By: Ruth Olivares
Partner – LatinAlliance Guatemala
Guatemala is one of the countries that benefits the most due to its geographical position and its cultural diversity, which allows it to have an attractive climate for foreign investment; So much so that in recent years it has made great progress worldwide in terms of creating more agile mechanisms to open businesses and improve their competitiveness indices; however, in 2017 it fell several positions in the World Bank's Doing Business index[1], which assesses the ease of doing business in 190 countries.
In view of this, a series of legal reforms were promulgated in recent months, in order to achieve the development of various sectors, which included changes in the processes of opening companies through the Reforms to the Commercial Code, in accordance with the Decree 2-70[2]; as well as the search for legal mechanisms to facilitate obtaining credits, through the entry into force of the Factoring Law, which was approved in January 2018.[3] and became effective on August 21; as well as other initiatives pending approval in the Congress of the Republic, which aim at the economic growth of a range of sectors, including tourism, commerce, energy, construction, agriculture and livestock, manufacturing and services, in order to achieve an increase in your productivity.
According to the projections of the Ministry of Economy, the growth of the Gross Domestic Product (GDP) during the next years will be the following:
In this sense, the applicable legislation for Foreign Investment and Tax Incentives in Guatemala, includes various regulations that allow the same investor to enjoy security and legal certainty over their capital. Among the main provisions currently in force in the country, it is important to mention the following:
a) Foreign Investment Law and its Regulations (Decree 9-98 of Congress and Government Agreement 893-2018): They are the main legal instruments that regulate foreign investment, guaranteeing foreigners the right to participate in any type of economic activity in Guatemala, without any type of limitation regarding the percentage of acquisition and control of the investment; having only limitations the following activities:
- Forestry: Its exploitation is intended for Guatemalan companies or national citizens;
- Insurance: Foreign companies are prohibited from having national branches for this purpose;
- Professional Services: Foreign companies are not allowed to provide services for which a university degree is required.
b) Law on Free Zones, Decree 65-89: It mainly includes the regulations applicable to companies that produce goods for export or re-export without transforming or modifying the original product, as well as companies related to international trade services, with the following incentives:
- Exemption from taxes, customs duties and charges for the importation of machinery, equipment, tools, raw materials, inputs, containers, packaging, among others used for the production of goods and services into the free zone;
- Income Tax Exemption (ISR) for a term of up to ten (10) years;
- Merchandise transactions in free zones are exempt from Value Added Tax (VAT);
- Total exoneration of Tax on Fiscal Stamps and Special Sealed Paper for Protocols, when applying exchange or transfer of real estate used in the user's activity.
c) Law for the Promotion and Development of Export Activity and Maquila, Decree 29-89: Establishes a series of incentives for the import of primary goods to be processed for export in Guatemala; especially for the production, transformation, assembly, assembly and processing of industrial goods related to the clothing and textile industry, as well as the provision of services related to technologies, including call centers (Call Center); And among the benefits it is worth mentioning:
- Suspension of customs duties and import taxes, including Value Added, VAT, on raw materials, semi-finished products, materials, containers, packaging and labels, for up to a period of one (1) year.
- Suspension of payment of customs duties and taxes, including Value Added, VAT, on samples, instructions, patterns, and others, up to a period of one (1) year.
- Exemption from Income Tax (ISR) obtained from the export of goods manufactured or assembled in the country, for up to a period of ten (10) years.
- Exemption from customs duties and import taxes on machinery, equipment, parts, components and accessories necessary for the production process.
d) Emerging Law for the Conservation of Employment, Decree 19-2016: In 2016, a series of reforms to the Law on Free Zones and the Law for the Promotion and Development of Export Activity and Maquila were issued, through Decree 19-2016. In it, it is worth noting the elimination of a series of activities that could not be produced or marketed from the Free Zone, including:
- Exploitation, commercialization, deposit or storage of crude oil, fuel, as well as natural gas, or its derivatives;
- Fishing and breeding of marine or freshwater species;
- Recreation centers and hotels;
- Forestry, timber exploitation;
- Cane sugar, refined and molasses;
- Coffee in cherry, parchment and gold, among others.
e) Initiative Law 5174: Since 2016, there is a Law Initiative tending to modify the Reforms that emerged with the Emerging Law for the Conservation of Employment, taking into consideration that said regulation puts at risk the current operation of several companies in the Free Zone Regime and closes opportunities for the country for foreign investment, placing Guatemala at a competitive disadvantage compared to other countries. It is recently known, in this 2018, that the Congress of the Republic is discussing it, and that it will probably be submitted for approval in the coming weeks.
f) Renewable Energy Law, Decree 52-2013 and its Regulations: Grants tax benefits to companies that develop energy projects with renewable sources, including:
- Tax Exemption, as well as Value Added Tax, VAT, and import duties on machinery, equipment, parts and accessories, up to a term of ten (10) years;
- Extension of Income Tax (ISR) for a period of ten (10) years.
g) National Tourism Promotion Law, Decree 25-74, and its Regulations: The purpose of this legislation would be to authorize the Guatemalan Tourism Institute (INGUAT) to order the tourist areas in the national territory, and grant it the status of Center of National Tourist Interest to those places that meet the requirements demanded by the entity; granting with such declaration a series of benefits also to investments, works, constructions, facilities, services or activities related to tourism, for a period of ten (10) years, such as:
- Reduction of up to 50% of the tax levied on acts of constitution or expansion of companies that have to do with such activities;
- Exemption from all taxes and duties on imports, as well as charges and surcharges for raw materials, construction materials, equipment, appliances, vehicles or any kind of utensils or furniture intended for such facilities, such as entertainment and amusement appliances and equipment for the users of said facilities;
- Exemption on the payment of one hundred percent (100%) of Income Tax, when the profits come from new constructions or facilities, up to a period of two (2) years;
- Other prerogatives previously granted by the Congress of the Republic, Decree 1701.
It is worth noting that many of the fiscal prerogatives given in this Law for the Tourism Sector, were eliminated through the Law of Suppression of Exemptions, Exonerations and Deductions, Decree 117-97.
Sources:
For more information, you can contact LatinAlliance Guatemala, Lawyers and Notaries, to the following email address: rolivares@latinalliance.co
[1] http://espanol.doingbusiness.org/
[2] https://www.congreso.gob.gt/wp-content/plugins/decretos/includes/uploads/docs/2017/18-2017.pdf
[3] https://www.congreso.gob.gt/noticia/?CONGRESO-APRUEBA-DECRETO-1-2018,-LEY-DE-FACTORAJE,-QUE-FOMENTA-LA-INVERSI%C3%93N-EN-EL-PA%C3%8DS-9206