Doing Business 13th Edition by AmCham by AmCham Guatemala

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AmCham Guatemala

Trade Center

AACCLA

AACCLA Directory

Investor’s Guide

Legal Framework for Foreign Investment

Regulation of Financial Institutions

Guatemala: Country Profile Summary

Infraestructure

Investment Opportunities

Macroeconomic indicators of Guatemala

Government

Comunications in Guatemala

Official Holidays

Guatemala’s Financial System

Monetary, Exchange, and Credit Policy of Guatemala

Monetary Board Resolution JM-145-2009

Guatemala’s Banking System

Banks in Guatemala

Foreign Exchange

Foreign Exchange market

Foreing Exchange Regulations & Policy

Taxation on Income of Non-residents and Withholding Taxes

Tax System

Corporate Deductions

Government Procurement in Guatemala

Law on Government Procurement

Legal Considerations Agency and Distribution or Representation Agreement

ARBITRATION Another Alternative to Administer Justice

The International Mediation Center IMC

Paperless Customs in Guatemala

Secretariat for Central American Economic Integration (SIECA)

Central American Tariff System

Establisment of Customs Union

Geographic Location Map of Customs in Guatemala

Amcham’s Staff Waleska Sterkel Executive Director María Ines Valle Trade Coordinator

Others María Isabel Gularte Translations Jimena Nitsch Magazine Designer

Seadex

Fiscal Incentives to Promote Exports & Investments in Guatemala

Directory of active free trade Zones in Guatemala

List of Free-Trade Zones Pending to Start Operations

ZOLIC Law Amendments

Starting a Business in Guatemala

Registration Requirements to Incorporate a Company in Guatemala

100

How to Import?

101

Registration of Exporting Companies

108

Foreign Investment Law

116

Investment opportunities in Guatemala

118

Other Laws to promote investment

120

Responsible Businesses to Stimulate a Resilient Country

122

Guatemala’s Economic Competitiveness Faced with the Political Conjuncture

124

Challenges facing Guatemala to attract investment in the Partnership for Prosperity

126

Strategic criteria for strategic investment

128

Importance of Transparent Implementation of Economic Resources within the Framework of the Alliance for Prosperity

129

Market Opportunities and Entry Strategy for U.S. Companies in Guatemala

131

Intellectual Property in Guatemala

133

Enviroment

137

Internal Labor Regulations

138

Guatemala: Free Trade Agreements

139

CAFTA-DR: Results of 10° Anniversary

140

Guatemala: Partial Preferential Arrangements

152

Global Economic Expectations

153

Business Protocol

157

Immigration Issues in Guatemala (Visas, Residences and Citizens)

158

Home, Search & Assistance

162

Education in Guatemala

164

Welcome to Guatemala The Heart of the Mayan World

165

Tourism in Guatemala City: Rediscover and admire the treasures it shelters

167

Embassies

170

Embassies and Consulates Guatemala

175

Accredited Embassies in Guatemala

175

Useful Website

178

Sponsors

181

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Association of American Chambers of Commerce in Latin America -AACCLAAACCLA serves as: •

a reliable source of information on regional trade and investment issues; • a critical point of communication between the AmChams, members of the U.S. Chamber of Commerce, and the U.S. government; • a vehicle for companies based in the U.S. to reach one of the largest business federations in the hemisphere; • a coordinator of face-to-face interaction between business and government leaders of the Western Hemisphere; and • a resource for publications produced by the AmChams, including: membership directories, business guides, investment profiles, and magazines.

Mission

AACCLA’s mission is to promote trade and investment between the United States and the countries of the region through free trade, free markets, and free enterprise.

Program of Work Summary

AACCLA is committed to making this the “Century of the Americas.” Priorities in 2014 include: • Support congressional approval and full implementation of the U.S.-Colombia and U.S. Panama trade agreements, as well as strong enforcement of existing trade agreements. Pursue additional trade initiatives that are comprehensive, ambitious, and commercially significant, including the Doha Development Agenda, the TransPacific Partnership, bilateral tax and investment treaties, and trade preference programs. • Underscore the importance of trade liberalization in providing new economic opportunities and support efforts to deepen partnerships and cooperation to ensure that the benefits of free trade and open investment are broadly shared by all. Promote trade and investment openness as central to global economic recovery and reject isolationism in all its forms. • Promote the adoption of trade facilitation and customs modernization measures throughout the Western Hemisphere that enhance regional and national competitiveness. These include measures that will make

the flow of international commerce faster and more efficient and that will reduce trade transaction costs significantly. • Foster innovation, harness creativity, and champion intellectual property (IP) as vital to creating jobs, saving lives, advancing economic growth, and generating breakthrough solutions to challenges in Latin America and the Caribbean. • Highlight areas in which U.S. business and AmCham member companies are contributing to economic and social development in Latin America and the Caribbean. • Support regional security while facilitating trade at ports of entry, addressing the movement of goods (customs and port administration) as well as people (visa policy). • Promote the rule of law as a critical factor in fostering a hemispheric investment climate that supports equality, economic growth, and shared prosperity for the citizens of Latin America and the Caribbean. Foster a global business environment where countries respect the rule of law, foster legal certainty, and provide due process under law to investors, producers, and service providers of every nationality by highlighting shortcomings related to the rule of law and advocating for their prompt and just resolution. Support constitutionalism as the underpinning for the broader application of the rule of law.

ADVANCING BUSINESS IN THE AMERICAS

For nearly a century, the American Chambers of Commerce (AmChams) have been the most influential voice of U.S. business in Latin America and the Caribbean. Today, joined together in the Association of American Chambers of Commerce in Latin America, these 24 AmChams represent more than 20,000 companies and over 80% of U.S. investment in the region. Acting in partnership with the U.S. Chamber of Commerce — the world’s largest business federation – AACCLA has become the premier advocate for U.S. business in the Americas. AACCLA’s mission is to promote trade and investment between the United States and the countries of the region through free trade, free markets, and free enterprise. Source: http://www.aaccla.org/about/

AACCLA DIRECTORY AACCLA is formed by the following 23 AmChams:

American Chamber of Commerce in Argentina Viamonte 1133, 8 Piso (1053) Buenos Aires, Argentina (54-11) 4371-4500 ext. 133 (54-11) 4371-8400 adiaz@amchamar.com.ar http://www.amchamar.com.ar/

Chilean-American Chamber of Commerce Av. Kennedy 5735, Of. 201 Torre Poniente, Las Condes, Santiago, Chile P.O. Box Casilla 82, Santiago 34 (562) 290-9700 (562) 212-0515 http://www.amchamchile.cl/

Ecuadorian-American Chamber of Commerce – Guayaquil Ave. Francisco de Orellana, Edificio Centrum, Piso 6, Of. 5, Guayaquil, Ecuador (59-34) 042 634270 (59-34) 042 634265 http://www.amchamecuador.org/

American Chamber of Commerce of Bolivia Avenida 6 de Agosto N° 2455, Edificio Hilda, Entre Bellisaria Salinas y Pedro Zalizar, Piso 2, Of. 204 La Paz, Bolivia (591-2) 244-3939 (591-2) 244-3972 amchambo@amchambolivia.com http://www.amchambolivia.com/

Colombo American Chamber of Commerce Calle 98, #22-64, Oficina 1209 Apartado Aereo 8008 Bogotá, Colombia (571) 587-7828 ext. 103 (571) 587-7828 http://www.amchamcolombia.com. co/

Ecuadorian-American Chamber of Commerce – Quito Edificio Multicentro, Piso 4 La Niña y Avda. 6 de Diciembre Quito, Ecuador (59-32) 250-7450 (59-32) 250-4571 cespinosa@ecamcham.com http://www.ecamcham.com

American Chamber of Commerce for Brazil – Rio de Janeiro Praca Pio X-15, 5th Floor Rio de Janeiro – RJ, Brazil 20040-020 (55-021) 3213-9200 ext. 9205 (55-021) 3213-9201 Helio.Blak@amchamrio.com http://www.amchamrio.com.br American Chamber of Commerce for Brazil – Sao Paulo Rua da Paz, no 1431 04713-001 – Chácara Santo Antonio São Paulo – SP, Brazil (55-11) 3324-0194 (55-11) 5180-3911 (55-11) 5180-3777 gabriel@amchambrasil.com.br http://www.amcham.com.br

Costa Rican-American Chamber of Commerce P.O. Box 4946-1000 San Jose, Costa Rica (506) 2220-2200 (506) 2220-2300 creuben@amcham.co.cr http://www.amcham.co.cr American Chamber of Commerce of the Dominican Republic Av. Sarasota No. 25, Torre Empresarial 6to. Piso Santo Domingo, Dominican Republic (809) 332-7240 (809) 381-0286 wmalamud@amcham.org.do http://www.amcham.org.do/

American Chamber of Commerce of El Salvador Edificio World Trade Center Torre II Local 308, 89 Avenida Norte, Colonia Escalón San Salvador, El Salvador (503) 2263-9494 (503) 2263-9393 amchamsal@amchamsal.com http://www.amchamsal.com American Chamber of Commerce in Guatemala 5a Avenida 5-55, Zona 14 Torre I, Nivel 5, Europlaza, Guatemala City 01014, Guatemala (502) 2417-0800 (502) 2417-0777 director@amchamguate.com http://www.amchamguate.com/

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American Chamber of Commerce in Haiti 18 Rue Moise Petion-Ville, Haiti (509) 2511-3024 (509) 2940-3024 psaintcyr@amchamhaiti.com www.amchamhaiti.com Honduran-American Chamber of Commerce Edificio Torre Alianza Septimo Piso Colonia Lomas del Guijarro Sur Tegucigalpa, Honduras (504) 2271-0094/0095/0096 (504) 2271-0097 amcham@amchamhonduras.org http://www.amchamhonduras.org American Chamber of Commerce of Jamaica 81 Knutsford Blvd., Suite 106 Kingston 5, Jamaica (876) 929-7866 (876) 929-8597 amcham@cwjamaica.com http://www.amchamjamaica.org American Chamber of Commerce of Mexico, A.C. Blas Pascal No. 205, Piso 3 Col. Los Morales 11510 Mexico, D.F., Mexico (52-55) 5141-3820 (52-55) 5141-3836 gwolf@amcham.org.mx http://www.amcham.org.mx

American Chamber of Commerce of Nicaragua Plaza España, de la Rotonda el Güegüense 400 metros al sur, 75 metros al este Managua, Nicaragua (505) 2266-2758 (505) 2266-2758 http://www.amcham.org.ni American Chamber of Commerce and Industry of Panama Ocean Business Plaza, Suite 1709 Ave. Aquilino de la Guardia & 47th Street, Marbella Panama, Rep. de Panama (507) 301-3881 (507) 301-3882 executivedirector@panamcham.com http://www.panamcham.com/ Paraguayan-American Chamber of Commerce 25 de mayo 2090 Edif. Mayor Bullo Barrio Ciudad Nueva Asunción, Paraguay (595-21) 222-160 info@pamcham.com.py http://www.pamcham.com.py American Chamber of Commerce of Peru Av. Víctor Andrés Belaunde N° 177, San Isidro Lima 27, Peru (511) 705-8000 (511) 705-8026 amcham@amcham.org.pe http://www.amcham.org.pe

American Chamber of Commerce of Trinidad & Tobago 62 Marayal Road, Newton, Port of Spain Trinidad & Tobago, W.I. (868) 622-4466/0340 (868) 628-9428 http://www.amchamtt.com Chamber of Commerce Uruguay-USA Plaza Independencia 831, Oficina 209 Edificio Plaza Mayor 11100 Montevideo, Uruguay (598) 2908-9186 (598) 2908-9187 info@ccuruguayusa.com http://www.ccuruguayusa.com/ Venezuelan-American Chamber of Commerce & Industry Torre Credival, Piso 10 2da. Avenida de Campo Alegre Campo Alegre; Apartado 5181 Caracas 1010-A, Venezula (58-221) 263-0833 (58-212) 263-1829/0586/2060 ctejera@venamcham.org www.venamcham.org/

Investor’s Guide Authors: José Augusto Toledo, partner. Vivian Morales, associate. Gabriela Platero, associate. Ligia Salazar, associate. Cynthia Soto, associate. Arias & Muñoz

I. Government of the Republic of Guatemala Guatemala, constitutionally, is a democratic and representative republic. Guatemala’s 1985 constitution provides for a separation of powers among the executive, legislative, and judicial branches of government. The executive power is exercised solely by the government, directed by the president. The legislative power is unicameral and is vested in both the government and the Congress of the Republic; and the judicial power is independent from both the executive and the legislative powers, with 13 members forming the Supreme Court of Justice that serve a 5 year term. Guatemala has a civil law system with a judicial review of legislative acts. The President of Guatemala is both head of state and head of government. The President, who must be a native-born lay person, is elected through popular vote for a four-year term and may not be reelected. The Constitution of Guatemala calls for a popularly elected Vice-President. The office of VicePresident provides a guarantee of presidential succession in case of the death or disability of the chief executive. The Supreme Court consists of 13 justices who are elected by Congress from a list of candidates submitted by the bar association, law school deans, a university rector, and appellate judges. The Supreme Court and local courts handle civil and criminal cases. There also exists a separate Constitutional Court which is Guatemala’s highest court. Members of Congress, which holds 158 seats, are elected through a party list proportional representation system via the D’Hondt method. Guatemala has 22 administrative subdivisions (departments) which are administered by governors appointed by the President of the republic and 332 municipalities with elected mayors and city councils. The Head of State is President Alejandro Maldonado Aguirre since September 2015, after the elected president Otto Fernando Pérez Molina, resigned due to a customs fraud and corruption scandal affecting the country.

The cabinet is the Council of Ministers named by the president. General elections were held on September 6, 2015. In view that no presidential candidate received more than 50% of the votes, a run-off is scheduled for October 25, 2015, where voters will elect the President and VicePresident of the country. The newly-elected government will take office on January 14, 2016.

II. Geography

• Location: Central America, bordering the North Pacific Ocean, between El Salvador and Mexico, and bordering the Gulf of Honduras and Caribbean. • Total Area: Total: 108,890 sq km. • Cities: Capital, Guatemala City (area Population approximately 2.5 million). Other major cities include Quetzaltenango and Escuintla. • Climate: Tropical: hot, humid tropical lowlands and colder, drier highland peaks. • Terrain: Two mountain chains enter Guatemala from west to east, dividing the country into three major regions: the highlands, where the mountains are located; the Pacific coast, south of the mountains; and the Petén region, north of the mountains. All major cities are located in the highlands and Pacific coast regions; by comparison, Petén is sparsely populated • Administrative Divisions: Guatemala is divided into 22 departments and sub‐divided into 332 municipalities.

III. People • •

Nationality: Guatemalan Population: 14,918,999 (July 2015 estimate), it is the most populated country in Central America. • Language: The official language is Spanish, as well as 23 non-official ethnic languages. • Religion: Roman Catholic, Evangelic, indigenous Mayan-belief.

IV. Economy

Official Currency: Quetzal Currency (code): Quetzal (GTQ), US dollar (USD), others allowed, Guatemala has enacted a Law of Free Negotiation of Foreign Currencies.

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Guatemala has a GDP per Capita of one-half average for Latin America and the Caribbean. The purchasing power parity GDP as of 2014 is approximately $119.1 billion; Guatemala’s GDP (PPP) per capita is US$7,500 and the real GDP growth rate is that of 4%. Mainly, Guatemala’s economy is dominated by the private sector, which generates about 90% of GDP. The United States is the country’s largest trading partner, providing 40.3% of Guatemala’s imports and receiving 36.1% of its exports. Given Guatemala’s large expatriate community in the United States, it is the top remittance recipient in Central America, with inflows serving as a primary source of foreign income equivalent to nearly one-half of exports or one-tenth of GDP. Programs to promote foreign investment, enhance competitiveness, and expand investment in the export and tourist sectors are well underway and the implementation of the U.S.-Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) has led to increases in foreign direct investment inflows. Guatemala also has free trade agreements with Taiwan, Mexico, Chile and Colombia and recently with the European Union. At 11.6% of GDP in 2014, Guatemala’s taxes are low compared to the Latin American average. • • • • •

Natural resources: Oil, timber, nickel, gold. Agriculture: 13.7% of GDP and 32% of the labor force -- coffee, sugar, bananas, and vegetables. Manufacturing (24% of GDP): Types--prepared food, clothing and textiles, construction materials, tires, pharmaceuticals. Services (63.2% of GDP) Trade: Exports--$10.06 billion (2014): coffee, bananas, sugar, crude oil, chemical products, clothing and textiles, vegetables. Major markets--U.S. 36.1%, Mexico 4.1%. Imports--$17.15 billion: machinery and equipment, fuels, mineral products, chemical products, vehicles and transport materials, plastic materials and products. Imports- partners--U.S. 40.3%, Mexico 10.7%, China 9.8%.

V. Financial System

The Monetary Board is the authority responsible for the approval of the country’s monetary policy. The Bank of Guatemala was created as an autonomous entity responsible for all of the functions that correspond to a central bank such

as, providing for the monetary conditions most favorable to the development of the national economy, both locally and internationally. The Bank of Guatemala has the task of promoting the management of the national banking system, and the coordination of the State’s activities of an economic and financial nature, as well as those relating to the monetary market while serving as the safeguard of the external value and convertibility of national currency as well as a good management of the international monetary reserves. The Bank of Guatemala also gives an important place to the economic and financial information in order to benefit the economic agents. The inflation rate on consumer prices is currently at 3.4% (2014 estimate). The Guatemalan financial system is integrated by 18 commercial banks, 14 financial institutions, 15 bonded warehouses, 6 credit card companies, 27 insurance companies, 2 foreign exchange entities, 7 off shore entities, 12 stock brokers among other institutions supervised by the Bank Superintendence. These institutions give investors numerous financial services. Guatemala’s banking system is regulated mainly by the following legislation: • Organic Law of the Bank of Guatemala (Decree 16-2002) • Monetary Law (Decree 17-2002) • Financial Supervision Law (Decree 18-2002) • Banks and Financial Institutions Law (Decree 19-2002) • Law Against Money or Other Assets laundering (Decree 67-2001) • Law to Prevent and Repress Terrorism Financing (Decree 58-2005) • Law on Free Negotiation of Foreign Exchange (Decree 94-2000) • Market of Values and Merchandise Law (Decree 34-96) • Monetary Securities Law (Decree 136-96) *Sources: • http://www.indexmundi.com/guatemala/economy_ profile.html • https://www.cia.gov/library/publications/the-worldfactbook/geos/gt.html • http://www.sib.gob.gt • http://www.pronacom.org • http://www.worldbank.org/en/country/guatemala/ overview

Legal Framework for Foreign Investment Authors: José Augusto Toledo, partner, Vivian Morales, associate. Gabriela Platero, associate. Ligia Salazar, associate. Cynthia Soto, associate. Arias & Muñoz

Overview Guatemala is a country interested in promoting economic and social development, which is reflected in the Foreign Investment Law (Ley de Inversión Extranjera), Promotion and Development for Export and Maquila activities Law (Ley de Fomento y Desarrollo de la Actividad Exportadora y de Maquila), including some tax exonerations, such as Income Tax and Value Added Tax and others. This promotes and guarantees foreigners with an impartial treatment vis-a-vis Guatemalans, who will have the same treatment regarding rights and obligations. As part of the commitments that Guatemala has taken against the World Trade Organization (WTO) for the reduction and elimination of subsidies, it is expected that exemptions from income tax on export activity should be eliminated no later than December 31, 2015. With this purpose, the Central Government has submitted to the Congress of the Republic of Guatemala the bill of the Law for the Promotion of Investments and Employment.

Local Business Structures The structure for foreign investment will depend on a number of factors including legal considerations, the location of the business and taxation. Guatemalan law recognizes the following local business structures: • Collective Company (Sociedad Colectiva) • Limited Liability Company (Sociedad de Responsabilidad Limitada) • Commandite Company (Sociedad en Comandita Simple) • Commandite Company by Shares (Sociedad en Comandita por Acciones) • Corporation or Stock Company (Sociedad Anónima)

The most important provisions applicable to local business structures are: • The company is established by granting and executing a public deed, authorized by a Guatemalan Notary. •

At least two natural and/or artificial persons must execute the bylaws of the company. In order to avoid dissolution, the company must remain with at least two shareholders/partners throughout its life. • Shares must be issued to the stockholder’s name (nominative shares). • After its establishment, the company must be provisionally registered in the Mercantile Registry of the Republic of Guatemala. • Following, the company is registered as a contributor before the Tax Administration Office, obtains its Tax Identification Number (NIT, for its abbreviation by initials in Spanish) and an authorization to issue invoices and other accounting documents. One of the prerequisites for this inscription is that the legal representative of the new company already has obtained his/her personal Tax Identification Number. If the legal representative does not have it, he/she must obtain it by the corresponding procedure, which is strictly personally. • With these requirements, the company may begin its operations, pending any opposition by an interested party. Most opposition is based on similarities with another company’s name and/or trade name. • The approximate time to complete the establishment of a local company is 30 days, after receiving the corresponding legal information and documents. However a provisional registration is obtained within five business days of incorporation, as long as all the corresponding legal documents are obtained.

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Branch Offices A foreign incorporated enterprise may decide to establish a branch office because of some of the unique tax benefits related to this business structure. Legally established foreign companies that would like to set up and operate in any manner in the country or would like to have one or more branches or agencies are subject to the provisions of the Code of Commerce and other laws in the Republic. Among the most important applicable provisions are: • • • •

•

Proof that the foreign company is duly incorporated under the laws of its country of origin. File a certified copy of the Articles of Incorporation and By-Laws of the foreign company, if any, as well as of any possible amendments to the same. File the corporate decision of the foreign company that resolves the incorporation of a branch in Guatemala. Appoint an Attorney in Fact in Guatemala with ample powers to perform and execute every ordinary business of the branch and to legally represent it, with the entire special powers that the Law of the Judicial Body states. Deposit of the initial operating capital exclusively assigned to operations in Guatemala and of a bond in favor of third parties for an amount no less than the equivalent in quetzals of fifty thousand American dollars (US$ 50,000.00), amount which the Mercantile Registry will set, and which must remain in force during all the time that the corporation operates in the country, and an express statement that the corporation shall be liable not only with all of its assets located in the territory of Guatemala but abroad as well, for acts and businesses that the corporation engages in the country. Submission to the courts and laws of Guatemala, for all acts and businesses that it may execute in Guatemala or that may have effects in Guatemala; and rendition of an affidavit that neither the corporation nor its representatives or workers may invoke foreign rights. Affidavit granted by the legal representative of the company containing commitment of the company to fulfill all legal obligations before leaving the country.

•

Delivery of a certified copy of the foreign company’s last balance sheet and loss and profit statement. • Upon submission and review of all required documents, the Mercantile Registry will approve the provisional registration of the branch. • Following, the branch must be registered as a contributor before the Tax Administration Office, obtains its Tax Identification Number and an authorization to issue invoices and other accounting documents. • With these requirements, the branch may begin its operations, pending any opposition by an interested party. The approximate time to complete the establishment of a branch is 30 days, after receiving the corresponding legal information and documents.

Temporary business Foreign companies may also request authorization from the Mercantile Registry to carry out temporary business in Guatemala. In this cases, foreign companies are required to provide evidence of being duly organized in its country of origin and must appoint a legal representative in Guatemala. Operations Requiring no Registration in Guatemala Foreign companies do not require to be registered in Guatemala to carry out any of the following activities: • • • • • • •

Take part in any legal action or proceeding before a Guatemalan court or public office. Open or maintain bank accounts in an authorized bank in Guatemala. Sell or purchase from independent commercial agents legally established in Guatemala. Purchase orders through agents legally established in Guatemala provided such purchases are subject to confirmation or acceptance abroad. Grant or open loan to companies established in Guatemala. Issue, endorse or contest credit instruments in Guatemala. Acquire movable goods or real estate, with the exception of land near international borders and

waterfront properties, provided that such goods are not part of a local company or the foreign company does not negotiate with such goods regularly.

Taxes

Value Added Tax (IVA, for its abbreviation by Initials in Spanish)

2014:: 28% on taxable income − Starting on January 1, 2015: 25% on taxable income. In addition, the Tax Update Law foresees specific rules regarding rates, deductions, exemptions and other requirements that vary depending on the type of income: 1. Income of Profit Activities: According to the regimens described above.

VAT is an indirect tax on consumption. It applies to transfers of goods for a price and to rendering services. Final users or consumers bear the tax. The Value Added Tax in Guatemala is a tax levied at twelve percent (12%) of the tax base. The amount of the tax must always be included in the sales price of good or value of the services.

2. Income Tax on Salaries: This tax will only be paid by individual persons working under employment, and whose income is larger than Q60,000.00 annually. The amount to be paid as salary tax will be calculated based on the taxed income in accordance to a progressive rate scale included in the Tax Update Law.

Income Tax

3. Income of nonresidents: The Tax Update Law establishes new categories of nonresidents and rates that vary from 5% to 25%.

The income tax, contained in the Tax Update Law (Ley de Actualización Tributaria), Decree 10-2012 of the Congress of the Republic of Guatemala took effect on January 1, 2013. The Tax Update Law establishes that Income Tax may be paid in one of two ways: 1. Optional Simplified Regime over Income of Profit Activities, with the following rates: − For the period January 1, 2013 to December 31, 2013: 6% on taxable income − As of January 1, 2014, according to the following progressive rate scale: Monthly Taxable Income (taxable base amount)

Fixed

Q.0.01 - Q.30,000.00

Q.0.00

Q.30,000.01 and up

Q.1,500.00

7% on the excess of Q.30,000.00

Tax Rate

2. Regime over Earnings of Profit Activities, with the following rates: − For the period January 1, 2013 to December 31, 2013: 31% on taxable income − For the period January 1, 2014 to December 31,

4. Capital Income: The Update Tax Law classifies the capital income in returns on real property and movable property, and capital gains and losses. This classification includes a description of the activities that are considered capital income and the applicable tax rate. Under the New Income Tax Law, Expats that stay in the Guatemalan territory for a period above one hundred and eighty three (183) days in a calendar year (understood as the period commencing January 1st and ending December 31st) (“Permanence Threshold”), will be considered as residents for tax purposes. Furthermore, income obtained by residents either due to a work relationship or due to lucrative activities done on a habitual or occasional basis, would be deemed as taxable income. Expats that remain in Guatemalan territory for a period exceeding the Permanence Threshold would be deemed as residents as for the income generated due to their activities in Guatemala. Expats that are expected to exceed the Permanence Threshold in Guatemala should consider the permanence in Guatemala in order to avoid tax contingencies.

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Transfer Pricing Rules As of March 5, 2012, there was no legislation in Guatemala relating to transfer pricing. However, Tax Update Law, Decree 10-2012 of the Congress of the Republic of Guatemala, has incorporated into the Guatemalan legislation special transfer pricing rules that must apply in all transactions between related parties. The special transfer pricing rules will take effect on January 1, 2015. In this regard, the Tax Update Law, states that the special transfer pricing rules for the valuation of the transactions between related parties are applicable in any transaction carried out between a resident in Guatemala and a resident abroad and which has some effect in the determination of the tax base for the period in which the transaction is carried out and in the subsequent periods. According to the Tax Update Law, to determine the value of the transactions according to the Arm’s Length Principle, one of the following methods must be applied: 1. Comparable uncontrolled price method. 2. Cost plus method. 3. Resale price method. 4. Partition of profits method. 5. Transactional net margin method. Furthermore, the Tax Update Law, grants to the Tax Authority enough powers to: 1. Verify if the transactions carried out between related parties have been valuated according to the Arm’s Length Principle in tax matters and make adjustments as appropriate when the valuation agreed by the related parties has resulted in lower taxes in Guatemala; 2. Reclassify a transaction according to its real nature, if the economic reality of the transaction differs from its legal form, or the agreements relating to the transaction differ substantially from agreements that are taken between non related parties, and the structure of the transaction prevents the Tax Authority to determine the appropriate transfer price. 3. Determine, prior to the completion of a transaction between related parties, the valuation of such transaction. In order for the Tax Authority to determine

the valuation of the transaction, the taxpayers must request and comply with the procedure established by law. Finally, it is stated that the treatment to be applied to services provided between related parties should be follow the same criteria for the transfer of goods or merchandises.

Solidarity Tax On December 22, 2008 the Solidarity Tax Law, Decree No. 73-2008, was published in the Official Gazette of Guatemala. This law came into effect on January 1, 2009 and created the Solidarity Tax (ISO, for its abbreviation by initials in Spanish). The ISO charges with 1% the gross income or the net assets of those taxpayers that are in the Income Tax’s general regime, and taxpayers hat are in the Regime over Earnings of Profit Activities as of January 1, 2013, and those that carry out mercantile or agricultural activities within Guatemala and obtain a gross margin superior than 4% of the gross income. As mentioned before, the Solidarity Tax rate is 1% over the tax basis: (a) ¼ of the total net assets reported in the last Income Tax Return; or (b) ¼ of the gross income reported in the last Income Tax Return If net assets are greater than four times the gross income, the applicable tax basis must be letter (a) above.

Tax on Fiscal Revenue Stamp and Special Sealed Paper used by Notaries: According to the Fiscal Revenue Stamp and Special Sealed Paper used by Notaries Law (Ley de Timbres Fiscales y de Papel Sellado especial para Protocolos), this tax is levied on documents described in the law. The persons who must bear the tax are those who grant or execute documents containing acts or contracts levied by the tax. The tax amount is three percent (3%). The tax is determined by applying the rate to the value of the levied act or contract. The value is the amount stated in the document, which may not be lower than that stated in public registries, cadastres or official lists.

Documents which evidence the payment or account credit of dividends paid by Guatemalan companies are subject to this tax.

Taxes on Real Estate Guatemalan law has a sole annual tax (Impuesto Único sobre Inmuebles - IUSI) on the value of real estate located in the territory of the Republic. This tax is levied on real estate, rustic or rural and urban, which includes the land, structure, constructions and/or facilities attached to the real estate and its improvements. To determine the annual tax on real estate, the law states a list of applicable rates and scales.

Tax on Real Estate Transfers: First Real Estate transfers are levied by the Value Added Tax, equivalent to 12% of the amount of the sale. Second and subsequent Real Estate transfers are levied by the Tax on Fiscal Revenue Stamp Tax, equivalent to 3% of the amount of the sale

Other tax-related issues Free-Trade Zones

Free-Trade Zones in Guatemala are governed in accordance to Decree 65-89, Free-Trade Zones Law (Ley de Zonas Francas). Currently in Guatemala, there are more than 10 Free-Trade Zones operating. The benefits obtained from operating in them are tax exemption, excellent location, besides obtaining basic utilities such as electricity, water, telephone, Internet service, security and in some places, land and water transportation. The Free-Trade Zones Law shall be reformed if the bill of the Law for the Promotion of Investments and Employment is approved.

Free-Trade Zone users may be natural or artificial persons, who must be previously authorized to operate as such by the Ministry of Economy. Users may be: •

Industrial: Those whose line of business is

manufacturing or assembling goods to be exported outside the national customs territory, re-exporting or technological investment and development.

•

Service: Those whose line of business is rendering services linked to international commerce.

•

Commercial: Those whose line of business is

trading in merchandise to be exported outside the national customs territory, as well as reexporting products when no activities take place that change the products’ characteristics or alter their origin.

Companies that manage Free-Trade Zones, as well as their users have various fiscal incentives, including some tax exemptions. As part of the commitments that Guatemala has taken against the WTO for the reduction and elimination of subsidies, it is expected that some exemptions on free-trade zones will be also eliminated no later than December 31, 2015.

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Regulation of Financial Institutions and Discussion of the Banking Activity in Guatemala Authors: José Augusto Toledo, partner, Vivian Morales, associate. Gabriela Platero, associate. Ligia Salazar, associate. Cynthia Soto, associate. Arias & Muñoz

Guatemalan financial institutions can be defined as the companies engaged in financial services solutions that are regulated by the Banks Superintendence and the Securities and Commodities Market registry. To date, those types of companies are any of the ones described below, whether private, mixed-capital or state-owned: a) Local banks and branches of foreign banks duly authorized to do business in Guatemala. b) Private Finance companies (sociedades financieras privadas). c) Bonded warehouses (almacenadoras). d) Local insurance companies and branches of foreign insurance companies duly authorized to do business in Guatemala. e) Foreign exchange dealers. f ) Off-shore banking institutions (which have a regulatory treatment different than branches of foreign local banks). g) Securities exchanges. h) Credit card issuers. i) Financial groups. j) Securities and commodities agents. k) Investment companies. l) Other financial services companies such as some leasing companies and non-banking credit card issuers. The regulatory framework of the financial services industry suffered major changes from 2002 onward, starting with a package of banking and regulatory laws and regulations, amendments to securities laws and,

most recently in 2010, the enactment of the Insurance Activity Law. Although still subject to some refinements, these laws are very much up to date and contain some of the best practices recommended by international standards. Securities and commodities regulations still lag behind the sophistication existing in other jurisdictions, even if they contain seldom-used modern financial instruments and concepts. This reflects the lack of depth of Guatemalan capital markets. The most important laws and regulations applicable to those financial institutions described above are: •

Banks and Financial Groups Law, Decree 19-2002 of Congress. • Private Finance Companies Law, Decree-law 208, as amended thereafter. • Insurance Activity Law, Decree 25-2010 of Congress. • General Bonded Warehouses Law, Decree 1746 of Congress, as amended thereafter. • Securities and Commodities Market Law, Decree 3496 of Congress, as amended thereafter. • Financial Supervision Law, Decree 18-2002. • Bank of Guatemala Organic Law, Decree 16-2002. • Monetary Law, Decree 17-2002. The Commerce Code and the Constitution, as well as other entity and activity-specific laws (mainly for stateowned banks) also contain relevant provisions that regulate some of the entities that are part of the financial services industry. Also, regulation for the prevention of money laundering and the financing of terrorism is applicable to these institutions as well as to some other non-financial activities.

Banking Activity in Guatemala Banks in Guatemala (as are most corporations in Guatemala)

are privately held, with very few of those owned by foreign banking institutions. Banks are generally the entities responsible for a Financial Group, which a conglomerate of companies related to the bank and for which it is accountable. In other words, a bank which heads a Financial Group must respond for any financial distress that a company member of its conglomerate may be under. Local banks have been, in general, spared from the 2008 financial crisis and from other related troubles mainly because of regulation limiting a bank’s exposure to foreign risks. Sound banking practices have begun to take hold since the inception of the relatively recent legal framework and the regulator’s continuously increasing professionalization and breadth of supervision. The legitimatization of “off-shore banks” (as the applicable law defines them) as distinct from formal branches of foreign banks is limited to those foreign banks incorporated abroad but which are a part of a Guatemalan Financial Group. These banks grew out of the demand for U.S. Dollar deposits before it was permissible to local banks (2002), while still offering the confidence of dealing with a local financial institution since those banks are wholly owned by the local banks that promote their

services, sharing the same corporate image. Slowly, these off-shore banks have become regulated in Guatemala to the point that they are subject to the same obligations as their local counterparts, save for some few particular issues, most notably, income and financial products taxation in Guatemala. Competition is fierce in the banking market and five or six banks (there are 18 banks as of August 2015) have more than three fourths of existing market share. The biggest of those have ventured outward with branches or whollyowned subsidiaries in the U.S., El Salvador and Honduras. However, competition has not necessarily meant full benefits to customers, as intermediation margins are still high, and local financial institutions are as of yet rated lower in comparison to other banks in other jurisdictions as capitalization of banks has yet to achieve levels attractive to credit rating agencies, even if their regulatory capital is adequate. The market is complemented by 14 private financing companies (sociedades financieras privadas) which have a smaller yet increasingly active role in provision of financing by supervised institutions.

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Guatemala: Country Profile Summary General Information

Source: CIA Fact Book.

Demography

Source: CIA World Factbook

% Population distribution by gender and age YEAR 2015

Macroeconomics •

Guatemala is the largest Central American economy with a total 37.5 % GDP.

•

It provides access to 67.5 million persons from the Mesoamerican market.

•

It’s market is comprised of 15 million inhabitants.

•

It is the fifth friendliest Latin American economy to Direct Foreign Investment (DFI).

GDP Diversification* Y2014

Source: Banco de Guatemala. *Preliminary Data.

Gross Domestic Product*

Source: BANGUAT, Sept. 2015 Y2015: Estimated *: Data in %

Internal Public Debt as GDP* percentage: Y2009 - 2014

Source: Banco de Guatemala (Banguat). Y2014: Preliminary Data *Data in %

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Foreign Direct Investment* Y2009-2014

FOB Exports Y2014

Source: BANGUAT p/: Preliminary Data. *Data in US$ MM Source: BANGUAT.

FOB Exports* 2009 - 2014

Source: BANGUAT p/: Preliminary Data. *Data in US$ MM

FOB Exports* Y2009 - 2014

Source: BANGUAT. *Data in % p/: Preliminary Data

CIF Imports Y2014

Source; BANGUAT. P/ : Preliminary Data.

CIF Imports Y2009 - 2014

Source; BANGUAT. P/ : Preliminary Data.

Inflation Rate of Guatemala Y2009 - 2014

Source: BANGUAT.

Guatemala Country Risk Classification 2014

Source: OCDE. Informe Riesgo PaĂs II Trimestre 2015

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Doing Business 2015 World Bank

Free-Trade Agreements of Guatemala

Signed but not in force Active In Process of approval Source: Direcci贸n de Administraci贸n de Comercio Exterior (DACE). Sistema de Informaci贸n sobre Comercio Exterior (SICE-OEA)

Infrastructure Free-trade Zones

2 Free-trade zones in Puerto Barrios, Izabal

2 Free-trade zones in San Marcos 9 Free-trade zones in the City 2 in Amatitlán 1 in Villa Nueva

2 Free-trade zones in Escuintla

1 Free-trade zone in Santa Rosa

Source: Dirección de Servicios al Comercio y a la Inversión, Departamento de Política Industrial—Zonas Francas.

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Airport System

2 International airports and 17 local airports La Aurora International Airport : • Modernization and expansion plan • #1 Category according to FAA • Able to receive 4 million passengsers per year • 160 weekly flights

Source: Invest in Guatemala. 2014.

Port System • Puerto Santo Tomás de Castilla and Puerto Barrios are located on the Atlantic Ocean; 297 KM away from Guatemala City. • Puerto Quetzal is on the Pacific Ocean; 98 km away from Guatemala City. • Both state-owned ports (Santo Tomás and Quetzal) are BASC certified (Business Alliance Security Commerce).

Source: Comisión Portuaria Nacional

Road System

Source CONRED

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Services: Telephone Services

Water: *VAT and the fixed-charge fee must be added to these rates

Source: Super Intendencia de Telecomunicaciones (SIT). Empresa Municipal de Agua (Empagua)

Energy Services • The 1996 General Electricity Law granted Guatemala an open market that enables users of over 100 kW/H a month to freely negotiate rates with service providers at average costs of between US$ 0.07 – 0.12 KW/H. • Seventy percent of the country’s electrical power is generated by the private sector. Guatemala has 18 hydroelectric power plants: - 9 privately-owned hydroelectric power plants - 9 State-owned hydroelectric power plants - 125 mini hydroelectric power plant projects • Guatemala is committed to continue to ensure availability of electricity at competitive prices. For this reason, the Renewable Energy Incentive Law was approved in 2004, seeking to fuel investments in wind, geothermal, and hydroelectric power generation. See rates at: http://www.cnee.gob.gt/xhtml/estadisti/tarifas/tarifas.html

Wage Information Employee wages are subject to private agreements between employer and employee. Nonetheless, the Ministry of Labor establishes minimum wages bysector.

Wages for 2015

Exchange rate: Q7.70 x USD$1.00 Source: Ministerio de Trabajo â&#x20AC;&#x201C; Decree 520-2011

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Investment Opportunities Contact Centers & BPO

Guatemala’s Legal Framework for Investment Foreign Investment Act (Decree 9-98) Free Currency Negotiation Act (Decree 94-200) Free Trade Zones Act (Decree 65-89) Industry and Commerce Free Zone Act (Decree 22-73) Promotion and Development of Exports and Drawback – Maquila Activity Act (Decree 29-89) Partnerships for the Development of Economic Infrastructure Act (Decree 16-2010).

• • • • • •

•

Guatemala has over 10 years experience in BPOCall Centers. It has emerged as the best nearshore destination of Central America and the Caribbean for the BPO industry.

•

The country offers several advantages and benefits that position it as the best outsourcing destination in the region: -

It has the largest population in Central America - 70 % of which is under 40 years old. The country offers a young, long-term, sustainable, human resource for the BPO industry.

High English proficiency among young generations.

Favorable business environment.

Government incentives and regulations.

First world telecommunications and electric infrastructure

Well-developed call center / BPO industry

Neutral accent in the pronunciation of Spanish

Contact Centers & BPO •

Total revenue (year 2013): US$650 million

•

Income growth (Y2009-2013): 300 %

•

Total employment: 35,000 agents / 20,435 bilingual

•

Direct Foreign Investment (Y2006 - 2013): US$552.5 million

•

Main services: - Customer interaction - Finance and accounting - Procurement and logistics - HR administration - Knowledge services Leading companies:

•

Guatemala seeks to position itself as a world-class investment destination, generating quality products and developing strategic subsectors that require advanced technology, such as: - Electronics - Manufacturing - Refrigeration equipment - Auto parts - Plastics - Pharmaceuticals - Medical devices - Cosmetics - Software, among others

Main Markets: - USA - Mexico - UE - Asia

Energy and Oil • The energy and oil industry is one of the greatest potential investment attractions to large foreign corporations. Guatemala is the largest exporter of electricity in the Central American region. Exports can go all the way to Panama through the Central American interconnected network. • Production potential: Probable reserves up to 750 million barrels. Power: 5,000 MW through hydro electrical plants.

• Leading companies:

Source: Invest in Guatemala.

Guatemala offers: •

Highly-qualified and skilled labor force.

•

Strategic geographical position for exports development and participation in major international markets.

•

Several Free-trade and Preferential Trade Agreements like the CAFTA, Mexico, Central America, Chile, Colombia, EU, Taiwan, among others.

•

The largest market the Central American Region.

•

Legal incentives to both national and foreign companies: these laws offer import and duty exemptions and other tax exonerations for established periods of time - Foreign Investment Act - Free-Trade Zones Act - Development and Promotion of Exports - Drawback Act - Fiscal benefits

Source: Invest in Guatemala.

Guatemala offers the oil industry: •

Mature market

•

A specific and clear legal framework

•

Probable reserves of up to 750 million barrels; gas reserves of 330 k/p3/day

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•

Excellent infrastructure in this sector, with storage capacity of up to 600,000 barrels. An oil pipeline connection of 570 km (354.2 mi) linking the main wells in northern Guatemala with the Atlantic Coast for further export.

•

Oil reserves of up to 83 million barrels, that could increase up to 750 million barrels.

•

Mature and experienced sector, with over 100 years operating under a well-defined and regulated legal framework.

for further export. Oil reserves of up to 83 million barrels, that could increase up to 750 million barrels.

Guatemala offers the energy sector:

Guatemala offers the oil industry: •

Mature market

•

Significant sector development.

•

A specific and clear legal framework

•

Probable reserves of up to 750 million barrels; gas reserves of 330 k/p3/day

Approximately 80 % of electricity generation is due to private investment.

•

As a result of the Law on Incentives for the Development of Renewable Energy Projects, around 70% of the new electricity projects in Guatemala are related to renewable energy.

Energy Matrix – Sector Plan

Interconnection of the Energetic Sector within the Region

• SIEPAC • Interconnection Guatemala – Mexico 200 MW • Interconnection Guatemala – Belize 50MW • Interconnection Guatemala- El Salvador 200MW • Geothermal potential 200 MW

Source: Invest in Guatemala.

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Guatemala: Key Energy Statistics

Petroleum and Gas Xan field: 35 oil wells in production.

540 million bbls in reserve

This basin is over 10,000 feet deep, related to the presence of natural gas. Current government’s interest to improve bidding: nine areas in Petén and three in the Pacific zone to increase production to 60.000 barrels a day between 2012 – 2016.

Source: Invest in Guatemala.

Mining: •

•

Guatemala has unique resources for investment in mining and strong support of a stable legal framework focused on the dynamic nature of competition. The geographical location of the country allows for worldwide exportation of products and supplying minerals to major markets. Guatemala’s deposits of gold, nickel, and other minerals are among the largest in Latin America not to mention that jade deposits are one of a kind. Some foreign companies that have trusted in Guatemala:

What the country offers: •

Stable legal framework and dynamic market.

•

A strategic geographical position with access to both, the Pacific and Atlantic oceans.

•

Abundance of mineral deposits. The country has a high potential to exploit gold, silver, nickel, iron, limestone, granite, and jade, among others.

•

Guatemala is the first Central American country and the second in Latin America to be EIT certified (Extractive Industries Transparency Iniciative).

Source: Invest in Guatemala.

Guatemala: Mining Opportunities

Working mines Important unexploited projects Not operating medium projects

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Mining Potential

Useful Websites http://www.amchamguate.com/ http://guatemala.eregulations.org/ http://www.investinguatemala.org/ For further information, please contact OUR Trade Center Telephone: (502) 2417-0805 / 2417- 0809 E-mails: trade@amchamguate.com asesoria@amchamguate.com

Macroeconomic Indicators of Guatemala Gross Domestic Product (GDP): Y2009 - 2015

Source: Banguat.*Amounts in percentages. **Preliminary data.

GDP at Current Prices by Origin of Production: Y2009 - 2014. Annual Growth Rate

Source: Banguat. Graph and chart: prepared in-house. (p) Preliminary

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GDP at Current Prices by Origin of Production: Y2014. Annual Growth Rate

Exports Total FOB Value: Y2009 - 2014p/

Source: Banguat. Grรกfica y Chart: Prepared in-house

GDP Diversification: Y2014

Source: Banguat. Chart: Prepared in-house. (*) Estimated data in percentages.

FOB Value for Main Export Products: Year 2014p/

Source: Banguat. Chart and table: prepared in-house. (p) Preliminary data.

FOB* Value of exports to main destination countries: Year 2014

Source: Banguat. Chart: Prepared in-house. (*) Percentages.

GDP Diversification: Y2014

Source: Banguat. Chart: Prepared in-house. (*) Percentages. (p) Preliminary

CIF Imports : Y2009 - 2013p/

Source: Banguat. Chart: Prepared in-house. (*) Percentages. (p) Preliminary

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CIF* imports values classified by main selling countries: Y2014

Source: Banguat. Chart: Prepared in-house. (*) Percentages. (p) Preliminary

Total Imports Values (CIF) : Y2014

Source: Banguat. Graph and chart: prepared in-house. (*) *In millions of U.S. Dollars. (p)Preliminary data

Total Imports Values (CIF) : Y2014

Source: Banguat. Graph: Prepared in-house. (*)US Dollars.

Budget Deficit as GDP percentage: Years 2009 - 2014p/

Source: Banguat. Chart: Prepared in-house. (*) Percentages. (p) Preliminary.

Direct Foreign Investment: Years 2009 - 2014 p/

Source: Banguat. Chart: Prepared in-house. (*) US Dollars. (p) Preliminary.

Family Remittances: Years 2009 -2014

Source: Banguat. Chart: Prepared in-house. (*) in US Dollars.

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Internal Public Debt as GDP Percentages: Years 2009 - 2014

Doing Business Report by the World Bank: Guatemala

Source: Banguat. Chart: Prepared in-house. (*) Percentages. (p/) Preliminary

Reviews on Guatemala by Rating Agencies â&#x20AC;Ś

Source: Banguat. Chart: Prepared in-house. (*) Percentages. (p/) Preliminary

Source: Banco Mundial (BM). Chart: Prepared in-house.

Government • Country name:

Conventional long form: Republic of Guatemala Conventional short form: Guatemala Local long form: República de Guatemala Local short form: Guatemala

• Government type:

constitutional democratic republic

• Capital: Guatemala

Geographic coordinates: 14 37 N, 90 31 W Time difference: UTC-6 (1 hour behind Washington, DC during Standard Time) daylight saving time: +1hr, begins last Sunday in April; ends last Friday in September; note - there is no DST planned for 20072009

• Administrative divisions:

• Flag description:

Three equal vertical bands of light blue (hoist side), white, and light blue with the coat of arms centered in the white band; the coat of arms includes a green and red quetzal (the national bird) and a scroll bearing the inscription LIBERTAD 15 DE SEPTIEMBRE DE 1821 (the original date of independence from Spain) all superimposed on a pair of crossed rifles and a pair of crossed swords and framed by a wreath.

22 departments (departamentos/ singular=departamento); Alta Verapaz, Baja Verapaz, Chimaltenango, Chiquimula, El Progreso, Escuintla, Guatemala, Huehuetenango, Izabal, Jalapa, Jutiapa, Petén, Quetzaltenango, Quiche, Retalhuleu, Sacatepéquez, San Marcos, Santa Rosa, Sololá, Suchitepequez, Totonicapán, Zacapa.

• Independence and National holiday:

15 September 1821 (from Spain)

• Constitution:

31 May 1985, effective 14 January 1986; note - suspended 25 May 1993 by former President SERRANO; reinstated 5 June 1993 following ouster of president; amended November 1993

• Legal system:

Civil law system; judicial review of legislative acts; has not accepted compulsory ICJ jurisdiction

• Suffrage: Source: Word Press

18 years of age; universal (active duty members of the armed forces may not vote and are restricted to their barracks on Election Day)

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• Executive branch:

chief of state: President Alejandro Maldonado Aguirre

(since 3 September, 2015) note - the president is both the chief of state and head of government.

Head of government: President Alejandro Maldonado Aguirre (since 3 September, 2015 Vice President (vacant) (since 14 May 2015); note - the president is both chief of state and head of government; President Otto Fernando PEREZ MOLINA resigned 2 September 2015 and Vice President Ingrid Roxana BALDETTI Elias resigned 8 May 2015 Cabinet: Council of Ministers appointed by the

president.

Elections: president elected by popular vote for a four-year term (may not serve consecutive terms); election last held 6 September 2015.

Election results: Otto PEREZ Molina elected president; percent of vote – Otto PEREZ Molina 53.7%, Manuel BALDIZON 46.3%

• Legislative branch:

Unicameral Congress of the Republic or Congreso de la Republica (158 seats; members are elected by popular vote to serve four-year terms) Elections: last held 11 September 2011 (next to be held in September 2015) Election results: percent of vote by party - PP 26.62%, UNE-GANA 22.67%, UNC 9.50%, LIDER 8.87%, CREO 8.67%, VIVA-EG 7.87%, Winaq-URNG-ANN 3.23%, PAN 3.12%, FRG 2.74%, PU 2.70%, other 3.59%; seats by party - PP 57, UNE-GANA 48, LIDER 14, UCN 14, CREO 12, VIVA-EG 6, PAN 2, Winaq-URNG-ANN 2, FRG 1, PU 1, VICTORIA 1; note - changes in party affiliation now reflect the following seat distribution: as of 2 March 2012 - PP 62, LIDER 25, UCN 18, Independents 12, CREO 11, GANA 9, UNE 8, VIVA 3, EG 3, PAN 2, PAN 4, FRG 1, PU 1, Winaq 1, URNG 1, VICTORIA 1

• Judicial branch:

Constitutional Court or Corte de Constitucionalidad is Guatemala’s highest court (five judges are elected

for concurrent five-year terms); Supreme Court of Justice or Corte Suprema de Justicia (13 members serve concurrent five-year terms and elect a president of the Court each year from among their number; the president of the Supreme Court of Justice also supervises trial judges around the country, who are named to five-year terms).

• Political parties and leaders:

1. Commitment, Renewal, and Order or CREO [Roberto GONZALEZ Diaz-Duran] 2. Democratic Union or UD [Edwin Armando MARTINEZ Herrera] 3. Encounter for Guatemala or EG [Nineth MONTENEGRO Cottom] 4. Everyone Together for Guatemala or TODOS [Felipe ALEJOS] 5. Grand National Alliance or GANA [Jaime Antonio MARTINEZ Lohayza] 6. Guatemalan National Revolutionary Unity or URNG [Angel SANCHEZ Viesca] 7. Institutional Republican Party (formerly the Guatemalan Republican Front) or PRI [Luis Fernando PEREZ] 8. National Advancement Party or PAN [Juan GUTIERREZ Strauss] 9. National Unity for Hope or UNE [Sandra TORRES] 10. Nationalist Change Union or UCN [Mario ESTRADA] 11. New National Alternative or ANN [Pablo MONSANTO] 12. Patriot Party or PP [Ingrid Roxana BALDETTI Elias] 13. Renewed Democratic Liberty or LIDER [Manuel BALDIZON] 14. Unionista Party or PU [Alvaro ARZU Irigoyen] 15. Victoria (Victory) [Amilcar RIVERA] 16. Vision with Values or VIVA [Harold CABALLEROS] (part of a coalition with EG during the last legislative election) 17. Winaq [Rigoberta MENCHU]

• Political pressure groups and leaders: •

Alliance Against Impunity or AI (includes among others Center for Legal Action on Human Rights (CALDH), Family and Friends of the Disappeared of Guatemala (FAMDEGUA))

• Civic and Political Convergence of Women • Committee for Campesino Unity or CUC • Coordinating Committee of Agricultural, Commercial, Industrial, and Financial Associations or CACIF • Foundation for the Development of Guatemala or FUNDESA • Guatemala Visible • Mutual Support Group or GAM • Movimiento PRO-Justicia • National Union of Agriculture Workers or UNAGRO

• Chancery: 2220 R Street NW, Washington, DC 20008 • Telephone: [1] (202) 745-4952 • FAX: [1] (202) 745-1908 • consulate(s) general: Atlanta, Chicago, Denver, Houston, Los Angeles, McAllen (TX), Miami, New York, Phoenix, Providence (RI), San Francisco, Silver Spring (MD), Tucson (AZ)

• Diplomatic representation from the US: •

• Diplomatic representation in the US: •

•

Chief of mission: Ambassador Jose Julio Alejandro LIGORRIA Carballido (since 5 September 2013)

• • •

Chief of mission: Ambassador Todd D. ROBINSON (since 10 October 2014) Embassy: 7-01 Avenida Reforma, Zone 10, Guatemala City Mailing address: DPO AA 34024 Telephone: [502] 2326-4000 FAX: [502] 2326-4654

• Ministries of Guatemala:

The executive branch of Guatemala includes 13 ministries: Name

Name (Spanish)

Web Page

Ministry of Agriculture of Guatemala

Ministerio de Agricultura, Ganadería y Alimentación (MAGA)

http://www.maga.gob.gt/

Ministry of Environment and Natural Resources of Guatemala

Ministerio de Ambiente y Recursos Naturales (MARN)

http://www.marn.gob.gt

Ministry of Communications, Infrastructure and Housing of Guatemala

Ministerio de Comunicaciones, Infraestructura y Vivienda

http://www.civ.gob.gt

Ministry of Culture and Sports of Guatemala

Ministerio de Cultura y Deportes

http://www.mcd.gob.gt

Ministry of Education of Guatemala

Ministerio de Educación (MINEDUC)

http://www.mineduc.gob.gt/

Ministry of Economy of Guatemala

Ministerio de Economía (MINECO)

http://www.mineco.gob.gt/

Ministry of Energy and Mines of Guatemala

Ministerio de Energía y Minas (MEM)

http://www.mem.gob.gt/

Ministry of Public Finance of Guatemala

Ministerio de Finanzas Públicas (MINFIN)

http://www.minfin.gob.gt/

Ministry of Government of Guatemala

Ministerio de Gobernación (MINGOB)

http://www.mingob.gob.gt/

Ministry of Defense of Guatemala

Ministerio de la Defensa de la Nación (MINDEF)

http://www.mindef.mil.gt/

Ministry of Foreign Affairs of Guatemala

Ministerio de Relaciones Exteriores (MINEX)

http://www.minex.gob.gt/

Ministry of Public Health and Social Assistance of Guatemala

Ministerio de Salud Pública y Asistencia Social (MSPAS)

http://www.mspas.gob.gt/

Ministry of Labor and Social Welfare of Guatemala

Ministerio de Trabajo y Previsión Social (MINTRABAJO)

http://www.mintrabajo.gob.gt/

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• Secretariats of the Presidency of Guatemala:

The president of Guatemala is both the head of state and the head of government. The president has therefore strong executive powers which are, in part, reflected in a broad number of agencies that depend directly from the presidency. These agencies include “secretariats of the presidency”.

The Secretariats of the Presidency include: Name

Name (Spanish)

Web Page

Secretariat of Agrarian Affairs

Secretaría de Asuntos Agrarios (SAA)

http://portal.saa.gob.gt

Secretariat of stragical Analisis of the Presidency

Secretaría de Análisis Estratégico de la Presidencia (SAE)

http://www.sae.gob.gt

Secretariat of Administrative and Security Affairs

Secretaría de Asuntos Administrativos y Seguridad (SAAS)

http://www.saas.gob.gt

Secretariat of Social welfare

Secretaría de Bienestar Social (SBS)

http://www.sbs.gob.gt/

Secretariat of Social Communications of the Presidency

Secretaría de Comunicación Social de la Presidencia (SCS)

http://www.guatemala.gob.gt

Executive Secretariat of the Presidency

Secretaría Ejecutiva de la Presidencia (SCEP)

http://www.scep.gob.gt

Presidencial Secretariat of Women Affairs

Secretaría Presidencial de la Mujer (SEPREM)

http://www.seprem.gob.gt

Secretariat of Planning and Programming of the Presidency

Secretaría de Planificación y Programación de la Presidencia (SEGEPLAN)

http://www.segeplan.gob.gt

Peace Secretariat

Secretaría de la Paz (SEPAZ)

http://www.sepaz.gob.gt

Private Secretariat of the Presidency

Secretaría Privada de la Presidencia

http://www.secretariaprivada.gob.gt

General Secretariat of the Presidency

Secretaría General de la Presidencia (SGP)

http://www.sgp.gob.gt

Secretariat of Social Works of the President’s Wife

Secretaría de Obras Sociales de la Esposa del Presidente (SOSEP)

http://www.sosep.gob.gt

National Secretariat of Science and Technology

Secretaría Nacional de Ciencia y Tecnología (SENACYT)

http://www.concyt.gob.gt

Secretariat for Alcohol and Drug Addiction Control and Drug Trafficking Control

Secretaría contra el Alcoholismo, la Drogadicción y el Tráfico Ilícito de Drogas (SECATID)

http://www.seccatid.gob.gt

Source: https://www.cia.gov/library/publications/the-world-factbook/geos/gt.html#Govt http://globaledge.msu.edu/countryInsights/government.asp?countryID=128&regionID=4 http://en.wikipedia.org/wiki/Secretariats_of_the_Presidency_of_Guatemala http://en.wikipedia.org/wiki/Ministries_of_Guatemala

Communications in Guatemala Telephone system: •

General assessment: fairly modern network centered in the city of Guatemala

•

Domestic: state-owned telecommunications company privatized in the late 1990s opening the way for competition; fixed-line teledensity roughly 10 per 100 persons; fixed-line investments are being concentrated on improving rural connectivity; mobile-cellular teledensity approaching 140 per 100 persons

•

International: country code - 502; landing point for both the Americas Region Caribbean Ring System (ARCOS-1) and the SAM-1 fiber optic submarine cable system that, together, provide connectivity to South and Central America, parts of the Caribbean, and the US; connected to Central American Microwave System; satellite earth station - 1 Intelsat (Atlantic Ocean).

Television broadcast stations: 26 (plus 27 repeaters) (2011) TGSS 2/13 (Trecevision 13) TGV 3/10 (El Super Canal 3) Ministry De Education 4/9 TGCE 5/12 (TV Cultural Educativ 5) TGMO 6/11 (Teleonce 11) TGVG 7/8 (Televisiete) R-TV Guatemala 10 Canal 21 El Canal de la Esperanza 27 Guatevision TV Azteca Guatemala 1850 Television

Internet country code: .gt Second level domains

Telephones - mobile cellular: 16.9 million

• • • • • • •

International Operator Brand

Internet users: 2.5 million

Telephones - main lines in use: 1.72 million

America Movil Claro/PCS Digital Claro Guatemala Telefónica Movistar MoviStar Guatemala Millicom - TIGO/COMCEL Digicel Group Infonet

Radio broadcast stations:

.com.gt: Commercial entities .edu.gt: Educational institutions .net.gt: Networks; unrestricted in registration .gob.gt: Guatemalan governmental entities .org.gt: Organizations; unrestricted in registration .mil.gt: Guatemalan military entities .ind.gt: Individuals

Newspapers: • • •

AM 130, FM 487, shortwave 15 (2000) • • • • •

Nuestro Diario, the most widely circulated newspaper in Central America Prensa Libre, the second-most widely circulated newspaper in Guatemala Diario de Centro América, the nation’s newspaper of public record Siglo Veintiuno El Periódico Diario La Hora Al Día Publinews (only in Guatemala City)

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Online newspapers

• http://www.albedrio.org/ • http://www.prensalibre.com/ • http://www.sigloxxi.com/ • http://www.elperiodico.com.gt • http://www.elmetropolitano.net • http://www.nuestrodiario.com • http://www.publinews.gt/ • http://www.dca.gob.gt/ • http://www.guatemala-times.com/ • http://www.monedaenlinea.com/ • http://www.lahora.com.gt/ Sources: https://www.cia.gov/library/publications/the-world-factbook/geos/ gt.html#Comm http://en.wikipedia.org/wiki/Communications_in_ Guatemala http://www.sit.gob.gt/

Official Holidays January 1st: New Year Holiday March/April: Easter May 1st: Labor Day May 10: Mother’s Day* June 30: Army Day* August 15: Holiday of Guatemala City September 15: Independence Day October 20: Revolution Commemoration November 1st: All Saints Day December 24: Christmas Eve December 25: Christmas Day December 31: New Year Holiday * According to Decree Law 42-2010 promoting domestic tourism, if the holidays marked, fall on Tuesday shall be taken the Monday before. If the holidays marked fall on Wednesday or Thursday, they shall be taken immediately on Friday. If they fall on Saturday or Sunday will not change.

Guatemala’s Financial System productive sectors. • Family remittances represent between 10-11% of GDP.

By: René Pérez Ordóñez Executive Partner UHY Pérez & Co – Charted Accountants

In the first quarter of 2014, expectations of economic agents on the performance of the economy remain favorable; indeed, the Confidence Index of Economic Activity (ICAE) to March started off 59.73 points, higher than observed the same month last year (51.86 points) Other criteria and information of the financial system can be observed in the following:

•

Fiscal Deficit •

The fiscal policy anticipates a fiscal deficit of 2.1% of GDP in 2014 (2.2% of GDP in 2013) although this recovery process will depend on the U.S. labor market, because of the importance of remittances to Guatemala’s GDP.

•

The external position of the country continues solid, contributing to macroeconomic stability, this, due to the stability and positive estimate of monetary reserves.

GDP (Gross Domestic Product): •

Economic activity in Guatemala maintains a moderate growth. This is shown on the next graphic.

•

By 2013 Guatemala had a GDP of US$ 53.80 billions, and represents around the 35% of the GDP of Central America.

The foreign investment flows will continue entering the country, with the improvement in the business climate and adequate macroeconomic management.

Change Policy

• Economic growth in 2014 will be driven by all Product Real Terms Gross Domestic

Annual Variation 2006-2014

Estimation

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•

The exchange rate Quetzal / Dollar has been stable in the last decade. The nominal exchange rate evolves according to seasonality.

• Inflation remains within the target set by the monetary authority (4% + / - 1 p.p.) The Monetary policy continues its focus on maintaining a low and stable inflation • In a context of high volatility and international uncertainty, Guatemala maintains its credit ratings

At the date of June 2014, the financial institutions supervised by the Superintendence of Banks are: Commercial banks: 18 Financing companies: 14 Warehousing firms: 15 Insurance companies: 28 Currency exchange houses: 2 Off Shore entities: 7 Brokerage firms: 11 Credit Card companies: 6 Other entities: 7

Guatemala’s financial system rests on the following financial laws:

Guatemala’s Financial System is structured as follows: Monetary Board:

entity responsible for annually approving monetary policy. Banco de Guatemala (BANGUAT): the BANGUAT is Guatemala’s Central Bank. It is an autonomous institution commissioned to execute monetary policy, approved by the Monetary Board. Superintendencia de Bancos (Superintendence of Banks): institution commissioned to supervise the Central Bank and other financial institutions with operations in Guatemala.

• • • •

Organic Law of the Bank of Guatemala Monetary Law Law of Banks and Financial Groups The Law of Free Negotiation of Foreign Currency • Law of Private Financial Corporations • Law of Free Negotiation of Currency • Law Against the Laundering of Money and Other Assets • Law to Prevent and Control the Financing of Terrorism. • Law of Saving and Family Housing Loan Banks

Monetary, Exchange, and Credit Policy of Guatemala

By: Julio Burgos Bachelor of Corporate Economics, 8th Semester Rafael Landivar University

In 2011 the Monetary Board approved the Monetary, Exchange, and Credit Policy for an indefinite term and at 4 %, with a variation increase or decrease of one percentage point - the target annual inflation rate. Depending upon conditions, it set the maximum amount to buy or sell foreign currency in the foreign exchange market at US$8.0 million when the rate of exchange of the day roughly varies 0.70 % with respect to the average rate of the past five days. This policy and target remain in place and are reviewed every year. In late 2014, the Monetary Board approved to keep the monetary policy valid for 2015. It is expected to be kept for 2016 also.

increase in spending in the following divisions: food and soft drinks; restaurants and hotels; miscellaneous goods and services, and clothing and footwear. Said increases were partially balanced out by declines in the divisions of: transport, housing, water, electricity, gas, and other fuels. All together these divisions explain the 87.45 % of the total actual inflation (Chart: Impact on Spending Divisions in the Inflationary Rate).

Based on the foregoing observations, we can make an analysis of the behavior of the Monetary, Exchange, and Credit Policy of Guatemala for 2015, according to the Monetary Policy Report published in June 2015 by the Bank of Guatemala, with regard to accomplishing the inflation target. To June 2015 the inflation rate was 2.39 %, below the limit set forth in the target (see the Total Inflation Rate chart). It is noteworthy that the behavior of this value is related, since November 2014, to the fall in the international price of oil and its derivatives. Up to June, the behavior of the Consumer Price Index (CPI) can be explained by the

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The division of food and non-alcoholic beverages, with a weighting of 28.57 %, has the greatest impact in the CPI. As of June, it showed a variation of 9.80 % (4.1 times the rate of overall inflation) from one year to the other. The main expenditure groups within the food and nonalcoholic beverages division that influenced its behavior were: vegetables, legumes, and tubers; meats; fruits; and bread and cereals. The behavior of other measures must also be noted, such as the underlying inflation, from which basic expenses of high volatility are excluded. The prices of vegetables and legumes are excluded from the food entry. Super and regular gasoline, diesel, and propane prices are excluded from the fuel category. The price of the electricity service is excluded, too.

Short-term forecasts reveal that overall inflation could settle between 1.75 % and 3.75 % by December 2015, and between 2.50 % and 4.50 % by December 2016. Meanwhile, underlying inflation would settle at values between 1.45 % and 3.45 % in 2015 and between 2.00 % and 4.00 % in 2016. Given the behavior of the inflation rate and internal and external economic conditions, during the first semester of 2015 the monetary policy decision was to reduce the leading interest rate from 4.0 % to 3.25 %. This rate is consistent with the neutral real interest rate for the Guatemalan economy, which is around 1.5 %. It can be said that for 2015 the monetary policy is considered accommodative. The long-term interest rate represented in the lending rate has responded to the decline in the leading interest rate. During the first semester of 2015, the lending rate was reduced in 48 base points, almost half a percentage point.

Monetary Board Resolution JM-145-2009 Amendment to Item sixth of Minutes 55-2009 of the meeting of the Board on December 23, 2009. ITEM SIXTH: Monetary, Exchange and Credit Policy: Evaluation as of November 2009 and Proposal for 2010. RESOLUTION JM-145-2009 Resolutions CT-4/2009 and CT-5/2009 of the Technical Council of Banco de Guatemala have been reviewed. These contain, respectively, the Evaluation of the Monetary, Exchange and Credit Policy as of November 2009 and the Proposal for 2010. THE MONETARY BOARD: WHEREAS: The Monetary, Exchange and Credit Policy in 2009 was executed within a complex international scenario characterized by recession of advanced economies, especially United States of America, Euro Zone and Japan. WHEREAS: Even if the internal financial system was not influenced by the international financial crisis due to its low external focus, the impact on the global crisis was transmitted to the main stream through less dynamic economic activity, contraction of tax revenues from foreign trade and income from family remittances and tourism. WHEREAS: Reduced inflation generated spaces for the implementation of a flexible monetary policy which were filled by the reduction of the leading tax rate with caution to avoid distortions in other macro-economic prices. WHEREAS: Through the implementation of the monetary policy attention was placed on special liquidity requirements of the banking system resulting from the international financial crisis, the external position of the country was strengthened and the volatility of the exchange rate was controlled without affecting its trend. WHEREAS: As a result of the effects of the international financial crisis on national economy the fiscal policy became somewhat anti-cyclical to support internal demand. WHEREAS: The coordination of fiscal and monetary policies has been very important to maintain micro-economic stability, which contributed to the execution of a Stand-By Agreement with the International Monetary Fund (IMF) for approximately US$935.0 Million to support the balance of payments and maintain the conditions of sovereign risk on the part of the

principal agencies. WHEREAS: For 2010 the factors that condition the internal as well as the external aspects shall determine the execution of the monetary policy, and for this reason the Central Bank shall permanently supervise the evolution of the real, external, fiscal and monetary sectors to monitor the policy. WHEREAS: According to the IMF the international economic recession is being overcome and even though it is estimated that the economic activity will continue to evolve, although slowly, the projections for 2010 of the world economy are encouraging. WHEREAS: The prices of raw materials are increasing and the world trade has stabilized after a strong contraction during the first semester of 2009. WHEREAS: There is a degree of uncertainty in the execution of the fiscal policy for the following year, with several scenarios, thus, the Central Bank must be ready to make the necessary adjustments to the policy. WHEREAS: The expectations of the economic agents is key in the process of economic recuperation given the fact that an improvement of these agents would strengthen the trust of the private sector on the banking system , which, in turn, would promote consumption, investment growth and economic activity in general. WHEREAS: with the perspectives of economic recovery and within an internal scenario where the fiscal policy continues to be moderately ant-cyclical and the expectations of the economic agents are strong, it is projected that in 2010 the national economic activity, measured by the GNP in real terms, registers a growth of between 1.3% and 2.1% higher than the estimated economic growth for 2009, of 0.6%. WHEREAS: The projections of the real, external, fiscal and monetary sectors are based on the last available estimates, among which are the world economic perspectives formulated by the IMF, which should be reviewed given international uncertainty, WHEREAS: Towards the end of 2010 the econometric projection of inflation is estimated in 4.8% while the inflation estimate of the Semi-structural Macroeconomic Model is 5.03%, thus the inflation is within the established range. WHEREAS: the strengthening of public finance and specific actions shall provide permanent support to monetary policy and reach an inflation goal of 4.0% +/1.0% in 4 years WHEREAS:Exchange flexibility, as in the

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case of Guatemala, is a key element to support specific inflation goals in Guatemala. WHEREAS: It is necessary that the Central Bank continues to direct monetary policy and reach the inflationary goal within the effectiveness of the transmission mechanisms, therefore within its scope, the Central Bank has to adopt actions towards modernization, development and assessment of the secondary securities market because the development of this market improves the operation of the mechanisms and increases the effectiveness of monetary policy. WHEREAS: For an adequate execution of the Monetary, Exchange and Credit Policy within a changing macro financial environment and within certain inflation goals, it is very important that this is based on the application of instruments and measures that enable timely actions, and also on the participation in clearly defined monetary and exchange markets which can make the operations of the Central Bank more effective. WHEREAS: For 2010 it is necessary to coordinate fiscal and monetary policies to be consistent with established macro-economic goals. WHEREAS: The Proposal of the Monetary, Exchange and Credit Policy for 2010 submitted to the review of this Board contains the principles instruments and measures which make it coherent with the specific inflation goals This will continue to consolidate the trust of the economic agents in this plan and, as a result, achieve stability of the main macroeconomic and financial elements. THEREFORE: Based on the provisions of Articles 132 and 133 of the Political Constitution of the Republic of Guatemala. Articles 3, 4, 13, 26 and 48 of the Organic Law of the Banco de Guatemala and taking into consideration resolutions CT-4/2009 and CT-5/2009 of the Technical Board of the Banco de Guatemala. RESOLVES: I. THAT THE REVIEW OF THE MONETARY, EXCHANGE AND CREDIT PLICY FOR 2009 IS COMPLETE. II. TO DETERMINE MONETARY, EXCHANGE AND CREDIT POLICY FOR 2010 AS FOLLOWS: A. MAIN OBJECTIVE AND GOAL OF THE POLICY 1. Basic Objective In accordance with the main purpose of the Banco de Guatemala in relation to contribute

to create and maintain the most favorable conditions for an orderly development of national economy, and for which purpose it shall encourage monetary, exchange and credit conditions to promote stability in the general price level, the Monetary, Exchange and Credit Policy must achieve such objective. To support the basic goal and to keep inflation at the proposed level, the execution of monetary policy is contingent upon actions related to financial modernization of public finance within an integral and sustainable policy to promote competitiveness and efficiency of the productive sector. 2. Policy Goal Within the plan for setting inflation levels, the information on inflation goals to guide expectations of the economic agents in the short and medium terms, becomes relevant to maintain stability of the price levels. Short and medium term goals facilitate expectations, therefore medium term goals are set at 4.0% +/1.0% for the next 4 years. Inflation goals of 5.0% +/- 1.0% were established for December 2010 and 5.0% +/- 1%, for December 2011. B. INDICATIVE VARIABLES Indicative variables used by the monetary authorities for decision making within the established inflation goals, shall guide the actions of the monetary policy towards the construction of an inflation goal in the foreseeable future. 1. Projected Inflationary Trend. The projected trends for December 2010 and December 2011 will be monitored based on methodology established by the Banco de Guatemala. 2. Total Inflationary Trend The projected trends for December 2010 and December 2011 will be compared with the inflation goals established for these years. 3. Parameter Interest Rate To find market conditions compatible with the achievement of inflation goals, the parameter interest rate (adjusted Taylor rate) shall be monitored and compared to the leading interest rate of the monetary policy.

4. Medium Term Inflation Forecasts of the Semi-structural Macroeconomic Model (MMS in Spanish) Inflation forecasts of MMS for December 2010 and 2011 will be monitored and compared with inflation goals established for these years. 5. Inflation Expectations from the Panel of Private Analysts Inflation expectations of the economic agents may influence substantially the determination of an inflation rate for the period, therefore, the inflation forecast resulting from an inflation survey of the Panel of Private Analysts shall be monitored. 6. Interest Rate of the Semi-structural Macroeconomic Model (MMS) The interest rate established by the MMS is important as an indicator of the monetary policy, as it suggests the trend of the leading interest rate to achieve certain inflation levels at the short and medium terms. The leading interest rate for monetary policy shall be compared with the interest rate prescribed by the MMS. C. FOLLOW-UP 1. Issuance of Currency. To monitor the levels of primary liquidity, the issuance of currency shall be monitored in relation to projections. 2. Broad Monetary Base In connection with the monetary base which includes money supply, bank reserves and balance of monetary stabilization operations at the short term with the banking sector, its evolution shall be monitored against the projections. 3. Means of Payment Consistent with the growth estimate of economic activities, with inflation goals and with estimated speed circulation, the total means of payment (M2) shall increase towards the end of 2010 in about 10.0% and 12.0%. Such estimate may vary depending on the changes of the real and financial economic flows. Monitoring of this variable shall be directed to determine if the evolution during the year is consistent with the estimated growth.

4. Bank Credit to the Private Sector Consistent with the growth of the means of payment it is projected that the growth of the total bank credit to the private sector will reach 6.0% to 8.0% by the end of the year. Such estimate could vary depending on the changes in real and financial economic flows. Monitoring of this variable shall be directed to determine if the evolution during the year is consistent with the estimated growth.

D. PRINCIPLES TO PARTICIPATE IN THE MARKET To reach the basic objective of the Banco de Guatemala, as provided in Article 3 of its Organic Law, it is important to describe the principles that shall prevail in its participation in the Monetary Market as well as in the International Foreign Exchange Market. 1. Focus on the Basic objective The participation of the Banco de Guatemala in the monetary and exchange markets shall be based on its main objective, consistent with specific inflation goals. 2. Monetary Stabilization Operations within specific inflation goals The main instruments to moderate primary economic liquidity are the Operations of Monetary Stabilization (OEM in Spanish). For Guatemala they include reception of term deposits by the Central Bank with the financial, public and private-non financial sectors as well as operations of open market in the secondary securities market, under market conditions with the financial sector to restrict or expand primary liquidity, improve economic aggregate demand and contribute to the achievement of the basic objective of the monetary policy. 3. Exchange flexibility Within a plan of exchange flexibility the nominal exchange rate is determined by the interaction between offer and demand of foreign currency in the market although there are reasons that justify the eventual participation of the Central Bank in the International Foreign Currency Market provided the purpose of such participation is to moderate volatility of the exchange rate without affecting the trend.

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E. INSTRUMENTS TO MAINTAIN MACRO -FINANCIAL STABILITY 1. Monetary Market a) Leading interest rate In 2010 the Central Bank shall continue to utilize the leading interest rate to position its monetary policy. b) Operations for Monetary Stabilization In 2010 the operations of monetary stabilization will continue to be the main instrument to moderate primary liquidity and to avoid considerable distortion of the financial market to meet the goal of promoting stability the general price levels. In 2010 participation in the market will continue through mechanisms presently utilized by the Banco de Guatemala to receive Term Deposits, such as: • Electronic Banking System (MEBD in Spanish). This mechanism will capture funds directly from banks and financial entities, within 7 days. • Security Systems of the National Stock Exchange (Bolsa de Valores Nacional, S. A.). This mechanism will capture funds directly from Stock Exchanges within 7 days, • Limitations. This mechanism will capture funds directly through the Stock Exchange in the country with invitations to bid, for limited amounts with expiration dates of up to one year. • Teller Window. This mechanism will capture funds from the public and nonfinancial private sectors. c) Other instruments i) Bank Reserves. Given that banking entities maintain a reasonable surplus, the Bank Reserves Rate remains at 14.6% for local and foreign currencies; ii) Last instance lender: The Central Bank will provide credit assistance to other banks according to Article 48 of the Organic Law of the Banco de Guatemala and to Resolution JM-50-2005. iii) Receipt of Term Deposits with expiration dates of more than one year. As feasible,

the Central Bank, in coordination with the fiscal policy may perform monetary stabilization operations with expirations dates of more than one year so that gradually the Banco de Guatemala may hold a better position in the money market and improve the administration of its liabilities. iv) Operations for improving liquidity through MEBD. The Banco de Guatemala will continue to improve liquidity through MEBD. v) Open Market Operations: Banco de Guatemala may conduct open market operations in the secondary securities market through negotiations with Treasury Bonds of the Republic of Guatemala. For this purpose these are eligible according to Article 48 of the Organic Law of the Banco de Guatemala. 2. International Foreign Exchange Market a) Basis for participation Provisions contained in Resolutions JM22-2009, JM-85-2009 and JM-92-2009. b) Obtaining term deposits in US Dollars It is estimated that in 2010 Banco de Guatemala will continue to control foreign exchange liquidity through term deposits in US Dollars so that, if feasible, the performance of national exchange rate will slow down without affecting the trend, according to Resolution JM99-2004. F. MEASURES THAT CONTRIBUTE TO THE EFFECTIVENESS OF THE MONETARY POLICY. 1. Continue consolidating information on banking operations in the secondary securities market. Information and transparency in market operations are important elements in the development and assessment of the secondary securities market. For this purpose and as in 2009, the banks and financial institutions shall continue to provide Banco de Guatemala information on financial characteristics of the operations conducted through term deposits and Treasury Bonds

or with Certificates of such Bonds in the Stock exchange and non-Stock exchange markets as established by the Central Bank. 2. Forward Contracts of Foreign Exchange During 2010 the institutions members of the International Foreign Exchange Market should continue sending daily reports to the Banco de Guatemala on the financial characteristics of forward contracts as established by the Central Bank. Once this information is consolidated the Bank shall place it at the disposal of the participants, in an Internet site.

III. TO MAINTAIN IN FORCE OTHER PROVISIONS OF THE MONETARY, EXCHANGE AND CREDIT POLICY THAT DO NOT CONTRADICT THOSE CONTAINED HEREIN.

3. Coordination with Fiscal Policy To consolidate the efficiency and credibility of macro-economic policy, it is imperative to strengthen institutional coordination through the Work Group of the Banco de Guatemala â&#x20AC;&#x201C; Ministry of Public Finance. This Group was created in 2002 by both entities to materialize the efforts related to monetary and fiscal policies to comply with its objectives of macro-economic stability.

Schedule of Meetings in which the Monetary Board Will make decisions regarding the leading Interest Rate, during 2010

4. Transparency and Accountability of the Banco de Guatemala To strengthen the accountability of the Central Bank, in addition to the preparation of different reports and publications, according to the provisions of its Organic Law, it is necessary that the Banco de Guatemala discloses to the public the design and orientation of the monetary policy and the actions taken for the execution of such policy to achieve the basic objective of the Central Bank. In addition, in order to generate legal certainty in the economic agents for purposes of decision-making, an annual schedule of the meetings to be held by the Board in regards to the leading interest rate is included in the Annex.

IV. TO AUTHORIZE THE SECRETARY OF THIS BOARD TO PUBLISH THIS RESOLUTION TO BECOME EFFECTIVE ON JANUARY 1, 2010. (Signature) Armando Felipe Garcia Salas Alvarado Secretary Monetary Board

DATE February 10 March 24 April 28 June 23 July 28 September 29 October 27 November 24

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Guatemala’s Banking System I. LEGAL FRAMEWORK

In Guatemala only authorized entities may carry out banking activities, which consist essentially in collecting money from the public (through savings or checking accounts, time deposits, bonds, promissory notes, etc.) for further lending. Only authorized entities can be deemed as Banks or use the term Bank (Banking) to describe its business. Banks can also offer other financial services including Trusts, Foreign Currency Exchange (FX), Leasing, Factoring and Credit Cards. Banking institutions are governed by the Banks and Financial Groups Law (Ley de Bancos y Grupos Financieros) and other regulations issued by the Monetary Board (Junta Monetaria) and other applicable laws and regulations, including instructions issued by the Local Banking Regulator (SIB). Other applicable laws and regulation include: • Guatemala’s Central Bank Organic Law (Ley Orgánica del Banco de Guatemala - Decree No. 16-2002) • Monetary Law (Ley Monetaria - Decree 17-2002) • Financial Supervision Law (Ley de Supervisión Financiera - Decree No.18-2002) • Private Finance Companies Law (Ley de Sociedades Financieras Privadas - Law Decree No. 208) • Free Exchange of Foreign Currency Law (Ley de Libre Negociación de Divisas - Decree 94-2000) • Law Against Money or other Assets Laundering (Ley Contra el Lavado de Dinero u Otros Activos - Decree No. 67-2001) • Law to Prevent and Suppress Terrorism Financing (Ley para Prevenir y Suprmir el Financiamiento del Terrorismo - Decree No. 58-2005)

II. FINANCIAL GROUPS

A Financial Group is a group of two or more legal entities that perform activities of a financial nature, in which one of them must be a Bank. Other legal entities that can be part of a Financial Group are: Finance Companies (similar to investment Banks), Offshore Banks, Insurance Companies, Credit Card Issuers, Leasing and Factoring Companies, Bonded Warehouses, Brokerage Firms, among others. Financial Groups are bonded by equity

ownership, common management, use of corporate image or by agreement. Currently, the Guatemalan financial system includes 10 financial groups authorized by the Monetary Board. No.

Financial Group

1 Corporación BI 2 De Occidente 3 Agromercantil 4 Citibank de Guatemala 5 Bac-Credomatic 6 G&T Continental 7 Banco Internacional 8 Banrural 9 De los Trabajadores 10 Vivibanco

Responsible Company Banco Industrial, S. A. Financiera de Occidente, S. A. Banco Agromercantil de Guatemala, S. A. Banco Citibank de Guatemala, S. A. Banco de América Central, S. A. Banco G&T Continental, S. A. Banco Internacional, S. A. Banco de Desarrollo Rural, S. A. Banco de los Trabajadores, S. A. Primer Banco de Ahorro y Préstamo para la Vivienda Familiar, S. A. (Vivibanco)

III. FOREIGN BANKS AND OFFSHORE BANKS

Foreign banks are welcome to conduct business in Guatemala either by establishing a subsidiary, a branch or participating in or acquiring an existing bank. In any case, the foreign bank needs the proper authorization from the Monetary Board. Foreign banks can also establish Representative Offices to promote services and provide financing, which only need to be registered with the Superintendence of Banks. Entities interested in establishing a Bank (either a branch or a subsidiary), or register a Representative Office in the country must present an application to the Local Banking Regulator (SIB), including the type of entity seeking to establish, general data of the legal representative, an address in Guatemala to receive notices and notifications, commercial name, country of origin with addresses and other relevant information determined by applicable regulation concerned. Offshore Banks are legally defined as those entities engaged principally in banking activity, incorporated or registered under the laws of a foreign country, which operate mostly outside the country of incorporation or registration.

To conduct businesses in Guatemala, Offshore Banks must be part of a Financial Group, obtain authorization to operate in Guatemala from the Monetary Board and fulfill other requirements set forth in the Banks and Financial Group Law and other applicable regulation.

c) LOCAL BANKING REGULATOR (SIB) The Local Banking Regulator (SIB) is an autonomous and technical institution which supervises banks, financial groups and other financial institutions.

Currently, in Guatemala there are 6 Offshore Banks authorized by the Monetary Board to operate locally: No. 1 2 3 4 5 6

Offshore Bank Westrust Bank (International) Limited Occidente International Corporation Mercom Bank Ltd. Bac Bank Inc. GTC Bank Inc. Transcom Bank (Barbados ) Limited

Financial Group Corporación BI De Occidente Agromercantil Bac-Credomatic G&T Continental Bac-Credomatic

Country of Incorporation Bahamas Puerto Rico Barbados Panamá Panamá Barbados

IV. FINANCIAL SYSTEM

In Guatemala, the monetary, financial and banking activities are organized under Central Bank System. The Monetary Board, Guatemala National Bank (Banco de Guatemala) and the Local Banking Regulator (SIB), Banks and other financial institutions are included in the Financial System.

Additionally, within the structure of the Local Banking Regulator (SIB) was created the Financial Intelligence Unit of Guatemala -FIU- (IVE for its acronym in Spanish), which is responsible for enforcing the Antimoney laundering and Anti-terrorism financing laws.

V. BANKING SYSTEM

Currently, the banking system is formed by 18 banks (there are 8 banks that are not included in any Financial Groups). Many of these 18 banks have direct or indirect participation of foreign banks. In July 2015 the banking system reported assets over US$ 33.5 billion, which has almost tripled over the past 10 years (July 2015 compared to December 2006), mainly as a result of the banking consolidation through mergers and acquisitions, incorporation of regional banks and general growth of the portfolio.

a) MONETARY BOARD This is the highest monetary authority in the country and its main responsibilities include determining the Monetary, Exchange and Credit Policy, to ensure liquidity and solvency of the national banking system, ensuring stability and strengthening national savings. b) GUATEMALA NATIONAL BANK BANCO DE GUATEMALA Guatemala National Bank’s main objective is to contribute to the creation and maintenance of the most favorable environment to the orderly development of the national economy , for which, propitiate the monetary, exchange and credit conditions that promote stability in the general price level .

By July 2015, Guatemala’s banking system presents a capital adequacy ratio of 13.94%, which is higher than the required by local regulations (10% pondered by asset’s risk). Also, it shows a ratio of 1.66% in return on assets (ROA) and a ratio of 18.43% in return on equity (ROE).

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The chart presented below shows the evolution of profitability over the last five years.

The loan portfolio grew 87 % (Dec 10 - Jul 15). On June 15, the 98.65 % of gross performing loans portfolio, while non -performing loans is 1.35%. The NPL ratio for the past five years has been between 1.2% - 2.1%, reaching the lowest point to Dec. 13 (1.2%). The coverage ratio of NPLs over the past five years has been above the regulatory minimum legal (100 %).

Interest rates are set freely by each bank according to market conditions and their own policies. In recent years interest rates have been stable. The average interest rate for lending operations of the banking system is 16.07% in local currency and 6.33% in USD. The average interest rate for deposits is 4.64% in local currency and 2.65% in USD (July 2015).

VI. RISK-BASED SUPERVISION APPROACH

The deposit portfolio grew 56.2 % from December 10 to Jul 15. Improving the participation of time deposits, from 36 % (Dec. 10) to 41 % (July 15 ) .

Pursuant to the best supervisory practices, the Local Banking Regulator (SIB) adopted a Risk-Based Supervision approach, through which the Regulator evaluates and assesses the different areas of business of the entities, corporate governance, risk management information systems quality, and appropriate risk management. To promote a sound risk management of banks and financial institutions, as well as strengthening oversight, the Monetary Board has issued specific regulations for Credit Risk Management, Liquidity Risk Management, Technological Risk Management and Integral Risk Management which take in consideration international standards and practices.

Banks in Guatemala CRÉDITO HIPOTECARIO NACIONAL DE GUATEMALA

CITIBANK, N. A. SUC. GUATEMALA

BANCO CITIBANK DE GUATEMALA, S. A.

7a. Avenida 22-77, Zona 1 Telephone: 2223-0333 Fax: 2238-0744 www.chn.com.gt

15 Calle 1-04 Zona 10, Edificio Céntrica Plaza, Torre I, Segundo Nivel Telephone: 2250-2000 Fax: 2377-3268 www.citigroup.com

BANCO INMOBILIARIO, S. A.

VIVIBANCO, S. A.

BANCO AGROMERCANTIL DE GUATEMALA, S. A.

7a. Avenida 11-59, Zona 9 Edificio Galerías España, Séptimo Nivel Telephone: 2429-3700/2423-2000 Fax: 2332-1418 www.bancoinmobiliario.com.gt

13 Calle 5-46, Zona 9 Telephone: 2506-0606 Fax: 2506-0606 www.vivibanco.com.gt

BANCO DE LOS TRABAJADORES

BANCO FICOHSA GUATEMALA, S. A.

Avenida La Reforma 6-20, Zona 9 Telephone: 1755/2410-2600 Fax: 2339-4549 www.bantrab.com.gt

18 calle 5-56, nivel 10, Oficinas 1001 y 1002, zona 10, Edificio Unicentro Telephone: 2317-8444 www.ficohsa.com.gt

BANCO INDUSTRIAL, S. A.

BANCO PROMERICA, S. A.

7a. Avenida 5-10, Zona 4 Torre I Centro Financiero Telephone: 1737/2420-3000 Fax: 2420-3160 www.bi.com.gt

Avenida Reforma 9-55, Zona 10, Edificio Reforma 10, Nivel 1 y 2 Telephone: 2413-9400 Fax: 2413-9400 www.bancopromerica.com.gt

BANCO DE DESARROLLO RURAL, S. A.

BANCO DE ANTIGUA, S. A.

Avenida La Reforma 9-30, Zona 9, Torre BANRURAL, Nivel 9 Telephone: 1720/2338-9961 Fax: 2504-1515, EXT. 303813 www.banrural.com.gt

12 Calle 4-30, Zona 9 Telephone: 2420-5555 Fax: 2420-5590 www.bantigua.com.gt

BANCO INTERNACIONAL, S. A.

BANCO DE AMÉRICA CENTRAL, S. A.

Avenida Reforma 15-85, Zona 10 Edificio Torre Internacional Telephone: 1701/2366-6666 Fax: 2382-6465 www.interbanco.com.gt

Avenida Petapa 38-39, Centro de Excelencia Operativa (COE) Telephone: 2361-0909 Fax: 2334-7077 www.bac.com.gt

15 Calle 1-04, Zona 10 Edificio Céntrica Plaza, Torre I, Nivel 2 Telephone: 2250-2000 Fax: 2377-3268 www.citi.com.gt

7a. Avenida 7-30, Zona 9 Telephone: 2338-6565 Fax: 2362-1826 www.bam.com.gt

BANCO G&T CONTINENTAL, S. A.

6a. Avenida 9-08, Zona 9 Plaza G&T Continental Telephone: 2338-6801 Fax: 2332-2682 www.gytcontinental.com.gt

BANCO DE CRÉDITO, S. A.

12 Calle 6-70, Zona 10 Telephone: 2384-4900/2384-4993 Fax: 2362-8889 www.bancredit.com.gt

BANCO AZTECA DE GUATEMALA, S. A. Avenida Reforma 9-00, Zona 9, Edificio Plaza Panamericana, Primer Nivel Telephone: 2278-2200 Fax: 2360-9383 www.bancoazteca.com.gt

Fuente: Superintendencia de Bancos http://infpb.sib.gob.gt/ ConsultaDinamica/?cons=251

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Foreign Exchange By: Bolsa de Valores Nacional, S.A. bvn@bvnsa.com.gt www.bvnsa.com.gt

For the last ten years, the value of the quetzal in relation to the American dollar has remained steady. At the beginning of the year 2005, US$1.00 was worth around Q.7.70, a very similar amount to the one valid by the end of October 2014.

Guatemala showed an inter annual variation superior to 9%. Additionally, we should mention that the appraisal of the Quetzal in relation to the American Dollar, is also due to the fact that Guatemalan enterprises from different sectors have traded debt securities in the international market for up to US$800 million, which modifies the local supply and demand of the currency; this reflects a decrease in the credits granted by banks to the private sector. For seasonal reasons, in October the American dollar tends to go up; however, October 2014 was an exception, having gotten to levels such as Q.7.60 per US$1.00.

The development of Guatemala’s external commerce, mainly the portion regarding the export of agricultural products, wardrobe articles and metals, has allowed for the stability of the exchange rate, besides evidencing a growth in the flow of foreign investment in the country, which in 2010 reached US$805.8 million and in 2014 is expected to get to US$1,374.3 million, which constitutes a growth superior to 70% in a five year period.

Another reason for the exchange stability has been the policy adopted by the Central Bank, which includes the “Rule for participation in the Currency Institutional Market”, which defines the criteria for the Bank of Guatemala’s buying and selling of currency through SINEDI (an electronic system for the institutional negotiation of currency, which is a platform provided by Bolsa de Valores Nacional, S.A.). This rule establishes a gap formed with the mobile average of the reference exchange rate for the last five workdays, +- a fluctuation margin of 0.65%. When the intraday pondered average of the settled operations surpasses the stablished margins, the Bank of Guatemala calls the participating entities to an auction, either for selling or for buying, for a maximum amount of US$8 million. The objective of these auctions is not a change in the exchange rate tendency, but only a reduction of its volatility.

Another element in the steady behavior of Guatemala’s exchange rate are family remittances coming from emigrants living in the United States of America, which have also shown a constant growth, especially in the year 2014, since by the end of October the amounts managed by the Bank of

This has permitted the international monetary reserves to show a continuous growth, reaching US$7,000 million in 2014, according to data provided by the Bank of Guatemala.

Foreing Exchange Market Background Guatemala has been one of the few Latin American countries WITH a relatively stable currency throughout the years. From the time the Quetzal was established in 1944 through the end of the year 2001 it has depreciated from Q1.00 = US$1.00, to Q8.00 = US$1.00. The Quetzal remained stable and with no change until the beginning of 1982 when the economic cycles started to change. Guatemala maintained a foreign exchange policy which was relatively rigid until 1989. The exchange controls did not provide flexibility to foreign currency operations. Nevertheless, on that year the Central Bank introduced some changes to the exchange controls and established a system which due to sudden changes which occurs in the exchange rates is called â&#x20AC;&#x153;dirty floatingâ&#x20AC;?; this allows the exchange rate to change according to the market. When faced with speculation the Central Bank indirectly intervenes by purchasing or selling currency to stabilize the market. In spite of the efforts of the Central Bank to make the exchange market flexible, there were still some situations which had to be overcome such as the elimination of the principle of concentrating the foreign exchange in the Central Bank which resulted in an exclusive right to negotiate with foreign exchange and to control supply and demand. The other banks acted on instructions received from the Central Bank and had a limit to hold foreign exchange; any excess had to be sent to the Central Bank. Currencies other than el Quetzal were not allowed and this limited the investment options from the economic agents and foreign trade. Finally, such exchange system did not generate trust from the economic agents, because it was based on the decisions of the Central Bank which were changed or abolished at its sole discretion.

Present System Through Decree 94-2000 of the Congress of the Republic, which became effective May 1, 2001, the foreign exchange system was changed. Now there is freedom of disposition, holding, contracting, remittances, transfers, purchasing, selling, collecting and paying of and with foreign exchange. This has generated more trust because now is a Law of the Republic. For foreign investors it is an important step on the part of the State of Guatemala, because now there is a certainty that the remittance and transfer of capital from and to the home offices is free and there is no risk that such status may be modified by a decision of the fiscal authorities. Under the new system, and in accordance with articles 132 and 133 of the Constitution of the Republic, the Central Bank maintains the faculty to intervene in the exchange market, but only indirectly, that is, purchasing and selling foreign exchange. This Decree allows the holding and handling of deposits and accounts in foreign currency as well as the operations of financial intermediaries and this enables national or foreign banks, duly authorized to operate in the country, to grant loans and perform all type of active and passive operations in any currency.

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Foreing Exchange Regulations & Policy All foreign currency transactions must be made through approved financial institutions. A form must be filled out for all transactions involving foreign investments, remittance of dividends and repatriation of capital. Other than the compliance with applicable taxes, no further controls and restrictions apply to the remittance of profits and repatriation of capital. The foreign currency exchange rate floats freely.

Exchange Flexibility To increase the efficiency of the mechanisms through which Banco de Guatemala participates in the exchange market, some gradual modifications will be introduced to comply with the following principles to achieve a flexible exchange system: i) That it be consistent with a monetary schedule of explicit inflation goals ii) That it be based on rules that are clear, transparent and understandable in the markets iii) That it eliminates the discretion of the participations of the Banco de Guatemala; and iv) That it reduces the volatility of the exchange rate without affecting its trend. For this purpose the Banco de Guatemala must participate in the Institutional Foreign Exchange Market, following the procedure approved by the Monetary Board. In addition, the Banco de Guatemala may participate in the exchange market with the only purpose of acquiring the foreign exchange required by the Bank itself, the central government and other institutions of the public sector, under market conditions, in order to cover their foreign exchange obligations.

Term Deposits in U. S. Dollars In 2006 the Banco de Guatemala shall have available an instrument to recover liquidity in foreign exchange and attract term deposits in US Dollars to control the performance of the exchange rate.

Cash Reserve The rate remains the same: 14.6% Last Resource Money Broker The credit assistance of the Central Bank to the other banks of the country shall be oriented only to finance provisional deficiencies in liquidity.

Last Resource Money Lender The credit assistance of the Central Bank to the other banks of the country will be oriented only to finance provisional deficiencies in liquidity Source: www.banguat.gob.gt Resolution of the Monetary Board jm185/2005

Taxation on Income of Non-residents and Withholding Taxes By: Byron Martinez Partner | Tax & Legal | Transfer Pricing Deloitte Guatemala bymartinez@deloitte.com

Considering that Guatemala imposes Income Tax based on source, all Guatemala source income obtained by nonresidents is subject to taxation. Non-residents are classified in two categories: a) non-residents with a Permanent Establishment â&#x20AC;&#x201C;PE- in the country which includes those with local branches that determine their Guatemala Income Tax liability in the same manner as residents; and b) non-residents with no PE in Guatemala territory that are taxed at flat tax rates on the gross amount of each transaction that is considered as taxable event. This section is about the second group above referred to (non-residents with no PE in Guatemala territory). For taxation on income of non-residents with PE in Guatemala, please refer to the other sections of this document describing the Income Tax for residents.

Tax Rates on Income of Non-residents:

The flat tax rates applicable to the gross amount of Concept Cargo freight, fares and other transportation industry charges. Insurance premiums, reinsurance, and bond premiums Telephone, data transmission and international communication industry charges. Dividends and distribution of profits Provision of international news to companies who are users in the country, regardless of the form of retribution and for the use in Guatemala of cinematographic film, comic strips, photo essays, music and audio recordings and any other similar projection, transmission or broadcasting of images or sounds in the Republic of Guatemala, regardless of the medium employed Interests Exemption is available for interest for bank loans granted by banking and financial institutions to entities duly authorized and regulated in their country of origin, in accordance with the Law of Banks and Financial Groups, as well as those that the latter and multilateral institutions grant to persons domiciled in the national territory. Salaries, wages and other remunerations that do not imply the reimbursement of expenses Payments to athletes and artists in the theater, on television and public performances. Royalties Fees Scientific, economical, technical or financial consulting Other Guatemala source income not specified above

10%

15%

25%

Guatemala source revenues earned by non-residents are as follows:

Withholding or Filing Obligations for Non-residents:

The tax liability determined by the application of the previously enumerated rates to the gross amount of the revenue obtained by the non-resident is to be paid into the Superintendence of Tax Administration through the following procedures: a) Withholding Obligation for the Guatemala Resident Tax rate Payer (resident withholding agent). Primarily, the Income Tax is paid to the Superintendence of Tax Administration through withholdings made by the Guatemala resident responsible for paying to the non-resident. The income tax is paid through a tax return filed by the Guatemala resident withholding agent within the first ten (10) business days of the month immediately following that in which the payment or wire transfer was made. Once the withholding has been complied with, no filing obligation remain in charge of the non-resident. b) Tax Filing Obligation for the Non-resident when the Guatemala Resident fails to withhold. In those cases when the withholding was not made, the Income Tax must be paid by the Non-resident through a tax return within the first ten (10) business days of the month immediately following that in which the taxable event occurred. In conclusion, those non-residents earning Guatemala source-income should consider the impact of the flat rates as enumerated, and monitor that their Guatemala counterparty duly complies with the withholding mechanism. Otherwise, the non-resident would need to pay its Guatemala Income Tax liability through a direct filing.

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Tax System Guatemala has a territorial taxation system and the tax authority is the Tax Administration Superintendence (SAT for its acronym in Spanish). The municipalities (like counties authorities in US) of the Republic of Guatemala are autonomous and are in charge of the collection of real estate taxes (IUSI for its acronym in Spanish) and other minor. The Customs authority in tax matter is the “Dirección General de Aduanas”, under the direction of SAT. The “Dirección General de Aduanas” controls the customs offices, which collect duties, VAT and fines on imports.

Tax on corporate income

For year 2015 onwards a rate of 25% is applicable to a company’s taxable income from Guatemala sources. The rate is applicable on net income of individuals or juridical entities domiciled in Guatemala. Under this system the tax is determined and paid in the end of each quarter, with an annual tax settlement. Under this system, income tax is payable in advance, as pointed in quarterly installments, and the balance must be paid at the presentation of the annual statement, the deadline for submission is March 31. Quarterly advance tax payments are applied to the final income tax liability computed as of the end of year. The income tax return shall be accompanied by an audit report, mainly for the qualified as “special” taxpayers or within tax exemption regimes taxpayers

There are two income tax regimes: general and optional. The fiscal year is the same as the calendar year (January 1 to December 31).

Salaries and wages, dividends, or profit and fees are subject to withholding tax. Services provided from abroad, like professional fees, commissions, interest, rents, royalties and technical service fees are subject to flat income tax withholdings.

• Optional simplified Income Tax from profitable activities regime

Tax on interest income, leases and royalties

Since year 2014 a rate of 5% on gross income is applicable to juridical entities and individuals performing mercantile and non-mercantile activities, domiciled in Guatemala on the first GTQ30,000 (around US$3,900) and 7% on the excess. Basically every business pay, under this regime, 7% of the Gross Income. The tax is payable under flat tax withholdings (the tax has to be retained by the customer or the recipient of services) or by direct remittances to the tax office, in both cases is made monthly within the first 10 working days of the month following the invoice date. As it names indicates this regime is optional and alternately to the general Income Tax from profitable activities regime.

• Income Tax from profitable activities regime

For year 2014 a rate of 28% was applicable to a company’s taxable income from Guatemala sources.

Interest income, leases and royalties earned by domiciled persons, when their main business is not one of those, are subject to a flat withholding tax rate of 10%.

Tax on branch income Foreign-source income received by a domestic corporation is generally not considered to be from Guatemalan sources for income tax purpose. In Guatemala, individuals and business enterprises are taxed on their income derived primarily from national sources. Expenses incurred abroad by non-resident in connection with income earned from Guatemalan sources cannot be deducted from income tax purposes by merely having the supporting receipts, as the regulations to the law does not permit such a deduction for these purposes. Only if they were allowances

Value-added tax (VAT) A 12% Value-added tax (VAT) is levied on the sale or transfer of merchandise and on non-personal services rendered or executed in Guatemala. The tax is payable to the government by way of invoice method, whereby the tax charged to the customers is offset by the VAT paid over purchases, and the government collects the net resulting amount. The insurance and circulation of credit titles is VAT-exempt.

• Sale of goods

The taxable amount on the sale of goods includes the sales price less any discounts provided under sound commercial practices plus other charges shown on the invoice.

5) Exports of goods and services. 6) Contributions and donations to educational, cultural, assistance or security service partnership, constituted as not-for-profit entities.

Real estate tax (IUSI for its acronym in Spanish) Even when there are different rates, any real estate above the GTQ70,000 (around US$9,000) pay a tax at GTQ9 per thousand (e.g., property valued at GTQ1,000,000 will pay real estate taxes of GTQ9,000). VAT rate is applicable to the first sale of a real estate property, subsequent sales is subject to a 3% stamp tax.

VAT rate is applicable to the first sale of a real estate property, subsequent sales is subject to a 3% stamp tax.

Stamp tax

• Services

Other than sales invoices, contracts and documents subject to VAT and other minor exemptions, a stamp tax must be paid on all documents covering commercial and legal transactions (e.g., collection of dividends), either by preparing the document on “papel sellado”, which is special stamped paper, or by affixing stamps on the documents. This tax is also assessed on documents issued abroad, other than drafts or promissory notes involving international transfers of funds are generally exempt from stamp taxes. The normal tax rate is 3% and is calculated on the face value of the documents or on the gross value of the related transaction.

The taxable amount of services includes the price of the services, less any discounts provided under sound commercial practices, plus financial charges and products used to render the services.

•

Other issues

1) Imports: The tax base is the value declared for import duties’ computation purposes. 2) Leases of movable or immovable property: The tax base is the value of the lease.

• Exempted sale and services

1) Incorporation made by: - Cooperatives legally constituted as registered on imported machinery, equipment, and other goods relating to the activity or services of the cooperative; - Individuals and juridical entities under temporary importation regulations; and - Diplomatic and consular missions accredited before the Guatemalan government. 2) Banking institutions services and their agents. 3) The issuance, circulations and transfer of credit bonds, value bond and stock of any kind. 4) Interest accrued by credit bonds and other obligations issued by mercantile partnership, negotiated through an authorized stock exchange.

Solidarity Tax (ISO for its acronym in Spanish) The ISO tax rate of 1% is assessed on the total net assets of a corporation, or on the gross income, whichever is higher (except if the total net assets exceed 4 times the gross income, in this case the company paid under the gross income), and there is no limit on the amount to be paid. Tax paid may be credited against the corporation’s income tax. If the annual business tax exceeds the income tax, no reimbursement is possible. The tax is only applies to taxpayers under the income tax from profitable activities system (General), and has to be paid quarterly on the basis of the corporation’s opening balance sheet of each fiscal period.

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Corporate Deductions Allowed deductions Concept

Deductions apply under the general income tax regime.

Interest

The interest rate over quetzales-expressed credits or loans may not exceed the maximum simple annual rate determined by the Monetary Board for tax purposes within the first 15 days of January and July of each year for the respective semester, taking as a basis thereof the weighted banking rate charged during the preceding semester. As for loans obtained abroad, the related contracts shall be executed with banking or financial entities registered and monitored by the respective State surveillance body and authorized for intermediation purposes in the country where the loan is provided. In this case, the interest rate over foreign currency loans may not exceed the maximum simple annual rate determined by the Monetary Board, as described in the preceding paragraph, minus any interannual variation of the quetzales exchange rate vĂŹsa-vĂŹs the currency in which the loan contract is expressed during the period the annual income tax return may pertain to.

Taxes

All taxes other than income tax and VAT are deductible.

Building construction and improvement 5 Machinery and equipment 20 Furniture and fixtures 20 Vehicles 20 Tools, crystal and porcelain 25 Tree, bushes and vegetable species 15 Computer equipment 33.33 Installations not affixed to properties, furniture, office equipment, vessels, and maritime rolling stock 20 Livestock used as pack or working animals, machinery, vehicles in general, cranes, airplanes, excluding rail road stock 20 Female or male breeders. In the last case, depreciation shall be computed over the value of such animals less their cost as cattle. 25 Software 20 Any other depreciable asset 10 Tax depreciation must be based according to the cost of the goods.

Payments to foreign affiliates

Deduction for royalties and professional fees will be allowed up to 5% of gross income.

Employee pension/retirement funds

The deduction of provisions to establish or increase employee pension and retirement funds or reserves is allowed, provided the government approves the related plans.

Severance compensation payments Depreciation and amortization

Depreciation is generally computed on a straight-line basis. Upon request by the taxpayer, the tax authorities may authorize other depreciation methods. The maximum annual rates allowed as deductible expenses are the following:

Severance compensation payments are allowed as deductible expenses as well as limited allocations (not to exceed 8.33% of total annual salaries and wages) to a reserve for severance compensation. Provisions pertaining to actual liability for severance compensation per year are allowed, provided the related plans, based on collective bargaining agreements, are approved by the government.

Donations

Duly proven donations made to the government, the municipalities and their agencies, as well as to duly authorized not-for-profit welfare, social service and scientific associations and foundations, and universities, political parties, and guild entities are deductible. The maximum deductible amount for income tax purposes of each period shall not exceed 5% of the donor’s net income up to the maximum of GTQ500,000 per year.

Net operating losses Operating losses may not be carried forward for deduction form otherwise taxable profits.

Group taxation No consolidation for tax purposes is permitted as each group entity is treated as an independent taxpayer, which shall file its own tax statements. As of January 2013, the new Income Tax Law regulates Transfer Pricing rules in Guatemala.

With the objective to promote the economy, the government constantly develops and amends incentive laws for which benefits specific sectors. The most remarkable Sectors are: Industrial free trade zone operations, alternative energy, Industrial renovation and modernization, border development, and other; are the ones beneficiated by these incentives laws. Decree No. 29-89; Promotion and Development of Exports Activities and Drawback Industries (“Ley de Maquila”, as known in Guatemala). Exemption from payment of import duties on machinery, equipment and raw and packaging materials and from income tax is available for those corporations classified as exporting companies. These exemptions also apply to free trade zone (Decrees 29-89, 65-89, and others). The Law of Promotion and Development of Export Activity is known in Guatemala as “Ley de Maquila”. Decree No. 2989. This Law seeks to promote, encourage and develop the manufacture of products within areas controlled by the Custom Authorities for export to countries outside the Central American region, as well as to regulate taxpayers with tax incentives. Tax incentives and benefits:

Withholding tax On payments to non-domiciled foreign corporations or individuals: News and Media (Radio, TV & Movies)

Tax incentives

Dividends 5 Commissions, salaries, royalties, professional fees, technical, financial, economic, scientific counseling

Interest

Others

•

Exemption of taxes, import duties and other charges on imports of machinery and equipment, including VAT; • Discontinuance of VAT payments on temporary raw material imports, etc; and • Exemption of income tax for 10 years on profits obtained under this law. The benefits are supposed to end as of December 31, 2015. Free Trade Zone Law. Decree No. 65-89 The law seeks to encourage and regulate the establishment of free trade zones that promote domestic development by activities carried out within certain zones, particularly those that tend to strengthen export activities, generate employment and transfer technology.

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Tax incentives and benefits: • •

Import duties exemptions; and Income tax exemption. - Ten-year period for the administrative agency; - Ten-year period for industrial & service permit holders; - Five-year period for commercial permit holders; - Exemption of real estate taxes for a five-year period; - Exemption of stamp tax on the conveyance of title over properties; - Dividends on profits distributed by the administrative agency and permit holders shall also be considered tax-exempted income; - Exemption of custom duties and any other charges on import and consumption of fuel oil, bunker, butane and propane gas used exclusively in the Free Trade Zone; and - Foreigners working in the Free Trade Zone are subject to the provisions of the immigration law and the Labor Code.

The benefits are supposed to end as of December 31, 2015. Free Trade Zone “Santo Tomas de Castilla” -ZOLICDecree No. 22-73 The Free Trade Zones are land areas subject to a special customs regime, whereby individuals or enterprises manufacture or commercialize products for export or re-exportation, or offer international traderelated services. Tax incentives and benefits: • Taxes exemptions; • Import duties exemptions; and • Real estate tax exemption.

Individual Tax Compliance Returns Employees are required to file before their employers at the beginning of the year a projection of income to calculate the amount of income tax that they must retain monthly. At the end of the year is required to submit to the employer an annual statement of income tax to determine if the amount of tax withheld is sufficient to cover the tax payable, if the employee must pay the difference or otherwise if the employer shall return the excess.

Current Tax Rates Individuals who obtain income from personal services as an employee, must calculate the tax on their taxable income according to the following sliding scale of rates:

Taxable income From - To

Tax on lower limit

% On excess over lower limit

Until GTQ300,000.00

Q.0.00

GTQ300,000.01 onwards

Q.15,000.00

7% on excess over Q300,000.00

Government Procurement in Guatemala The Government procurement law regulates all the agreements of sales, purchase, supplies of goods, construction and services between private suppliers and the governmental institutions, which includes all decentralized entities, municipalities and public corporations.1 The Government Procurement law states three types of procurements which are the following: -

Direct Sales or Contracts: these are executed with the State when the purchase is under thirty thousand quetzals (Q. 30,000.) approximately three thousand eight hundred fifty dollars (US$ 3,850.00).2

- Request of Quotes: these are executed when the acquisitions are below nine hundred thousand quetzals (Q. 900,000.00) or approximately one hundred fifteen thousand three hundred eighty five dollars (US$ 115,385.00)3 - Public Bidding: these are executed for acquisitions above nine hundred thousand quetzals (Q. 900,000.00) or approximately one hundred fifteen thousand three hundred eighty five dollars (US$ 115,385.00) 4

The general requirements to participate on a government procurement are the following: i) To registered in “Guatecompras”, which is the electronic procurement system (www.guatecompras. gt), In case a supplier would like to be a user, a tax identification number given by the Tax Administration is needed; ii) Be listed as a prequalified supplier; iii) Be solvent in the payment of taxes; iv) Be up-to-date with its payments and do not get into any default or arrears before the government. Guatemala has been a member of the World Trade Organization (WTO) since 1995. However, is not bound by the Agreement on Government Procurement. The reason is that the latter is a plurilateral agreement, and is not part of the “single undertaking” of the World Trade Organization (WTO). Therefore, not all World trade Organization members are parties to the Agreement, only the ones who voluntary agreed to be bound. Under the CAFTA-DR, the US suppliers have the authorization to bid on most of Guatemalan Government Procurement on the same basis as a Guatemalan Supplier, it applies also with suppliers of other countries, with the only requirement that they must constitute a branch in order to supply the service or goods to the government.

Internet Sites http: //www.guatecompras.gt/ http://www.wto.org/ Bibliography Political Constitution of Guatemala. Government Procurement Law, Decree 57-92 and its amendments.

Article 1 of the Government Procurement Law, Decree 57-92 Article 43 of the Government Procurement Law, Decree 57-92 Artcile 38 of the Government Procurement Law, Decree 57-92 4 Article 17 of the Governmet Procurement Law, Decree 57-92 1

2 3

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Law on Government Procurement In order to expedite the prompt execution of works and procurement of goods, supplies and services required by the State and its entities, the Law on Government Procurement was created, for the purchase, sale, and contracting of goods, supplies, works, and services required by state agencies, their decentralized and autonomous entities, implementing units, municipalities, and state or municipal public companies1. The Law on Government Procurement provides that contracts must be made through the following mechanisms: 1. Direct purchase: A purchase that is carried out in a single act, from one person, and for an amount of up to ninety thousand Quetzales (Q.90,000.00 – Guatemalan currency). It will be under the responsibility and with previous authorization from the higher administrative authority to the entity making the purchase. Price, quality, delivery, and other conditions in favor of the interests of the state, and its decentralized and autonomous entities, will be taken into account. The procedure to follow will be as established by said authority2. 2. Quote: A quote is required whenever the price of goods, works, supplies, or compensation for services exceed ninety thousand Quetzales (Q.90,000.00) but does not exceed the following amounts: a) for municipalities: not exceeding nine hundred thousand Quetzales (Q.900,000.00); b) for the State and other entities: not exceeding nine hundred thousand Quetzales (Q.900,000.00)3. 3. Tender: When the total amount of goods, supplies, and works, 2 3 4 5 1

Article 1 - State Procurement Law, Decree 57-92 Article 43 - Government Procurement Law, Decree 57-92 Article 38 - Government Procurement Law, Decree 57-92 Article 17 - Government Procurement Law, Decree 57-92 Article 46 - Law on Government Procurement

exceed the amounts set out in the paragraph above, the purchase must be made by public tender, excluding exceptions4. 4. Open Contract: Is a system of purchasing and contracting coordinated by the Ministry of Public Finance through the Procurement Regulation Directorate of the State in order to decide on providers of goods, supplies, and services of general and constant use or considerable demand, who will be previously qualified and awarded various items that had been called to tender at the request of two or more institutions5. General Requirements: 1. Sign in “Guatecompras”, which is the electronic system for state contracts (www.guatecompras.gt). 2. Register in the Registry of Prequalified Works (Ministry of Communications, Transport, and Public Works), Registry of consultants (General Secretariat of the National Council for Economic Planning), Supplier Registry (Ministry of Finance). 3. Be solvent in paying taxes. 4. Do not be included under the prohibitions set forth in Article 1 and Article 80 of the Law on Government Procurement. General Procedure: 1. Bases are established for quotes or tenders, which contain the general, specific, and technic requirements and specifications to be met by bidders. 2. Invitation to the tender or quote event through Guatecompras. 3. Period of clarifications and modifications to the bases of the event.

4. Elaboration of offer by suppliers and compliance with core and noncore requirements, submission of the bid bond to honor the offer (a percentage not less than 1 % but not more than 5 % of the contract value). 5. Reception of tenders and opening of sealed tenders. 6. Analysis of the bids submitted, qualification of bids. 7. Awarding. 8. Approval of the actions taken by the Tender Board. 9. Subscription and presentation of contract compliance guarantee (10 % for goods and services; 10 to 20 % for works). 10. Contract subscription and execution. 11. Settlement. 12. Payment. Notifications resulting from the events will be made by electronic means through Guatecompras and shall take effect the day after their publication. The Free Trade Agreement with the United States establishes freedom of participation in contracts with the State of Guatemalan, in the same conditions as a Guatemalan supplier. This applies also to suppliers in other countries, once they have met the requirements.

Bibliography - Constitution of the Republic of Guatemala - State Procurement Law, Decree 57-92 and its amendments - www.guatecompras.gt Lic. Lesbia M. Hernández, LL. M. Senior Associate

3 Ave. 13-78, Z.10 Edificio Intercontinental Plaza Torre Citigroup, Penthouse Norte, Nivel 17 Of. 1702 Ciudad de Guatemala, Guatemala, C.A. Tel: +502 2415-6700 Fax: +502 2415-6701 http://www.pachecocoto.com/

Legal Considerations Agency and Distribution or Representation Agreement In addition to carrying out market research and exploring the business environment, there are endless issues to consider in an effort to start businesses in Guatemala. It is very important to have a solid legal framework that allows for an expedite development of a business in compliance with the actual provisions of the country. The legal framework becomes relevant when you are required to have an agent, representative, or distributor in Guatemala from abroad. For this purpose we must take into consideration that, speaking generally and from the perspective of the theoretical framework, we refer as trade agents to the persons who act permanently, in relationships with one or more principals, in order to promote commercial agreements between the principal and third parties or who enter into them on the account of a principal or on his/her behalf, in exchange for an agreed compensation commonly referred to as a commission. In such a way, it must be said that the agent is dependent if he or she acts on behalf of and by order of the principal â&#x20AC;&#x201C; as an employee - or independent if it acts independently and is linked to a principal by means of an agency agreement. Signing an independent agency agreement may be an interesting option for an investor who wants to hire a third party to retail his or her products and/or services, with the advantage that the principal will not lose control of the retail business. Also, the Guatemalan law provides another alternative that can be attractive and practical for investors: the distribution or representation agreement, whereby a distributor or representative on his/her own account, sells, distributes, promotes, retails, or consigns the goods or services of a principal, and sells at a certain price that allows him or her a profit margin for the work done as a distributor or representative. The main characteristic of this alternative is that the distributor or dealer is not an assistant to the principal, because he/she does business to his/her own name and not to link the principal to a third party.

Both types of agreements can be signed with or without exclusivity in order for a principal to be commercially recognized at a site other than where he/she runs his/ her business, taking his/her products or services to major consumer markets and with the legal plus that he/she can consensually provide a service to the other party, and therefore receive services from the business of the other person or institution in a legitimate way. The added benefit lays in that he or she will not have to take responsibility and risks implied in opening branches, paying staff salaries and social-labor costs, paying certain taxes, purchasing furniture, and renting facilities, among others. Like almost everywhere in the rest of Latin America, in Guatemala as a rooted practice, traditionally agents, distributors, or local representatives are protected through special laws under which substantial compensation is to be paid by the principal in the event of unjustified termination of an agreement and, in any case, the grounds for terminating the contract justifiably with no responsibility to the principal are limited. It was not until March 10, 1998, when the Law of Agency, Distribution, and Representation as contained in Decree 78-71 was repealed. Chapter II, Title II, of Book I of the Commercial Code was modified, taking Guatemala one step forward in the treatment of this regulation, as it was modernized and updated according to the trends of modern trade and the commitments made by Guatemala in the context of the World Trade Organization (WTO). Among the core improvements in the legal treatment of these contractual relationships are: A) importance and prominence are given to the principle of autonomy inspired by the procurement law, so that the contrary can be agreed to and / or rights be waived unless, of course, this contravenes any existing law; B) the possibility that both parties are ordered to pay compensation for damages for wrongful termination and not just the principal, granting a necessary equality to the parties in this regard and, C) the amounts for compensation for damages will be set in equity either by the arbitral tribunal

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or by experts in ordinary court, depending on the process chosen to settle the dispute. In the past, this amount was equivalent to the gross profit of the agent, distributor, or representative for the last three years.

d) It is vital to establish whether the contract is exclusive or not.

Through Decree 31-2005, on March 10, 2005, the Guatemalan Congress ratified the Free Trade Agreement between the United States of America, Central America, and the Dominican Republic (DR-CAFTA). Modifications were made to the Code of Trade, which contain some of the above items.

f ) The terms and amount of remuneration of the agent if it were the case. In the case of dealers or representatives, it must determine the selling price of the products or services to the dealer or representative.

In light of the foregoing considerations, it is very important that you have a recognized legal counsel, so that when you appoint an agent, distributor, or representative for your products and / or services in Guatemala, you get appropriate advice on the preparation, negotiation, and signing of an agreement that protects your interests while doing business in Guatemala. The contract to be subscribed must at least: a) Make a clear reference to the type of contract in question (agency, distribution, or representation). b) Specify the term of the contract, and the possibility and mechanisms for maturity extension. c) Territorial demarcation in which the agent, distributor, or representative shall act.

e) Determine the main obligations of both parties.

g) Establish a dispute resolution clause that indicates the procedure, language, and place thereof. It is worth mentioning that in addition to the outlined legal aspects and their proper implementation by a professional and expert legal counsel, choosing a good agent, distributor, or representative are elements that will significantly contribute to a successful investment. A very important aspect is that in any of the contractual options governing trade relations in Guatemala, a clear statement with regard to the intellectual property of trademarks, trade names, and other distinctive signs that are involved in such relationships, must be made because intellectual property elements of the parties get involved in the course of trade. Without a doubt, such intellectual property must always be protected through guidance and advice of legal experts. It is necessary to duly protect intellectual property and to regulate it for the benefit the owner thereof.

ARBITRATION Another Alternative to Administer Justice Alvaro Castellanos Howell

This brief article does not intend to provide an exhaustive and technical explanation of the alternative method to resolve controversies called arbitration. We could write a book, and in fact, there are many books available on this subject. I will however, describe some characteristics of this method to provide the readers of the AmCham magazine an incentive to discuss this matter further with their legal counsels. To begin with, what is arbitration? There are hundreds of definitions, but a simple one is that it is a procedure to which the parties in conflict voluntarily submit and agree that one or more individuals, directly or indirectly designated by them make a decision or issue a resolution after reviewing the arguments, analyzing the evidence and deliberating on the case. These individuals are known as arbitrators and their decision is equivalent to a verdict issued by a judge or court of the Judicial Branch. From this definition I will discuss a very important element which is the arbitration agreement. If no agreement is reached to submit the case to arbitration, it cannot be initiated. This agreement may be included as part of the clauses or covenants of a civil or commercial contract. Or, if no prior agreement exists and a conflict arises, the parties may agree to submit the case to arbitration. The issues that may be reviewed and resolved by arbitrators in general, can be any matter on which the parties may execute agreements or transactions. This refers to all those matters on which the parties can agree on the way to resolve a difference arising between them, including without the intervention of third parties (such as an arbiter or a judge). But, what are the advantages of choosing this method instead of the courts? It has been said that there are more advantages than disadvantages in arbitration but maybe it is safe to say that in countries where the system

to administer justice does not fill the expectations of the citizens regarding celerity, quality and efficiency, those advantages become even more important. To begin with, as a general rule the arbiters issue a decision in less time than the judges who have a backlog of processes to resolve. Also, one of the attractive aspects of this alternative method is that arbiters are experts in the subject matter and therefore, can resolve the conflict better than a judge who has to review and resolve all types of conflicts without necessarily being a specialist in all of them. Another advantage is that normally arbitration is based on the principle of morality and the arbiters are present in all the hearings getting first hand information on the arguments of the parties and analyzing the evidence; this does not happen in jurisdictional courts where the judge rarely attends the hearings and most of the processes are submitted in writing. A disadvantage is that arbitration may be very costly and the parties have to bear the costs, including arbitration fees versus the apparent gratuitousness of public services. But if a courtâ&#x20AC;&#x2122;s verdict comes years after the lawsuit is initiated, as it occurs in our country, that uncertainty and slowness carry other hidden costs and inconveniences. Another risk which should not happen but does, is that an arbiter appointed by one of the parties may misinterpret his/her role as an impartial and independent third party that only represents the party that appointed him/her, and sometimes assumes the role of defender of the party that postulated him/her. I will discuss this further when I talk about ethics in arbitration which is one of the very important factors. Arbitration is not the panacea either. There are cases in which according to legal counsel, it is better to file the case in a court especially if there are precedents which could prove useful for one of the parties. Another aspect to consider in utilizing arbitration is the attitude of the parties and their attorneys. In order for

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an alternative method (mediation, conciliation and arbitration),to be effective and a positive experience, the parties and their attorneys must always have an attitude of cooperation and bona fide The conflict is an issue of the parties not their attorneys. If there is an inclination to obstruction or malicious litigation (filing exceptions or frivolous objections –especially an undue use of appeals-) arbitration will not be the best of experiences and one of its advantages, celerity, would be seriously affected. With this negative experience the credibility of the process (which in fact “is not at fault”) is undermined. As everything in life, it depends on how individuals utilize the means available to them. Arbitration is versatile as it should. Thus, there are different types of arbitration processes such as legal and natural law arbitration; domestic or international; “ad-hoc” or institutional, and commercial and non-commercial. For the purposes of this article I will discuss these briefly. Under legal arbitration the arbiters must base their final decision on regulations which they consider are applicable to the case. But natural law arbitration, which is a beautiful institution that has no comparison within the administration of justice, permits the arbiters to take into consideration the special circumstances of the case under review in order to issue a resolution that interprets more freely a legal standard, or avoids the application of a regulation whose effects may be legal but not legitimate. The possibility of issuing a decision in conscience or equity is one of the most important responsibilities of an arbiter or an arbitration court (here authorization from the parties is required). Another ethical issue is that the arbiters recognize that they must exercise their duties with full responsibility, justifying their determinations. Institutional arbitration refers to an arbitration where an institution, specialized in the subject matter, provides administrative support to the arbiter or to the arbitration court in regards to the notifications, for example facilitating adequate locations for the arbitration hearings (in Guatemala there are at least 3 organizations that provide these services). In the ad-hoc arbitration the parties, the attorneys and the arbiters must agree on how to better substantiate the arbitration process.

It has been the general understanding that arbitration is applicable only to trade. This is where it is most utilized but the mechanism to resolve conflicts goes beyond that. Please remember the principle that it can be utilized in any issue where the parties can dispose freely of assets and rights, therefore other areas such as the stock exchange, intellectual property, civil matters, telecommunications and many others, can be well served with this method to resolve conflicts. We could write much more on arbitration especially on international arbitration which has developed significantly in the international trade community. But to reach this stage of evolution first we have to initiate a real “arbitration culture” and then benefit from its results. It is very important to remember that arbitration is one way to administer justice. Thus, it is a very serious and delicate matter. Arbiters, the parties and their attorneys have to be well aware of this. Therefore, the ethical or legal aspects on this form of justice administration are as important as in government justice. If these aspects are ignored reliance on this method erodes until it is no longer useful. A judge that does not perform his/her duties is subject to legal responsibilities. The same can be said about arbiters. Impartiality and independence from the parties that postulated them or agreed to their appointment–as in the case of the arbitration institutions aforementioned- is the cornerstone to develop the “arbitration culture”. Guatemala’s legislation on arbitration follows generally accepted international standards, but this legislation has to be converted into facts. This is the real challenge. These aspects as well as the necessary judicial cooperation or assistance for arbitration courts are key elements to launch arbitration in Guatemala as a means to achieve a culture of peace (there is no peace without justice). And those of us, who are interested in this matter, can contribute to build this culture. It is motivating, and positive. I close this article, leaving this idea as a challenge to all of you.

The International Mediation Center (IMC) This private Center for conflict resolution is specialized in providing mediation services at the national and international levels, in social and commercial conflicts which affect development of the society. What is Mediation? Mediation is a voluntary, confidential and efficient conflict resolution process to help parties resolve their disputes through dialogue, seeking mutual agreements. It is a mediation procedure, a neutral third party called mediator meets with the parties to resolve their controversies helping them reach an agreement and resolve a conflict in a mutually satisfactory manner. Experience shows that legal litigation is expensive and time-consuming. Mediation is an efficient and economic way to achieve good results maintaining, and sometimes improving, the relationship between the parties. Mediators of the International Mediation Center (IMC) are trained to resolve business and labor conflicts utilizing several techniques and open lines of communication between the parties in conflict. Who can attend? All the parties involved should attend the mediation meetings. The legal representative, in the case of companies, should be familiar with the details of the case and have authority to make decisions. Even if the parties don’t need to bring a lawyer to the mediation meeting, they may do so. The mediator shall decide what role the lawyer will play during the meeting. Confidentiality All information and documentation obtained during mediation is confidential Under the Mediation Regulations of the IMC issues and outcome of the mediation are also confidential.

Confidentiality in mediation allows the parties to negotiate more freely and have full participation without concerns of going public.

When the parties start a dialogue, mediation may result in an agreement which carries more weight than any agreement reached in the absence of a controversy.

How does Mediation Work? Shortly after a request for mediation is received, the IMC contacts the parties to inquire about their interest in participating. If both parties agree the mediator will schedule a meeting. When an agreement is reached and signed, it represents a binding document which is valid in a court as any other contract.

Because a mediation is confidential and it carries minimum risk and generates many benefits. Moreover, it could be said that even if an agreement is not reached, mediation never fails because it allows the parties to define facts and issues subject to the controversy, preparing the way to future arbitrary and/or judicial procedures.

Costs Costs of mediation are paid proportionately by the parties involved. The Center maintains a list of the official charges to be paid by the parties. No additional costs are involved, contrary to legal processes. Impartiality In a mediation process a decision cannot be imposed on the parties. Different from an arbiter or a judge, the mediator does not make decisions. His/her duty is to assist the parties reach an agreement to resolve the controversy. Even if the parties have agreed to submitting a controversy to mediation, they are not compelled to continue the process after the first meeting if they consider that it is against their interests. When they decide to request mediation, the parties must be willing to participate actively in the process, and decide with the mediator how to proceed. Mediation is a process based on the interests of the parties In a court or arbitration process the results of a case are determined by the facts of the controversy and applicable law. In mediation, the parties may follow their commercial interests. Then the parties can decide on the results considering the future of their commercial relationship and not only their prior conduct.

Benefits Successful mediation results form an early discussion of the dispute and eliminates a trial. • Celerity – mediation is faster than a judicial process • Specialization - mediators appointed by the IMC are specialists in the controversies submitted for their participation • Independence and impartiality - IMC as well as mediators act independently and impartially • Confidentiality – all mediation procedures administered by IMC are totally confidential • Cost – celerity and certainty make mediation more economic than a judicial process • Efficiency – The efficiency of the mediation process frequently assists the parties to resolve their controversy in an amicable environment.

Contact us at Centro Internacional de Mediacion Website: http//camex.org.gt Address: 6 Av. 20/25 zone 10, Plaza Maritima Building, Suite 3-5 Guatemala City Telephones: (502) 2383-0842, (502) 2366-9216, (502) 2363-0487

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Paperless Customs in Guatemala It is part of “The Customs Modernization Project”, the initiative could reduce fraud and corruption in the country up to 85%. In an effort to reduce the time of customs clearance process, the SAT implemented Paperless Customs, plan to reduce paper consumption by 90%, strengthen the effectiveness of the service and hence an improvement in tax collection. The proposal consists of two main elements, first a pre-validation and second scanning stationery, allowing processes to become more efficient and secure. For the streamlining of procedures, required the use of new technologies, which will record the declaration of goods either entering or leaving the country. With an ecological vision of changing the culture, this change will increase the competitiveness of the company and the country, by improving practices in foreign trade.

SAT’s proposal: • • •

Facilitation and simplification systems. Streamlined procedures on customs administrations. Modernization of procedures and technology

Objectives paperless customs • Strengthen Customer Service management capacity. • 90 percent paper elimination. • Digital documents integrity. • Electronics documents authenticity. • Improvement in the collection through efficient process. • Reduction of times in process of customs dispatch. • Contribute to the competitiveness of Guatemala through agile foreign trade processes.

For first stage in Paperless Customs, the system has been implemented in Puerto Barrios; the second stage has been Santo Tomas de Castilla and the next one Puerto Quetzal and so on for the rest of the other customs locations. (COMBEX - Tecun Uman - San Marcos - Champerico – Retalhuleu, etc.)

Secretariat for Central American Economic Integration (SIECA) Background and Legal Status The General Treaty for Central American Economic Integration was signed on December 13, 1960 by Guatemala, El Salvador, Honduras and Nicaragua and later, by Costa Rica. Article XXIII established a Permanent Secretariat located in Guatemala City, under a Secretary General appointed by the Economic Council for a term of three years. The responsibilities of the Office include the Central American Economic Council as well as the Executive Council. The main functions of the Permanent Secretariat are to supervise the correct implementation of the General Treaty, of the Multilateral Treaty for Free Trade and Central American Economic Integration, the Agreement on Central American Integration Industries, the Central American Agreement on Standardization of Import duties, as well as bilateral or multilateral treaties for free trade and economic integration executed between and among the contracting parties or any other agreement signed or to be signed in the future in favor of Central American integration. This Office also supervises compliance with resolutions issued by the Central American Economic Council and the Executive Council, prepares studies and conducts other activities as directed by the Councils. With the establishment of the Central American Integration System through the Protocol of the ODECA Charter, the Protocol of Tegucigalpa on December 13, 1991 and the Protocol of the General Treaty for Central American Economic Integration, Protocol of Guatemala, of October 29, 1992, the Permanent Secretariat became a technical and administrative body of the sub-system of economic integration, known as the Secretariat for Central American Economic Integration (SIECA in Spanish) responsible for monitoring the Council of Ministers of Economic Integration (COMIECO in Spanish), the Executive Committee for Economic Integration (CEIE in Spanish) and the bodies of the sub-system of economic integration which do not have a specific Secretariat. Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica are members of the economic sub-system of SICA and, as a

result, of SIECA. Panama is working on its incorporation. SIECA has international legal status and acts as liaison with other secretariats of the economic sub-system, coordinating activities with the General Secretariat of SICA. The functions assigned to SIECA by the Protocol of Guatemala are: to control the correct application of the Protocol itself, as well as of the other legal instruments of economic integration and the decisions of the bodies of the economic sub-system. Also, to perform activities and conduct studies requested by the bodies of the economic sub-system. As regards economic integration, SIECA can submit proposals. SIECA is under a Secretary General appointed by COMIECO for a four year term, with offices in the capital city of Guatemala. Based on an internal code of procedures approved by the Executive Committee for Economic Integration, SIECA established its administrative, operational and budgetary organization. For many years the Secretariat restructured its organization, adding and abolishing departments, work units and projects, to meet the demands of the process of economic integration, and according to decisions taken by the Council of Ministers, or to resolutions of the different Secretaries General. Presently, economic integration of the Central American countries and insertion in the Region of the economy and international trade are some of the Secretariat’s priorities.

Economic Integration of the Central American Countries Economic integration of the Central American countries is SIECA’s most important effort, and its priority is to perfection the free trade zone and establish customs standardization. Perfectioning the free trade zone requires the incorporation into the system of free trade goods originated in the countries of the Region, listed in Annex “A” of the General

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Treaty for Central American Economic Integration, which include: sugar and unroasted coffee among the 5 countries; oil derivatives, ethylic alcohol and distilled alcohol beverages between Honduras and El Salvador, ethylic alcohol between Costa Rica and El Salvador, and roasted coffee between Costa Rica and the other countries. Regarding the customs union, the definition adopted by Central America is: “The creation of a sole customs territory between two or more countries to promote free trade of goods and services”. Section III, Articles 15, 16 and 17 of the Guatemala Protocol provide: Central American Customs Union must include the commitment of the Central American States to establish a customs union among their territories for the free traffic of goods of any origin, with the previous nationalization in one of the Member States; to establish a common customs service in which uniform procedures, administrative systems and guidelines are applied, and to gradually harmonize policies to avoid disputes, especially in the area of taxes, duties and other charges which may affect intra-regional trade. Customs uniformity can be achieved gradually and slowly based on programs approved by consensus. To develop the actions and activities to establish a customs union, efforts are being conducted on the following areas: a. Unified customs administration b. Tariff harmonization c. Free trade d. Tax harmonization and mechanisms for tax collection e. Registers f. Harmonization of sanitary measures g. Harmonization of standards h. Legal and Institutional bases

Insertion of the Region Into International Economy and Trade

The second objective of Central American economic integration since the early 90’s is the insertion of the region into international economy and trade. In this area SIECA has supported the Central American countries in the negotiations of free trade agreements with third countries or with other regions, such as the Free Trade Area of the Americas (ALCA in Spanish) and the participation in the World Trade Organization (WTO)

SIECA has participated in the negotiations of the following free trade agreements with third countries: • Guatemala, El Salvador and Honduras – Mexico; • Central America – Dominican Republic • Central America – Chile • Central America– Panama • Guatemala, El Salvador, Honduras and Nicaragua – Canada • Central America – The United States of America It also participated in the preparation and negotiation of the Association Agreement signed recently between Central America and the European Union. It also supported the Central American countries in the workshops with the Andean Community, MERCOSUR and CARICOM to assess the possibility of negotiating regional agreements. The main role of SIECA in the negotiation of trade agreements or treaties with third countries or regions, is to oversee compliance with the commitments assumed in the process of Central American economic integration and the conservation of such process among the Central American countries. SIECA also provides technical assistance, conducts research, prepares reports requested by the countries and obtains resources for training and for institutional strengthening of national entities that participate in the negotiations of trade agreements and treaties.

Central American Integration in 2009 During 2009 the Central American region suffered the effects of the world financial crisis, especially because of the strong ties of these economies with the United States of America, principal commercial partner, important source of investments in the countries of the region, as well as origin of most of the family remittances. These three aspects were the main mechanisms of transmission of the international crisis to the Central American countries according to the figures prepared by the Executive Secretariat of the Central American Monetary Council (SECMCA), which include the five Central American countries and the Dominican Republic. Exports of these countries in 2009 amounted to US$3,860 Million (-11.4%) less than in 2008. The most affected countries were Honduras Dominican Republic and El Salvador. Guatemala, Nicaragua and Costa Rica experienced a lesser impact on their exports, in relative terms.

Imports decreased US$16,802 Million (-24.2%) in 2009 as compared to 2008; this figure represents 4.35 times the decrease of exports in absolute values, as represented in the following table: Exports and Imports 2008-2009 In Million US$

In 2009 the higher reduction of imports as compared to exports had a positive effect on the commercial deficit of the region which during the decade showed a constant increment, reaching US$35,641 Million in 2008, a figure which exceeded exports for that year in US$1,716 Million. However, in 2009 the commercial deficit was US$22,699 Million, which represented a decrease of US$12,942 Million (36.3%) as compared to the deficit in 2008. Costa Rica experienced the highest reduction (55.4%) as shown in the following table:

Regarding direct foreign investment in Central America and the Dominican Republic, when comparing each quarter of 2009 to 2008, it was determined that in average, during the four quarters, the reduction of direct foreign investment in 2009 was approximately US$4,200 Million (-39%) as compared to the preceding year, as shown in the following chart:

The third component was family remittances. These have had an impact on the Gross National Product of El Salvador, Honduras, Nicaragua and Guatemala. Total remittances received by the Central American countries in 2008 amounted to US$11,623.4 Million. These decreased in 2009 to US$10,421 Million, a variation of US$1,502.4 Million (-12.6%). The most affected country was Honduras, with a reduction of 5.2 percent in the GNP as shown in the following table: Family Remittances 2008-2009 Millions of US$

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The negative effects suffered by trade, investments and family remittances were the principal factors of transmission of the international financial crisis and affected the growth rates of GNP of the Central American countries in 2009. This interrupted the sustained growth of the economies since 2003, although some figures showed a decrease in 2008. Some countries experienced a recession as a result of the contraction in 2009 such as El Salvador whose GNP decreased to -3.3%. The only country that maintained a positive growth rate was Guatemala with 0.6%. The following table shows the evolution of GNP in the five countries for the period 2003-2009.

Taking into account the importance of the intraregional trade indicator within the process of economic integration, 2009 was a year that affected Central American integration, as shown in the following chart prepared by SIECA.

Political Crisis

The commercial exchange between the Central American countries has shown a sustained increment since the decade of the 90’s. In 2009 it suffered a reduction as a result of the international financial crisis. In the figures of intraregional trade prepared by SIECA for the period 2005-2010, intra-regional exports increased from US$3,942.5 Million in 2005 to US$6,461.2 Million in 2008.

To the economic crisis faced by the Region, we have to add the political crisis resulting from the overthrowing of President Manuel Zelaya in Honduras on June 28, 2009. Before the coup in Honduras the relationships among the Central American countries, within the Central American Integration System (SICA) had turned somewhat difficult due to the incorporation of Nicaragua and Honduras into the Bolivarian Alliance for American People (ALBA in Spanish), under the leadership of Venezuela, as well as PETROCARIBE, the hydrocarbons cooperation program.

The annual growth figures show: US$508 Million between 2005 and 2006, US$839 Million between 2006 and 2007, and US$1,171 Million between 2007 and 2008. Exports decreased $1,187 Million during 2008-2009 which is slightly higher than the growth during the preceding period. This represents a contraction in intra-regional trade of -18.4%.

This participation of the two countries of SICA in a different scheme such as ALBA played an important role in the way the Honduran crisis was handled, because of the strong influence of the countries members of ALBA in the meetings held in Central America and at the OAS, which resulted in Honduras being separated from SICA and from the OAS.

Total exports of the five Central American countries in 2008 were US$27,177 Million, and in 2009, US$24,602 Million thus, the reduction in total exports was US$2,575 Million. This means that intra-regional trade represents 45.5% of the total reduction in exports.

The separation of Honduras from the Central American integration process has no precedent, the only event of record being the decision adopted by Honduras in 1969, after the so called “soccer war”, to withdraw from the most important activities of integration, without giving notice

Intra Regional Trade

of termination of its participation in the General Treaty of Economic Integration which would legalize its withdrawal from the process. On the other hand when reviewing the legal basis to determine if the measures adopted are legal, we can consider the following Articles which refer to the nature, purpose, principles and goals of the Protocol of Tegucigalpa: “Article 3, paragraph a) “Consolidate democracy and strengthen its institutions on the basis of the existence of governments elected by universal, free and secret vote and total respect for Human Rights”, “Article 4, paragraph g) Legal certainty of the relations between the Member States and the peaceful solution of their controversies”.

These measures of commercial retaliation affected agricultural producers, exports and imports between Honduras and the other three countries, as well as consumers in the four countries who had no responsibility in the actions that originated this political crisis.

Advances in Econico Integration During 2009 These advances were affected by both the economic and political crises. In the area of economic integration of the Central American countries, SIECA reports the following advances in the customs unification as of July 2010:

Uniform Customs Administration

In relation to these conflicts, Article 8 of the Treaty on Democratic Security in Central America states “To strengthen democracy the Parties confirm their commitment to abstain from providing political, military, financial or any other support to individuals, groups, illegal or armed forces that attempt against the unity and order of the State or advocate to overthrow or affect the democratically elect government of another Party”.

Review of the Unified Handbook on Customs Procedures to include new CAUCA provisions and Regulations to be submitted to the Customs Committee for implementation.

Neither the Protocol of Tegucigalpa nor the Treaty on Democratic Security contain any reference to sanctions or causes to expel a member country from SICA. Thus, the decisions adopted regarding the internal conflict in Honduras were of a political nature rather than a reflection of the spirit of Article 4, paragraph b) of the Protocol of Tegucigalpa which calls to Central American solidarity as an expression of profound inter-dependency, origin and common destiny”.

Experimental implementation in some countries of the region of the Handbook on Regional Control Procedures by the Customs Control Divisions.

After Honduras elected a new President, the difficulties within SICA were not completely resolved because all the Central American countries recognized the new government, and the process to reincorporate Honduras into SICA has been subject to debates. Even if Honduras’ return was formally accepted, one of the member countries is not willing to participate in high level meetings if Honduras is present.

The harmonized percentage of the customs universe continues to be 95.7%, 4.3% still pending.

Another measure contrary to the Central American integration spirit was the closing of the borders with Honduras by Guatemala, El Salvador and Nicaragua. As a result, intra-regional trade suffered a contraction and therefore actions were directed to recuperate this trade.

The Codes of Conduct for customs officials and employees as well as for other customs-related employees are being implemented in the countries, through administrative resolutions.

Implementation of a risk assessment system in 3 Customs Units in Honduras and in all Customs Units of Nicaragua, El Salvador and Costa Rica.

Tariff Harmonization

A Central American Computerized Tariff Handbook (AIC in Spanish) contains measures to be taken as well as taxes to be paid by imports into Central America, including tax exemptions provided by the different Free Trade Agreements in force, and sanitary measures and technical obstacles to trade faced by imports into Central America.

Free Trade No advances have been reported on the incorporation of products of origin into the free trade system, which are

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listed in Annex “A” of the General Treaty for Central American Integration

Tax Harmonization and Tax Collection Mechanisms No advances are reported.

Registries 32 Resolutions issued by COMIECO were reported, however, these do not correspond to year 2009.

Harmonization of Sanitary Measures A Handbook on Procedures for the traffic of animals within the Region as well as regulations for epidemiology controls for animal health were approved-

Harmonization of Standards Technical Regulations were prepared. 36 are in force and 2 under review by the World Trade Organization (WTO) and the Secretariat of the Central American Agricultural Council (SCAC in Spanish). One is under the review by COMIECO.

Legal and Institutional Basis On January 22, 2009 Guatemala and El Salvador signed the “Protocol to Amend the Agreement for the Establishment of the Customs Union between El Salvador and Guatemala”. This Protocol is the most developed instrument on unified customs. It expressly states the disappearance of customs

points at the borders of the“Contracting States”, the restriction to conduct unilateral trade negotiations with third parties, and establishes several bodies: the Council of Ministers, the Sectorial Council of Ministers, the Inter-Sectorial Council of Ministers and the Management Commission. The Council of Ministers is the highest authority and is integrated by the Ministers members of the Ministers Council for Economic Integration (COMIECO). When the Council of Ministers meets with Ministers of other portfolios it becomes the Inter-sectorial Council of Ministers and the meetings of Ministers of the same portfolio conforms the Sectorial Council of Ministers. The final provisions of the Protocol establish that until all the countries which are part of the Protocol of Guatemala adhere to it, the Council of Ministers shall coordinate efforts with COMIECO. The Administrative Commission is the executive and administrative body of the customs union. It is integrated by a representative from each Contracting State proposed by the respective State and appointed by the Council of Ministers for a period of as many years as number of States which are part of the customs union. In relation to this Protocol SIECA provides technical support. The Secretary General of SIECA acts as the Executive Director of the Administrative Commission, until all the countries of the economic sub-system of SICA adhere to the Protocol.

Insertion of the Region Into International Economy and Trade The most relevant advance in this area was the completion of negotiations and execution of the Association Agreement between Central America – European Union, on: political dialogue, cooperation and trade.

Central American Tariff System Every importer must be familiar to the tariff system and its concepts in force in the region. Below you will find its definition as well as the established regulations for its functioning. Finally you will find the tariff classification by product. The Central American Import Tariff is formed/ composed by the CENTRAL AMERICAN TARIFF SYSTEM (C.T.S known in Spanish as SAC) and the corresponding Import Tariff Rights. The numeric code of the (C.T.S.) is represented by eight digits that identify the following: the two first digits refer to the chapter; the two following refer to the heading; the following pair of digits refers to the sub heading; and the two last digits refer to the subsection. The identification of the merchandise will always be done with the eight digits of such numeric code. The freight goods or merchandise classification in the â&#x20AC;&#x153;Central American Tariff Systemâ&#x20AC;? will apply by the following principles: 1. The titles of the sections, of the Chapters or sub-chapters only have an indicative value. This because the classification is legally determined by the heading texts and the Section Notes or the Chapter notes and if they are not contrary to the texts of such headings and notes, according to the following rules: 2. a. Any reference to an article in a determined heading, applies to the incomplete or unfinished article, if the essential characteristics of the finished article are present. It also applies to the complete or finished article or considering it such as in the virtue of preceding dispositions, when it is presented set or un set. b. Any reference to a material in a determined heading applies to that material even when mixed or associated with other materials. In that same way, any references to the manufactures of a determined material apply to those manufactures built totally or partially

by the material in question. The classification of these mixed products or of these composed articles will be done according to the principles stated in Rule 3. 3. When merchandise or goods could be classified, at first, in two or more headings, by application of Rule 2 b) or in any other case, the classification will be done as follows: a. The heading with a more specific description will have priority over those of a more generic application. Nevertheless, when two or more headings refer to, each one, only a part of the materials that are part of the mixed product or an article built only on one part of the articles in the case of merchandise or goods presented in sets or assorted with the purpose of retail sale, such headings must be considered equally specific for such product or article, including if one of them describes a more precise or complete way; b. Mixed products, manufactures built by different materials or composed by the union of different articles and the merchandise or goods introduced in sets or assorted in such a way that it can be sold retail, its classification cannot be done applying Rule 3 a), will be classified according to the material or the article that gives it its essential characteristic if it were possible to determine; c. When rules 3 a) and 3 b) do not allow performing the classification, the merchandise or goods will be classified in the last heading in numeric order, bearing in mind every susceptible and reasonable detail. 4. Merchandise or goods that cannot be classified applying the previous rules will be classified in the heading that encloses those with the most analogy between themselves. 5. Besides the preceding dispositions to the considered, goods here you will find the rules to be applied:

a. Photography camera cases, musical instruments, weapons, drawing instruments, collars and similar artifacts, sets or assorted items, susceptible to prolonged use and introduced with the articles to which they are destined to, will be classified with such articles when they belong to the type that are normally sold together with the articles mentioned previously. Nevertheless, this rule does not apply to the classification of those artifacts that give to the set its essential characteristic; b. Except for what is stated in rule 5 a) the bottles that contain materials will be classified with them when they are of the same type of those normally used for that kind of materials. Nevertheless, this disposition is not mandatory when the bottles be susceptible to be used repeatedly in a reasonable fashion. 6. The classification of the materials in the sub headings of a same heading, is legally determined by the texts and notes of such sub headings such as, mutatis mutandis, by the previous rules. This in the understanding that you can only compare subheadings of the same level. For this rule to come into effect, you must also apply the notes of the section and of the Chapter, except when it is stated otherwise. The reach or applicability, conditions, limitations or exceptions of a heading, must be considered implicit in the headings in which such heading is subdivided. The same criteria should be applied to all of the subsections in relation to the sub-heading to which they belong. Source: www.sat.gob.gt For more information on the structore of the Central America Tariff System you can visit the following link http://portal.sat.gob.gt/sitio/index.php/tramiteso-gestiones/aduanas/36-valoraciclasificaciorigen-de-la-mercancia/75-sistema-arancelariocentroamericano-sac.html You may download each chapter of Central American Tariff System 2014 at: http://portal.sat.gob.gt/sitio/index.php/leyes/ otras-leyes/documentos-tecnicos/doc_details/5014arancel-centroamericano-de-importacion-2014.html

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Establishment of a Customs Union Contents 1. Concepts 2. Legal basis 3. Advances 4. Provisions of the Marco Agreement 5. Perspectives

•

1. Concepts

•

What is a Customs Union (CU)? According to the General Agreement on Trade and Tariffs (GATT in Spanish) it has the following characteristics: • Establishment of a common customs territory • Operation of a free trade zone (elimination of tariff and non-tariff barriers) • Application of a common external tariff.

Customs Union: Implications 1. Common external commercial policy 2. Free movement of origin and non-origin items 3. Customs system that utilizes harmonized procedures and legislation 4. Approval of regulations and procedures a. Registries sanitary and phitosanitary controls, intellectual property and origin of the goods 5. Adequate tax systems and coordination of tax administration

2. Legal Basis • General Treaty for Central American Economic Integration (1960) - Commitment to “constitute

•

• • •

a customs union among the territories” Guatemalan Protocol (1993) - Gradually reaffirms the commitment - Empowers two or more party states to advance the process of economic integration In 2000 El Salvador and Guatemala signed a Marco Agreement for the implementation of a CU - COMIECO approved the adherence of Honduras and Nicaragua - Costa Rica was incorporated in 2002 through a declaration during a meeting of SICA’s heads of State March 2002: The presidents approved an Action Plan to accelerate the process to establish the CU. June 2004: General framework for the negotiation of the Central American Customs Union December 2007: Marco Agreement to establish the CU June 2008: The Congress of El Salvador ratified the Marco Agreement.

3. Advances a. Agreement on the Compatibility of the Tributes Applicable to Trade among the States who are parties of the Central American Customs Union. - Ratified by the Congress of Guatemala (February 2008) b. Agreement on Mutual Assistance and Technical Cooperation among the Central American Tax and Customs Administrations

- In force in Honduras and Guatemala (since August, 2008) c. New CAUCA and RECAUCA (in force since August 2008) d. Treaty on Investment and Trade of Services among the Republics of Costa Rica, El Salvador Guatemala, Honduras and Nicaragua (TICS in Spanish) and its protocol - In force in El Salvador and Honduras e. Modification of the Regulations on International Inland Customs Transit (in process) f. Revision of the Central American Regulations on Sanitary and Phyto-Sanitary Measures (in process) g. Project for the Modernization of Quarantine Border Posts h. Central American Technical Regulations - Completed: food and beverages, hygiene and cosmetic products - In process: food additives, pesticides and veterinary drugs and related products i. Project of Regional Legislation regarding Intellectual property j. Implementation of a pilot plan of SIAUCA k. Exchange of FAUCA among the countries of the region l. Computerized inter-connection among the systems for the

administration of international transit (some countries) m. Proposal for the creation of a community map of the Central American fiscal routes. n. Harmonization of 92% of the customs universe.

Other Advances in regional integration • Trade Facilitation: - Electronic customs declarations - Payment of customs charges in local banks - Specialization of the procedures on customs risks: reduction of the percentage of physical revision - Reduction of time spent at the borders - Facilitation of the movement of individuals: easy transit within the region with the exception of Nicaragua-Costa Rica

4. Provisions of the Marco Agreement

General Context • It reaffirms the commitment to organize a Central American CU, in accordance with GATT • The CU will be established gradually, in three stages: - Promotion of free circulation of goods, and trade facilitation - Modernization and harmonization of legal provisions - Institutional development

Marco Agreement: Stage I • Establishment and strengthening oft he measures for:

- Perfection of intra-regional free trade - Expedite the traffic of origin and non-origin goods • Mechanisms to optimize the collection and control of charges on imported goods • Intra-regional customhouses remain and coordinate trade facilitation and expedition

Marco Agreement: Stage II • Total harmonization of common external tariffs • implementation of peripheral customhouses - intra-regional customhouses retain their roles at the option of the Party States according to the advancement of the CU • harmonization of all regulations • promotion of the convergence of free trade and other agreements

Marco Agreement: Stage III • Institutional Development - With transparency, without discretion - Once the necessary institutional bases are ready, the Party States shall sign the respective legal instrument.

Other Aspects • It does no define specific terms for each one of the stages • It does not consider the organization of supra-national administrative entities • It is open for the adherence of any country, member of SICA (Central America, Panama and he Dominican Republic) • COMIECO is the entity responsible

for compliance with the Marco Agreement in coordination with the respective Sector Councils.

Tax Implications It requires adherence to tax legislation and administration • These are contained in the Compatibility Agreement The implementation in all of Central America shall result in a reduction, in the short term, of tax income in Guatemala. • It is estimated in about Q148.9 million per year • The trade registries among the countries are not consistent • In particular, El Salvador estimates a significantly higher loss of income (30%) • Each State will apply the destination principle. • Honduras and Nicaragua are concerned - However, there is no consensus on non-origin goods - The principle of country of destination is not clear for nonorigin goods of a party Sate marketed in another country • Concern in Honduras and Nicaragua for the possible triangulation of trade as a result of the provisions of the FTAs • Information and control differences which are important for customs and tax administration.

Other Implications • Customs system • Customs system/inland transportation • Sanitary and phyto-sanitary system • Tax system • Normalization • Commercial defense

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• Services and investments • Intellectual property • Institutionalization • Among others . . . .

Barriers to overcome:

Acceleration of the Process

• Free trade zone: some products need to be incorporated such as coffee, sugar, oil and alcoholic beverages • Common External Tariff. 7.8% still to be harmonized

On January 22, 2009 the Presidents of El Salvador and Guatemala agreed to:

Recommendations for the Advancement of Fiscal Issues

• Accelerate the process • Promote joint efforts in the rest of the region • Modify the agreement on the Customs Union GUA-SAL

1. Coordinate more closely the customs procedures between Guatemala and El Salvador 2. Reinitiate the tax technical procedures between Guatemala

5. Perspectives

and El Salvador under the coordination of SIECA 3. Review and update: a. The Plan on Tax Administration for the Customs Union b. The Agreement on harmonization in light of the provisions of the Marco Agreement.

For more information you can visit the following link: http://portal.sat.gob.gt/sitio/ index.php/tramites-o-gestiones/ aduanas/35-uniduanera/329presentaciniduanera.html

Geographic Location Map of Customs in Guatemala

Central office Aviation Central Express A茅reo Postal bundles Vehicles customs Source: Superintendencia de Administraci贸n Tributaria, SAT

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Seadex

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“Fiscal Incentives to Promote Exports & Investments in Guatemala”. By Ana Alfaro, Senior Associate Tax Department, QIL+4Abogados

In year 1989, the Guatemalan Congress enacted the Law for the Promotion and Development of Export Activities and Drawback, Decree 29-89 of the Congress of the Republic, a Law that became known as “29-89” and that developed the major Guatemalan incentive program for investment in certain activities excluding form its benefits some specific sectors or industries: coffee, cardamom, sugar, not carded cotton, cattle and beef, crude oil, and timber. The purpose of this law was to promote “maquiladoras”, which would import raw materials in order to export assembled or manufactured products abroad, promoting in this way the employment of Guatemalan citizens. 1 According to this Law, investors who applied for one of the five different drawback regimes, benefited with a ten year exemption from both income taxes and the related taxes such as IETAAP and Solidarity Tax (minimum tax creditable to Income Tax or vice versa) Additional incentives include an exemption from import duties and value-added taxes on imported machinery and a one-year suspension (extendable to a second year) of the same duties and taxes on imports of production inputs and packing material. Taxes are waived when the goods are re-exported. Being Guatemala part of the WTO and having adopted the Agreement on Subsidies and Countervailing Measures (negotiated by WTO member countries during the Uruguay Round) and because of this compromises, waiver for the income tax exemptions was scheduled to expire on December 31, 2007, with a phase out period 1

of two years. However, in July 2007 the WTO adopted a decision that allowed the WTO Subsidies Committee to continue to grant annual extensions of the transition period of export subsidies to Guatemala and other countries until the end of 2013, with a final phase out period of two years, namely 31 December 2015. The reason of the ending of subsidies on export activities lies in the general prevailing economic concept that government subsidies give excessive protection to domestic industries, acting as a barrier to trade, hence distorting free trading systems. In this regard, the inevitable approach of December 2015, created an environment of uncertainty, generating also a movement pushing on the promotion of a new law supported by the export industry that somehow would still grant tax incentives, without harming or contradicting WTO´s regulations. This Bill was known as the “Law for Promotion of Investment and Employment”, which basically aimed to maintain tax incentives to companies previously qualified under “29-89”, that comply with the creation of new jobs. In conclusion, what is clear is that the WTO will not grant any extension to end with subsidies, and that with the current political situation in Guatemala, the approval of the Bill for the “Promotion of Investment and Employment” before Dec., 31, 2015, or any other Bill aiming to promote investment in Guatemala, is uncertain.

According to official data, “29-89” was responsible of the creation of approximately six hundred thousand jobs, with over thousand companies operating under the benefits granted by the law.

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Directory of active free trade Zones in Guatemala FREE-TRADE ZONE AMATITLÁN

• Location: Km. 29 Ruta al Pacífico, Municipality of Amatitlán. Department of Guatemala. • Legal Representative: Mr. Rodrigo Stuardo Pazos Matheu • Managing company and contact: Zona Franca Amatitlán, S. A. • Mail: lpguzman@uniauto.com.gt • Tel.: 6628-6927

FREE-TRADE ZONE BUENOS AIRES

• Location: Km. 292 Ruta al Atlántico CA-9, Finca Buenos Aires, Puerto Barrios, Izabal • Legal Representative Mr. Gustavo Adolfo Quiñonez Osorio • Managing company and contact: Zonex, S. A. • Mail: luis@index.com.gt • Tel.: 2500-5000

FREE-TRADE ZONE CIPLESA

• Location: 37 Av. 2-77, Zona 7 El Rodeo • Legal Representative: Mr. Ovidio Alfonso Delgado Arévalo • Managing company and contact: Ciple, S. A. • Mail: nloarca@ciplesa.com.gt ; claudia.perez@denimatrix.com • Tel.: 2420-4600

FREE-TRADE ZONE CONSIGNA

• Location: Ruta a el Pacífico Km. 19.3, Granjas Italia, Villa Nueva • Legal Representative: Mr. Clayton Estuardo Alburez Barrios • Managing company and contact: Consigna, S. A. • Mail: clayton@quirsa.com • Tel.: 6630-5353

FREE-TRADE ZONE EL CACAO

• Location: Km. 293 Ruta al Atlántico, Puerto Barrios, Izabal • Legal Representative: Mr. Gustavo Adolfo Quiñonez Osorio • Managing company and contact: Zonex, S. A. • Mail: luis@index.com.gt • Tel. 2500-5000 • Directorate of Services for Trade and Investment • Industrial Police Department – FREE TRADE ZONES

FREE-TRADE ZONE INCOINSA

• Location: Boulevard Industrial Norte 4-40, Zona 4 de Mixco, El Naranjo • Legal Representative: Mr. José Alfredo Bances Molina • Managing company and contact: Incoin, S. A. • Mail: alfredobances@ comercioexteriorac.com ayteestrada@comercioexteriorac.com • Tel.: 2431-9860, 2431-9853

FREE-TRADE ZONE INSSA

• Location: Calzada Roosevelt 5-70, Zona 2 de Mixco • Legal Representative: Ms. Petrona Del Carmen Cordón y Cordón • Managing company and contact: Inversiones Nuevo Siglo, S. A. • Mail: administracion.zf@inssafreight.com; asistente.zf@inssafreight.com • Tel.: 2429-9050

FREE-TRADE ZONE PETAPA • • •

Location: Av. Petapa 39-39, Zona 12 Legal Representative: Mr. Nitin Bhat Managing company and contact: Genpact Administraciones Guatemala, S. A. • Mail: luis@index.com.gt • Tel.: 2500-5000

FREE-TRADE ZONE SADINSA • •

Location: 26 Avenida 08-50, Zona 4 de Mixco Colonia El Naranjo Legal Representative: Mrs. Mayra Eugenia Rodríguez Mejía de Rendón • Managing company and contact: Saade, S. A. • Mail: vilmaquiroa@sadinsa.com.sv; recepcionsadinsa@gmail.com; emlesadinsa@gmail.com • Tel.: 2428-6900

FREE-TRADE ZONE TERMINAL LC

• Location: 2 Calle final, Zona 2 Tecún Umán, Ayutla, San Marcos • Legal Representative: Mr. Joaquín Arturo Colina Iselin • Managing company and contact: Terminal LC, S. A. • Mail: joaquin.colina@corporacionlc.com; jimy.gonzalez@corporacionlc.com; Claudia.garcia@corporacionlc.com • Tel: 2476-2374, 2476-2376, 2476-2247

List of Free-Trade Zones Pending to Start Operations AUTHORIZED AS PER DECREE 65 - 89 Stage

As per Ministry Resolution #

1 Grupo Del Valle

Installation and development

396-2006

Km 8.5 Carr. al Atlántico, Zona 18 Guatemala City

2 Zona Logística Integrada Pedro De Alvarado

Installation and development

235-2006

Km. 164 Carretera a El Salvador, Moyuta, Jutiapa

3 Zona Logística Integrada Tecún Umán

Installation and development

1110-2006

Km. 250 Ruta CA-4, Aldea El Triunfo, Ayutla, San Marcos

4 Parque Global

Installation and development

587-2007

27 Av. 33-85, Zona 12 Guatemala City

5 Zona Franca La Palmilla

Installation and development

1909-2007

Km. 115 Ruta CA-9, Carretera a Puerto Barrios, Izabal

6 Jardines Del Campo Marte

Installation and development

1445-2009

Zona 5, Guatemala City

7 Zona Franca Terminales de Carga Internacional -TCI-

Installation and development

1297-2011

Km 251.1 Ruta CA-4, Ayutla, San Marcos

No.

Name

Address

UNIT OF FREE-TRADE ZONES - DISERCOMI MINISTRY OF ECONOMY, GUATEMALA

Main Benefits of the Free Trade Zones Decree 65-89, Articles 22-23 Article 22 The industrial or service Permit-Holders authorized to operate in the Free Trade Zones will enjoy the following tax incentives. a) Equipment, machinery, tools, raw materials, inputs, semi-elaborated products, containers, packaging and in general in goods used for production or the offering of services, are not subject to taxes, custom duties, and import charges; b) Total income tax exemption on income obtained exclusively from the activity as an industrial Permit-Holder, for a period of ten (10) years, starting from the date of the first tax period immediately following the date of issuance of the authorization referred to in Article 6 c) of this law. The industrial and service Permit-Holders domiciled abroad which operate in Guatemala, will not enjoy this income tax exemption if their country of origin grants a credit for income tax paid in Guatemala; c) Exemption from the Value Added Tax, in the transfer of merchandise within and between Free Trade Zones;

d) Exemption from the tax on sale and transfer (excise tax), of real estate located within the Free Trade Zone, in the transactions carried out with the Administrative Agency or With Permit-Holders of the Free Trade Zone; and e) Exemption from taxes on stamped paper and revenue stamps required for the documents by which real estate located within the Free Trade Zone is transferred. The incentives mentioned in paragraphs a), c), d), and e), of this article, will be effective starting on the date of authorization of the decision issued by the Ministry of Economy.

Article 23

The commercial permit-Holders authorized to operate in the Free Trade Zones, will enjoy the following tax incentives: a) Merchandise and components stored in the Free Trade Zone for their commercialization, are not subject taxes, custom duties and import charges; b) Income tax exemption on income obtained exclusively from the activity as a commercial Permit-Holder of the Free Trade Zone, for a

period of five years, starting from the date of the first tax period immediately following the date of issuance of the authorization referred to in Article 6 c) of this law. The commercial Permit-Holders domiciled abroad which operate in Guatemala, will not enjoy this income tax exemption if their country of origin grants a credit for income tax paid in Guatemala; c) Exemption from Value Added Tax, in the transfer of merchandise within or between Free Trade Zones; d) Exemption from the tax on sale and transfer (excise tax) of real estate located within the Free Trade Zone, in transactions carried out with the Administrative Agency or with Permit-Holders of the Free Trade Zone; e) Exemption from taxes on stamped paper and revenue stamps required for the documents of transfer to the Administrative Agency of the title of real estate destined to the development and expansion of the Free Trade Zone; The incentives mentioned in paragraphs a), c), d), and e) of this Article, will be effective starting on the date of the decision of authorization issued by the Ministry of Economy.

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ZOLIC Law Amendments By: Ernst & Young

On August 18, 2008, the Congress published Decree 302008, which includes the amendments to the Law of the Free Zone of Industry and Trade of Santo Tomás de Castilla (ZOLIC).

entity), or the Inward Processing regime – Drawback/ Maquila- (e.g., designed primarily for the transformation of raw materials into final goods and excluding the rendering of services).

The amendments establish that the ZOLIC would function as an “external-customs” area, which may be located anywhere in the national territory. An “externalcustoms” area is considered as the physically restrained territory in which the goods would be considered to be as “outside” of the national territory and therefore not subject to customs or tax duties.

The duly authorized users that would perform operations within the extra-customs ZOLIC areas would benefit from the following tax incentives:

These amendments will allow for the constitution of ZOLIC agencies anywhere in the country destined for: • • •

•

Income Tax (IT) for a period of 10 years beginning on the date when the company starts to operate within the Free Zone (in principle, based on agreements with the World Trade Organization, the IT exemption should be limited up to the year 2015).

The performance of industrial production activities; The performance of trade activities; The rendering of services not expressly disallowed by law.

•

The amendments to the ZOLIC Law should facilitate the performance of the activities described above under an investment regime, which overcomes some of the limitations of the current Free Trade Zone regimen (e.g., to be mandatorily located within a an industrial park previously authorized and managed by an Administrator

•

Value Added Tax (VAT) for the activities performed within the Free Zone. Stamp Tax, on the documents which support acts or contracts over assets or trade business acts in the Free Zone. Customs Duties exemption, VAT and other applicable duties on the import of goods to the Free Zone.

The amendments to the ZOLIC Law are in force since July 1st, 2008.

Starting a Business in Guatemala By: Kristine Bouscayrol Valladares / Director of the Corporate and Intellectual Property Department with Alegalis

It is always important that foreigners and nationals know the legal framework that Guatemala offers in order to start a business. Not all countries have the same legislation, and it could really affect the new venture if the person doesnâ&#x20AC;&#x2122;t have the basic knowledge of the regulatory framework that will apply to his new business. This article intends to provide basic information for starting a business in Guatemala, but the best way to make sure that you have the right information is to ask a local attorney for counsel. Guatemala has issued several regulations to encourage and promote foreign investment and to make foreigners feel confident about investing in the country. In 1998 Guatemala issued the Foreign Investment Law, which grants foreign investors full rights to use, possess, enjoy, and own their investment. It also grants foreign investors the same treatment as that agreed for domestic investors and bans any discriminatory acts. Additionally, it entitles foreign investors to participate in the development of any lawful economic activity in the country as well as to participate in any proportion in the capital of a Guatemalan business. In 2000 the Law on Free Foreign Exchange Trading was issued, which lays down unrestricted possession, hiring, transfer, management, and having at disposal foreign exchange in the country, facilitating investment in Guatemala by foreign investors, as they can use the same currency as in their country of origin.

To initiate operations in Guatemala, foreigners have no major restrictions and have the following possibilities: 1. Operate as an individual: In order to operate as an individual, foreigners can travel to Guatemala to carry out the business activity or they can grant a Power of Attorney to an individual or company in Guatemala to carry out the business in their name. Any document issued abroad shall comply with consular legalizations in order to be a valid document in Guatemala. This requirement is applicable to powers of attorney. 2. Incorporate a branch, subsidiary, or agency of the foreign company: For a legally-incorporated company under foreign law to be established in the country or to have branches or agencies, it must meet the following requirements: a) Make sure that is duly incorporated under the laws of the country in which it was organized. b) Submit certified copy of its articles of incorporation and its statutes, if any, as well as any modifications thereto. c) Make sure that a resolution has been duly adopted by the competent body for these purposes. d) Constitute an agent with representation in the Republic, with broad powers to perform all acts and legal

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transactions of the business and to legally represent the company in and out of court. e) Constitute a capital allocated for operations in the Republic and a bond in favor of third parties of no less than the equivalent in Quetzales of fifty thousand dollars of the United States of America (US$50,000.00), which will fixed by the Business Registry. This amount shall remain in force for as long as the company operates in the country and specifically obliges itself to respond, not only with assets held in the territory of the Republic, but also with those possessed overseas, for all acts and businesses that it undertakes in the country. f ) Submit to the jurisdiction of the courts of the country and the laws of the Republic, for acts and transactions of private law held in the territory or that are to take effect in the country; g) Submit a statement that neither the company nor its representatives or employees may invoke foreign rights, as they will only enjoy the rights and the means to exercise them that the country’s laws grant Guatemalans. h) Declare that they will honor all legal requirements before leaving the country. i) Submit a certified copy of its most recent balance sheet and statement of profit and loss. All the above described documents must be submitted to the Business Registry for the branch or agency to be granted authorization to operate in Guatemala. The documents must comply with the corresponding legalization chain and if they are in a language other than Spanish, they

must be translated into Spanish. Furthermore, our legislation allows a company incorporated abroad to perform certain activities with no need for government authorization. Among these activities are the following: a. To open bank accounts in any bank of the Guatemalan system. Despite not needing government authorization to open a bank account, it is worth noting that banks have policies and internal requirements that could somehow complicate opening a bank account; for example, most banks require that the person whose signature is registered with the Bank is Guatemalan or residing in the country. b. To be part of any process or trial held in the courts of law of the Republic or through administrative channels. c. To purchase or sell only to independent legally established in the country trade agents. d. To manage orders through agents legally settled in the country provided that orders remain subject to confirmation or acceptance outside the territory of the Republic. e. To grant loans or open credits for entrepreneurs settled in the Republic. f. To release, endorse, or protest debt securities or be their holder in the Republic. g. To rent personal property, rights in rem, or real estate, provided they are not part of a business and that they are not habitually negotiated with. 3. Incorporate a Guatemalan company: Foreign investors may also get organized with individuals and

constitute a Guatemalan society to operate in Guatemala. The Commercial Code of Guatemala allows to organize into 5 types of companies: a. General Partnership b. Limited Partnership c. Limited Liability Company d. Public Limited Company e. Partnership in Commendam The different types of companies differ mainly in terms of the liability each partner has within the company. On that account, companies can be classified into two categories: I.

Unlimited liability companies. Members respond to social obligations to third parties not only through their participation in the company, but also with each member’s own assets.

a. General Partnership (similar to US General Partnership): is a personalist partnership that makes emphasis on the persons that comprise it. Among its features are the following: • All of its members respond to the social obligations of the company on a subsidiary, unlimited, and severally fashion. • The name is formed with the first and last name of one of the partners or the last names of two or more partners. • Participation is not represented in stocks. b. Limited Partnership: This is a personalist partnership that makes emphasis on the members that comprise it and where only some of the partners are liable to third parties. Among its features are the following:

• There are two types of partners: active partners, who respond to the social obligations of the company in a subsidiary, unlimited, and severally fashion; and limited partners, who respond only to the amount of their contributions. • The name is formed with the first and last name of one of the partners or the last names of two or more partners. • Participation is not represented in stocks. c. Limited Liability Company (similar to the US Limited Partnership): is a personalist company that makes emphasis on the persons that comprise it, and where only some of the partners are liable to third parties. Among its features are the following: • The capital is divided and represented in shares. • There are 2 types of partners, active partners, who respond to the social obligations of the company in a subsidiary, unlimited, and severally fashion; and limited partners, who answer only to the amount of their contributions. • Active partners are responsible for the administration of the company and its legal representation. ii. Limited liability companies, this is to say that members respond to social obligations to the amount of their participation in the company. a. Limited Liability Company (similar to a US Limited Liability Company): is a personalist and capitalist company, emphasizing the members that comprise it, but who are liable to third parties only for the obligations of the company up to the amount of their contributions. Among its features are the following:

• Their participation is not represented in stocks. • Twenty members at most. • The name of the company must make reference to its main social activity. b. Joint Stock Company (similar to a US Business Corporation): is the most effective and desirable way of organizing operations in Guatemala, because it is a society that emphasizes capital and not the members that comprise it. Among its features are the following: • Capital is divided and represented by shares. • Shareholders are liable up to the amount they have paid for the shares. • Initial paid capital must be at least Q.5,000.00 (approximately US$625.00). • The minimum number of shareholders is two. • In order to be valid, shares must be nominative and recorded in the Register of Shares Book. Tax Framework Another important aspect that foreign investors must take into consideration when starting operations in Guatemala is taxes. In Guatemala we basically have the following tax obligations: Income tax It is the tax for obtaining Guatemalansourced income. It is important to make clear that Guatemala only taxes income generated in the Guatemalan territory and classifies it as per the following categories: income from profitable activities, work income, and capital income. For income from profitable activities there are two regimes:

1. Regime for income from profitable activities: • Tax Base: Net Income (Income - deductible costs and expenses) • Tax Rate: 25 % 2. Simplified Optional Regime: • Taxable Base: Gross revenues • Tax Rate: • For income from Q.0.01 to Q.30,000.00, the tax rate is 5 %. • For income from Q.30,000.01 and more, a fixed amount of Q.1500 and 7 % of the surplus of Q30,000.00 will be paid. Income on capital gains is all the income generated from activities carried out by the company or person other than the ordinary. The tax rate is 10 %. Income from work is all the income from all types of remuneration, payment, or income, whatever its denomination or nature, arising out of personal work performed by a resident as an employee, developed inside or outside of Guatemala. Tax rates are as follows: • For an income of Q.0.01 to Q.30,000.00, the tax rate is 5 %. • For an income of Q.30,000.01 or more, a fixed amount of Q1500 and 7 % of the surplus of Q.30,000.00 is to be paid. Solidarity Tax This tax is paid for carrying out commercial activities. The only companies affected by this tax are entities with a gross margin above 4 % their gross income. Tax rate: 1 %. This tax is creditable to the Value Added Tax (there are cases where you can be free)

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Taxable income: the highest between: • One fourth of the gross income • The value of one fourth of the assets

Value Added Tax, IVA (VAT) This tax paid for the provision of services, transfer of movable and immovable property (except for second and subsequent sales or exchange of property), and imports. The tax amount to pay is calculated on the value of the transaction. When a company pays VAT to another person (an individual person or legal entity), it obtains tax credit and when it is paid to it, the company obtains tax debit. These accounts can be compensated. Tax rate: 12 %

Tax Incentives Companies that intend to manufacture products to be exported can be classified under the Promotion and Development of Export and Maquila Activities Act, which grants a 1-year to 2-year waive of VAT and import taxes on raw materials, as well as a 10-year income tax exemption, and other tax benefits. To apply for tax benefits and according to the Free-trade Zones Act, trade and manufacturing companies may choose to set up their facilities at established Free-trade Zones or even set-up their own Free-trade Zone.

Labor Framework Prior to starting operations in Guatemala, it is important that foreign investors are clear on the labor regulations that apply in Guatemala, as our law is protective of the rights of workers and establishes a set of

minimum guarantees and rights that cannot be waived. Also, labor legislation entitles workers the right to form unions in order to improve their labor rights within a company. Among the most important aspects, we can mention the following: 1. Wages: can be paid per time unit, for the work to be performed, and by commission or participation in company profits. Every year the Ministry of Labor sets a minimum wage for non-agricultural and agricultural activities everyone must comply with. 2. Work contracts: work Contracts must be formalized in writing and registered with the Labor Administrative Department. Work Contracts are deemed for an indefinite period of time, unless clearly stated otherwise. 3. Vacation: workers are entitled to fifteen working days off for every year worked, which must be paid for as if the worker HAD worked. 4. Working sessions: There are 3 types of working sessions: day, night, and mixed. The day shift cannot exceed eight hours a day nor 44 hours a week. The night shift cannot exceed 6 hours a day, nor 36 hours a week. The mixed day cannot exceed 7 hours a day nor 42 hours a week. 5. Aguinaldo, Bono 14 (Bonus 14), and Incentive Bonus: Every month, employers must pay to their workers an incentive bonus of at least Q.250.00 a month. Parties may increase said amount if they deem it convenient. The Guatemalan law also stipulates two additional salaries to be paid per year worked, which

consist in an “Aguinaldo” to be paid in December and a “Bono 14” to be paid in July. 6. Termination of a work contract: through an advanced notice to the employer, a worker may request termination of his/her work contract at any time. When the employer requests termination of the work contract, he must evidence sufficient cause (according to what sufficient cause is considered by the law). If the employer does not prove sufficient cause, the former worker is entitled to a severance payment consisting of one salary per year worked for the employer and, as damages, up to twelve additional wages and court fees for the timeframe between layoff and the actual pay day. 7. Social Security: An employer is also obliged to contribute to the Guatemalan Social Security Institution (IGSS), to the Technical Capacitation and Productivity Institution (INTECAP), and to the Recreation for Workers Institution (IRTRA). These contributions by the employer add up to 12.67 % of the wage paid to each worker.

Registration Requirements to Incorporate a Company in Guatemala By: Kristine Bouscayrol Valladares / Director of the Corporate and Intellectual Property Department with Alegalis

When a corporation is going to be established in Guatemala, it is strongly suggested to get advice on legal aspects before developing the project of interest. The Legal Advisor will inform you on the rights, influences, contingencies, and responsibilities under the plan that will be concretized.

As a starting point, it is worth noting that a corporation or any company, is a contract that contains pre-established and solemn requirements to be met, among which is that it must be formalized in a public deed, which can only be entered into and authorized by notaries.

Steps to follow to incorporate a company: No. 1. 2. 3. 4.

Name

Stage

As per Ministry Resolution #

Address

Search for name availability

It is necessary to search the name in the Business Registry to determine whether it is available.

Opening a bank account

Once we have the results of the availability of the name, a bank account must be opened in any bank in the system. The paid capital of the company will be deposited therein (a minimum of Q.5,000.00).

Developing the Articles of Incorporation and other legal documents

After opening the bank account, you need to see a notary to develop the articles of incorporation of the company and other relevant legal documents.

Submission of the Application for Registration in the Business Register

Once the necessary legal documents are printed and signed, the application for registration of the company is entered into the Business Register.

File Revision

Once the file has been entered, the Business Registry and the Tax Administration (SAT) proceed to review the file of the company for compliance with legal requirements. This review takes around 7 - 8 business days.

Provisional Registration

Having obtained positive results in the evaluation of your file, the Business Registry temporarily registers the company and supplies the following documents: 1. Deed of appointment of the legal representative; 2. Unified Tax Registry (RTU); 3. Accreditation of invoices printer; and 4. Edict. As of now, the company may enter into contracts with third parties.

Edict publication in the Official Journal

Once the edict has been issued, it must be published in the Official Journal to inform third parties of the incorporation of the new company. Once the edict is published, an opposition period of 8 working days must be waited on.

Request Issuance of Accounting and Legal Books

Once the edict has been published, the approval and authorization of accounting and legal books of the company in the Business Registry and the Tax Administration (SAT) can be requested simultaneously.

Final Registration

Once the opposition period has expired with no objections by third parties, the Business Register is requested to enroll company definitely.

8. 9.

10. Issuance of Trading Company and Business Patents

Once the company is registered definitely, the Business Register proceeds to issue the Trading Company and Business Patents.

11.

Notice of Issuance of Shares

Simultaneously, a notice of issuance of shares is sent to the Business Register, describing the shares that the company issued its members. The name of the partners is not recorded, only the number of each title of shares issued is identified and the number of shares under each.

12.

Ordering Invoice Issuing

Simultaneously, it is requested to the credited printer to proceed to issue the corresponding invoices.

The time it takes to register a corporation in the Business Register and the Tax Administration is approximately 5 - 6 weeks; however, the company can begin operations as of the provisional registration (7 - 8 days).

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How to Import? Types of Imports

Based on the general classification imports are classified as follows:

Imports for Consumption

• Customs system by which imported goods may enter the territory after payment of duties and taxes in compliance with the law

Temporary Imports

• Customs system that allows the importer to receive the goods in the territory, under a mechanism that exempts customs duties, taxes and other import charges those goods that will be exported alter being subject to assembling, mounting, machinery transportation equipment in general or more complex and functional devices, manufacture, transformation, repair, maintenance, fitting, production or manufacture of goods. Goods for a specific purpose may be imported for a fixed period, without paying customs duties or taxes. These goods will be re-exported within this term.

Legal Basis:

Article 73 of the Central American Uniform Customs Code–CAUCA-, Articles 140 - 155 of the Regulations to the Central American Uniform Customs Code –RECAUCARequirements: - Application - Legible photocopy: - Document that supports the import of the goods into the national territory (B/L, air waybill, freight bill). - Invoice - Packing list - Supporting documents that identify the goods to be imported, series, codes, etc.

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Note: The application shall indicate the customs facilities where the merchandise will arrive, the amount of the bond to guarantee 100% of the customs duties on the temporary imports, the value added tax on the goods to be imported and/or payment of the deposit at the customs office. Taking as a basis the Customs system which describes operations oriented to perfection the customs processing of the goods, the international customs system contemplates two categories: permanent and temporary.

Permanent System:

• Those destinations which grant the goods a permanent customs status. No other customs system is necessary for the goods to be legal under the customs regulations Imports: Also called Dispatch for Consumption. It consists of introducing legally into the customs territory of the Republic, products from another country or from another duty free zone or port in the country. It is important to note that such system provides ways to treat imported goods which have a bearing on applicable tariffs or charges. There are imports with prepaid import duties, full exoneration of taxes, partial exoneration, suspension of taxes and those that have no incidence on taxes. International Customs Transit: The transit of foreign goods through the national territory, subject to the jurisdiction of the Republic destined to another country or to national territories outside of that jurisdiction. Replacement of Inventories with a Customs Franchise: Equivalent goods may be imported exempt from import

duties. These goods are similar in their kind, quality and technical characteristics to goods legally imported which were utilized to obtain products previously exported.

Temporary Systems:

• These grant a temporary status to the goods and require a definite destination. - National Customs Transit: Refers to the transit of foreign goods through the national territory subject to the jurisdiction of the Republic, with destination to other customs facilities. - Temporary Entry: Goods that are introduced into the country for temporary exhibition and which are not subject to import duties. However, the entities that bring these into the country shall obtain a bond to cover the taxes if the event the goods remain permanently in the country. - Temporary Admission for Improvement: This allows the import of certain goods into the territory without paying import or other duties and which will be re-exported within certain period alter being subject to transformation, manufacture or repair. These goods shall be covered by a bond to guarantee the taxes. - Temporary Export for Improvement: This allows the export of goods nationalized or not for a determined period to be subject to transformation, manufacture or repair. These goods shall be re-imported with a full or partial customs exemption on import duties and charges. - Deposits: Consists in placing foreign goods in official warehouses or in free trade zones to be re-exported, for consumption or use within the country. In free trade zones used for deposit, transformation and packing of goods may be performed.

- Special Deposits for Goods to Order: This is destined exclusively for export and for sale to ships arriving to the ports of the Republic and also for sale at international airports to passengers who leave the country or are in transit to other countries.

Temporary importations to be re-exported as is Legal basis: • Article 73 of the Central American Uniform Customs Code –CAUCA-, • Articles 140 - 155 of the Regulations to the Central American Uniform Customs Code –RECAUCARequirements • Application • Legible photocopy - Document that supports the imports of the goods into the national territory (B/L, air waybill, freight bill). - Invoice - Packing list Note: The application shall indicate the customs where the merchandise will arrive, the amount of the bond to guarantee 100% of the customs duties on the temporary imports, the value added tax on the goods to be imported and/or payment of the deposit at the customs office. Customs Superintendent Department of Customs Systems Office of Franchises and Customs Matters

Temporary Admission for Active Improvement Legal basis: • Article 74 of the Central American Uniform Customs Code –CAUCA-, • Articles 156 - 169 of the Regulations to the Central American Uniform Customs Code –RECAUCA-

Requirements: • The application shall indicate that the merchandise is being imported for improvement, manufacture or repair, or for another purpose legally authorized • Legible photocopy: - Document that supports the import of the goods into the national territory (B/L, air waybill, freight bill). - Invoice - Packing list - Supporting documents that identify the goods to be imported, series, codes, etc. - Incorporation of the company - Payroll - Economic justification for the operation, including the export system. - Technical description of the process for the manufacture, transformation or repair. - Tax solvency - If the company is covered under Decree 29-89, Law of Promotion and Development of the export activity and drawback (maquila), it shall provide a certificate that it has no pending tax obligations. The application shall include: • Description of the applicable import and re-export items including those byproducts resulting from the process • Specification of the type of improvements to be made. • Specific description of each process and the proportion of national and foreign raw materials to be utilized for each product resulting from the activity. Percentage of losses, shrinkage and sub-products of each one of the imported items.

Direct Importer Is a company involved in the import of different types of products to be distributed in the local market. This classification also includes importers of raw materials that are later utilized for the manufacture of products

The importing company is responsible for processing the import documents as well as for the payment of applicable taxes.

Indirect Importer

Is when a company utilizes the services of another company to import products In this case, the intermediary is responsible for processing the import documents as well as for the payment of applicable taxes.

Re-importation

Importation into territory goods which were previously exported from this same territory

Final imports

Final imports are those whose final destination is Guatemala. The products will be nationalized in Guatemala through the processing of the import documents and payment of applicable taxes. These goods will be consumed in the local market.

Imports in transit

It refers to imports of goods whose final destination is not Guatemala. They are only in transit but their final destination is another country. In this case, neither import documents nor payment of taxes will be processed. This will be done in the country of final destination. This applies in cases when a company imports products for Guatemala, El Salvador and Honduras, for example. In Guatemala only the products whose final destination is this country will be processed, the rest will be processed in each country of final destination. This information must be provided to the transportation company from the beginning so that they arrange the merchandise accordingly to avoid any inconveniences. The transportation companies may advice on how to handle this type of imports as well as all the logistics that are necessary. Important: Consult the Web page of the Superintendence of Tax Administration – SAT in Spanish – Office of the Customs Superintendent. www.sat.gob.gt Specific information on the Registry of Importers

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IMPORTS Index • Introduction to the process • Purchase of raw materials abroad • Negotiations between the foreign supplier and the national importer • Import declaration • INCOTERMS • Process for shipping, and contracting of freight and insurance • Services and general information for the importer • Products that are prohibited and restricted

Introduction to the process Foreign Trade is the exchange of goods services and capitals among different countries. When a country needs to acquire products it imports these. Importation is defined as “the legal introduction of foreign goods for use or consumption in the country”. In spite of the advantages of the free exchange of goods, it is important to consider some aspects that limit the entry of foreign products. This is known as protection measures and are contained in the import customs policies. The application of the tariffs affects the economy of a country, for example some imports are limited to protect national industry. As regards foreign trade, Guatemala depends mainly on the United States, Mexico, Japan and El Salvador, even if it has important dealings with other countries in the world. IMPORTS (CIF) – Year: 2012 US$ Dollars

1. Purchase of raw materials abroad

As an average, goods and services purchased represent between 50% and 60% of the sales of a company- Good management of the procurement process increases competitiveness because it reduces costs, increases quality and facilitates changes in the market and on the introduction of new technologies. To achieve this, the following steps should be taken: 1. Carefully evaluate the requirements to import the products, this means, timely payment, completing all the necessary documents, taking into consideration the time in transit of the goods, etc. 2. Analyze the risk factors and cost of imports. 3. Survey international markets of supplies and take advantage of the best offers. 4. Define the type of business relationship that should be established with the providers to satisfy the objectives of the offer. 5. Verify that the goods purchased are stored efficiently and safely, that an inventory is taken and that the goods are available at a low cost as required.

2. Negotiations between the foreign suppliers and national importers Before an importation transaction is initiated, it is advisable to obtain information on the market of origin of the product and of the potential suppliers • Producing countries • Marketing countries • Prices, varieties, amounts, etc. In evaluating the potential supplier it is important to verify the existence of trade agreements signed between Guatemala and other countries to take advantage of customs incentives.

Source: SIECA; Intl. Statistics. December, 2012

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Following is a list of links that will show you several documents related to the

agreements signed for international Exchange. (The names are shown in Spanish, as they can be accessed)

Título del artículo

Acuerdo Gubernativo No. 389-2013 Resolución de Directorio número 128-2013 Acuerdo Gubernativo No. 317-2012 Acuerdo Gubernativo 224-2012 Acuerdo Gubernativo No. 121-2012 Preguntas Ley Nacional de Aduanas Ley Aduanera Nacional Acuerdo Gubernativo Número 51-2012 Acdo. Ministerial 490-2009 Acdos. Ministeriales 488-2009 y 489-2009 Acuerdo Ministerial 484-2009 Resolución SC. No. 01/2009 Proceso General de la Recepción de la Carga en la Aduana Express Aéreo CAUCA IV y su Reglamento SAT-BID tercera etapa SAT-BID segunda etapa Acuerdo de Directorio 023-2007 Acuerdo de Directorio 014-2007 Reglamento del Código Aduanero Uniforme Centroamericano Acuerdo Gubenativo 870-2000. Acuerdo Gubernativo No 203-2002. Decreto 22-73, Ley Orgánica de ZOLIC Normas Arancelarias de Aplicación del Anexo Normativa para la modificación de Unidades de Medida establecidas en el SIAG Convenio sobre el Régimen Arancelario y Aduanero Centroamericano Acuerdo No. 368-2003, Modificación al Acuerdo 107-2002, Padrón de Importadores Acuerdo No. 107-2002, Padrón de Importadores Decreto 29-89, Ley de Fomento y Desarrollo de la Actividad Exportadora y de Maquila Decreto 65-89, Ley de Zonas Francas Acuerdos sobre contingentes arancelarios Anexo de Resolución No. 65-2001 (COMIEDRE), del Reglamento sobre Régimen de Tránsito Internacional Reglamento de Tránsito Internacional Terrestre, Formulario de Declaración e Instructivo Código Aduanero Centroamericano

3. IMPORTATION DECLARATION The import declaration is the document that legalizes the goods entering to the country through a electronic system. As soon as the import declaration is processed by the Custums Service system, the Customs service (SAT) accepts the declaration and establishes if goods should be physically revised ; is SAT gives its authorization, the Importer must pay the correspondent tariffs and/or taxes through BANCASAT, using the bank of the importer preference. The Custums declaration must be presented to the Custums Service (SAT) within 20 working days, after the date of receipt of the cargo by the customs office concerned. If the customs declaration is not submitted by the deadline, will be considered abandoned goods, and could be in favor of the State of Guatemala and will be auctioned. 4. Shipping process, contracting freight and insurance 1) SHIPPING STAGE The foreign exporter (supplier) reviews payment conditions, and ships the goods as agreed. During this stage the foreign exporter (supplier) confirms the means of international transportation of the goods, date of departure, flight number, and name of the ship, duration of the trip and estimated time of arrival. The importer coordinates with the Customs Broker the receipt of the goods at the port of destination, as well as the inland transportation. 2) NEGOTIATION STAGE The foreign exporter (supplier) negotiates with his/her bank the payment as agreed, submitting official documents that support the shipment of the goods (invoice, bill of lading or other shipping document, insurance declaration, etc.) The foreign commercial bank reviews the documents and pays the exporter as agreed. The documents are sent to the bank that

issued the letter of credit or other type of collection form

for this purpose, Please refer to the list of authorized Banks.

The bill of lading, which is the legal document supporting the transportation of the goods, must be sent to the issuing bank, which will use it to process the operation, Later this document must be endorsed by the bank to the importer to transfer the ownership of the goods.

Which banks provide the BancaSAT service? How do I find the bank in the Internet?

3) RECEIPT OF THE GOODS Once the goods arrive at customs, the customs broker, in coordination with the importer, shall pay the taxes and other charges. The importer will receive from the commercial bank the documents that the customs broker will use to prepare the document called “Customs Declaration”. These documents include:

The following link contains the list of banks which provide the BancaSAT service. Those listed as BancaSAT 5 are those that offer the service of enrollment at the Registry of Importers. http://portal.sat.gob.gt/sitio/index.php/ impuestos/17-bancasat/17-bancos.html Later the customs broker delivers the goods to the importer with the commercial invoice covering the cost of the operation, accompanied by the customs documents which verify that the goods have been released from customs and the customs duties have been paid.

• Bill of lading (endorsed by a Guatemalan bank) • Commercial invoice and expense account • Certificate of insurance indicating the amount of the Premium (if insurance coverage was purchased) • Certificate of origin and phytosanitary certificate if applicable • Packing list • Special power of attorney (granted by the importer to the customs broker)

A great majority of importers utilize bonded warehouses to store the goods and release them in lots. Thus, when they release part of the goods from these warehouses they pay the duties only on those lots.

4) CLEARANCE OF THE GOODS AND PAYMENT

It is important to take into consideration that the products that do not originate in Central America are subject to customs tariffs according to the type of products. Also, the shipments must bring the corresponding commercial invoice packing list, certificate of origin and, in the case of fresh agricultural products, a phytosanitary certificate. These products are subject to the payment of the value added tax (IVA in Spanish):

Alter customs, warehousing, moving and any other charge is paid, as required, the Office of the Customs Superintendent shall issue a Declaration of Receipt of the goods for a physical or documentary verification. Authorization shall be obtained from the agency of the Customs Superintendence. Within forty-eight (48) hours after this process is concluded, the document has to be legalized, the customs broker notifies the importer and requests him/her to pay any liens in U.S. dollars, converted to Quetzals at the rate of exchange established by the Banco de Guatemala. Such payment may be made at the banks authorized

To comply with established regulations the importers should contract the services of a customs broker who will advice on procedures, and provide the services to clear the goods through customs.

5. Products whose importation is restricted or prohibited It is important to obtain information on the products before they are imported into Guatemalan territory. They must comply with several non-customs related requirements,

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such as the registration and authorization obtained from the appropriate authority. These are also subject to documentary verification. Wheat flour, sugar and sodium chloride (salt) cannot be released from customs without a physical/chemical analysis conducted by the Unified Laboratory for the Control of Food and Drugs (LUCAM in Spanish), a department of the Bureau of Health Services. Because there is a wide variety of products which are subject to non-customs restrictions, the importer should contact the Ministry of Agriculture and Cattle –MAGA in Spanish- or the Bureau of Health Services. These products include, among others: live animals and plants, agricultural products and byproducts, salt, inorganic chemical products, radioactive chemical elements, organic chemical products, pharmaceutical products for human use, gunpowder and explosives, household products for pest control, wood, etc. 6. General services and information available to the importer Importers should be familiar with the information available and with the system established by the Superintendence for Tax Administration –SAT - Following are 86 links that this office has available for the users who need information on importations. Guatemalan Customs System Requirements for customs processes Source: Superintendence of Tax Administration – SAT- Office of the Customs Superintendent: www.sat.gob.gt 7. Frequent questions on the registration of importers How do I register in the Registry of Importers? In the following web page you can obtain information on the process: http://portal.sat.gob.gt/sitio/index.php/ aduanas/45-aduanas/1713-requisitos-y-pasos-parainscribirse-en-el-registro-de-importador.html

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It is important that before completing the correspondant form of Importers Registration, you verify that the information on your tax domicile is correct, also if an update of information is needed there is a form for that purpose which should be presented to the Custusm Service office; this will avoid discrepancies that may affect your registration as an importer. What is BancaSAT? BANCASAT is the system to submit returns and payments on taxes via Internet. This was implemented by SAT in August 2001. Please visit the web page: www.sat.gob.gt/ bancasat How do I enroll in BancaSAT? Where do I find the contract? The process can be accessed at:: http:// portal.sat.gob.gt/sitio/index.php/esat/ bancasat/17-bancasat/5043-icomo obtengo-bancasat.html You will find the contract in the site of each bank. Which banks provide BancaSAT services? How do I find the bank in Internet? The following web page contains the list of banks that provide the services. Banks listed as BancaSAT 5 are those that provide the service of registration in the Registry of Importers; http://portal.sat.gob.gt/sitio/ index.php/impuestos/17-bancasat/17bancos.html How do I confirm my address? If the confirmation of your tax domicile is received within five work days after transmitting the correspondent form, you will receive through registered mail, an electronic signature that you must enter the following day in the electronic form available at BANCASAT (via AsisteWEB) to be registered and to have access to the e-services. If after five days you do not receive the electronic signature and you are not listed in the registry, it may be due to: • Your address was not found (tax domicile) • The address was found but you could not be notified because you were not available or the address is registered to another person.

You can imput you electronic signature again using form SAT-0901 What is e-services? How do I access e-Servicios? For more information please visit: www.sat. gob.gt/eservicios For consultations, if you already have your user name and password, please contact: www.sat.gob.gt/aplicaciones

IMPORTATION ROUTES 1. Air Cargo

This is the fastest means of transportation and the cost may be reasonable when small and light packages are transported. This means is recommended for perishable goods in small volume and which do not fill a container Any cargo imported to the country by air trough Combexim (An entity that provides services, handling and custody of the goods that are imported and exported at the world level. You can visit the web page: www. combexim.com.gt) This is the customs for importations that processes the payment of taxes. This process can take a week depending on the time of the year. Your customs broker may advise you on the documentation required, because it may vary according to the product. The airlines have imposed several restrictions to certain types of products, for example, flammable products, medicines, explosives, etc. When planning the logistics for the importation of certain products, it is important to contact several airlines and learn about their requirements and limitations. When a quotation is requested for air freight it is important to request the airline a breakdown of all the expenses, because there may be other expenses not included in the first quote. Importation expenses should also be considered Contact: Transporte Aéreo en Guatemala.

2. Ocean Cargo

This type of transportation is normally utilized for non-perishable products; products which are not required immediately, or that are heavy or their volume is considerable. Full containers are handled via ocean cargo. When dealing with shipments that do not fill a container the cargo may be consolidated. This means that the services of a cargo consolidating company are contracted, and they fill the containers with cargo for several companies. This is called consolidated cargo. Normally, the consolidating companies handle their own containers and transport the merchandise every week or every two weeks this is very important because three to five days should be added to clear the goods through customs. Normally three ports of entry are utilized: Santo Tomas de Castilla, Puerto Barrios and Puerto Quetzal. This will depend on the country of origin. When the container is transferred to the customs facilities the clearing process of the goods should start, otherwise the goods will be sent to a bonded warehouse which represents daily charges for storage. Contact: Transporte Marítimo en Guatemala

3. Land Cargo

This route is useful when the products are imported from Mexico or from a Central American country. The cost is relatively low and the transportation time is from 1 week to 15 days depending on the country, The consolidated cargo system can be utilized such as the case of ocean transportation. In cases of considerable volumes of cargo full containers may be utilized. Presently, refrigerated containers are available for land transportation which may reduce costs in the case of perishable goods. It is important to provide all the documentation required by the transportation company, and if possible, establish contact with a customs broker at the different borders where the merchandise will be in transit, in the event

of a controversy. A representative should be appointed to watch the interests of the company. You may contact: • Empresas de Transporte Terrestre de Carga en Guatemala

4. Means of Transportation, Routes and codes DESCRIPTION CODE Ocean M Inland C Air A Postal P Train F Pipeline T Other U Documents required for impors The Basic documentation required to nationalize a product imported into Guatemala from any country is as follows: • Invoice from the supplier. This document is very important and must be legible without erasures or alterations. In some countries such as in the United States most of the invoices are the tickets from the cash registers, but these documents will not be considered as a final invoices, The supplier must send a pro-forma invoice listing the products, including the codes, amounts, prices as well as the information on the company, address, date, etc. • Packing list: It may be in a sheet of paper describing the code and name of the product and amount, not necessarily the price. • Transportation documents: bill of lading, air way bill, land bill, etc. • Certifications of Origin, acoording the Trade free Agreement of importers convenience, there is a form available for each one. • Custums Value Declaration • In the case of importation of food products, the corresponding sanitary authorization must be obtained (one for each product) from MAGA.

• Depending on the type of product, special documents may be required, such as in the case of drugs, plants, animals, etc, Your customs broker will provide you the necessary information. Following is a compilation of forms available in the web page of the Superintendence for Tax Administration, SAT, Office of the Customs Superintendent. It is recommended that you verify if the forms are current. You can contact the Help Desk at 2362-7070 extensions 1741, 1742 and 1743. It is important to take into consideration that the documents may change as the system is updated. The Office of the Customs Superintendent will provide the forms you require.

Instructivo de llenado de la Declaración de Mercancías DUA-GT

Customs Declaration DUA-GT

The purpose of the Customs Declaration is to harmonize the declaration of the goods. It is an instrument which compiles with all customs procedures, standardizes the use of the code system and provides complete information to operators of foreign trade. Its main characteristics are: 1. Consolidate all physical forms utilized for the different customs systems into one. 2. Use of the sole electronic form which contains all the information of the Declaration of Value. 3. Capability to identify the different types of declarations (anticipated, temporary, accrued and others) . 4. Standardize and harmonize the information elements required from the importer, utilizing international standards issued by the United Nations, the World Customs Organization, the World Trade Organization, as well as national standards. For more information, please contact: http://portal.sat.gob.gt/portal/index. php?option=content&task=view&id=37&Itemid=57

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Services that are necessary for importation 1. Customs Brokers A customs broker is an individual authorized by the Office of Customs Superintendent of the Superintendence of Tax Administration, SAT, to manage on behalf of third parties, the movement of goods under the different customs systems contemplated by the law. To obtain this authorization the person must: 1. Be a Guatemalan by birth, with capability to exercise his/her rights 2. Not having been sentenced for a malicious offense, or suffered the cancellation of his/her authorization as customs broker. 3. Enjoy good personal reputation. 4. Not being a government employee, except in the cases of popular election, and not being an active member of the military. 5. Not being a next of kin of the customs administrator. 6. Must possess a university degree or its equivalent according to applicable law. 7. Experience in customs of at least three years. 8. Having passed the test provided by the customs authority as well as a psychotechnical test. Once all the requirements are met, authorization will be granted to the interested party within four months. The authorization is personal and cannot be transferred. The Corporation of Customs Brokers of Guatemala and the Association of Customs Brokers are duly registered in Guatemala. Services provided by a Customs Broker: Customs operations of ocean, land and air cargo Professional advice regarding customs, taxes, and international trade. Advice on customs tariffs, among others. Agencias de Aduanas en Guatemala

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2. Consolidation of Cargo The companies that are involved in consolidation of cargo play a very important role in the importation of goods. When the importations of a company do not represent a considerable volume that merits a full container or freight car the services of a cargo consolidating company are very important. Usually this type of companies provide the logistics, they take care of the documentation, of the security services, of the loading and unloading of the cargo. Some have their own customs brokerage companies as well as warehouses to store the goods before these are taken to the warehouse of the importer. Each one of the services must be quoted separately. You should request the cargo consolidating company a breakdown of all the expenses and charges to avoid misunderstandings when they submit their invoice for payment. Sometimes the charges are higher and some are not considered as part of the importation costs. Empresas de transportes 3. Insurance The insurance companies also play a very important role in the importations because the goods are subject to damages or loss or may be stolen during the transportation from the place of origin to the place of destination. In the case the goods are transported via air it is not necessary to contract the services of an insurance company, because the air freight includes insurance coverage for the goods. When the goods are transported via land or ocean, it is necessary to insure them and the insurance company requires a copy of the invoice of the goods, This is the case when the insurance must be paid by the importer not by the exporter. In most cases the buyer must obtain the insurance coverage. It is important to know the insurance costs, premiums etc, because this affects directly the cost of the products being imported.

Insurance against loss or damages

It is important that the importer insures his/ her goods against loss or damage during the transportation from the country of origin to the country of destination. In this case it may request the advice from different insurance companies operating in the country. The best defense against any contingency that the goods may suffer, is to insure them. On the contrary, no refund can be obtained in the case of loss of or damage to the shipment. It is recommended to contact an advisor of an insurance company. Can I insure a shipment after it has been dispatched? NO. The conditions of the declaration require that it has to be insured before it is shipped. Entidades Bancarias en Guatemala

4. Bonded Warehouses

Storage: It involves the receipt and custody of goods that are under the control of customs. These are stored in Customs premises or in private premises authorized by Customs. Bonded Warehouses: areas were goods remain for limited tiem (One year), and after custums tariffs and taxes have been paid, goods could be in storage until one year. Please contact the following link to access the list of bonded warehouses authorized to operate in the country. Empresas de almacenaje en Guatemala

5. Links, Trade Contacts and Support Organizations How do i Find companies in the United States?

For contact information in the United States is recommended to contact The American Chamber of Commerce AMCHAM Trade Center Phone 502 24170800 Email: trade@amchamguate.com www.amchamguate.com

Registration of Exporting Companies First Step

Procedures by Type of Exports

Registration of your company: The first step to enroll as an exporter is to be legally incorporated. Please enter the following link for more information:

Exports with no commercial value Some individuals or companies are interested in eventual exports to measure a market or to send samples with no commercial value, etc. For this purpose, the following steps should be taken:

http://guatemala.eregulations.org/menu/257?l=es

Registration as an exporter

You must request a code number in the One stop Office for Exports (VUPE) located at 14th St. 14-30 zone 13. Telephones: (502) 2422-3535, 37

Here you can download the Application for the Exporter Code

http://vupe.export.com.gt/wp-content/blogs.dir/8/files/GUIA_DE_ LLENADO_DE_SOLICITUD_DE_CODIGO_DE_EXPORTADOR.pdf

In this office the APPLICATION FOR EXPORTER CODE will be provided. You should submit this application with photocopies of the following documents: • Commercial Registry of the company • Commercial Registry of the corporation (in the case of a stock company) • Appointment of the legal representative registered at the Commercial Registry (in the case of a stock company) • Certificate of Registration at the SAT (NIT number) • Personal identification document (DPI) or passport of the owner of the company (for an individually owned company) • A void invoice • A sample of the stamp of the company (with name, address and telephone numbers) An exporter Code will be provided when the process is complete and the documentation has been filed. You must use this number in all the export documents. All export products (except for small exports) must attach your declaration for registry and control of exports (DEPREX); this form is called “Application for Export”, and can be obtained in the same office • Complete the Request for Export FAUCA • Complete the Request for Export DEPREX • Complete the request for SIMPLIFIED DUA With this form you must attach copy of the invoice that you will deliver to your customer and the invoice for the license. If your product is imported, you must also provide a photocopy of the import policy. The price of each FAUCA and DEPREX is Q35.00.

a. In the case of samples, publicity, bonuses, etc. you have to request in the One Stop Office the form for declaration for the registry and control of exports DEPREX, commercial invoice (original and copy) with a note indicating that these are samples with no commercial value. b. The invoice should contain the real value in the market although the products are not for sale. This comment should also be included in the DEPREX

Temporary Exports

This type of exports refers basically to those products that leave the country for a certain period, and the exporter commits to return them to the country after this period. This case applies to international fairs where the exporter brings samples for display or to repairs of machinery and equipment. The following steps must be followed: a. In the case of machinery for repair, request a DEPEX attaching copy of the customs declaration, letter of the supplier explaining the reason for the export and photocopy of the invoice from the supplier. It should also state the approximate period that the merchandise will remain outside of the country. In the event of incompliance with the deadline, the exporter shall deposit in a bank the amount due (in US$) for this export. If the delay is due to the supplier, an extension can be requested attaching a letter of the supplier explaining the delay. b. When the products leave the country to participate in a fair, a copy of the invitation letter or other documents must be attached as evidence of the participation, date of the event, duration, location, etc. A list of all the products and their commercial value has to be enclosed (this is important especially if the transportation will be by air because with this information a claim can be filed with the airline in the event the products are lost). Permanent Exports This refers to those exports of products that will be sold or consumed in the country of destination. When a permanent

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export is being processed, the exporter must comply with all the requirements according to the product or merchandise. The document lists all the steps to be taken. It is also necessary to find out in the country of destination what documents are required by local laws. These should be attached also to avoid problems when clearing customs. Exports of perishable products When we mention perishable products we refer to all types of products whose main characteristic is that they are live products. This group includes fruits and vegetables, tropical legumes, live plants and cut flowers. For adequate manipulation it is necessary to learn about the physical characteristics of the product as well as the processes of collection, storage, packing, cooling, and transportation, because these are of vital importance in the marketing of such products. Agriculture is a very competitive and risky business. To minimize the risks, producers and shippers must plan well in advance and obtain as much information as possible, establish communication with government authorities, importers and transporters. The producer and the importer must determine the following: • Can this product be introduced into the country? • Is there a market for the selected product? • What are the requirements regarding quantity, quality, packing, documents, and frequency of the shipments? • Will the sale price offset the costs of production, packing transportation insurance and marketing, and make a profit? • Is there appropriate equipment available for the transportation? It is important that the producers visit the buyers to obtain first hand information on the market, quantity quality, packing, prices and regulations applicable to the products. Also it is necessary to collect all the information on the costs of the refrigerated transportation, packing and other materials. Freight charges should be negotiated with the shippers. Such information may be compared with the projected production costs and estimated prices of the product This will provide an estimate of profits and losses in the operation. Exports of certain products, especially agricultural products, require certificates and export registrations, especially to certify that the products are free from diseases or to make sure that at the time of the export, the products are not restricted in the country of origin. For certain type of products certificates of inspection of the production are required (visit to the plant by a representative of the Ministry of Agriculture –MAGA) as well as a certificate of treatment to certify that the product is free from pests or diseases.

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Small Exports When dealing with exports of less than US$500.00 with a weight of less than 90 pounds, via air, the DEPREX process is not necessary. The cargo has to be taken to the airline, with the forms and a packing list with the values of each product. Exports of Drawback (Maquila) The Unit of Systems for Active Perfection (Unidad de Regímenes de perfeccionamiento activo) is part of the Bureau of Customs and was established in 1997. All export and import customs operations conducted by companies that qualify under Decree 29-89 have to be processed in this office, which is located within the premises of AGEXPORT. Procedures: • With the above mentioned documents, the transportation agent prepares: - Ocean waybill if the shipment is via ocean - Air waybill if by air - Letter (“Carta de porte”) of inland transportation is used. • The transporter delivers the waybill to the exporter and/or agent • The Customs broker prepares the Customs Declaration for export and sends it to Customs for processing. A fine will be assessed if this procedure is not initiated during the first 8 days after the export has been performed. • Phytosanitary Certificate After January 1, 2004 Guatemalan companies that do not have the EUREPGAP Certificate of Good Agricultural Practices are not able to sell their products in the European supermarkets. EUREPGAP is a standard developed by the main chains of European supermarkets as a guarantee to the consumers that the products they are buying were produced under a process that guarantees the innocuousness of the products, the conservation of the environment and the welfare of the workers. The European markets are strict and competitive and there are many possibilities for export but it is necessary that both the Government and the companies join efforts to increase competitiveness at the international level. It is expected that agricultural companies in Guatemala are working towards meeting the conditions to be certified and be able to export to the European markets.

Products of Vegetal and Animal Origin The products of vegetal origin require that the Technical Officer of the company certifies the information requested. For products of animal origin, the request for export must include a certificate from the authorized Veterinarian to verify that the products are healthy. Requirements to be met for the export of live animals, products sub-products and raw materials for animal use:

Zoo-sanitary Area: • Deposit Q16.00 at the Banco de Occidente in account No 01-157891071. For larger species (cattle, horses, etc.) • • • •

Application for an INTERNATIONAL ZOO-SANTARY CERTIFICATE Sanitary Certificate issued by an authorized Veterinarian Lab Tests for Diagnosis as requested by the importing country Export Authorization issued by the MAGA at the request of the country of destination.

For Pets: Dogs, cats (with no commercial value) • Application for an INTERNATIONAL ZOO-SANTARY CERTIFICATE • Sanitary Certificate issued by an authorized Veterinarian For One Day Chicks and fertilized Eggs • Application for an INTERNATIONAL ZOO-SANTARY CERTIFICATE • Sanitary Certificate issued by an authorized Veterinarian • Certificate of Avian Sanitary Origin issued by an authorized Veterinarian • Certificate on Avian Flu For export of small species (pigs, sheep, goats, etc,) • Application for an INTERNATIONAL ZOO-SANTARY CERTIFICATE • Sanitary Certificate of the animals issued by an authorized Veterinarian • Lab Tests for Diagnosis as requested by the importing country • Origin and Sanitary Certificates For Animal feeds not processed for human consumption • Application for an INTERNATIONAL ZOO-SANTARY CERTIFICATE • Sanitary Certificate issued by an authorized Veterinarian or by the processing plant • Number of the license for operations (current) • Official Sanitary Certificate for Hydro-biological products • Official sanitary certificate issued by a Veterinarian of the slaughter house. Raw Materials for animal use (Veterinary drugs, balanced feed, biological products, etc.) • Application for an INTERNATIONAL ZOO-SANTARY CERTIFICATE • Sanitary Certificate issued by an authorized Veterinarian • Certificate of registry of the product with the UNR (photocopy) Sub-products of animal origin (Salted leather, biliary stones, skins, semiprocessed leather, etc.) • Application for an INTERNATIONAL ZOO-SANTARY CERTIFICATE • Sanitary Certificate issued by an authorized Veterinarian, private

or from the slaughter house, certifying the good sanitary condition of the different sub-products Export of Wildlife • Application for an INTERNATIONAL ZOO-SANTARY CERTIFICATE • Sanitary Certificate issued by an authorized private Veterinarian • CITES Certificate (Certificate for wildlife issued by CONAP) • NOCITES Certificate (Certificate for captive animals for example: frogs, iguanas, etc. issued by CONAP)

Transportation for Exports All the ways of transportation have advantages and disadvantages. The selected medium will depend in a great measure on the marketed products, on the needs and preferences of the exporter and of course on the requirements of the customers or of the products. If you want to receive advice on logistics you can check a list of companies that provide support services in the area of transportation. The factors that you should take into consideration to select the way of transportation include: a. price b. term and delivery c. special requirements of the product The principal way of transportation are: Air It is fast, safe, and usual, the air way requires light packing in spite of the fact that it is more costly. However, it may be very convenient to transport items with little volume and high value. During the end of the year due to the high volumes to be transported by Air, the airlines charge higher rates as follows: Priority one for urgent cargo, the rates are higher Priority two for average cargo, intermediate rates Priority three for cargo that can wait and the rates are lower. This type of transportation is adequate for non-perishable goods especially if the quantities are small. When requesting quotes for air freight it is important to provide the net weight (weight of the product plus packing) and the measurements of the items (if boxes, you should provide height, width and length in centimeters) and the name of the airport in the country of destination. It should also be specified who will pay the freight. There is no problem if it is paid locally but if it is to be paid at destination, a letter should be provided indicating that the addressee will make the payment.

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Ocean One inconvenience is that it is slow. It may not be the most practical method to transport perishable goods. It is very economical for goods with considerable value in weight/volume relation for example vehicles, appliances, etc. The transportation of goods by ocean freight may take between 1 or 2 weeks. The cargo that is handled in containers is sent by ocean. However, you can send boxes (provided they do not contain perishable goods). Not all shipping companies handle boxes. Inland This type of transportation is direct, from the warehouse of the seller to the buyer. This is the most utilized means of transportation from Mexico to Panama and in general it is quick and safe. Prices vary depending on the company. It is important to consider the timing and if it is necessary to make transfers (from truck or container). This will affect the time and possibly the cost of a crew to load and unload. To request quotes for this type of services it is necessary to provide the transportation company information on the net weight of the goods as well as the measurements of the boxes.

is calculated based on the value of the invoice which is determined according to international standards contained in the Agreement of the World Trade Organization (OMC, before it was called GATT). This Agreement defines that the value at customs is the value of the goods subject to a commercial transaction therefore the base to be assessed is the price paid or to be paid and which is written in the invoice, provided it complies with the provisions of the Agreement. In some countries the cost of the transaction includes freight charges up to the point of export, as well as those charges for handling the goods, that is, they utilize the FOB (free on board) value. In other countries the FOB value is added to the cost of international freight and insurance, or CIF (Cost, insurance and freight) to apply the import tariff. The latter is applied in Guatemala to all imports. Specific Tariff This is expressed in monetary terms by unit for example US$5.00 per one meter of fabric of US$150.00 per each head of cattle. In this case, the real value, calculated or estimated of the goods has no economic impact. This tariff does not take into consideration if the price of the product is high or low. This type of tariff is not utilized in Guatemala.

For perishable goods it is necessary to request a refrigerated container, indicating the exact temperature, as well as to establish the schedules to maintain the cold chain. The logistics for handling these products has to be exact and well planned with the transportation company.

Tariff Classification Goods have to be identified when clearing them through customs to determine the tariff to be paid, to determine the correct taxes and to control compliance with non-tariff regulations applied at Customs.

Multi-Modal This is the combination of two or more of the above mentioned methods. For this type of transportation it is better to utilize containers

The goods that are integrated to the international trade flow are classified based on the harmonized system and codes of the merchandise and this has been adopted by most countries.

For the selection of the service you will have to contact one of the following:

International Bank Collections This type of operation can be requested by the exporter to its bank to process payment. The requestor (exporter) requests international collection services from the bank and should give clear and accurate instructions to the bank usually on an already developed format. The assignor must deliver the documents to the bank and in certain cases, some type of credit instrument (bill of exchange or promissory note) so that the bank, through their correspondent, deliver the documents against payment of the respective amount.

• customs agents • banks • transportation companies • international messenger or courier companies What is a tariff? A tariff is a tax which is applied to foreign trade to add value to the price of the goods in the market at destination. Imported goods pay taxes to balance the production of a country. There are different types of tariffs as follows: Ad Valorem It is used in most of the import tariffs and is expressed in percentages of the value of the goods at customs. This import tax

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International collections may be “simple collection” which handle exclusively financial document such as checks, bills of exchange and promissory notes and “documentary collection” which are enclosed in addition to the financial statements, other documents such as invoices, bills of lading, etc.

The exporter may instruct the bank to prepare the bill of exchange, keep it and then submit it for payment; they can also make the protest if the debtor does not accept nor pay. It is recommended that before utilizing this type of payment the company requests the advice of specialists (Bank agents) to be totally sure of the operation. Letters of Credit The Letter of Credit has become a basic element of international trade because of its use in modern business. It is very important that the exporter analyzes the alternatives or seeks advice from his/ her bank on the characteristics of the Letters of Credit. Who participate? a. Exporter or seller (Beneficiary). His/her participation starts when the terms and conditions of the letter of credit are negotiated. Later he/she shall ship the goods according to the agreement. He/she is also known as “beneficiary” because he/ she will receive the payment. b. Importer or buyer (Principal or Mandatory) is the person that starts the procedures and who requests the letter of credit. c. Issuing bank: If the bank that issues or opens the letter of credit in accordance with instructions from the customer, in this case, the buyer d. Intermediate Bank (Correspondent Bank). They can “notify” when they only inform about the credit and “confirm” when they deliver the confirmation of the credit to the customer. To carry out the operations the banks utilize foreign banks, known as “correspondent banks” that evaluate and rate the customers and documents to guarantee the success of the transaction. Types of Letters of Credit There are several classifications and we will mention only a few. Exporters should seek advice from specialists in the respective fields. a. Revocable. At any time the issuing bank may amend or cancel revocable letters of credit without giving notice to the beneficiary. However the issuing bank has to reimburse any other participating bank before amending or canceling the letter of credit in the transaction for any payment, acceptance or commitment for a deferred payment provided the documents meet the conditions of the original letter of credit. b. Irrevocable. Its main characteristic is that the issuing bank commits to pay, accept, negotiate and comply with deferred payments when due, provided the respective documents meet

the required terms and conditions. The only way to cancel or modify them is when all participating parties express their consent. If a letter of credit does not indicate if it is revocable or irrevocable, it shall be considered as irrevocable. c. Notified. This exempts the banks, other than the issuing bank, from any payment commitment for the beneficiary because they only notify the beneficiary about the terms and conditions of the operation. The only bank that commits to pay is the issuing bank, but usually this is located abroad. The great inconvenience of this type of letter of credit is that the exporter does not have the absolute and unconditional obligation of the issuing bank. d. Confirmed. This provides the exporter absolute certainty that the payment will be done. The confirmation of an irrevocable credit by another bank constitute a firm commitment, provided the documents required have been submitted according to the conditions of the credit. e. Revolving. Usually the letters of credit expire when they are utilized, that is, once the beneficiary obtains the payment or when the term is due. But there are situations in which the buyers and sellers require letters of credit very frequently because of their business transactions, for example in the case of a supplier of the same merchandise to avoid a letter of credit for each shipment. Under this procedure the term of the instrument can be revalidated automatically. One example could be requesting a revolving letter of credit for an amount of US$200,000 per month up to December 31, 2009, this means that the bank will have available for the beneficiary the amount of US$200,000 until that date. For this operation the bank will receive the documents for each shipment and pay the amount, provided this does not exceed US$200,000. f. Transferable. This type of credit gives the beneficiary the right to transfer the funds, totally or partially to one or more second beneficiaries; usually the beneficiary of the credit is the seller of the merchandise. However, as a result of an agreement between the parties, the credit may be payable to a third party. This procedure is utilized according to the flow of international trade, to the needs of the intermediaries who are the liaison (brokers) between the buyer and the seller and the needs for financing of the companies. g. Stand by. This type of letter of credit is utilized to guarantee the payment to a creditor if the debtor does not comply with contractual obligations, The only requirement for the beneficiary to collect is that it verifies (usually with a document certified by a third party) that the debtor did not pay as agreed.

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Important aspects to be kept in mind when working with a Letter of Credit: • Do not ship any order until you have received from your bank the confirmation of the letter of credit • Make sure that all the information in the documents is correct. The Letter of Credit is an agreement through which a bank (ISSUING BANK), at the request and according to instructions from a customer, commits through a Correspondent Bank to pay a Beneficiary up to a certain amount of money against presentation of the required documents and in accordance with established terms and conditions. Parties Involved: • Principal. Is the buyer or the importer • Issuing Bank Is the bank that establishes the credit • Correspondent Bank Is the foreign bank that processes the letter of credit • Beneficiary of the credit. Is the seller or exporter According to the form of payment they can be: • On sight. Those letters of credit where documents are delivered against payment • Term Those letters of credit where documents are delivered against the acceptance of a bill of exchange and for the time granted by the supplier, from 30 days to a maximum of 180. According to the origin of the request they can be: • Letters of Credit for Exports • Letters of Credit for Imports Benefits to the buyer: • They are assured that the payment will be made until the seller complies with the terms of the credit • Gets support from a bank to make the payments • Obtains a reduction of financial expenses, because the payment is made against delivery of documents • Gets professional and expert advice on this type of transactions. Benefits to the seller: • They are assured that they will receive payment as soon as they comply with the terms of the order • Improves liquidity of the business, and will receive payment within a certain term

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• An irrevocable letter of credit protects the seller from the risk of nonpayment due to insolvency of the buyer • Even when the exporter has granted credit to the buyer he/she can have liquidity by using bills of exchange associated to the operation, if necessary. Processing a Letter of Credit: • Step 1: The Principal requests a letter of credit to the bank and fills an application • Step 2: The Principal sends the request to the Issuing Bank with all the legal and financial documents required • Step 3: The Bank reviews the application and authorizes the Letter of Credit • Step 4: Once the Letter of Credit is authorized the Issuing Bank generates a Swift message or text to the correspondent bank. The Buyer may also receive a copy of the Swift message. • Step 5: The correspondent bank receives the Swift message and notifies the Supplier or Beneficiary • Step 6: The Supplier or Beneficiary receives the notification from the correspondent bank informing that the Letter of Credit of the customer has been issued. • Step 7: Once the Supplier or beneficiary is notified, it ships the order to the destination as provided in the Letter of Credit. Stand By Letter of Credit Is a flexible instrument that can be utilized to guarantee different types of contracts and if the requestor does not comply with the covenants, the bank guarantees payment to the beneficiary. The Stand By Letters of Credit are: a) international b) local These Letters of Credit are also known as bank guarantees They support commercial, financial or services transactions It is utilized as guarantee and is made effective in case of incompliance with the obligation. For more information you can contact: AGEXPORT – www.export.com.gt Ventanilla Única de Exportaciones http://vupe.export.com.gt/servicios-vupe/codigo-de-exportador

By: VUPE Up to 1986 the processing of exports in Guatemala was very bureaucratic and troublesome. In 1986 a group of exporters, aware of the need to improve the process and to make international trade more viable, requested the Government of Guatemala, through the Ministry of Economy, its support to merge all the public and prívate institutions which participated in the export process. Thus, in September 1986 Government Resolution 790-86 was enacted, creating the Ventanilla Unica – VUPE - (One stop Office) under the direct responsibility of the Ministry of Economy. Later and to maintain the processing of exports as smooth as posible, in 1998 the Ministry of Economy in Government Resolution 575-98 delegated on AGEXPRONT the functions of VUPE, and committed to implement the Electronic System for the Authorization of Exports called SEADEX (Sistema Electrónico de Autorización de Exportaciones). One of the legal basis for VUPE is Resolution 142-2001 which, as a result o the law on foreign Exchange (Resolution 94-2000) eliminated the export license and created the document which is now used the: “Declaración para Registro y Control de Exportaciones DEPREX” (Declaration for the Registry and Control of Exports, DEPREX in Spanish).

Mission

To centralize and coordinate the entities involved in the export process and facilitate the commercialization of Guatemalan products, implementing the development of Foreign Trade projects and contriute to improve the competitiveness in the country.

Vision

To facilitate the export process Services Personalized and telephone assistance to exporters Assistance via e-mail to the exporters Seminars and training courses Export Statistics Information bulletin on customs procedures CODE FOR EXPORTERS SEADEX (Servicio Electrónico de Autorización de Exportaciones, process of documents from the office of the exporter.) - DEPREX - FAUCAS - TEXTILE FORMS (EXTEX) - CERTIFICATE OF ORIGIN TLC - CAFTA - ELECTRONIC SIGNATURE INAB

DUA - GT (Web SERVICE) - SIMPLIFIED (re-printed) - COMPLEMENTARY - PROVISIONAL - COMPLEMENTARY-PROVISIONAL - NORMAL 22-ED (Soon 157-MR) - RECTIFICATION TELEPHONE REQUESTS CERTIFICATES OF ORIGIN SGP (EUROPEAN UNION) SUPPORT SERVICES PAYMENTS ON LINE CONSULTATIONS AT AGEXPRONT PORTAL LOCAL PHITOSANITARY AND ZOO-SANITARY CERTIFICATES (MAGA) ELECTRONIC PHITOSANITARY CERTIFICATES (PIPPA) ZOO-SANITARY CERTIFICATES (PIIPA), (ELECTRONIC PRINTING, REVISED BY VUPE)

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CHARGES FOR ELECTRONIC DOCUMENTS: DOCTO. Exports (DEPREX/FAUCA) DUA COMPLEMENTARIA 29-89 DUA COMPLEMENTARIA DEFINITIVA DUA NORMAL DEFINITIVA DUA PROVISIONAL 29-89 DUA RECTIFICATORIA 29-89 DUA RECTIFICATORIA DEFINITIVA DUA SIMPLIFICADA 29-89

Q Q Q Q Q Q Q Q

40.00 60.00 50.00 50.00 50.00 45.00 35.00 35.00

VUPE is an example for all offices of the region, it recently was awarded the ISO 9001-2000 Certification which is given to those companies or service institutions that utilize an excellent tool, offer the best quality products and services as well as a high level of customer satisfaction.

With this certification both offices are rated as world-class entities. Source: Revista DATA EXPORT, volume 196, April 2009 CONTACT Export Services Tels: (502) 2422-3535, 37 y 38 FAX: (502) 2422-3540 e-mail: seadex@agexport.org.gt Address: 14 Calle 14-30, Zona 13 Office hours: 8 a.m. a 5 p.m. Contact: J. Estuardo Arriaga P. Director of Vupe – Manager of OPA WEB PAGE: http://www.export.com.gt/ Portal/Home.aspx?secid=97 Source: Ventanilla Única para la Exportación –VUPEhttp://www.export.com.gt/ Portal/Home.aspx?secid=97

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Among the best examples of efficiency we can mention that the issuance of the export license -DEPREX- takes from the time the exporter inputs the information. Today 96 percent of the transactions are remote from the offices of the exporters, avoiding costs related to transportation, time, and intermediaries.

Easy Access

The philosophy of VUPE has resulted in easy to access services, which are available to the exporter at any time. These offer accuracy, low cost and security because the information contained in the transactions cannot be altered. This is constantly verified by an internal auditor to guarantee compliance with all appropriate processes. VUPE is considered one of the most developed entities in Latin America, because it handles the largest volumen of trade in Central America.

OPA also received the ISO 9001-2000 certificate which guarantees quality compliance in all the processes to register and control all the companies covered by Decree 29-89. It has developed a system whereby the companies can enter the transactions from their facilities. Today 48% of these transactions are done remotely and 15% are done personally.

More efficient than ever

The misión of VUPE is to centralize and coordinate the institutions involved in export processes to facilitate the marketing of Guatemalan products. Now the authorities are looking to integrate Nicaragua and Costa Rica in a Central American electronic network which will increase competitiveness in the region. Estuardo Arriaga, manager of VUPE and OPA reported that as of today, Guatemala, Honduras and El Salvador have merged their one stop offices. The purpose of this alliance is to improve trade between the Central American countries and work towards Central American integration to make exporters more competitive. When the cargo arrives at the destination, all the documents are ready. The Certification was obtained in record time: 7 months. This shows the high quality of the processes and will increase service standards, trust and satisfaction of the users, improve the level of VUPE-OPA at the world level and comply with the goal that the office may become the leader of practical improvements in Latin America

Foreign Investment Law Authors: ARIAS & MUÑOZ José Augusto Toledo, Partner. Vivian Morales, Associate. Gabriela Platero, Associate. Ligia Salazar, Associate. Cynthia Soto, Associate.

Main economic sectors of Guatemala are open to both local and foreign investment and ownership; however, some restrictions apply to sectors considered to be of strategic interest, such as military. The Foreign Investment Law of Guatemala (Decree 9-98 of the Congress of Guatemala), promotes foreign investment and includes provisions that recognize and guarantee private property rights equally for Guatemalan nationals and foreign investors and establishes an equal treatment between domestic and foreign investors. This law expressly forbids all and any discriminatory actions towards foreign investors and establishes that no restrictions can be placed on foreigners for owning any amount of stock in Guatemalan business entities. A law project was presented at the Congress of Guatemala on January 14th, 2013 including the draft of the “Law to Promote Investments and Employments” identified with Registration Number 4644 to promote national and foreign investments to create employment opportunities and increase tax income for Government. This law initiative is currently being analyzed and reviewed at Congress but there has been no advancement to approve this law. The financial activities or foreign investors are subject to the general protections granted to any kind of investments carried out in Guatemala. The Foreign Investment Law, Chapter 10 (investment chapter) of DR- CAFTA FTA as incorporated by its Chapter Twelve referring to Financial Services Chapter, and the Guatemalan Constitution clearly provides that foreign investors will receive a treatment not less favorable as national investors. The Foreign Investment Law of Guatemala has been valid and binding since March 1998. Its main objective is to encourage domestic and foreign investment

in Guatemala and it was issued to comply with a fundamental obligation of the Government established in our Constitution (Constitución Nacional de la República de Guatemala), to protect and promote capital formation, savings and investment. Before the enactment of this law, applicable legislation was contained in different laws and regulations and therefore it was considered appropriate and necessary to organize and systematize them into a single legal instrument, thus creating the Foreign Investment Law. Although the Guatemalan legal framework already recognized full equal treatment between domestic and foreign investors, there were some laws that included specific limitations for foreign investments such as: fishing licenses, companies commercially providing transportation services, commercial use of radio and television channels in the Radio Communications Law, oil drilling activities, all these were expressly eliminated with this new law. Providing insurance services was limited to Guatemalan nationals until the enactment of the new Insurance Law in 2010 through Decree Number 25-2010 of the Congress of Guatemala. One of the most valuable aspects of this Foreign Investment Law is that it recognizes the foreign investor the same treatment granted to domestic investors in the development of economic activities. This means that any foreign investor has equal legal conditions as domestic investors and this is a great incentive for foreign investors in Guatemala, given that not every country grants this. Our law expressly prohibits any act of discrimination against a foreign investor or its investment in Guatemala. The original text of the law stated that it should apply equally to all foreign investment, regardless of the country they come from, however in 2007 there was an amendment to it and it was established that full equality will be extended to foreign investors from any country or

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nation that is a member of the World Trade Organization (WTO) or with whom the Republic of Guatemala has signed any agreement for it inclusion in that institution, thus limiting the extend of this right. The aforementioned is regardless of the fact if Guatemala does or does not maintain diplomatic relations with that country or has no formal business with such countries or nations. According to the Foreign Investment Law, Foreign investors may participate in the development of any lawful economic activity in Guatemala, as well as any contribution to the capital of a corporation organized under Guatemalan law. Nevertheless there are some limitations to the aforementioned regulated in specific laws, such as: A) Guatemalan Constitution establishes that the Government reserves the domain of a strip of land three kilometers along the ocean, starting from the top line of tides, two hundred meters around the lake shores, a hundred meters on each side of navigable rivers, fifty meters around the fountains and springs where populations obtain its water supplies. There are two exceptions to the aforesaid: A.1) if the land is located in urban areas and A.2) if the land was acquired prior to March 1st, 1956. If any of the lands included in the referred exclusions wants to be sold to foreigners it is required to obtain an express authorization from the Executive Branch of the Government to do so. B) Forest Law Decree Number 101-96 of the Congress of Guatemala establishes that only a Guatemalan national can be awarded with Government land concession for the sustainable management of a forest. C) Immigration Law (a foreigner requires to have an immigration permit to stay in Guatemala for more than 90 days), among others that regulate the development of a specific activity. Please refer to the next section called “Other Laws that promote

foreign investment”. D) Law of Regulated Substances (Ley de Especies Estancadas), Decree No.123-85, requires that 60% of the shareholders have to be Guatemalan individuals to grant the authorization to commercialize any of these regulated substances. Foreign Investment Law establishes that no public officer or employee may request any additional requirement, condition or qualification applicable to any foreign investors that are not expressly included in a validly binding law. In addition to establishing full equality for foreign investors, the Foreign Investment Law expressly recognizes the following rights for all foreign investor: • Private Property. • Expropriation, only for reasons of collective, social benefit or social interest can be proven. • Free trade. • Free access to foreign exchange. • Prohibition of confiscatory taxation and double taxation. Regarding administrative matters to apply this law, the Foreign Investment Law establishes the “Investment Office” as a department of the Ministry of Economy for the attention of foreign investors (through the Government Decision No.532-92). The final provisions of the Foreign Investment Law expressly provide that any restriction, requirement or condition applicable only to foreign investors for the development of a business or foreign investment in Guatemala contained in a law that has not been expressly modified or amended by this law is automatically unenforced. Sources: • http://www.congreso.gob.gt • http://www.congreso.gob.gt/noticias.php?id=5753 • http://www.sice.oas.org/investment/NatLeg/GTM/GuaDc998_s. asp • http://www.plazapublica.com.gt/sites/default/files/04_ley_de_ promocion_de_inversion_y_empleo_01_0.pdf

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Investment Opportunities in Guatemala By: Invest in Guatemala

WHY GUATEMALA? For being the economic hub of Central America and meeting point for business thanks to competitive advantages such as geographic location, rich natural resources, quality of the workforce and high logistical performance, Guatemala has a solid infrastructure and increasing technological avidity, positioning itself as the metropolis of the region. Since 2003, the country shows a 375.6% growth in Foreign Direct Investment (FDI), which shows the strength of its economy and the confidence of large foreign and multinational companies.

INVESTMENT AREAS: BPO: Guatemala has emerged as the best nearshore destination of Central America and the Caribbean to the BPO industry, offering bilingual (English & Spanish) with high quality standards as well as support in other languages (French, German, Portuguese, Italian, among others. The country is the largest and youngest of all Central workforce, with over 15 million (of which over 70 % is under 40 years); this human, young and dynamic resource offers a sustainable workforce; ensuring high returns to investors. Today the industry consists of 35,000 agents, the presence of major international and national companies, exporting services to the United States, Canada, Mexico, Central America; and other countries in Latin America and the Caribbean and Spain. Guatemala has a highly organized industry which together with the government aims to generate more than 100,000 direct jobs by 2020, based on a strategic plan for development: human resource, infrastructure and industry promotion. This plan is being led by CEOs of major national and international companies operating in the country in a joint effort with the Ministry of Economy, National Competitiveness Program (PRONACOM), Invest in Guatemala, among others.

ENERGY AND OIL: The energy and oil industry is one of the greatest potential investment attractions for large foreign corporations. Guatemala is the largest exporter of electricity in the Central American region, where exports reach up to Panama, thanks to the Central American interconnected network (SIEPAC). We have a mature market, specific and delimited legal framework, and high standards FOOD INDUSTRY: This sector is key due to the large amount of natural resources and variety of microclimates that make the country stand out for its agro-industrial production, with recognized and globally competitive products. Proximity and easy access to markets in North America (The United States and Canada, 348.6 million people), Mexico (120.8 million people) and is the gateway to the Central American market with 40.4 million people. FORESTRY: Guatemala is a country of fertile land and a variety of microclimates that allow for the growth of high quality wood such as Cedar, Mahogany, Rosul, Palo Blanco, Hormig贸n amongst others. The main export destinations are El Salvador, Honduras, Costa Rica, United States, Mexico, Colombia, Peru, Chile, Italy, Brazil, Venezuela, Dominican Republic, Ecuador, Argentina, Belgium and Spain. INFRASTRUCTURE: The country has the ideal geographic location and natural conditions to consolidate itself into a logistical and service hub at the regional level. Infrastructure consists of interconnected roads, efficient ports certified in quality and safety in both the Atlantic and Pacific Oceans. It also has modern infrastructure with access to the Network Access Point of the Americas through submarine and terrestrial cables, with installed capacity of 25 STM-6 fiber-optic rings of, 99.99% of network availability, mobile wireless 4G technology available, private landline speeds of up to 10 mbps and 30-50 mbps for internet speeds. LIGHT MANUFACTURING: This industry is extremely dynamic with a strategic geographic location, competitive costs and manual labor abilities, making Guatemala

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an important destination and overall ideal partner for the sector. Currently, Guatemala seeks to position itself as a world-class investment destination, generating quality products and developing strategic sub sectors that require advanced technology, such as electronics, manufacturing, refrigeration equipment, auto parts, plastics, pharmaceuticals, medical devices, cosmetics, and software amongst others. MINING: Guatemala has unique resources for investments in mining and strong support of a stable legal framework focused on the dynamic nature of the competition. The geographical location of Guatemala allows for the export of products and supply of minerals to major markets worldwide. The country has trained workers for the development of the mining industry. In January 2014, The Ministry of Energy and Mines issued a total of 359 mining licenses for exploration and exploitation. Mining actively supports the development of the country, bringing in more than $ 7 million each year in royalties and taxes to the State and developing activities to support communities. GARMENTS AND TEXTILES: This category includes the clothing, textiles, accessories, thread, buttons, labels and logistics services industries. Guatemala produces fabrics with synthetic filaments, special fabric, knitted fabric, yarn dyed fabric, twill, Oxford and fabric for special purposes. The country produces garments for brands such as Adidas, Nike, Polo Ralph Lauren, American Eagle, Donna Karan New York, Guess, Tommy Hilfiger, Old Navy, Gap, Abercrombie & Fitch, Hollister, among others. TOURISM: Guatemala is a multicultural country and with more than 23 ethnic groups that represent strong cultures. We are proud to say that there are three sites declared as locations of Cultural and Natural Heritage of Humanity (Tikal, QuiriguĂ&#x192;ÂĄ, and Antigua Guatemala) The country has climatic conditions for tourism development throughout the year, making it one of the most dynamic sectors with higher levels of growth in the last decade. There is competitiveness in price-quality to offer tourist services with global standards at the most affordable prices in the region.

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Other Laws that promote foreign investment Forestry Law

The Forestry Law (Decree 10196) grants economic incentives to Guatemalan persons and companies who engage in reforestation projects of more than two acres, for up to five years. These incentives consist on an annual monetary compensation for the expenses incurred while carrying out this activity. These incentives are approved and granted by the National Forestry Institute (INAB). Currently, Forestry Incentives are detailed in Resolution JD.03.31.2014 issued by the Board of Directors of INAB. Also, the law states that INAB will create a credit guarantee program that will endorse credits granted by banks to small owners who have reforestation projects of less than 15 acres.

Incentives Law to Develop Renewable Energy Projects

The Incentives Law to Develop Renewable Energy Projects (Decree 52-2003) declares of national interest the rational expansion of renewable energy resources. Therefore, it grants to any person who develops such projects the following incentive: Exemption on import tariffs, including the Value Added Tax (VAT), to machinery and equipment imported to be used in generating such energy.

Hydrocarbons Law

The Hydrocarbons Law (Decree 10983) seeks to create the adequate mechanisms to stimulate investments in petroleum operations, in order to rationally use such natural resource.

Carbon Credits

Government Decree 388-2005 appointed the Ministry of the

Environment and Natural Resources as the Designated National Authority (DNL), in charge of managing the obligations deriving from the Clean Development Mechanism (CDM), included in the Kyoto Protocol. The NDL will review all files regarding projects that apply to CDM and grant the letter required by the Secretariat in order to obtain approval of the project. These projects must advocate to minimizing pollution and producing clean energy. These approvals will be subject to any changes made to the Kyoto Protocol in the year 2015 by the Conference of the Parties.

Drawback Industries Law

The Drawback Industries Law (Ley de Maquila, Decree 29-89) seeks to promote the manufacturing of merchandise in the country, to be exported or re-exported abroad. The law provides for the following tax exonerations: a) on customs duties on machinery, equipment, raw materials and spare parts; b) on Value Added Tax (VAT) on imports; c) on income tax for 10 years; d) on export taxes. The law excludes certain products from these benefits. These exonerations are obtained from the Ministry of Economy.

Free Trade Zones Law

The Free Trade Zones in Guatemala are regulated according to Decree 65-89 Law of Free Trade Zones. There are more than 15 free zones currently operating in Guatemala. The benefits which may be enjoyed for being within one are exemption of taxes and excellent location, besides offering the public utilities of power, water, telephone, internet service and security.

The users of free trade zones can be natural or legal persons, previously authorized by the Ministry of Economy to operate in a Free Trade Zone. The users may be: a) Industrial Users: When they dedicate themselves to the production or assembling of assets for the exportation outside of the national custom territory, re-exportation, or to technological research and development. b) Service Users: When they dedicate themselves to the rendering of services linked to international commerce. c) Commercial Users: When they dedicate themselves to the activity of commercialization of goods to be destined to exportation outside of the national custom territory, as well as to the re-exportation without performing activities that would change the characteristics of the product or alter the origin of it. The Free Trade Zones Law basically provides for the following benefits: • Exemption of income tax for five years for commercial activities. • Exemption of income tax for ten years for industries and the rendering of services. • Exemption of VAT on operations inside and between free zones.

Law of the Industrial Free Zone of Santo Tomás de Castilla (Decrees 22-73 & 30-2008)

The Industrial Free Zone of Santo Tomás de Castilla-ZOLIC, basically provides for the following benefits:

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• Exemption of the Income Tax for the period of ten years. The period for the exemption will start from the date the entity will initiate operations in the Free Zone and the notice has been made to the Tax Authorities. • Exemption of the Income Tax from the dividends that are granted to the shareholders or partners of the users of the Free Zone; • Exemption to the Added Value Tax and tariffs applicable to the importing of goods to the Free Zone. • Exemption to the Value Added Tax for the inside and between the Free Zone; • Exemption to the Taxes Stamps over documents that contain acts and contracts between Free Zone. The Income Tax exemption will not apply as of January 1, 2013, since Decree 10-2012 that will regulate the Income Tax as of that date does not specifically include such exemption. It will be important to verify if Congress of the Republic issues a new law creating a specific exemption for this law.

Investment and Employment Law (Bill of Law No. 4644)

As part of the WTO Marrakesh Agreement, Guatemala has the obligation to eliminate any subsidies contingent upon import and export performance within a period ending on December 31, 2015. In order to meet the obligations acquired with the WTO, an amendment to the following laws is required: a) Drawback Industries Law (Decree 29-89), b) Free Trade Zones Law (Decree 65-89), and c) Law of the Industrial Free Zone of Santo Tomás de Castilla (Decrees 22-73 & 30-2008). The amendments must eliminate any

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tax incentives that benefit imports and exports or make amendments benefitting only non-agricultural goods and services. Currently, Congress of the Republic is discussing the approval of Bill of Law No. 4644 - Investment and Employment Law. This law´s purpose is to continue the benefits granted by the affected laws, and seeks to promote the placement of capital in economic development zones and economic development units . Bill of Law 4644 has obtained Favorable Opinion number 1-2014 from the Economy Committee of Congress. However, in March 2014, the Tax Authority issued a negative opinion, alleging a fiscal impact and thus this opposition has prevented that the bill is brought to the attention of the Plenary of Congress. Several amendments to the Bill of Law have been proposed to counter this fiscal impact. Retired Residents Law (Decree Law 95-98) Foreigners who have a lawful permanent income generated outside the country and decide to stay indefinitely in the country without engaging in any kind of paid work may apply for the category of Pensioned residents y Rentiers residents. Pensioned residents: foreigners who are beneficiaries of a pension or retirement granted by Governments, international organizations or foreign private companies. Rentiers residents: foreigners who have stable and permanent income from rents generated abroad. To obtain the residence, the interested parties will have to justify and verify

conclusively that the incomes belong to either one of the two categories referred above. The pensioned or rentiers will be able to apply for the residence in favor of their spouse and children under 18 years old and of legal age who are incapacitated, or those of legal age who are attending college and financially depend on the applicant. Benefits: • Exemption on duties of household goods, furniture and equipment imported during the first year of residency. (Ruling of maximum amount is pending) • Exemption on import duties for vehicles every 5 years, except Value Added Tax. • Exemption to the payment of inscription, renewal or change of the migratory status.

Free foreign currency negotiation law (decree No. 94-2000) The law was created in order to be free in Guatemala to bequest, possess, contract, remittance, transfer, purchase, sell, charge and pay in and pay with foreign currency by individual or juridical person, national or foreign, the utilities, losses and the risks derived of the operations of that nature made.

It also allows having and managing deposits and accounts in foreign currency, as well as operations of financial intermediation, in national as well as foreign banks. Authors: José Augusto Toledo, partner. Vivian Morales, associate. Rosa María Arenales, associate Gabriela Platero, associate. Ligia Salazar, associate. Cynthia Soto, associate. Arias & Muñoz

Responsible Businesses to Stimulate a Resilient Country Alliance for Prosperity: Economic, Social and Political Opportunities

On February 2, 2015, the United States Obama-Biden Administration, through the United States Department of State, sent the 114th Congress their FY2016 Congressional Budget Justification (CBJ). The CBJ requested over $1 billion USD in 2016 foreign assistance to be directed towards the Northern Triangle region in order to address the underlying causes of the over 112,000 children and family members crossing the U.S. border in 2014. Approximately $785 million in Development Assistance funding through the USAID would mainly focus on improving the business climate for private-sector job creation in Central America, focusing on “job creation” for the most vulnerable populations through what is called the “Alliance for Prosperity”. The Alliance for Prosperity (A4P) offers a great opportunity to stimulate the economies of the Northern Triangle nations and help to further shift positively the internal political and social aspects. For the A4P to become a turning point in the development of the region, much attention should be paid to the state of transparency and corruption within these nations, giving heed to state actors that can successfully integrate the policy initiative. According to the 2014 Transparency International Corruption Index, Guatemala ranks 115 and Honduras 126 out of 175 nations on how corrupt their public sectors are perceived to be. However, the 2015-citizen lead, peaceful demonstrations in the region, especially in Guatemala, shows that the region has strengthened its democracy, upheld the rule of law, and have matured institutions. The recent corruption scandal and following resignations of Guatemalan President Otto Molina Pérez and Vice President Roxanna Baldetti, followed by elections in Guatemala that had a historic 70% voter participation, have shown that the electoral system works and that the judicial system has been strengthened in the sense that corruption will not be tolerated no longer in the region. This makes Guatemala and the region a good partner to develop this initiative.

Authors:

Licenciado Juan Pablo Carrasco de Groote, Partner, Central Law Guatemala Vice President, AMCHAM Guatemala

However, we must tread carefully on the extent of public sector involvement with the A4P initiative, and take steps to continue to ensure transparency by having a combination of public and private sector involvement. Businesses thrive throughout the Northern Triangle region, most notably in the energy and commodity driven industries, demonstrating that the Northern Triangle private sector is a capable actor of which to partner. In turn, it would be advisable to focus on a public-private sector partnership to oversee and implement the A4P plan. Public-Private Sector Solution- Business Stimulus Grants: The A4P could provide contingent grants to established businesses/investors in order to finance a socially responsible and job-creating venture, overseen by a balanced Public-Private Sector Commission, that would stimulate their country’s economy, increase the number of quality jobs, and improve the local community within their area of investment.

Katrina Velasquez, Esq., M.A. Vice President of Corporate Social Responsibility & Government Relations, The Reilly Group, Inc.

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The businesses will provide a three-year investment plan that would include a large increase in job creation, socially responsible practices and programs for the local community, as well as fair labor and sustainability practices. If the business reaches its projected goals after the threeyear period, they may reapply for another A4P grant and will not be required to payback any of the funds. If the business does not reach its projected goals, the A4P grant funds provided will convert into a loan, and the business will be required to pay back the investment with interest. Public-Private Sector Commission (Dialogue) As Northern Triangle citizens and entities have the strongest relationships and local information in regards to other local entities reputations, a Commission that channels public private participation should be created to oversee the A4P contingent business grants. The Commission must include a variety of carefully selected stakeholders including representatives from the private sector, local government, and members of civil society, in order to encompass the collective knowledge and buy-in from the nation. The Commission would then conduct outreach for a Request for Proposals to apply for the A4P business grants, thoroughly vet the applicants, and oversee the grants. Oversight from the Commission should include strong accountability measures including quarterly progress reports and annual social audits conducted by a professionally certified social auditor. At the end of the grant period, the Commission will determine if the business grant recipient achieved its originally stated goals, and if not, begin the loan collection process from the business. CSR-Oriented Business Stimulus Grant Corporate Social Responsibility (CSR) is the continuing commitment by businesses to behave ethically and contribute to economic development, while improving the quality of life of the workforce, their families, and the local community and society at large. A

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number of companies across the world have situated themselves as voluntary CSR leaders such as Pandora, Starbucks, and Disney and have made great strides in further developing and sustaining the communities they work in. Under this concept of good labor practices, sustainability, and community development and the reward of keeping the funds if goals are achieved, the A4P business stimulus grants will differentiate themselves from past internationally funded grants and loans.

Currently tourism in Guatemala is dedicated to adventure tourism, lacking the luxury tourism that stimulates the economies of other Latin American countries such as Mexico’s QuintanaRoo region (Cancun). However, as with the Quintana Roo region, Guatemala possessesa largely untouched eastern coast filled with white-sand beaches, the fresh waters of Rio Dulce, and the jungle. At this time, there are very limited options to comfortably travel to and stay on the eastern coast of Guatemala.

Each of the grants will be required to meet the following requirements: • Create Numerous, Quality Jobs: To help stimulate the economy, the business must create a large number of new, full-time jobs, offering employees a living wage. • Apply International Labor Standards: Businesses must ensure International Labor Standards are practiced throughout their business to foster safe, inclusive, and respectful workforces, including elements such as not using child labor. • Invest in the Community: The business must create direct investment programs in the local communities of the business, such as programs to improve the schools, local hospitals, or other aspects to better the community for both their employees and the local citizens. • Enact Sustainable Practices: To protect the local community and nation, the business should also employ sustainable environmental practices.

A company could apply for the A4P stimulus grant to develop luxury tourism on the east coast of Guatemala. The plan could include building all-inclusive resorts, hiring 500 local staff to building the facilities and staff the resorts, and building up the communities surrounding the resort location.

Throughout the cycle of the grant, the business must submit quarterly progress reports to the Commission, detailing the progress of all four factors. In addition, the business must receive an annual certified social audit from an outside actor, reporting on the labor standards and local community investment to the Commission. Tourism Case Example To illustrate how the business stimulus grant would work, take the hypothetical example for the economic development of the eastern coast of Guatemala.

To address the CSR requirement, the company could pledge to incorporate the Pandora-model of CSR, using 1% of the profits to go towards their local community development. In building up this investment, the funds could be used to invest in the community’s local schools for their employees children and community members and providing a private security to supplement the local police for the community and investment area. At the end of the three year period, when the company met its A4P original planned goals, it is permitted to keep the A4P investment with no strings attached and the ability to apply for funds to develop Phase 2 of the project. Conclusion In conclusion, a public-private partnership focused on creating CSR-oriented business stimulus grants aid the economy by creating quality new jobs and a thriving business while also improving the social-sector through community development. While the proposed plan will not be a “quick fix”, it will create long-lasting economic and social development in the region

Guatemalaâ&#x20AC;&#x2122;s Economic Competitiveness Faced with the Political Conjuncture Guatemala and other countries that comprise the area known as the Northern Triangle (Honduras and El Salvador) have the opportunity to collaborate closely and jointly with the United States in the Alliance for Prosperity, an initiative reminiscent of the Alliance for Progress by the Government of John F. Kennedy in the early sixties. The change in name of the Alliance with the United States is the result of historical lessons learned from the past. Foreign aid does not always help; especially, when it is aimed at development before economic growth - which is what makes it possible.

By Nicholas Virzi, AmCham Vice President and Government School Director of Admissions

The Alliance for Prosperity has a better approach: economic aspects before social. However, you should not overlook that political aspects could precede economic ones, and this happens in Guatemala. Guatemala is weak precisely in the prime factors that should be reflected institutionally so that the country can enter into the path of economic growth and, eventually, sustainable human development. These factors are the rule of law, legal certainty, good investment and business climate, clean money, and a system of protection for property rights. But first Guatemala must cure its public institutions if it is to undertake projects that aim to make a positive contribution to national development. Guatemala is wrong in terms of its public institutions. This is reflected in data from international organizations such as Transparency International, the World Economic Forum, the World Bank, and the Heritage Foundation, among many others. The bad news is that the entirety of the indicators from all international organizations rate Guatemalaâ&#x20AC;&#x2122;s public institutions very low. This speaks very poorly about the image of Guatemala as a country. Nevertheless, the good news is that Guatemala has probably already passed an inflection point in terms of its political weaknesses. It passed the prerequisite test to improve as it faces the future. Guatemala has correctly diagnosed its paramount problem, corruption.

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It might seem reasonable to conclude that, as a result of its political regime, Guatemala is a lost country due to the fact that the former elected president and vice president, and the private secretaries of both are in jail, facing criminal charges for corruption. As if that were not enough, the entire cabinet resigned in mid - 2015 at the request of the new president, Alejandro Maldonado. Many government officials have been replaced, appointed by the new president. Unfortunately, many of these persons are far from ideal for the job, as usual. However, one should not sink into pessimism about the political future of Guatemala. The fact that there has been a renewal of the cabinet reflects the understanding that renovating the cadres is necessary in order to establish a different path to that followed by the corrupt government of Otto PĂŠrez Molina. Nevertheless, the next government is clear on the path to follow. Quality indicators of public institutions must be strengthened: protect property rights â&#x20AC;&#x201C; especially, intellectual property rights, restore trust in politicians, avoid misappropriation of public funds, prevent favoritism in political decisions and wasteful government spending. Guatemala, among other countries in the Central and Latin American region, must deal with its crime problems promptly.

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The good news is that 2015 has made clear that Guatemalans know the steps to their own development. They have taken a leading role to ensure that the issues of private sector actions for development are more accepted, since political promises of redistribution in exchange for poverty reduction projects have failed. This is known to be false. Guatemalans have rejected socialist development solutions. Amid a situation marked by purging the corrupt, this is a remarkable fact in the intellectual history of Guatemala. It is known that a corruption-free state is necessary in order for development to be accomplished. With that alone, we would not need a deliverer State. Guatemala has made the necessary changes to become a country worthy of receiving direct foreign investment. In the midst of an institutional crisis, Guatemala has shown the international community that, with their assistance in legal and judicial matters, corruption can be penalized. This makes future expectations better than they have been in the past. Much better. Guatemala has diagnosed its political ills and has taken the correct politic and judicial decisions to remedy these problems. Guatemalaâ&#x20AC;&#x2122;s future, in terms of economics, business and politics, is better in late 2015 than it has ever been in the last 10 years. It is time to take advantage of the economic political situation and invest in Guatemala.

Challenges facing Guatemala to attract investment in the Partnership for Prosperity By: The Director of Competitiveness of the Guatemalan Association of Exporters - AGEXPORT

The Prosperity Plan for the Northern Triangle is an initiative that was created to reduce the migration of people from Central America to the United States; particularly, from Honduras, El Salvador, and Guatemala. According to information produced by specialists in the field, 46,000 minors migrated leaving throughout their paths harassment, abuse, ill treatment, extortion, and many, even life. The problem accentuated in 2014 when migration became a humanitarian crisis due to the wave of unaccompanied children crossing different borders. The problem is not new and its roots are structural â&#x20AC;&#x201C; they are the result of lack of conditions for investment in productive activities to generate sufficient job opportunities. The basic conditions of competitiveness that any national or foreign investor needs in order for him to risk his capital can be summarized as: legal certainty, macroeconomic stability, qualified human resources according to the needs of todayâ&#x20AC;&#x2122;s global production, an infrastructure that provides the necessary logistics to obtain inputs and to mobilize production easily, and an environment friendly to productive activities that involves agile and transparent procedures, hence eliminating costs and corruption. One cannot go against the flow of the basic rules of entrepreneurship, no matter how small or big. What you seek is to produce, grow, and endure. The Prosperity Plan for the Northern Triangle poses significant challenges for public, private, and community leaders across the country to undertake far-reaching actions with emphasis on geographical regions with production potential. The four major areas of work of this ambitious plan are: human capital development, private sector encouragement, improved security and justice, and strengthened institutions.

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One of the most critical challenges faced is reaching consensus on where and what specific actions to undertake in each region according to the potential that each area has in natural resources, tourism, the skills of its population, its proximity to logistics routes, urban centers with connectivity, quality energy services, and also mobility services to attract successful management for investment. Another challenge is to develop new community leaders capable of recommending projects and making proposals based on the objectives to be achieved in terms of attracting productive investment to bring out the potential of each region. We must remain focused. If you want immediate results, you must part from the path that has already been walked. Within the 6 regions prioritized by the plan, there are poles in the intermediate cities which have already been able to attract internal migration. It is said that more than 1.5 million Guatemalans are located in the departmental capitals or municipalities, where secondary, technical, and university education, health, energy, and connectivity are available. The urbanization of towns is a strong tendency for centralizing the efforts to deliver services. Therefore, the 51 municipalities prioritized by the Plan for Prosperity in Guatemala must orbit around these poles. Finally, this plan must be closely tied to the public policies of central and local governments. The ministries of economy, health, education, agriculture, communications, and security must contribute. Also Congress has in its hands a set of laws to promote investment, work by the hour, laws to facilitate access to credits for small and medium enterprises, and a law to promote trade with Central America.

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Strategic criteria for strategic investment institutionalization are part of that broader agenda that signatory countries should address as a priority. Certainly, the Alliance Plan is expressed through intentions but is evidenced in the allocation of resources. And this is where I will focus my reflection. In this author’s opinion, the implementation of certain strategic criteria in the allocation of resources is what will help meet the objectives of this plan as they are put forward. In the economic development scope, these are:

• Productive chain. Every effort must be directed to

By Roberto Ardón, Executive Director of CACIF

produce a synergy of skills and potentials in order for no investment to be made isolated, fragmented, or lacking sustainability. For this purpose, it is essential to rely on existing schemes, on successful productive chains, or plans of expansion of business projects.

• Strategic geographical location. There are certain

Guatemala is one of the countries that comprise the Alliance for Prosperity Plan, a process that seeks to strengthen the economic and social relationships between the United States and the 3 countries of the northern triangle of Central America. An effort so focused and ambitious had not been seen since the “Alliance for Progress” was successfully launched in the early 60’s. Back then, the effort of the US government to cooperate with the region was part of an overall twinning strategy to become better neighbors of countries which, due to geographical proximity and political volatility, were in the area of interest of the people and government of our northern neighbor. Today this effort poses equal or greater importance. In a time when borders are narrowed, economies are integrated, social movements are being intensified, capitals are being repositioned, and political events have a greater impact, a space for cooperation in this area was beyond necessary. However, challenges and defies faced by this alliance are very different, of course, to those designed in the 60’s. Components such as regional security, the rebuilding of the social textures in areas of systemic poverty, issues related to sustainable food production, environmental impact, and lack of

points of the geography of the area that caught the attention of governments for reasons of migration, concentration of poverty, or as marginalization indicators. However, a public policy, such as that intended under the Plan, must go beyond a strictly territorial approach of purely local basis, to seek to extend the effects of investment through broader areas of development. The concept of a development area must take into account conditions regarding accessibility to markets, infrastructure, integrated plans of government in different areas, etc.

• Inclusive investment. Investment efforts must take

into account not only the particularities of the areas in which they are located, but also the competences and potential of the communities therein. Existing information - such as production mapping - must be kept in mind, as it has been obtained through local development networks acting as group managers and can help to identify specific opportunity windows.

These proposed standards go beyond partisan or government visions. They are elements of pure reason and common sense, which can make more effective the achievements of the Prosperity Plan. Now it is up to those who design public policy to put these elements in motion, and also up to key actors in this field - economic and social actors - to make it possible. On the side of the business sector of Guatemala, this task is ready to be accomplished.

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Importance of Transparent Implementation of Economic Resources within the Framework of the Alliance for Prosperity

By: Ă&#x201C;scar Emilio Castillo President of the Chamber of Industry of Guatemala - CIG

Guatemala, El Salvador, and Honduras are working on the Plan for Prosperity for the Northern Triangle, which aims to create conditions in the short term to curb the migration phenomenon and the humanitarian crisis caused by the recent increase in the flow of unaccompanied migrant children to United States. In the medium and long terms, this plan seeks to create opportunities for the population (especially, the younger population), address the structural and multidimensional causes of migration, and put down the populationâ&#x20AC;&#x2122;s roots in their own countries. To achieve the proposed goals, all three countries have agreed to the Plan of the Alliance for Prosperity of the Northern Triangle with strategic actions within a 5-year

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period (2016 - 2020) on the following strategic lines: 1. Stimulate the productive sector 2. Develop human capital 3. Improve public safety and access to justice 4. Strengthen institutions and improve transparency The three countries will jointly invest close to US$22,000 million to transform the dynamics of their economies, strengthen their institutions, and boost human capital in order to change the present and future of their population. The magnitude of the social and developmental challenges for Guatemala, El Salvador, and Honduras is huge. Among the commitments that governments of the isthmus proposed are: to carry out audits â&#x20AC;&#x153;to help fight corruptionâ&#x20AC;?, more training opportunities and recreation for the youth, and measures focused on economic development. On the other hand, one of the main objectives of the Plan is the inclusion of the civil society to help support functions of making proposals, monitoring, and evaluation. In this sense, we have interacted with local actors through various dialogues, obtaining direct feedback for the implementation and enforcement at local level. The issue of transparency has been included in the axis of Institutional Strengthening, where we will seek actions to improve the efficiency of public spending, collection, and training of staff within the State. We will also support the creation of a Civil Service Act, as it is one of the strategies identified as essential to improve transparency in the use of state funds. Year after year this aid will be processed with the United States (during the five years contemplated the Plan), and the decision will depend upon the results obtained through evaluation systems set up by USAID.

control of execution, are relevant to their involvement as key actors of development. The principles under which the execution plan will be developed are: a. Efficiency, b. Transparency, c. Participation, d. Monitoring and evaluation, e. Institutional capacity, f. Territorial focus, g. Environmental safeguard, and h. Promotion of public-private dialogues. If the aim is to encourage the three countries to seek improvement in their economies to provide their citizens with the stability they deserve and need, in the case of Guatemala, we have to start laying the foundations for sustainable individual development as a country. Keeping in mind, of course, that we are part of a globalized world. We must be able to foster a stable business environment with legal certainty and in compliance with and full respect of the law. We must generate formal jobs and encourage small and medium entrepreneurs to make these growth opportunities tangible. Only in this way will migration of people seeking better opportunities outside our borders cease. As the Chamber of Industry of Guatemala, we accept the commitment to generate development, to invest, and at the same time, to attract investment. The justice sector is expected to ensure compliance with the law. It is up to legislators to promote standards that help create a climate of stability in the country. And government must ensure proper management of the resources they receive. The challenge has been laid out. Now we have to accept the challenge and make of the Northern Triangle an integrated and prosperous region that works to generate economic development and a better quality of life for its inhabitants. Ă&#x201C;scar Emilio Castillo, President of Chamber of Industry of Guatemala

The Plan for Prosperity for the Northern Triangle expects to increase the growth of economies between 2,4 % and 3,5 % and to create 600,000 new jobs over these years (around 200,000 for Guatemala), consolidating the rule of law and progress in the democratic processes. This Plan seeks active participation and monitoring by civil society. Their support in different stages of the process, both in the validation of these strategic actions, as well as in future stages of implementation and monitoring and

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Market Opportunities and Entry Strategy for U.S. Companies in Guatemala By: U.S. Commercial Service Embassy of the United States of America in Guatemala.

Market Opportunities The Guatemalan government has continued programs initiated by prior administrations to promote foreign investment, enhance competitiveness and expand investment in the export, energy, and tourism sectors. In the World Bankâ&#x20AC;&#x2122;s 2014 Doing Business Report, Guatemala improved 14 positions from 93 to 79 of 189 ranked economies and was listed as one of the top ten economies improving the most in 2012-2013. The Report also listed Guatemala as one of the top 50 improvers in the world and one of the top five improvers in the Latin American and Caribbean region since 2005. The signing of the Dominican Republic-Central AmericaUnited States Free Trade Agreement (CAFTA-DR) by the United States7 and Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua on August 5, 2004, represented a giant step toward greater economic integration between the U.S. and these Central American and Caribbean nations.

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Under CAFTA-DR, about 95 percent of U.S. industrial and consumer goods enter Guatemala duty-free, with the remaining tariffs scheduled to be phased-out by 2015. Nearly all textile and apparel goods that meet the agreementâ&#x20AC;&#x2122;s rules of origin are now traded duty-free and quota-free. The agreementâ&#x20AC;&#x2122;s tariff treatment for textile and apparel goods is retroactive to January 1, 2004. Under CAFTA-DR, about 90 percent of U.S. agricultural exports now enter Guatemala duty-free. Guatemala will eliminate its remaining tariffs on nearly all agricultural products by 2020 (2023 for rice and chicken leg quarters and 2025 for dairy products). For the most sensitive products, tariff rate quotas will permit some immediate duty-free access for specified quantities during the tariff phase-out period, with the duty-free amount expanding during that period. Guatemala will liberalize trade in white corn through expansion of a TRQ, rather than by tariff reductions. CAFTA-DR is the third largest Latin American market for U.S. goods, surpassed only by Mexico and Brazil. Along with reduced trade barriers, CAFTA-DR loosened restrictions that have historically locked U.S. firms into exclusive, often inefficient, distribution arrangements. CAFTA-DR member countries have further promised increased transparency in customs dealings, anti-corruption measures in government contracting and procurement, and strong legal protections for U.S. investors. Regionalization has quickly become a fact of life for doing business in Central America. Factories and distribution facilities have been and continue to be designed to serve a regional market. Furthermore, rarely does a U.S. businessperson visit just one Central American country. New investors weigh the advantages that each country offers as they look to decide where to establish new

plants. Regional managers are becoming the norm, with responsibilities for multiple countries within the Central American marketplace. Trade between the countries of Central America has also increased dramatically over recent years, a trend that was accelerated with CAFTA-DR implementation. The Guatemalan market is competitive. Guatemalan businesspeople are price-sensitive and expect good after-sales service and support. They are accustomed to doing business with U.S. firms and many Guatemalans travel regularly to the United States and speak English. The government of Guatemala welcomes foreign investment and generally accords foreign investors national treatment. There are few legal or regulatory restrictions placed on foreign investors. However, the country needs to overcome several of the challenges aforementioned in order to make Guatemala a truly business and investment friendly market.

Market Entry Strategy. If the government continues to work toward economic reform, including incorporating more of its citizenry in the economy (it is estimated that 600,000 of Guatemalaâ&#x20AC;&#x2122;s nearly 14 million citizens pay taxes), maintaining free trade and liberal markets, as well as providing personal and investment security, U.S. companies can expect a growing market in Guatemala. The reality in Central America and in Guatemala today is that there are challenges: corruption, weak judicial institutions, security issues, poverty, and low education levels top the list. However, there is also relative stability, real market opportunities and substantial U.S. exports in a dynamic market that is close to the U.S. and growing. Regional integration and CAFTA-DR have spurred investment, growth, trade, and increased market opportunities for U.S. firms.

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Intellectual Property in Guatemala By: Mireya Sánchez Monterroso / Corporate and Intellectual Property Department with Alegalis

This article was written out in order to let the reader know what Intellectual Property Rights are in Guatemala and how the state itself protects them.

Intellectual property Currently the Registry of Intellectual Property is in charge of the protection Intellectual Property Rights in Guatemala. It recognizes Intellectual Property as “a group of intangible assets, product of human intellect and subject to protection.” Within the Guatemalan territory, the Registry of Intellectual Property is responsible for promoting the observation and protection of Intellectual Property Rights through the registration thereof. Intellectual Property in Guatemala is subdivided into two branches and is governed by a specific law. These two branches are known as: Industrial Property and Copyright and Related Rights, which are explained below: Intellectual Property Registry www.rpi.gob.gt. No page number.

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Industrial Property in Guatemala Industrial property in Guatemala comprises everything related to inventions and trademarks, as described below: 1. Patents: The State of Guatemala guarantees the legal protection of an invention through a title called Patent, which is supplied to the inventor. Protection of the following is recognized in this area: a. Invention: any human invention. b.Utility Model: any improvement or innovation to the invention. c. Industrial drawings and designs: the aspect of the invention. The State of Guatemala protects the elements above mentioned during a specific period of time each, as follows:

• Invention Patents are protected for 20 years. • Utility Model Patents are protected for 10 years. • Records of Industrial Drawings and Designs are protected for 10 years, renewable only once for 5 additional years.

2. Brands: The intellectual property protection that the State of Guatemala grants with respect to trademarks is through the registration of various distinguishing marks of the services or products. The distinguishing marks that the state of Guatemala protects, are: a. Brands: any sign capable of distinguishing goods or services from other similar in the market, which may be of the following types: i. Denominative ii. Figurative iii. Mixed iv. Three-dimensional v. Olfactory vi. Sound b. Trade name: is how you can distinguish a company or commercial business through its denominative or mixed signs. c. Advertising expression or sign: is used to attract the consumer. Usually, it is a caption, advertisement, or phrase. In the Guatemalan territory, one protection is given to each of the three distinguishing marks for a fixed period of time of 10 years from the time of registration. A renewal can be requested upon expiration. 3. Designation of Origin The designation of origin is every geographical name, expression, image, or sign that manages to denote a particular locality, and under which a product is identified as originating in that location. Designation of origin of a product can only be used when the qualities or characteristics of the product derive from the environment (location) where it is produced. Copyright and Related Rights: Copyright and Related Rights recognize everything related to the protection of authors and / or title holders of works, acts, or documents. (Relationship between the author and his work).

The Guatemalan legislation recognizes as work every creation, whether in the literary, scientific, or artistic field, as long as it constitutes an original intellectual creation. We must take into account that within the Guatemalan law, an object of protection is not recognized for the following: • Ideas contained in literary or artistic works. • Ideological or technical content of scientific works. • The industrial or commercial exploitation of the above. The Guatemalan legislation recognizes protection primarily to the author, or to whoever has acquired the rights thereof, either by transfer or inheritance.

In order to protect his work, the author is credited two fundamental rights: • Moral or personal right: This right is recognized as an inherent right of the person and enjoys the following features: - Cannot be seized - Cannot be waived - Is imprescriptible • Proprietary and economic right: This is the author’s right to use his work. Following are the documents, acts, or works for which the author or title holder may request protection through registration: • Literary • Musical • Artistic • Phonograms • Computer programs • Scientific • Audiovisuals • Performing • Acts and contracts • Databases • Collecting societies The State of Guatemala protects copyrights for the life of the author and 75 years after his death. When 75 years have elapsed, the work becomes public domain (for all individuals). As a result, this work may be reproduced or used as long as the author’s rights are recognized (Moral Rights).

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Applicable legislation Among the main regulations applicable to the protection of intellectual property within the Guatemalan territory, are: Industrial property: 1. National law: a. Decree 26-73, the Central American Convention for the Protection of Industrial Property. b. Decree 153-85, for the Protection of Patents, Utility Models, and Industrial Designs. c. Decree 57-2000, Industrial Property Act. 2. International law: a. Paris Convention for Industrial Property Protection. b. General Inter-American Convention for the Protection of Trademarks and Trade Names. c. Agreement on Trade-Related Aspects of Intellectual Property Rights Related to Trade (ADPIC) by the World Trade Organization. d. Treaty on Patent Cooperation. Copyright and Related Rights: 1. National Legislation: a. Decree 33-98, Copyright and Related Rights Act. b. Decree 11-2006, CAFTA-DR Implementation Act. c. Government Agreement 233-2003, Regulations of the Law on Copyright and Related Rights.

or service is defined as a distinctive mark. Under the laws of Guatemala, the following are recognized as distinctive marks: a) Marks b) Trade names c) Advertising expressions or signs

Inadmissible Brands

The Guatemalan law does not permit the registration (ownership) of some brands containing certain characteristics, as they are considered unacceptable. Here are some of them: a. Inadmissible brands for intrinsic reasons: • Lacks sufficient distinctive character. • Consists of the usual form of the product. • Constitutes a functional advantage. • Is contrary to morality or public order. • Contains elements that offend or ridicule people. b. Trademarks inadmissible due to third party’s rights: • If the mark is identical to another one previously requested by a third party. • If the mark can cause confusion because it is identical to another one. • If the mark is an imitation of a third party’s mark. • If the mark affects the prestige of a local community. • If the mark could be used to perpetrate or consolidate an act of unfair competition.

Registration procedure

2. International Law: a. Berne Convention, Decree 71-95, for the protection of literary works. b. Rome Convention, Decree 367-76, for the protection of Artists’ and Performers’ Rights. c. Geneva Convention for the Protection of Producers of Phonograms for unauthorized reproduction of phonograms.

The procedure to register a distinctive mark in the Guatemalan territory takes place at the Intellectual Property Registry and is described as follows:

Marks in Guatemala

2. If the mark is available, you can proceed with the registration through an application for initial registration of a distinctive mark. The following documentation must accompany the form:

The following article is a guide on distinctive marks and the protection that the State of Guatemala grants them upon registration. Distinctive marks that the Guatemalan law protects Any mark that is used to identify and distinguish a product

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1. Initially, a search of the distinctive mark to be registered is performed. This is done with the aim to avoid making the application for registration of a distinctive mark similar or identical to one already registered.

- 4 copies of the distinctive mark - A legalized photocopy of an identification document of the applicant

- Photocopy of appointment or power (if applicable) - Any other document deemed necessary 3. Once the record is entered, the Registry of Intellectual Property evaluates the application and its accompanying documents. This review it is known as a revision of form and contents. 4. If after reviewing the application for form and contents, if it is accepted, a resolution is issued as well as an edict. 5. The edict is published in the electronic bulletin of the Registry of Intellectual Property (BORPI). It is published only once. Its purpose being that any individual or legal person who disagrees to the registration of the distinctive mark can submit an objection within a period of two months from the date of publication. 6. If no oppositions are submitted, the applicant must request a payment order to the Registry so that the corresponding annotation is made. 7. Finally the Registry of Intellectual Property will proceed to prepare the title to protect the holder’s right to that distinguishing mark. If a foreigner, who is not in Guatemalan territory, wishes to apply for registration of his distinguishing mark in Guatemala, he must grant Power of Attorney to a Guatemalan attorney so that he proceeds to apply for the registration of a distinguishing mark in the Intellectual Property Registry on behalf of that person. This document must bear its lawful processes. This is to say that the document must be taken to the corresponding entities in the country of origin to proceed to legalize the signature of the Notary who authorized the document. Then the document is sent to Guatemala. Once the document is in Guatemalan territory, it is translated into Spanish, it is protocolized in the Register of Powers of Attorney of the Judiciary Branch in Guatemala.

This means that upon registration of the distinguishing mark, the owner is entitled to its exclusive use, and no third party can use it without prior authorization. In the hypothetical case that a third party is using the distinguishing mark for the purposes of counterfeiting the product, a complaint must be filed with the Public Ministry of Guatemala, which will be in charge of carrying out an investigation in order to stop the misuse of the mark. In some cases, counterfeited goods are even seized. b) Oppose to the registration of a distinguishing mark identical or similar to that of the holder’s. As part of the registration process of a mark, after publication in the BORPI, an opposition can be filed against the registration of a distinguishing mark considered to be identical or similar to the holder’s by means of a memorial made by a notary. It must be submitted to the Intellectual Property Registry. c) Cease judicially the use of a distinguishing mark identical or similar to that of the holder’s. In the event that other identical or similar distinguishing marks are registered afterwards, the holder of an already registered distinguishing mark is entitled to suing in a Court of First Instance. An Oral Trial for Brand Annulment shall proceed in order to enforce the holder’s right on said trademark. Protection Term In Guatemala distinguishing marks are protected for ten years, counted as of their registration. This term is renewable.

Rights acquired upon registering a distinguishing mark: The following are among the rights acquired upon becoming title holder of a distinguishing mark: a) Prevent others from using the distinguishing mark without due authorization by the holder:

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Environment Ing. Luis Enrique SolĂłrzano Consultant

Guatemala represents the largest economy in Central America, being a land of sun, mountains, natural resources and rich bio-diversity. The important natural capital of the country is anxious to be discovered and optimized within an economic, ecologic and social balance to promote sustainable development of the country and contribute to global balance. Even if family remittances contribute to the countryÂ´s economy, the economic and productive activity is well balanced. A 10% of the economy depends on agriculture and on the many opportunities for a better use of the natural capital. The highly competitive and good quality industrial development, represents 30% of the economy, and results in clear regulations for the different economic activities, as well as in a skilled labor force for world quality work. Guatemala has consistently improved the global competitive index, mainly because of less time required to initiate economic activities and start a business. (In 2014 the World Economic Forum ranked Guatemala 78 out of a total of 144 countries, on an index of 113 indicators). The banking system and foreign exchange related to leading currencies such ad US dollar, Euro, and Sterling Pound is stable. Macro indicators show low volatility and growth. The challenge is to continue this trend and improve education, health, jobs, and basic services for a better distribution of wealth and social equity. The countryÂ´s Sustainable Development agenda is based on regulations and guidelines administered by different ministries such as Economy, Labor, Energy and Mines, Environment, in addition to other municipal regulations.

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Standards for the protection of the environment, care and handling of natural resources as well as resources for public use are included in the regulations for present and future economic activities. Depending on the economic activity of an organization and its interaction with the environment and the community, studies have to be conducted on the environmental impact, use of vital resources such as water, and handling and final disposal of the process. As part of international agreements, world quality laws have been enacted with a focus on the reduction of carbon emissions, support to the generation of cleaner energies and incentives on import tariffs and fiscal exonerations. The implementation and development of economic activities within a framework of social and environmental responsibility represent an attractive opportunity in Guatemala. Projects of extraction industries, generation of energy, sustainable tourist exploitation and ecologic tourism, among others, are interesting challenges to be considered. All services for the development of these industries, as well as services rendered from Guatemala to companies that operate within national territory or abroad, also represent good opportunities for investment to support the global development of the country. For Guatemala, regional development and foreign investments to develop well-planned projects are vital to ensure return on investments and sustainable social growth to preserve natural wealth of strategic long-term benefits.

Internal Labor Regulations Lic. Marlon Vega Attorney at Law and Notary Human Resources Manager Golán

Relations between employers and employees are regulated primarily by the Constitution of the Republic of Guatemala and the ordinary guidelines and regulations on labor, Social Security, Health, and Occupational Safety. Nevertheless, there are other legal bodies that must be taken into account, which due to their nature and / or the Magna Carta, are part of the domestic labor law: international treaties and conventions on Human Rights and Labor and Social Security, provided they have been added to the internal regulations by means of due ratification by Congress. The only existing exceptions are the “core conventions” of the ILO, which revolve around four main issues: 1. Freedom of association and freedom to establish a union; 2. Elimination of all forms of forced labor; 3. Effective abolition of child labor; and 4. Elimination of discrimination by reason of employment and occupation. These fundamental agreements must be complied with by the ILO member states, having ratified them or not, pursuant to Article 2 of the ILO Declaration on Fundamental Principles and Rights at Work and its followup. Additionally, the legal doctrine established pursuant to the Constitutional Court on Labor and Social Security, in accordance with Article 43 of the Law on Amparo, Habeas Corpus, and Constitutionality of Laws must be taken into account. Courts of law already take into account that doctrine upon issuing their rulings, and many labor disputes (both collective and individual) have been initiated on the basis of arguments based on the aforementioned legal doctrine. Based on the above, the need for companies to obtain

specialized legal advice on labor issues is evident, given the fact that not all law enforcement professionals are experts in this legal area of specialization. An effective labor legal defense makes quite a difference in the following aspects: 1. It makes a company competitive as it acts ethically and in accordance with minimum legal requirements, which allow to penetrate markets that require compliance with labor regulations. Multinationals and large companies usually devote a section of the specifications to their suppliers to clearly require compliance with labor standards, social security, and occupational safety. 2. It provides stability and security for workers, hence creating conditions for a healthy and solid work environment that opens doors to gain the loyalty and productivity of the best talent. 3. Legal risks are minimized. It is important to understand that it is impossible to reduce the number of incidents (complaints to the Labor Administrative Authority or suits before courts of law) to zero because as per the principle of indemnity, workers cannot be denied access to established protection bodies, in addition to their being able to act ex officio or as a result of anonymous complaints. 4. It poses a strong and positive image to the eyes of potential customers, suppliers, and employees. On the basis of the importance of an unblemished image, creating rules favorable to the interest of the company is made easier. While labor law reform is still not probable any time soon in Congress, we have sufficient legal basis (both domestic and international) to jump-start the well-oiled legal-labor gears of our companies. 2016 poses a major challenge and, using the words of Jorge Luis Borges, it needs us to “stop putting off what cannot be postponed.”

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Guatemala: Free Trade Agreements

Signed but not in forced

Active

In Process of Approval

Source: Direcci贸n de Administraci贸n de Comercio Exterior (DACE). Sistema de Informaci贸n sobre Comercio Exterior (SICE-OEA)

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CAFTA-DR: Results of 10째 Aniversary GENERAL VIEW OF THE DR-CAFTA REGION Imports from the USA to the DR-CAFTA Region: Period 2005-2014

When we compare the amounts of year 2013, we see that in 2014 there was a better economical situacion in the CAFTA-DR Region Source: Foreign Trade-U.S.Census Bureau. Value in US$ million

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Imports from the USA to the CAFTA-RD Region: Period 2005-2014

Source: Foreign Trade-U.S.Census Bureau. Value in US$ million ,

Imports from the USA to Guatemala: Period 2005-2014

Source: Foreign Trade-U.S.Census Bureau. Value in US$ million ,

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Imports from the USA to El Salvador: Period 2005-2014

Source: Foreign Trade-U.S.Census Bureau. Value in US$ million ,

Imports from the USA to Honduras: Period 2005-2014

Source: Foreign Trade-U.S.Census Bureau. Value in US$ million ,

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Imports from USA to Nicaragua: Period 2005-2014

Source: Foreign Trade-U.S.Census Bureau. Value in US$ million ,

Imports from USA to Cosa Rica: Period 2005-2014

Source: Foreign Trade-U.S.Census Bureau. Value in US$ million ,

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Imports from the USA to Dominican Republic: Period 2005-2014

Source: Foreign Trade-U.S.Census Bureau. Value in US$ million ,

Imports from the USA to the RD-CAFTA Region: Period 2005-2014