which
the parties submit an already existing and specific problem to arbitration.
- There are norms which might seem to prevent the State from being a party to
an arbitration procedure when it has some sort of a relationship, mainly
commercial, with the individuals. The Contencious-Administrative Law
requires that the parties to a dispute submit their differences of opinion with
the State to the Contencious-Administrative Court.
- Although generally speaking, the arbitration procedure is accepted in our
legislation, a careful analysis of the rules contained in the Code or Civil and
Commercial Procedures (Decree-Law 107) shows that there still many legal
obstacles to the effective use of arbitration which might assist the ocurts of the
country in reducing the backlog of pending cases.
- Regarding International Commercial Arbitration, Guatemala is thought by
experts to be quite progressive in view of the fact that it has already signed the
INTERNATIONAL CONVENTION FOR THE EXECUTION OF FOREIGN
ARBITRATION DECISIONS (New York Convention); and the INTER
AMERICAN INTERNATIONAL COMMERCIAL ARBITRATION
CONVENTION (Panama Convention. The latter
follows the system developed for the New York Convention.6
- Even though the inclusion in our legal system of these two Conventions is
important in this sense, when the need may arise to apply them in concrete
cases, they would encounter obstacles in certain provision of applicable local
laws which would substanially delay the execution of the decision or the
development of the arbitration, or would make these efforts futile.
-Under the Constitution, the State of Guatemala can be subject to international
jurisdiction or international arbitration courts (Article 171, paragraph “l”
numbers 4 and 5) with prior authorization from Congress. This minimizes the
risk for the State of Guatemala to be too ready to invoke its "sovereign”
character or the doctrine of the “Act of State”, in the case that it should
arbitrarily jeopardize an investment.
B. SECTORAL REGULATIONS
15. HYDROCARBONS
-Everything related with hydrocarbons is essentially regulated by the Law of
Hydrocarbons (Decree-Law 109-83 and its amendments) and its general
regulation (Government Resolution 1034-83).
-All hydrocarbon reservoirs belong to the State. The contractor, therefore, must
surrender everything it produces to the State, except the part which is to be
applied to the recovery of investment costs and an appropriate remuneration.
These two last provisions must be included in the contract.
-According to these provisions, parties interested in producing hydrocarbons in
Guatemala must sign a contract with the Government through the Ministry of
Energy and Mines. The types of contracts governed by the law are:
i. Oil operation contract;
ii. Production Participation Contract: the contractor carries out all of the
exploration and exploitation activites and the State participates as a partner in
the risks and profits;
iii. Oil Service Contract: to execute work which is specifically and directly
related to oil operations.
- Contracts in no way represent concessions; they must be approved by Council
of Ministers Government Resolution and published in the Official Gazette and
in two major newspapers.
-Contracts have the following main characteristics:
i. In Production Participation Contracts, the minimum participation by the
state is 33% and this can increase depending on the production rate or the
monetary value of the hydrocarbons;
ii. Compatible hydrocarbons represent the net production in each production
area minus royalties and the volume of hydrocarbons applied to the recovery of
investment costs as established in the contract;
iii. At least one exploration well must be drilled during the first three years of
the contract (compulsory drilling phase). As of the fourth and throughout the
sixth year (optional drilling phase) at least two exploration wells may be
drilled every year. This obligation can be reduced to one exploration wel1 each
year;
iv. The contractor shall gradually return one or several parts of the area
covered by the contract so that, by the end of the fifth year, 50% of each block
shall have been returned;
v. The contractor shall have returned the total contract area, except production
areas, at the end of the sixth year of the life of the contract. Should the
contractor not discover hydrocarbons in sufficient commercial amounts prior
to the end of the sixth year, the contract will expire automatically. However,
the Ministry of Energy and Mines may grant an extension of not more than
one year.
vi. Once hydrocarbons have been discovered in commercial amounts, the
contractor shall select the exploitation area, and shall establish the limits,
develop and exploit the appropriate reservoir or reservoirs ;
vii. The maximum areas per block, depending on the contracts are:
a. Production Participation Contracts: 10,000 hectares;
b. Oil Operation Contracts:
b.1. On land: 50,000 hectares;
b.2 Continental shelf and Exclusive Economic Zone: 80,000 hectares
viii. The maximum areas per contractor are:
a. Exploration:
a.l On land: 300,000 hectares;
a.2 Continental shelf and Exclusive Economic Zone: 480,000 hectares;
b. Production: 150,000 hectares
ix. The contractor shall provide all the information, surveys and their
interpretations which result from the execption of the contract. This
information then becomes the property of the State;
x. All the machinery equipment and facilities of the contractor, the cost of
which has been recovered according to the contract, will, at the end of the
contract, become the property of the State at no cost.
Cost recovery has priority over every other payment including royalties:
xi. The contractor is under the obligation to sell to the State, at the price
established by the Government, a prorated amount of the produced
hydrocarbons which it retains for the recovery of costs or as its conpensation
which, together with other amounts produced in the country by other
contractors, is required to meet local demand or up to 55% of the totallity of
the hydrocarbons produced in the country, whichever is greater;
xii . Contractors must help finance training programs in the exploration and
production phases;
xiii. The term of oil operation contract may not exceed 24 years;
xiv. Oil exploration and production must give native-born Guatemalan
operation contractors must give native-born Guatemalan the opportunity to
participate in oil operations with captial contributions which represent at least
5% of the total amount of the work contracted for the first three years of the
contract.
-Contractors enjoy the following fiscal incentives:
i. Duty-free imports of consumable materials, machinery, equipmen., spare
parts and accessories for their end use or consumption in the country. Said
goods shall remain in the country at least 5 years. After those 5 years, they
may be f reely disposed of;
ii . Temporary suspension of all taxes on foreign-owned machinery, equipment
and accessories.7
- The Ministry of Energy and Mines must determine and adapt the market
price of each one of the various types of crude oil produced in the country,
based on international market prices and the opinion of the National Oil
Commission.
- Contractors must pay the following:
i. Royalties: 20% if the API gravity is 30 degrees. This percentage will be
raised or decreased by 1% for every degree above or below that gravity. The
minimum is 5%;
ii. Part of the production must be sold to the State;
iii. State participation in production, if that should be the case.
iv. Income tax;
v. Q100,000 upon ignature of the contract plus the amount set forth in the
contract for every heactare included in the contract area:
vi. Q100,000 for total assignment of the rights of one contract or a proportional
part thereof.
-The revenues which the State is entitled to as royalties or production
participation can be collected in cash or in kind, whatever the Goverment
choses.
- The Ministry of Energy and Mines can grant surface reconnaissance permits
for a period of up to one year which
can be extended for another period of one year. These permits do not grant
exclusive rights nor do they award hydrocarbon exploration and production
rights.
-Contractors may freely foreign capital invested, as well as operation costs,
profits, loan principal and interest payment and other similar payments for
costs generated abroad. The contractor may keep abroad the profits earned in
the country for which Income Tax has been paid. At any rate, the foreign
exchange that the State might be entitled to for any reason must enter the
country as provided in the contract.
-Currently there is a tax on the distribution of crude oil and fuels which are oil
by-products (Decree 38-92). The characteristics of the tax are the following:
i. Taxes imported and locally-produced and processed crude oil and fuels which
are oil by-products which are distributed within the country;
ii. Also taxed are:
a. The transfer of title to taxable products; and
b. The uses, disposal or consumption of taxable products by processing or
distribution plants
iii. The tax is generated when the products leave the warehouses of distribution
companies or processing plants for their distribution, consumption or sale to
gas stations or bulk consumers throughout the country's territory.
iv. Domestic crude oil and imported or reconstituted crude oil which is to be
processed by re.fineries operating in
the country are not subject to this tax. Neither are finished products or the
domestic crude oil which is exported. The generation of energy for its sale and
public consumption, when crude oil, diesel and bunker are used as fuel in
thermoelectric plants connected to the national electric energy system is not
subject to this tax.
v. The basis for calculation of the tax is established on the volume in J.S.
gallons (3.785) at ambient temperature. Depending on the type of product
being taxed, a rate must be applied to the gallon (for example: premium
gasoline: Q2.00/gallon).
vi. The tax must be paid weekly by withholding agents through a sworn
statement .
vii. Withholding agents are:
a. Fuel distributors legally authorized to operate in the country or their
agents ;
b. Persons who carry out oil production operations in the country, on
the crude oil which will be consumed in the country as fuel;
c. Persons authorized to process fuels in the country on fuels
distributed directly to bulk consumers and gas stations;
d. Persons who import fuels for their own use in the country's
territory.
viii. Taxpayers must register with the Internal Revenue Service and must act as
tax withholding agents.
16. MINING:
Mining operations in Guatemala are governed by two laws:
i. The Mining Law ( Decree-Law 69-85 ), and
ii. The Law on Small-Scale Mining (Decree 55-90 )
1. MINING LAW:
-It is a public order law.
- Transactions with the government to which this law applies are exempted
from the State Contract Law.
- Administrative procedures which refer to mining activities are carried out at
the Ministry of Energy and Mines or the Mining Service, an agency of the
Ministry.
- Ore deposits which exist in the country, whether on land, the Continental
shelf or its Exclusive Economic zone, are the property of the nation and the
country's ownership of these properties is inalienable and does not lapse.
-For the purposes of the law, deposits are classified as:
i. Mines: deposits of mineral substances different from the ones found
in quarries; and
ii. Quarries: deposits of rock, sand or the mixture of both, which can
be used for the adjustment of soils or as an inert aggregate in the preparation
of concrete.
-Ability to acquire mining rights: every person, individual or legal,
Guatemalan or aliens; Guatemalans and aliens are in the same situation under
the law, except in the case of certain special incentives which are offered only
to Guatemalans (Articles 143 and 144).
-Government prerogatives which can affect mining activities:
i. Granting rights to carry out mining operations is a discretional
power of the Government;
ii. The Government can declare certain areas to be temporarily or
definitely closed to mining activity for various reasons of national
interest;
iii. It can temporarily or permanently regulate all or some of the
mining operations on specific substances through special laws;
iv. Declare national mining reserve areas where only the State can carry out
mining activities;
v. Restrict the granting of mining rights in border zones, in the Continental
shelf or in the Exclusive Economic zone for reasons of national security,
vi. The Ministry of Energy and Mines can regulate, restrict of prohibit the
import and export of mining products. In any case, in order to export or
import mining products, prior authorization is required from the Mining
Service.
Notwithstanding the above, in the case of paragraphs ii and iv, mining rights
in force will not be affected.
-The various transactions which the government can carry out with individuals
for the execution of mining activities are:
i. Reconnaissance permits: to locate areas suitable for mining. They
have a one year duration which can be extended by two equal periods;
they are personal and non-transferable and do not grant priority rights
for mining exploration or production.
ii. Occasional utilization permits: to utilize alluvial ores in washers
and sandbanks, with the use of a pan or other natural devices. They do
not grant exclusiveness and dredges or mechanical implements may not be
used. They have a duration of not more than a year, and are renewable
indefinitely. They do not offer priority for the obtention of mining exploration
or exploitation rights;
iii. Exploration licenses: These confer exclusive authority to locate
deposits for the substances for which it was granted, within the limits of
its area and are indefinite in depth. The area may not exceed than 500
sq. Kms. in the case of mines; and 50 sq. kms. in the case of quarries.
They are granted for a period of not less than one year or more than three.
They may be renewed but in no event for more than five years. The
licensee is entitled to mine the substances found.
iv. Quarry production licenses: They confer exclusive right to extract,
process, transport and transfer mineral substances found. They are given
for a period of 20 years which can be extended to a maximum of 30
years. The licensee must, among other things, prepare a study of the
environmental impacts which extracting the minerals can cause.
v. Mine production contracts: They confer the exclusive right to
extract the mineral substances for which they were signed.
vi. Special mine production contracts: These apply when the
government signs a contract with an individual, through the Ministry of
Energy and Mines, in any of the following cases,
a) to develop mining projects involving large investments:
b) for production in mines through public companies or agencies;
c) for extraction in mines which have been returned to the State, when
they are used as experimental sites to train Guatemalan professionals or
technicians or to apply or develop technology;
d) for the extraction of gold, platinum, precious stones, radioactive
substances or any other substance which could become of high economic or
strategic value in the future (in this case it does not affect rights in force);
e) for deposits discovered in national reserve areas.
vii. Mine exploitation contracts in association: These are contracts
carried out between the government and individuals, for production in
any type of deposit, where rights and obligations will be shared,
excluding the payment of royalties, which will be between the
associate with the State;
viii. Processing licenses: These confer the right to install and operate
a processing plant (operations of mechanical separation and/or metallurgic
mining treatment of any type). They can be one of three types:
a ) a private service: for internal use by production right
holders;
b ) of public service: for third party production handling; and
c) of mixed service: for production rights holders and third
parties.
- These licenses do not grant concessions nor do they generate more rights or
obligations than those set forth in them.
- No individual or legal person can obtain more than 2,000 sq. Kms. for
exploration purposes , or more than 200 sq. Kms. for production.
-The holders of mining operation permits, licenses or contracts are exclusively
subject to the laws of the Republic. The owners or aliens who work in them
cannot resort in any case to diplomatic channels regarding the application,
interpretation, execution and termination of the permits, licences or contracts.
- In all of the mining operations contracts, permits and licences, it shall be
established that, in the case of everything which has to do with its application,
interpretation, execution and termination for any reason, contractors renounce
the jurisdiction of their residence and submit themselves to the Contentious-
Administrative Court .
Mining rights become extinct:
i. Upon the expiration of the term or any extension thereof;
ii. With the express relinquishment by the holder; and
iii. By operation of the statute of limitations: among other reasons, for
not using production rights within 6 months of the date when they
were qranted.
In the case of insubsistence (meaning that law requirements were not met) or
extinction of mining rights, all permanent installations and those whose
removal could damage the mine or quarry will become the possession of the
State at no cost.
-Applicable taxes: In addition to regular taxes, the owners of mining
exploration, production and processing rights must pay the following:
i. Royalties: Credit in favor of the State, municipalities and land
owners, as compensation for the removal or utilization of mineral resources.
The price over which royalties are paid is established every six months by the
government. Said price is multiplied by the total, in volume or weight, or the
commercially usable content, and the result, in turn, by the following
rates:
a) Mines: 5% b) Quarries: 4%
To calculate royalties, the comercially usable product is considered to be at
least 93% of the metallic or non metallic content which has been established to
be present. Royalties are income tax deductible.
ii. Specific rates: The following are the specific rates apply:
a) Award rate: is paid only once when the permit or licence is issued.
Award rates are the following:
a. 1 Exploration: Q5.00/sq. Km.
a.2 Extraction: Q100.00/sq. Km.
a.3 Processing: Q3.00/metric ton
a.4 Exploration extension or transfer: Q5.00/sq. Km.
a.5 Extraction extension or transfer:Q150/sq. Km.
a.6 Processing extension or transfer: Q500
a.7 Processing capability expansion: Q3.00/metric ton;
a.8 Special or association mining contracts: a rate to be
estabLished by the government.
b) Surface rate: for extraction only
Mines: first ten years: Q100/sq. Km per year as of the 11th year:
Q200/sq Km. per year
Quarries: First five years: QS0/sq. Km. per year; as of the 6th year:
Q100/sq Km. per year
c) Processing rate: only public or mixed processing. It is paid
according to the daily gross installed capacity. This rate is paid
quarterly.
First five years: Q0.50/metric ton; as of the 6th year: Q2.00/metric ton
-Holders of mining rights must register at the Registry of the Energy and
Mines Ministry.
- An incentive for holders of extraction rights is that, in the payment of
royalties to the State, the following table is used for their payment:
a) First year: 20%
b) Second: 40%
c) Third: 60%
d) Fourth: 80%
e) Fifth: 90%
f) Sixth and on: 100%
- Holders of extraction and processing rights are exempted from paying import
duties on the neccesary machinery and inputs, if and when they cannot be
obtained locally of the same quality or in sufficient amounts.
- Holders of mining rights shall give preference to Guatemalan products, goods
or services which can be acquired in equal or better conditions of quality,
price, availability in terms of time and amount required, compared with
foreign products, goods or services.
-Before starting to exercise some of the mining rights granted by the law, a
bond must be placed with the government to guarantee obligation fulfillment.
2. LAW FOR THE PROMOTION OF SMALL-SCALE MINING:
-Small-scale mining covers all mineral exploration or extraction activities,
except for the mining of strategic, radioactive and precious minerals carried
out in an area not larger than five sq. Kms. for exploration and one sq. Km.
for extraction.
-Small-scale mining can only be carried out by the following persons:
i. individual persons: only Guatemalans by birth;
ii. Commercial associations: legally established in the country and the
paid-in capital of which is 60% Guatemalan. If it is a stock company, the
shares must be bearer shares.
-According to this law, the legal representatives of individual or legal persons
holding mining rights must be Guatemalan by birth and cannot delegates
duties or grant powers of attorney or otherwise delegate their powers, except
legal powers of attorney, except to other Guatemalans by birth.
17. GEOTHERMAL ACTIVITIES
- Everything associated with geothermal operations is governed by the law on
geothermal activities (Decree-Law 126-85). This law is a public-order law: it
ranks higher in hierarchy than ordinary laws. For contracts signed with the
State in this sector, the State Contracts Law is not applicable either.
- Geothermal energy is the thermal energy which is found beneath the surface
of the earth.
-Geothermal operations are operations carried out for the purpose of exploring,
developing, extracting separating, compressing, processing, transporting and
marketing geothermal energy, gases or other associated substances.
-The geothermal reservoirs found in the country, its continental shelf and its
Exclusive Economic Zone are the property of the nation.
- All the information, data compilation which originates from geothermal
operations, contracts, permits and execution are also the property of the nation
- Geothermal operations may be. carried out by the State, through the Ministry
of Energy and Mines or the National Electrification Institute (INDE) or by any
person: individual or legal, Guatemalan or alien Guatemalans and aliens
enjoy equal conditions.
- Anyone who carries out geothermal operations is subject exclusively to the
laws of the Republic of Guatemala. Aliens may not resort to diplomatic
protection for the application, interpretation, execution and termination, for
any reason, of the permit or contract, whatever the case may be.
- Competent authority: The New and Renewable Energy Sources Service, an
agency of the Ministry of Energy and Mines, is the agency in charge of
controlling, supervising and setting up minimum safety conditions in
geothermal operations.
-Contracts: The law provides for the following types of contracts:
i. Association and/or participation contract: Entered into between the
Government and individual(s) to jointly carry out geothermal operations in
the country. The State and the contractor assume the risks outlined in the
contract.
ii. Operations contract: Entered into between the government and
contractors for them to carry out geothermal operations in the country.
iii. Service contract: Entered into between government contractor and
a service contractor for the latter to do work which is specifically and directly
related to geothermal operations.
iv. Service subcontract: Entered into between a service contractor and
a service subcontractor for the latter to do specific work directly related to
geothermal operations.
- Permits: The State can grant surface reconnaissance permits for preliminary
exploration activities, carried out for the purpose of obtaining geochemical,
geological, geophysical, hydrogeological or other types of information. These
permits have a maximum duration of one year which can be extended for
another period of equal time and do not award exclusive or priority rights to
one of the above-mentioned contracts.
-Negotiations which are carried out under the protection of tne geothermal law
are not subject to the Procurement and Contract Law and can be carried out in
two ways:
i. Through official bidding; or
ii. by direct negotiation.
-Contracts do not grant property rights or concessions, and rights acquirrd
through them can be transferred to third parties with Ministry of Enrrgy and
Mines authorization.
-A typical contract should contain at least the following provislons:
i.* Royalties of not less than 5% on the geothermal energy produced.
Those royalties can be paid in cash or in kind, whatever the
Government chooses;
ii.* The percentage of the production which belongs to the State;
iii. The term of the contract and its maximum duration in the case of
extension. In general, the maximum term for contracts is 25 years, by
law;
iv.* Exploration and extraction periods, their phases and terms. For
the exploration period, the minimum amount of work and guarantees
required;
v.* When applicable (this is optional), the way in which the
contractor will recover his investment in exploration and development, as
well as operation costs. If this is agreed on, recovery is subject to there
being enough production in the reservoirs:
vi. If electric energy is generated, the contractor's obligation to sell it
to INDE, unless there is an agreement to the contrary;
vii. The contractor's obligation to implement appropriate control
measures to avoid environmental pollution;
viii Customs, construction and other mechanisms which must be
streamlined for contract terms to be met:
ix. The contractor's obligation to carry out his work programs using
annual budgets previously approved by the Ministry of Energy.
* Not applicable to service contracts.
-Contracts stipulate in every contract that in case of litigation relative to its
applicatlon, interpretation, execution and termination, for any cause, the
holders and their partners waive the jurisdiction of their domicile and submit
to the Contentious-Administrative court.
- The contracts provide that the holder will contribute the as stipulated in the
contract for training programs and scholarships to train Guatemalan
personnel. That contribution is, 1% according to the law, but it does not say
1% of what.
Taxes: the holders must pay all general taxes, save for exemptions in their
favor for the import of the necessary materials which cannot be obtained in
Guatemala of the same or better quality and in the same or greater amounts.10
-In addition, the holders must pay the following specific rates:
i. Contract signature fee: a minimum 0.5% of the budget for the
exploration period;
ii. Surface tax: this is established in the contract. It is annual and paid
by the square kilometer;
iii. Rate for the transfer of rights: the party transferring the rights
shall pay a tax equal to the one paid for the signature of the contract
- In conclusion, the holders must pay general taxes, royalties and specific rates.
- When contracts are terminated for any cause, permanent works and facilities,
and those the removal of which could cause damage or threaten the safety of
the reservoir will be transferred to the State at no cost and with no liens or
limitations.
- Persons wishing to sign contract for geothermal operations must previously
register at the Registration Department of the Ministry of Energy and Mines.
- The State may establish national reserve areas where only the State can use
geothermal resources.
- Geothermal energy, a new and renewable source of energy, is included in the
law for the promotion and development of new and renewable energy sources
(Decree-Law 20-86) and enjoys all the incentives of that law.
18. NEW AND RENEWABLE SOURCES OF ENERGY
- The Law for the Promotion of the Development of New and Renewable
Sources of Energy (Decree-Law 20-86) was created to promote new and
renewable sources of energy.
- This law is applicable to any person, Guatemalan or alien, interested in
carrying out projects for new and renewable energy source.
- New and renewable sources of energy include solar radiation, wind, the tides,
water, geothermal energy, biomass and any other source of energy which is not
nuclear or produced by hydrocarbons or their by-products.
- Projects for new and renewable energy source to which this law is applicable
are those involving one or more of the following fields: research,
experimentation, education, training, promotion, information, production, the
manufacture of specific equipment and for the utilization of new and
renewable sources of energy and marketing of the products obtained from these
activities.
-Incentives: The law contemplates two types of incentives:
i. Fiscal:11
a. Duty-free import, of consumable materials, machinery, equipment,
spare parts and accessories which cannot be found in Guatemala of the same
quality or in the same amounts;12
b. Temporary suspension of Customs duties on foreign machinery,
equipment and accessories to be used in the projects;
c. Deduction of up to 100% of income tax from the value of the
investment, in the case of persons who live in the country;
d. 100% income tax deduction from the amount of the donations
made for new and renewable energy source projects.
ii. Non-fiscal:
The Bank of Guatemala has a credit line to finance this type of project.
Projects must qualify before the loans are granted and the projects will only be
financed if their main objectives are the following:
a. The reduction of national hydrocarbon consumption;
b. Supplying energy to rural areas;
c. Improving the people's quality of life;
d. The rational utilization of natural resources.
-The New and Renewable Energy Source Service, an agency of the Ministry of
Energy and Mines is in charge of enforcing this law.
19. FORESTRY
-In Guatemala, forestry is regulated by the Forestry Law (Decree 70-89).
-The utilization of forest resources in the country can be done in two ways:
i. State property, through a concession; or
ii. Private property, with a license.
- Forestry is virtually forbidden for aliens. Concessions can only be granted to
Guatemalans or commercial companies established in the country with 70%
Guatemalan capital. In this sense, if they are stock companies, the shares can
only be registered. Even the legal representatives of concessionaires must be
Guatemalan-born.
This results from the provision contained in Article 126 of the constitution and
related special rules contained in the Forestry Law.
- Forestry is divided into:
i. The utilization of forests: the use of the direct forest products for
commercial and non-commercial purposes. Non commercial purposes can be
scientific research and family use.
ii. Forest management: the orderly management of forests through
forest techniques aimed at improving the forest mass, for a rational and
sustained utilization of the resource.
Forest utilization of any type can only take place with a license obtained from
the Forest Service (DIGEBOS). The license will only be given to the owner or
legitimate tenant of the property or forest area to be utilized.
- The license application must be submitted with a management plan which
must be prepared by an expert in the field. This expert must be registered at
DIGEBOS.
- The forest utilization license cannot be negotiated by the owner.
Obtaining a forest utilization license entails the commitment to replant the
forest. The owner can chose between:
i. Replanting of the area which was cut down; or
ii. Reforesting one hectare for every 150 cubic meters which were cut
down.
The minimum density in both cases is 1000 trees per hectare. The commitment
to replant must be guaranteed before DIGEBOS.
- Persons who engage in the production and marketing of forest seeds must
register with DIGEBOS.
The transportation of forest products must be authorized by means of a
document which is issued and provided by DIGEBOS.
- The export of timber in logs or planks, and the export of the following
species of wood in squares is forbideden:
i. Broad-leaf varieties which are not restricted, in pieces bigger than
21 x 21 cms.
ii. Conifers in sizes bigger than 31 x 31 cms.
- The State gives fiscal incentives to people who engage in forestation or
reforestation programs, or in the maintenance and protection of forests, in
preventing and fighting forest fires or pests and managing natural forests.
-A forest project which receives fiscal benefits will exercise them during the
term authorized in the Management Plan. In no case can this exceed 10 years.
-Forest Investment Certificates cover the costs established and published
annually by DIGEBOS per hectare, region and species for the execution of
forestation projects. The certificates will be extended by the Ministry of
Agriculture, Ranching and Food through DIGEBOS to the owner of the
project. The certificates have a 4 year duration, during which up to 50% of the
annual income tax and of the vehicle circulation tax will be deducted.
- The owners of rustic properties who engage in forestation or reforestation in
at least 50% of the area of each property are exempted from the payment of the
real estate taxes for 10 years.
- DIGEBOS will reimburse 50% of the cost of the project in the case of
forestation or reforestation projects in forests of less than 45 hectares.
- On the other hand, forestry licensees will pay the Forest Fund a rate
equivalent to 10% of the value of a standing tree.
The value is established every six months by DIGEBOS and the transportation
authorization will not be issued without this payment. Forest products which
come from planted forests duly registered at DIGEBOS are not subject to the
payment of this tax.
- Violations to this law represent crimes or misdemeanors which are
punishable with imprisonment and fines (in the former case) and with fines (in
the latter case).
20 . RADIO COMMUNICATIONS
-In Guatemala, radio communications include radio and television frequencies
and any other type of transmission by means of air waves. They are regulated
by the Law of Radio Communications (Decree-Law 433).
-The State has absolute ownership of all frequencies and channels which can
be used for radio communications in the country. This ownership is inalienable
and does not lapse and the State can may operate them directly or transfer their
use to individuals through concessions.
-Unfortunately, the field of telecommunications is excluded as a possibility for
foreign investment in view of the fact that the law provides that the State can
grant concessions for the commercial operation of radio or television channels
only to Guatemalans or companies formed in Guatemala with at least 75%
Guatemalan capital. In this sense, the shares of stock companies must be
registered and the companies must submit annually a list of their shareholders
to the Broadcast Service. Even the legal representatives of such companies
must be Guatemalan.
- Aliens may only participate in amateur radio services which are the ones
used for individual training, intercommunications and technical studies. These
services are personal and non-profit.
-For an alien to qualify for one of these concessions, he/she must be a resident
in the country, in accordance with the Migration and Alien Law. Concessions
are granted for two-year periods, which can be extended by equal periods, and
in order to apply for these extensions, the following requirementss must be
met:
i. Prove that the person has been an amateur radio operator in his/her
own country and that the appropriate laws were abided by; and
ii. Prove that Guatemalans have the same right in their countries.
These concessions can be revoked at any time by the Executive.
- Aliens are in the same situation regarding radioelectric services for private
correspondence. In other words, those services used by individuals exclusively
for their personal communications. Those concessions are awarded for two-
year periods which can be renewed and are only granted if they do not
represent competition for State services.
21. CIVIL AVIATION
- Civil aviation and air transportation are governed by the Civil Aviation Law
(Decree 563) and by international treaties or agreements siqned and ratified by
Guatemala.
- The basic principle is that the Republic of Guatemala has full and exclusive
sovereignty over the air space above its territory and territorial waters.
Therefore, in order to be able to fly, land on the ground or on water within its
limits, government authorization is required.
- Every airplane which flies in the country's territory or is parked within its
limits is subject to the laws of the country and the jurisdiction of its authorities.
- Everything dealing with air navigation is subject to control by the Ministry of
Communications and Public Works, and, whenever so provided by the law, by
the Civil Aeronautics Agency.
- The flag of an airplane is determined as follows:
i. The flag of an airplane will be that of the~ last country where it was
registered;
ii. Two or more registration numbers cannot be used for the same
airplane;
iii For an airplane which was registered in a foreign country to be
registered in Guatemala, the previous registration number needs to be
cancelled;
iv. Every airplane registered at the Nation-J Aeronautics Registry
must be Guatemalan. For an airplane to be registered in Guatemala, its
owner must be born Guatemalan or natualized Guatemalan, a legal person
incorporated in the country, an alien who resides in the country, or the
airplane needs to be permanently based in Guatemala.
- Air services are classified as:
i. National or local air services; and
ii. International air services.
-In both cases, the authorization to provide these services will be issued by the
government, at its choice, through the system of contracts signed by the
interested party and the governnent through the Ministry of Communications
and Public Works, after approval by other government agencies when
appropriate.
- Aliens may not perform national or local air transportation services (within
the country’s territory). These services can only be provided by Guatemalan-
born individuals or by Guatemalan companies of which at least 51% of the
capital belongs to native-born airplanes registered in Guatemala. Stock
companies may not issue bearer shares.
-In the case of international services, the main characteristics of the contracts
are:
i. The routes and their itineraries, schedules and minimum
frequencies, or the nature of the service, must be defined.
ii. Contracts will be granted for an maximum initial period of 20
years, which can be renewed for additional periods of a maximum of 10
years each, provided that the service is satisfactory. The maximum initial
period of 20 years will only be awarded when the applicant makes the firm
commitment to carry out construction work which require
considerable expenditures. Such construction work needs to be carried
out in not more than 5 years. If the expenditures do not justify it, the Ministry
of Communications will establish the term it deems appropriate
according to the investment to be made. Extensions, in these cases, cannot
exceed half the initial period.
iii. Upon the expiration of the contract or its extenslons, if the
contract has a duration of 20 years, the works and services in good
working condition will become the property of the State. If the contract was
not in force for 20 years, those goods and services will become the
property of the State, after deducting the value proportional to the time
still remaining until the end of the term established in the contract.
iv. The authorized company will be under the obligation to carry mail
at the request of the Government in accordance with a subsidiary contract
that the company must sign with the Postal Administration at the
request of the latter, under the conditions and at the rates established in the
subsidiary contract.
v. As an incentive, the government will authorize the company to
import everything it needs for its establishment, maintenance, conservation,
service and passenger service, including airplane gasoline tax, duty-free,
provided that it is meant for the exclusive use of the service. This exemption
will subsist for the duration of the contract or its extensions.13
- Once the contract is approved by the Executive, the contractor shall sign a
guarantee bond for Q10,000 before starting operations. The bond will be used
to cover liabilities which it might incur.
In cases that, in the opinion of the Ministry, a contractor is offering efficient,
safe and fairly priced services in its routes, duplication of those routes will not
be admitted.
- Contracts can be canceled by the government, at its option for any of the
following reasons:
i. Transferring or placing liens on the rights acquired through the
contract in favor of a foreign government or accepting a foreign
government or a company controlled by it as a partner.
ii. Crimes against the country's sovereignty or acts of treason against
it or acts against the military security or for the overthrow of its
authorities.
iii Totally interrupting or suspending its regular service during 15
consecutive days, except in cases of accident or force majeure.
iv. Using the materials and other items imported duty- free for
something other than the service or for flagrantly abusing its duty-free
importation rights.
v. The dissolution of the company;
vi. The violation of fundamental contract provisions; and
vii. Any other reason outlined in the contract.
- Foreign companies must inform the Ministry of any change in their fares,
schedules or itineraries, which need to be duly verified as per the terms of the
contract and international conventions. Fare changes must be authorized by the
Ministry. The Ministry has availed itself of this provision in order not to
authorize fare changes which might result in fares lower than those charged by
AVIATECA on a route served by Aviateca.14
No foreign airline will be allowed to fly or operate in the country if it does not
fulfill the requirements of its country of origin regarding registration marks,
usable weight, safety devices and every other requirement contained in its
registration, and certi icates of airworthiness and other relevant documents.
-Regarding liabilities, the following rules apply:
i. They are governed by international conventions in force, which
have been duly signed and ratified by Guatemala;
ii. For damage sustained on land due to forced landings, the dropping
of objects, etc. the liability is limited to Q5,000 per person and Q50,000
per accident;
iii For damage caused while the plane is on land, the Civil Code
applies;
iv. Every contractor must acquire insurance to cover his liabilities, at
least up to the amounts established by the law.
- No seizure or legal detention of airplanes used as passenger carriers,
provided that the owner has acquired the above-mentioned bond.
- The main civil aviation international conventions that Guatemala is a party
to are the following:
a. Convention on Precautionary Attachment of Aircraft 1933;
b. Convention for the Unification of Certain Rules relating to
Damages Counsel by Aircraft to Third Parties on the Surface; Rome,
1933;
c. Additional Protocol to the above convention, Brussels, 1938:
d. Convention for the Unification of Certain Rules relating to
Assistance and Salvage of Aircrafts or Aircrafts at sea, Brussels, 1938;
e. Convention on Offenses and Certain Other Acts on Board Aircraft,
Tokyo, 1963;
f. Convention on International Civil Aviation (ICAO), Chicago, 1944;
g. Transit of International Air Services Agreement; Chicago, 1944;
h. Convention for the Unification of Certain Rules Regarding
International Carriage by Air; Warsaw, 1929, and The Hague Protocol,
1955.
22. TRANSPORT SERVICES
-The title “transport services" should include all forms of transport: land, train,
air and sea. However, here we will only deal with land and sea transport, for
the following reasons:
i. Air transport is regulated by the Civil Aviation Law (Decree 563);
ii. Train transport is a State monopoly as provided by Decree 60-72 of
Congress: the Law Creating the Railroad Company of Guatemala.
-The legal framework that rules transport services is the Transport Law
(Decree 253) modified by Decree 19 of the Government Junta and by Decree-
Law 289.
-Transport is divided into:
i. urban transport;
ii. rural transport; and
iii. international transport
-To be able to offer urban transport services, a concession from the
municipality is required. In order to offer rural and international services,
authorization and registration at the ministry of Economy are required.
Aliens may not organize or operate any of the above- mentioned transport
services ‘if they do not have at least sixty percent Guatemalan capital.
Railroad, airline or navigation companies are excepted from this provision
(...) which are subject to article 11 (...).’ With regard to aviation and railroad
transportation, we already outlined the relevant information, for which reason
Article 11 is relevant only to navigation. Article 11 provides that only
companies with 60% capital contributed by ‘native Guatemalan workers’ of
the company may operate.
In conclusion, aliens are virtually excluded from participating in transport
unless they participate as minor stockholders in domestic companies.
23. FISHING
- Constitutional Article 121 provides that the waters of the maritime zone of
the coasts of the territory, lakes, navigable rivers and their banks, watersheds
and streams which serve as international borderlines, underground water and
others which can be subject to regulation by the law and water not utilized by
individuals, are of public property. In addition, a belt of 3 Kms. of land along
the oceans (measured from the high tide point), 20 m. around lakes, 100 mts.
on each side of navigable river banks and 50 mts. around springs that supply
water to villages, are reserved. Therefore, what public property waters produce
is also a public property.
- Fishing is regulated basically by two legal instruments:
i. The law which regulates fish-breeding and fishing (Decree 1235);
and
ii. Decree 1470.
- The first one regulates fishing in general and fish farming. The second one
only regulates large scale fishing.
- Regarding fishing in general, we can comment as follows:
i. Guatemalans and aliens enjoy equal conditions.
ii. There are two kinds of fishing:
a. Internal fishing: fresh water fishing;
b. Sea fishing: salt water fishing.
iii. A license issued by the municipal authority is required in both
cases.
iv. Licenses are valid for a one-year period and are personal (cannot be
transferred).
v. Fishing cannot be done from a vessel which is not duly registered.15
The following remarks refer to fish farming:
i. Private fishponds may be set up in public and private waters.
ii. Authorization is required from the local municipality, with the
approval of the Ministry of Agriculture.
iii. Authorizations will be issued for 25-year periods, but can expire if
the fishponds are not operated for 2 years.
iv. The Ministry of Agriculture can authorize the temporary lease of
public waters for fishing for a maximum 10-year term.
v. The lease must be granted by public bidding which will operate as
an auction where the lot will be awarded for lease to whoever makes the
highest bid. 15% of the lease goes to villages located on the shore.
vi. The rights which the lease awards are strictly personal.
vii. In the case of fish farming, the government can grant concessions
to use public waters to set up ponds. The government, however, reserves
the right to expropriate the concessionaire for reasons of public usefulness.
viii. The concession will be awarded by the Ministry of Agriculture.
ix. The maximum area which can be given in concession is six
hectares. However, if after 5 years, nobody requests a similar concession, the
area can be extended if the interested parties so request.
x. The maximum term for concessions is 10 years and they will expire
if not operated for 2 years.
xi. Any person who discovers a fish pond or a new natural bank of
shellfish will be granted its exclusive utilization for one year.
-In order to engage in large scale sea fishing ( arge scale fresh water fishing is
forbidden) a special license granted by the Ministry of Agriculture after
receiving a favorable report from the Hunting and Fishing Department is
required.
-These licenses cannot be for more than 10 years and are strictly personal (they
cannot be disposed of or mortgaged).
-There are three types of special licenses: A, B, and C, according to the
nationality of the fishing company, the registration of the vessels and the ports
of destination of the product resulting from the fishing activity.
24. INSURANCE
-The insurance business is a very broad and complex field which is ruled by a
large number of laws, regulations and agreements. However, it can be said
that, as for its operation, insurance companies in Guatemala operate almost
identically to insurance companies elsewhere in the world.
-For the purposes of this analysis, we will only look at Decree-Law 473, which
deals with the establishment and organization of insurance companies. We
shall not analyze the rest of the rules regarding their operation.
-In order to be able to operate as an insurance company, a stock company must
necessarily be established in Guatemala. The operation in Guatemala of
foreign insurance agencies or branches is forbidden.
-In order to operate in Guatemala, insurance companies need a minimum paid-
in capital, of:
i. For life and related insurance policies: Q200,000.
ii. For insurance for damages: Q200,000.
iii. For other types of insurance: Q100,000.
In addition, insurance companies must have a complementary capital equal to
25% of the initial paid capital of the insurance company, which cannot be less
than the sums listed above. The complementary capital needs to be accounted
for in a special capital reserve account.
In conclusion, the minimum amount of capital needed by a company wishing
to engage in every type of insurance is the following:
minimum capital: Q500,000 + complementary capital: Q125,000 TOTAL:
Q625.000
-Requests to set up an insurance company need to be submitted to the Bank
Authority which is the insurance control agency.
-The final decision is made by the Ministry of Economy. Once approved by the
Ministry of Economy, the Executive issues a Government Resolution through
the same Ministry, to approve the by-laws and recognize the legal status of the
company. The Resolution includes the list of types of insurance coverage
which the company can handle and the amount of its authorized capital.
Individual or legal persons who are not authorized by Law are not allowed to
offer, promote the sale of, sell insurance policies or excercise the practice of
any other active insurance operation in Guatemalan territory.
All insurance of Guatemalan persons, damages and vehicles must be
contracted with Guatelnalan companies. Regarding transport insurance, this
applies only in the case in which whoever pays the premiums lives in
Guatemala. The only exception are those insurance policies with risks that
cannot be assumed by local insurance companies. In that case, the interested
party will have to obtain authorization from the Bank Authority to hire
insurance abroad.
Insurance companies must keep technical and mathematic reserves
proportional to the amount of the insurance policies issued. Those reserves
need to be invested as provided by the law.
25. BANKING
Banking is a complex activity subject to many regulations. This guide will only
deal with the more relevant aspects of the organization of foreign capital banks
in Guatemala. We will analyze Decree 315 of Congress (Bank Law) and the
Regulation for the Authorization and Constitution of National Banks,
Branches of Foreign Banks and Branches and Agencies of Already Established
Banks. However, banks are also regulated by the Monetary Board, the
Monetary Law, the Bank of Guatemala Law and laws in general.
-A foreign company can follow two roads to start banking operations in the
country:
i. Open a local bank, necessarily as a stock company;
ii. Open a branch or agency of a foreign bank in the country.
- In both cases, approval from the executive through the Ministry of economy
is required. The request needs to be submitted to the Bank Authority, that
issues a report and sends the file to the Monetary Board. If the Monetary
Board accepts the request, it sends it to the Ministry of Economy for it,
approval by the government.
- Any modification of the by-laws or the merger with other banking
institutions is also subject to Ministry of Economy approval after receiving
authorization from the Monetary Board.
- National banks must have a Board of Directors formed by at least 3 members.
Foreign bank branches or agencies do not need a Board of Directors but must
have one or more managers who have sufficient authority to operate in the
country.
-The types of banks that Guatemalan laws make provisions for are:
i. Commercial banks: These receive money deposits and short term
deposits and invest them in short- term operations;
ii. Mortgage banks: These issue mortgage or pledge bonds and receive
savings and long term deposits. They invest in medium and long-term
operations;
iii. Capitalization banks: These issue capitalization bonds and receive
savings premiums. They invest in active operations on terms which are
consistent with the obligations they take;
iv. Mixed banks: These engage in commercial and mortgage
operations.
-The minimum capital needed to carry out banking operations in the country
are:
i. Foreign bank branches or agencies: Q200,000,000;
ii. Commercial, mortgage or mixed banks: Ql,000,000;
iii Savings and loans or capitalization: Q500,000.
The minimum capital required for foreign bank branches or agencies must be
fully paid prior to starting operations. In the case of local banks, only the
percentage that the Monetary Board establishes in each case needs to be paid
before starting operations.
All banking operations are controlled by the Bank Superintendent and subject
to Monetary Board resolutions.
The Monetary Board is the highest administrative body of the Bank of
Guatemala; it is in charge of the monetary, exchange and credit policy of the
country and is made up of:
i. Two members appointed by the President of the Republic, who
occupy the positions of President and Vice President;
ii. The Ministers of Finances, Economy and Agriculture ex officio
members:
iii. One member appointed by the San Carlos University;
iv. One member appointed by the private banks that have mostly
Guatemalan capital;
v. One member appointed by State banks;
vi. One member appointed by commercial, industrial, agricultural and
cattle associations and chambers.
- The banks with foreign capital and the branches of foreign banks are not
represented in the Monetary Board.
- The Monetary Board has, among other powers, that of fixing the amount of
reserves to be kept by the banks, regulate the compensation system, establish
the ceiling interest rates on passive and active operations of the banks.
- In connection with reserves, the following types of deposits exist in
Guatemala:
i. Deposits in Guatemalan currency (reserves of between 10% and 50%
or more if deemed necessary):
i.a Monetary deposits: those which can be withdrawn
through checks;
i.b Short-term deposits: may be withdrawn in a period of not
more than 30 days or subject to notice prior to its
payment for that term not to be exceeded;
i.c Long-term deposits: must remain on deposit for more
than 30 days;
i.d Saving deposits: may be withdrawn subject to the special
conditions agreed to with the depositor or as provided
by the law.
ii. Foreign currency deposits 16 (reserves of between 10 and 100% ):
ii.a Short-term deposits: are not to remain in deposit more
than 30 days;
ii.b Long term deposits: must remain on deposit more than
30 days.
26. CONSTRUCTION OF HOUSING PROJECTS
- Foreign investment for the construction of housing projects is seriously
limited by Decree-Law 388 (Law of Foreign Private Investment for the
Construction of Housing Projects).
- In order to be able to invest in housing, foreign companies must first obtain
authorization from the Ministry of Economy. That authorization will only be
granted if the following requirements are met:
i. That the houses may be acquired by low income persons at a sale
price which does not exceed Q6,000.00.
ii. That the house may be paid in long-term installments.
iii. That the interest rates charged on the balance owed is not higher
than the banking interest rate for similar operations.
iv. That the down payment be commensurate with the financial
situation of the buyer.
v. That more than 75% of the materials be extracted or produced in
the country.
vi. That they use Guatemalan technical direction and labor according
to the provisions of the Labor code.
vii. That the buyer receive a guarantee of good building quality in
agreement with the construction materials used.
The Ministry of Economy will authorize a yearly number of foreign private
investment operation permits for construction. Once this number of permits
has been reached, no more authorizations will be issued.
27. STOCK EXCHANGE ACTIVITIES
- Stock exchange activities are new in Guatemala. There are few rules for
them; in fact, they are regulated by only one article in the Code of Commerce.
- All stock exchange activites are regulated by the internal rules of the three
Stock Exchanges which currently operate in the country:
i. Bolsa de Valores Nacional, S.A. (the oldest);
ii. Bolsa de Valores Global, S.A.;
iii Bolsa de Valores Agricola.
- A bill is being considered which, if passed, will regulate the securities
market, but it is, as for now, only a bill.
- In order to be able to operate as a Stock Exchange, Ministry of Economy
authorization is required. The procedure starts at the Commercial Register
with the presentation of a company registration application. Unfortunately,
there are no legal provisions to regulate the requirements which need to be
met ol the steps to be taken. This shortcoming will be corrected with the new
law which creates a technical office which will be in charge of these
procedures. This technical office will report to the Presidency directly.
- In order to operate on the stock exchanges, brokers must to register in the
stock exchange. Some stock exchanges also require that brokers be
shareholders (Bolsa de Valores Nacional, S.A.).
27. TOURISM
-Tourism is one of the main foreign-exchange-generating activities in the
country. There are two legal instruments which offer incentives for the
development of this activity:
i. The National Law for the Promotion of Tourism (Decree 25-74);
and
ii. The Law on Retirees and Persons of Independent Means (Decree
58-73)
-The national law for the promotion of tourism grants fiscal incentives during
a 10 year period to persons investment, works, construction, services or
activities in a tourism center or region.
-Incentives include the following:
i. A reduction of up to 50% of the taxes on the establishment and
expansion or tourism-related companies;
ii. The exemption of all import duties and charges as well as charges
and surcharges on raw materias, construction materials, equipment,
appliances, any type of vehicle or vessel, utensils, furniture and
household goods to be used in those facilities and buildings, as well as
on appliances, equipment and entertainment equipment and objects for the
users of those facilities, provided that they are not produced in the country or
in Central America in the same conditions.18
iii. Exemption of the real-estate tax on new buildings or on the value
of expansions or modernizations;
iv. New taxes which modify these benefits cannot be collected during
the exemption period.
v. The Guatemalan Tourist Board is authorized to negotiate loans
with local banks on behalf of the parties who are interested in investing and
can also engage in negotiations with the government to obtain suitable
tracts of land.
- The Guatemalan Tourist Board (INGUAT) is in charge of directing the
country's hotel and tourism activities and it is at Inguat that the above-
mentioned benefits must be applied for.
- Law on Retirees and Persons of Independent Means:
i. There are two categories of persons under this law:
a. Retired residents: persons who have retired from public
administration, official agencies or private companies in their countries of
origin; and
b. Residents with Independent Means: persons aged over 50 who have
other types of stable, permanent income generated abroad.
ii. Both categories of retirees enjoy certain benefits. In order to apply
for them they must submit an application to INGUAT through the
Guatemalan Consulate in their country of origin.
iii. Retirees wishing to obtain these benefits must:
a. That they can prove that they have a stable permanent income
generated abroad, the amount of which is of not less than Q250.00 per
month;
b. Not engage in paid work unless it is in activitles which in the
opinion of the Ministry of Economy will be beneficial to the country, or in
the case of professionals, if they provide their services to the
government.
iv. The benefits they may enjoy are:
a. A one-time duty exemption and the exemption of other import
taxes, for the import of household goods;
b. The importation of an automobile, free of all import taxes, charges
and surchages, sales and economic stabilization taxes; 19
c. The exemption of consular visa charges for their entry into the
country and of the annual alien tax.
C) EXCHANGE SYSTEM
The fundamental principle which governs the exchange system in Guatemala
is that it is mandatory to declare and sell all the foreign exchange generated by
activities and services performed in the country to the Bank of Guatemala.
Thus, in general, the Bank of Guatemala is the only one authorized to sell and
buy foreign exchange in Guatemala.
However, the law permits for the declaration and sale outlined in the previous
paragraph to be done at the Bank of Guatemala directly or indirectly through
the following institutions:
i. The banks of the system: or
ii. Recently authorized exchange houses which are still not operating
because regulations have not been approved.
- To carry out exports it is necessary to obtain an export license, which is
issued by the Bank of Guatemala. That license involves the commitment by the
exporter to sell the foreign exchange earned from the export activity to the
Bank of Guatemala, the banks of the system, or, more recently, to authorized
exchange houses, within a period of not more than 45 calendar days which can
be extended to 90 days.
- In the case of imports, it is necessary to buy the foreign exchange through the
banking system or the regulated market, where the public sale of foreign
exchange takes place.
- The public foreign exchange sale system is a hybrid between a free rate of
exchange and a controlled type of exchange. Under this system, the foreign
exchange is sold at a public auction at which all interested parties interested in
acquiring foreign exchange may participate.
- The buyers must submit an application at the auction, showing the amount of
foreign exchange they need to purchase, the use for which it is intended (for
statistical purposes only) and the rate of exchange they offer. The rate offered
must be within a range of five points above or below the reference type of
exchange for that day. The reference type of exchange is the average at which
foreign exchange was sold in the last 15 working days and therefore it only
changes every 15 days. In order to be able to participate in the auction, the
equivalent, in quetzales, of what is being requested, needs to be deposited, at
the rate of exchange at which the buyer expects to buy the foreign exchange.
- 100% or a percentage of the amount requested can be sold at the auction,
provided that the rate offered is competitive. Usually, the Bank of Guatemala
announces the amount of foreign exchange it offers one work day before the
auction. The purpose of the system is to avoid sudden and too sharp
devaluations.
-The rate of exchange offered in the banking system is usually a little higher
than that offered by the Bank of Guatemala (between 3 and 5 points).
- If we leave aside the complicated foreign exchange sale system we just
outlined, it can be said that the exchange system in Guatemala is almost
unregulated. With the exception of export registrations, there are no legal
limitations as to the availability of foreign exchange for the repatriation of
capital, dividents, loan payments, interest rates, royalties and the payment of
imports.
-The Monetary Board is responsible for directing the country's exchange policy
and its resolutions can change the above-outlined procedure.
D) TRADE
1. LAW ON AGENCY, DISTRIBUTION OR REPRESENTATION
CONTRACTS
- The Code of Commerce (Article 280) applies to this type of contract, and
more specifically, Decree No. 78-71 of Congress which contains the Law of
Agency Contracts.
- The Code of Commerce defines trade agents and provides general rules for
the relationship between the principal and the agent. It also establishes the
difference between dependent and independent agents.
- Independent agents are merchants who are not dependant of the principal,
while dependent agents are workers or employees of the principal.
- The Agency Contracts Law regulates mainly the relationship with
independent agents and is defined so broadly that it could even be applied to
the so-called Supply Contracts.
- It is assumed that a contract which is governed by the Agency Law is a
principal, bilateral, consensual, onerous, commutative or of indefinite term,
except if the contrary is agreed on. The causes for which a contract can be
terminated are enumerated.
- The two more important characteristics of this Law are, first, that it is a law
of public order, drafted to protect agents, and therefore, it is impossible to a
apply a law other than the Guatemalan law when an agency contract is signed.
- The law provides for the payment of compensation in favor of the agent when
the contract is terminated for no fair reason or when, for acts carried out by the
principal, the normal development of agent activities is hindered or when he
fails to fulfill any of the terms of the contract (i.e. violation of exclusiveness).
- The same law provides the way to calculate compensation in the case of
contract termination an includes the payment of an amount equal to the total
profits earned by the agent over the last three years and the amount of money
that the agent must pay his employees upon dismissal as a result of the
termination of the contract.
2. EXPORTS AND DRAWBACK LAW
- Law on the Promotion and Development of the Export and Drawback
Activity, Decree No. 29-89 of Congress
- This law seeks to promote, give incentives to and develop the production of
merchandise in the Guatemalan Customs territory to be exported to countries
outside the Central American region, and to regulate export or drawback
operations within the framework of the Active Improvement Systems or of
Total National Added Component Exports.
Company classification:
a) A drawback company operating under the Temporary Admission System
engages in the production or assembly of goods which contain at least fifty-one
percent (51%) of foreign components, in money, and are to be reexported to
countries outside the Central American region, provided that the Internal
Revenue Service is assured of the permanence of the merchandise admitted
temporarily through surety, specific guaranty authorized by the Ministry of
Public Finances, bank guaranty or through bonded warehouses which are
authorized to operate as fiscal warehouses and which extend a specific surety
for this type of operation.
b) An export company operating under the Temporary Admission System is
one which produces goods for export or reexport outside the Central American
region, provided that the Internal Revenue Service is assured the permanence
of the temporarily admitted merchandise through specif c guaranty authorized
by the Ministry of Public Finances, bank guarallty or through bonded
warehouses authorized to operate as fiscal warehouses and which extend a
specific surety for this type of operation.
c) An export company operating under the Tax Return System is one which
produces or assembles goods for their export or reexport to countries outside
the Central American region, provided that the Internal Revenue Service is
assured the permanence of the temporarily imported merchandise by means of
a cash deposit.
d) An export company operating under the Replacement with Customs Duty
Exemption System is one which produces merchandise to be sold to exporting
companies, that integrated, incorporated or added these products to
merchandise previously exported outside the Central American region.
e) An export company operating under the Total National Added Component
System is a company which produces or assembles goods for their export to
countries outside the Central American region or which use all-Guatemalan
materials.
BENEFITS
Companies that are the property of individual or legal persons who engage in
the export or drawback activity will enjoy the following benefits:
Temporary Admission System
a) Temporary suspension of the payment of import duties lncluding the Added
Value Tax - VAT- on raw materials, semiprocessed products, intermediate
products, materials, containers, packaging and labels required to export or
reexport merchandise produced in the country. This suspension also applies to
samples , engineering blue prints, direction, patterns and models required for
production or for demonstration, research and direction purposes, as well as
for machinery, equipment components and accesories required for production.
It has a one-year duration from the date when import documents are accepted.
This period can be extended once only for an equal period of time.
b) Total exemption of the payment of import duties, including the Added
Value Tax - VAT- on the import of machinery, equipment, components and
accesories required for the productive process.
c) Total Income Tax exemption on income earned exclusively with the export
of goods produced or assembled in the country and exported outside the
Central American region. This exemption will have a ten (10) year duration
from the date of the first taxable period immediately after the date of notice of
the resolution or its qualification. Individual or legal persons domiciled abroad
with branches, agencies or permanent establishments operating in Guatemala
that export merchandise produced in the drawback system will not benefit from
the Income Tax exemption if credit is recognized in their country of origin for
income tax paid in Guatemala.
d) Total exemption of ordinary or extraordinary export taxes.
Companies that qualify under the Temporary Admission System may
subcontract production services from other companies, which may or may not
qualify. In order to do this, authorization must be requested.
Tax Return System
a) Refund of import duties and Added Value Tax paid as deposit to guaranty
the entry of raw materials, semiprocessed products, intermediate products,
materials, containers, packaging and labels used in the production or assembly
or exported merchandise will be made.
b) Total Income Tax exemption will be granted on income earned exclusively
form exportillg goods which were produced or assembled in the country and
exported outside the Central American region. This exemption will be granted
for a ten year period from the first taxable period. Individual or legal persons
domiciled abroad who have branches, agencies or permanent establishment
operating in Guatemala and export merchandise produced in the drawback
system will not be exempted from Income tax paid in Guatemala.
c) Total exemption of ordinary and/or extraordinary export taxes.
Replacement with Customs Duty Exemption System
Companies that have used merchandise on which Customs Duties and import
taxes were already paid and manufactured goods that are exported by third
parties with those inputs, will enjoy an exemption equivalent to the Customs
duties and import taxes paid. This exemption will be used to replace raw
materials, semiprocessed products, intermediate products, materials,
containers, packaging and labels which are directly related to tne production
process.
Total National Added Component Export system
a) Total exemption of Customs duties and import taxes, including the Added
Value Tax--VAT--on the import of machinery, equipment, parts, components,
and accesories required for production.
b) Total exemption, for income tax purposes, of income earned exclusively
with the export of goods produced or assembled in the country and exported
outside the Central American region. This exemption will be granted for a ten
(10) year period as of the first taxable period.
Individual or legal persons domiciled abroad that have branches, agencies or
permanent establishments operating in Guatemala and export merchandise
originating in drawback export activities will not be exempted from the
Income Tax paid in Guatemala.
c ) Total exemption of ordinary and/or extraordinary export taxes .
A company may qualify in two different systems. To do it, the interested party
must submit an application. This does not represent duplication of law benefits.
A final remark is that all tax and Customs duty exemptions described in this
chapter continued to be in force.
3. LAW OF FREE TRADING ZONES
Law of Free Trading Zones. Decree No. 65-89 of congress
This law governs the establishment of free trading zones in Guatemala, to
promote the development of the country through activities carried out in them,
specially those that strengthen foreign trade, generate employment and
contribute to transfer technology.
A free trading zone is a physically delimited area of land, which is planned
and designed and subject to a Special Customs System contained in the law,
where individual or legal persons engage in the production or marketing of
goods export or reexport, and to the provision of services associated with
international trade. The free trading zone will be protected and controlled by
Customs authorities.
Free trading zones may be public or private and will have separate areas for
industrial and service users and for commercial users. A free trading zone can
be organized anywhere in the country, according to legal provisions in force .
Depending on the activity they carry out, users can be:
a ) Industrial trial: when they engage in the production or assembly of goods
for export outside Guatemala's Customs territory, for reexport or for
technological research and development purposes.
b) Service: When they engage in providing services associated with
international trade.
c) Commercial: When they engage in marketing merchandise to be exported
outside the country's Customs territory and to reexporting merchandise,
without carrying out activities that change the characteristics of the product or
alter its origin.
Aliens working for free trading zone management and user agencies may
remain and work in the country according to the provisions contained in the
Migration Law and in the Labor Code.
Fiscal incentives and benefits
for managing agencies:
a) Full exemption of Customs duties and charges applicable to the important of
machinery, equipment, tools and materials to be used exclusively to build
infrastructure, buildings and facilities for the development of the free trading
zone. These are to be duly identified in the authorization resolution that
approves the organization and development of the free trading zone.
b) Full exemption of the Income tax on income earned exclusively by
managing a free trading zone. This will apply for a period of fifteen (15) years,
from the date of the taxable period immediately after the date on which the
authorization to which paragraph b) of Article 6 of the law refers is issued.
Management companies domiciled abroad and operating in Guatemala will not
benefit from this exemption if in their country of origin, fiscal credit for the
income tax paid in Guatemala is grarlted. Dividends or profits paid to
individual or legal persons domiciled in the country is exempted income also.
c) Exemption of the real estate tax, for a period of five (5) years on the real
estate used exclusively for the development of a free trading zone.
d) Exemption of the Stamp Tax payable on documents drawn up to transfer the
property of the real estate to be used in the development and expansion of the
free trading zone in favor of the manager.
e) Exemption of the Stamp Tax payable on documents drawn up to transfer the
real estate to zone users.
f) Full exemption of Customs duties and other charges applicable to the import
and use of fuel oil, bunker, butane and propane gas, used only to generate the
electric power required for the operation and services of the free trading zone,
from the date when it is authorized to operate.
For Industrial or Service users
a) They are not subject to taxes, Customs duties and charges applicable to
imports of machinery, equipment, tools, raw materials, inputs, semiprocessed
products, containers, packaging, components and, in general, the merchandise
which is used to produce goods and to provide services.
b) Full exemption of the income tax earned exclusively with free trading zone
industrial or service user activities, for a period of twelve (12) years, from the
date when the taxable period immediately following the date when the
authorization to which paragraph c) of article 6 of the law refers, is issued.
Industrial or service users domiciled abroad and operating in Guatemala will
not benefit from this exemption if fiscal credit is granted in their country for
the income tax paid in Guatemala.
Dividends or profits paid to individual or legal persons domiciled in the
country is also exempted income.
c) Exemption of the Added Value Tax in the transfer of merchandise in and
between free trading zones.
d) Exemption of the Stamp Tax on documents drawn up to transfer the
property of real estate located in the free trading zone.
Industrial users who engage in business under the free trading zone system can
export to the National Customs Territory, with authorization from the
Industrial Policy Service, that will in turn notify the Customs Service, up to a
maximum of twenty percent (20%) of its total production. In such case, each
sale cannot be less than the equivalent in Guatemalan currency of five
thousand U.S. dollars (US$5,000.00) and that sale shall have only one
consignee in the National Customs Territory. Products exported under this
provision will be subject to import regulations applicable to products that
come from outside the Central American region when they enter the National
Customs Territory.
For commercial users
a) The merchandise or components which are stored in the free trading zone to
be marketed are not subject to taxes, Customs duties and charges applicable to
free trading zone imports in general.
b) Exemption of the Income Tax on income earned exclusively in the free
trading zone commercial user activity, for a period of five years (5) from the
date when the taxable period immediately following the date when the
authorization outlined in paragraph c) of Article 6 of the law is issued.
Commercial users domiciled abroad and operating in Guatemala will not
benefit from this exemption if in their country of origin, fiscal credit is granted
for the Income Tax paid in Guatemala.
Dividends or profits paid to individual or legal persons domiciled in the
country is also exempted income.
c) Added Value Tax exemption in the transfer of merchandise in and between
free trading zones.
d) Exemption of the Stamp Tax on documents drawn up to transfer the
property of real estate within the free trading zone.
Customs system
Merchandise of every type entering or leaving the free trading zones is subject
to merchandise transit regulations contained in the law. Exports of goods and
services by individual or legal persons in the National Customs Territory to a
Manager or user in a free trading zone is an export operation to countries
outside the Central American region. Individual or legal persons in the
National Customs Territory who produce, process, export or reexport
merchandise to free trading zones may benefit from the specific laws which
grant incentives to exports, and the value in foreign exchange of the national
component added must be entered according to the law in force and the
provisions of the Monetary Board. Specific prohibitions are listed in this law.
Just like in the previous chapter, we offer here one general comment and that
is that all tax and Customs duty exemptions for free trading zones continue to
be in force.
28. SANTO TOMAS DE CASTILLA FREE TRADING ZONE FOR
INDUSTRY AND TRADE
The Santo Tomas de Castilla Free Trading Zone for Industry and Trade was
created and is regulated by Decree 22-73, which was modified by Decree 15-
79. It is a State agency and it operates through the Ministry of Public Finances.
The Santo Tomas de Castilla Free Trading Zone is located 297 kilometers
away from Guatemala City, in an extra Customs area located within the
perimeter delimited in the Santo Tomas de Castilla Regulation Plan.
The merchandise and other trade items, raw materials, semiprocessed
products, intermediate products, containers and packaging, as well as
machinery, equipment, spare parts, accessories and other goods to be used in
free trading zone operations will be exempted from the payment of duties,
taxes, contributions, rates and other fiscal and municipal liens, created or to
be created in the future, both for their entry as for their permanence in the free
trading zone.
-Companies that are organized and operate in free trading zone will be
exempted from the payment of taxes, duties, contributions and fiscal or
municipal rates, created or to be created in the future, except for the Income
Tax.
Aliens will not benefit from these exemptions when they are subject to the
same taxes in their country of origin and their country legislation allows them
to deduct taxes paid in Guatemala from taxes they have to pay in their own
country.
Goods which have been manufactured, produced, processed, assembled,
diluted, mixed, put together, bottled, counted, refined, purified or transformed
in the free Trading zone can be i