Guatemala

Executive Summary

Guatemala has the largest economy in Central America, with a $ 85.9 billion gross domestic product (GDP) in 2021. The economy grew by an estimated 7.5 percent in 2021 following a 1.5 percent retraction in 2020. Remittances, mostly from the United States, increased by 34.9 percent in 2021 and were equivalent to 17.8 percent of GDP. The United States is Guatemala’s most important economic partner. The Guatemalan government continues to make efforts to enhance competitiveness, promote investment opportunities, and work on legislative reforms aimed at supporting economic growth. More than 200 U.S. and other foreign firms have active investments in Guatemala, benefitting from the U.S. Dominican Republic-Central America Free Trade Agreement (CAFTA-DR). Foreign direct investment (FDI) stock was $21.4 billion in 2021, a 21.9 percent increase over 2020. FDI flows increased by 272.6 percent in 2021 mostly due to the purchase of outstanding shares of a local company by a foreign telecommunications company. Some of the activities that attracted most of the FDI flows in the last three years were information and communications, financial and insurance activities, manufacturing, commerce and vehicle repair, water, electricity, and sanitation services.

Despite steps to improve Guatemala’s investment climate, international companies choosing to invest in Guatemala face significant challenges. Complex laws and regulations, inconsistent judicial decisions, bureaucratic impediments, and corruption continue to impede investment.

Citing Guatemala’s CAFTA-DR obligations, the United States has raised concerns with the Guatemalan government regarding its enforcement of both its labor and environmental laws.

Guatemala’s Climate Change Framework Law established the groundwork for Guatemala’s Low Emission Development Strategy (LEDS) and is designed to align Guatemala’s emissions and development targets with national planning documents in six sectors: energy, transportation, industry, land use, agriculture, and waste management. In November 2020, the Guatemala government endorsed the LEDS as the country’s official strategy for climate change mitigation.

As part of the government’s efforts to promote economic recovery during and after the COVID-19 pandemic, the Ministry of Economy (MINECO) began implementing an economic recovery plan in September 2020, which focuses on recovering lost jobs and generating new jobs, attracting new strategic investment, and promoting consumption of Guatemalan goods and services locally and globally.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 150 of 180 http://www.transparency.org/
research/cpi/overview
Global Innovation Index 2021 101 of 132 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 789 https://apps.bea.gov/international/
factsheet/
World Bank GNI per capita 2020 USD 4,490 https://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

The Guatemalan government continues to promote investment opportunities and work on reforms to enhance competitiveness and the business environment. As part of the government’s efforts to promote economic recovery during and after the COVID-19 pandemic, the Ministry of Economy (MINECO) began implementing an economic recovery plan in September 2020, which focuses on recovering lost jobs and generating new jobs, attracting new strategic investment, and promoting consumption of Guatemalan goods and services locally and globally. Private consultants contributed to the government’s September 2020 economic recovery plan, which focuses on increasing exports and attracting foreign direct investment. During 2021 and first months of 2022 the Guatemalan congress approved some key economic legislation included in the economic recovery plan to improve the investment climate and foster economic growth, such as a leasing law, amendments to the free trade zone law, a law to simplify administrative procedures and requirements, and an insolvency law.

Guatemala’s investment promotion office operates within MINECO’s National Competitiveness Program (PRONACOM). PRONACOM supports potential foreign investors by offering information, assessment, coordination of country visits, contact referrals, and support with procedures and permits necessary to operate in the country. Services are offered to all investors without discrimination. The World Bank’s Doing Business 2020 report ranked Guatemala 96 out of 190 countries, one position lower than its rank in 2019. (Word Bank discontinued its Doing Business report in September 2021.) The two areas where the country had the highest rankings that year were electricity and access to credit. The areas of the lowest ranking were protecting minority investors, enforcing contracts, and resolving insolvency.

International investors tend to engage with the Guatemalan government via chambers of commerce and industry associations, and/or directly with specific government ministries. PRONACOM began to prioritize investment retention in 2020 and continued this policy throughout 2021.

The Guatemalan Constitution recognizes the right to hold private property and to engage in business activity. Foreign private entities can establish, acquire, and dispose freely of virtually any type of business interest, with the exception of some professional services as noted below. The Foreign Investment Law specifically notes that foreign investors enjoy the same rights of use, benefits, and ownership of property as Guatemalan citizens. Guatemalan law prohibits foreigners, however, from owning land immediately adjacent to rivers, oceans, and international borders.

Guatemalan law does not prohibit the formation of joint ventures or the purchase of local companies by foreign investors. The absence of a developed, liquid, and efficient capital market, in which shares of publicly owned firms are traded, makes equity acquisitions in the open market difficult. Most foreign firms operate through locally incorporated subsidiaries.

The law does not restrict foreign investment in the telecommunications, electrical power generation, airline, or ground-transportation sectors. The Foreign Investment Law removed limitations to foreign ownership in domestic airlines and ground-transport companies in January 2004. The Guatemalan government does not have a screening mechanism for inbound foreign investment.

Some professional services may only be supplied by professionals with locally-recognized academic credentials. Public notaries must be Guatemalan nationals. Foreign enterprises may provide licensed, professional services in Guatemala through a contract or other relationship with a Guatemalan company. As of 2010, Guatemalan law allows foreign insurance companies to open branches in Guatemala, a requirement under CAFTA-DR. This law requires foreign insurance companies to fully capitalize in Guatemala.

Guatemala has been a World Trade Organization (WTO) member since 1995. The Guatemalan government had its last WTO trade policy review (TPR) in November 2016. In 2011, the United Nations Conference on Trade and Development (UNCTAD) conducted an investment policy review (IPR) on Guatemala. The WTO TPR highlighted Guatemala’s efforts to increase trade liberalization and economic reform efforts by eliminating export subsidies for free trade zones, export-focused manufacturing, and assembly operations (maquilas) regimes, as well as amendments to the government procurement law to improve transparency and efficiency. The WTO TPR noted that Guatemala continues to lack a general competition law and a corresponding competition authority. The UNCTAD IPR-recommended strengthening the public sector’s institutional capacity and highlighted that adopting a competition law and policy should be a priority in Guatemala’s development agenda. The government agreed to approve a competition law by November 2016 as part of its commitments under the Association Agreement with the European Union, but the draft law had not been approved as of March 2022. Other important recommendations from the UNCTAD IPR were to further explore alternative dispute resolution mechanisms and the establishment of courts for commercial and land disputes, though the government had not made substantive progress on these recommendations as of March 2022.

The Guatemalan government has a business registration website (https://minegocio.gt/), which facilitates on-line registration procedures for new businesses. Foreign companies that are incorporated locally are able to use the online business registration window, but the system is not yet available to other foreign companies. The commercial code amendments that entered into force in January 2018 reduced the time and costs to register a new business online. As of March 2022, the estimated time to register a new mercantile company online was from four to 36 hours and the estimated time to register a limited liability company was between 11 and 15 days.. The estimated costs to register a new mercantile company and a new limited liability company were $19 and $77, respectively, as of March 2022. The procedures allow mercantile companies to receive their business registration certificates online. Every company must register with the business registry, the tax administration authority, the social security institute, and the labor ministry. Licenses, if required from the Ministry of Environment and Natural Resources, Ministry of Agriculture, Livestock and Food, and/or Ministry of Health and Social Assistance, add considerable additional time.

Guatemala does not incentivize nor restrict outward investment.

3. Legal Regime

Tax, labor, environment, health, and safety laws do not directly impede investment in Guatemala. Bureaucratic hurdles are common for both domestic and foreign companies, including lengthy processes to obtain permits and licenses as well as to clear shipments through Customs. The legal and regulatory systems can be confusing and administrative decisions are often not transparent. Laws and regulations often contain few explicit criteria for government administrators, resulting in ambiguous requirements that are applied inconsistently by different government agencies and the courts.

Public participation in the formulation of laws or regulations is rare. In some cases, private sector groups, and to a lesser extent civil society groups are able to submit comments to the issuing government office or to the congressional committee reviewing the bill, but with limited effect. There is no legislative oversight of administrative rule making. The Guatemalan congress publishes all draft bills on its official website, but it does not make them available for public comment. The congress often does not disclose last-minute amendments before congressional decisions. Final versions of laws, once signed by the President, must be published in the official gazette before entering into force. Congress publishes scanned versions of all laws that are published in the official gazette. Information on the budget and debt obligations is publicly available at the Ministry of Finance’s primary website, but information on debt obligations does not include state-owned enterprise debt.

Guatemala is a member of the Central American Common Market and has adopted the Central American uniform customs tariff schedule. As a member of the WTO, the Guatemalan government notifies the WTO Committee on Technical Barriers to Trade (TBT) of draft technical regulations. The Guatemalan congress approved the WTO’s Trade Facilitation Agreement (TFA) in January 2017, which entered into force for Guatemala March 8, 2017. Guatemala classified 63.9 percent of its commitments under Category A, which includes commitments implemented upon entry into the agreement; 8.8 percent under Category B, which includes commitments to be implemented between February 2019 to July 2020; and 27.3 percent under Category C, which includes commitments to be implemented between February 2020 and July 2024. In February 2022, Guatemala requested an extension of time for a commitment to implement a single window for importation, exportation, and transit of goods, established under Article 10.4.1 and 10.4.2 of the TFA from the initial date of July 2022 to January 2024.

In 1996, Guatemala ratified Convention 169 of the International Labor Organization (ILO 169), which entered into force in 1997. Article 6 of the Convention requires the government to consult indigenous groups or communities prior to initiating a project that could affect them directly. Potential investors should determine whether their investment will affect indigenous groups and, if so, request that the Guatemalan government lead a consultation process in compliance with ILO 169. The Guatemalan congress began considering a draft law to create a community consultation mechanism to fulfill its ILO-mandated obligations in March 2018, but the bill was still pending congressional approval as of March 2022. The lack of a clear consultation process significantly impedes investment in large-scale projects.

Guatemala has a civil law system. The codified judicial branch law stipulates that jurisprudence or case law is also a source of law. Guatemala has a written and consistently applied commercial code. Contracts in Guatemala are legally enforced when the holder of a property right that has been infringed upon files a lawsuit to enforce recognition of the infringed right or to receive compensation for the damage caused. The civil law system allows for civil cases to be brought before, after, or concurrently with criminal claims. Guatemala does not have specialized commercial courts, but it does have civil courts that hear commercial cases and specialized courts that hear labor, contraband, or tax cases.

The judicial system is designed to be independent of the executive branch, and the judicial process for the most part is procedurally competent, fair, and reliable. There are frequent and wide-ranging accusations of corruption within the judicial branch.

More than 200 U.S. firms as well as hundreds of foreign firms have active investments in Guatemala. CAFTA-DR established a more secure and predictable legal framework for U.S. investors operating in Guatemala. Under CAFTA-DR, all forms of investment are protected, including enterprises, debt, concessions, contracts, and intellectual property. U.S. investors enjoy the right to establish, acquire, and operate investments in Guatemala on an equal footing with local investors in almost all circumstances. The U.S. Embassy in Guatemala places a high priority on improving the investment climate for U.S. investors. Guatemala passed a foreign investment law in 1998 to streamline and facilitate processes in foreign direct investment. In order to ensure compliance with CAFTA-DR, the Guatemalan congress approved in May 2006 a law that strengthened existing legislation on intellectual property rights (IPR) protection, government procurement, trade, insurance, arbitration, and telecommunications, as well as the penal code. Congress approved an e-commerce law in August 2008, which provides legal recognition to electronically executed communications and contracts; permits electronic communications to be accepted as evidence in all administrative, legal, and private actions; and, allows for the use of electronic signatures.

Guatemala previously faced two for violating its CAFTA-DR obligations—one under the labor chapter and the other under the environmental chapter. In the 2008 labor case filed by the AFL-CIO and six Guatemalan worker organizations, the arbitration panel found that the Guatemalan government failed to effectively enforce its labor laws, particularly by failing to enforce labor court orders for anti-union dismissals and to take enforcement actions in response to worker complaints. The panel determined that beyond the noted enforcement failures, evidence did not rise to a level sufficient to prove a violation of CAFTA-DR. Regarding the environmental case, the CAFTA-DR Secretariat for Environmental Matters suspended its investigation in 2012 when the Guatemalan government provided evidence that the relevant facts of the case were under consideration by Guatemala’s Constitutional Court. The constitutional court dismissed the case on procedural grounds in 2013.

Complex and confusing laws and regulations, inconsistent judicial decisions, bureaucratic impediments and corruption continue to constitute practical barriers to investment. According to the World Bank’s Doing Business Reports for 2015 and 2016, Guatemala made paying taxes easier and less costly by improving the electronic filing and payment system (“Declaraguate”) and by lowering the corporate income tax rate. Despite these measures, World Banks Doing Business Report for 2020 (the last available) ranked Guatemala 104 of 190 countries with respect to paying taxes. The Guatemalan government developed a useful website to help navigate the laws, procedures and registration requirements for investors (http://asisehace.gt/). The website provides detailed information on laws and regulations and administrative procedures applicable to investment, including the number of steps, names, and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time and legal grounds justifying the procedures.

Companies that carry out export activities or sell to exempted entities have the right to claim value added tax (VAT) credit refunds for the VAT paid to suppliers and documented with invoices for purchases of the goods and services used for production. Some local and foreign companies continue to experience significant delays in receiving refunds. Guatemala’s Tax and Customs Authority (SAT) began implementing a new plan in 2017 to streamline the process and expedite VAT credit refunds. The Guatemalan congress approved legal provisions in April 2019 that went into effect in November 2019. SAT established in December 2019 an electronic tax credit refund regime that expedites VAT credit refunds to exporters, but exporters claiming refunds outside the electronic tax credit refund regime continued to reportdelays in VAT refunds as of March 2022.

As part of its 2012 income tax reform, the Guatemalan government began implementing transfer pricing provisions in 2016. The Guatemalan congress approved a leasing law in February 2021 to regulate real estate and other types of leasing operations, including lease contracts with an option to purchase. A Guatemalan law to simplify, streamline, and digitize requirements and administrative procedures that are carried out with Executive Branch’s offices entered into force in August 2021.

Guatemala does not have a law to regulate monopolistic or anti-competitive practices. The Guatemalan government agreed to approve a competition law by November 2016 as part of its commitments under the Association Agreement with the European Union. The Guatemalan government submitted a draft competition law to Congress in May 2016, but it was still pending approval by Congress as of March 2022.

Guatemala’s constitution prohibits expropriation, except in cases of eminent domain, national interest, or social benefit. The Foreign Investment Law requires proper compensation in cases of expropriation. Investor rights are protected under CAFTA-DR by an impartial procedure for dispute settlement that is fully transparent and open to the public. Submissions to dispute panels and dispute panel hearings are open to the public, and interested parties have the opportunity to submit their views.

The Guatemalan government maintains the right to terminate a contract at any time during the life of the contract, if it determines the contract is contrary to the public welfare. It has rarely exercised this right and can only do so after providing the guarantees of due process.

Guatemala does not have an independent bankruptcy law in effect as of March 2022. However, the Guatemalan congress passed an insolvency law that applies to both individuals and businesses and regulates the renegotiation procedure between debtors and creditors in case of insolvency in February 2022. The new law will enter into force in August 2022 and requires the judicial branch to create specialized bankruptcy/insolvency courts within five years of the law’s enactment. Meanwhile, individuals and businesses that are facing insolvency can continue to use the Code on Civil and Mercantile Legal Proceedings, which contains a specific chapter on bankruptcy proceedings. Under the code, creditors can request to be included in the list of creditors; request an insolvency proceeding when a debtor has suspended payments of liabilities to creditors; and constitute a general board of creditors to be informed of the proceedings against the debtor. Bankruptcy is not criminalized, but it can become a crime if a court determines there was intent to defraud. According to the World Bank’s 2020 Doing Business Report, Guatemala ranked 157 out of 190 countries in resolving insolvency.

4. Industrial Policies

Guatemala’s main investment incentive programs are specified in law and are offered nationwide to both foreign and Guatemalan investors without discrimination.

Guatemala’s primary incentive program – the Law for the Promotion and Development of Export Activities and Maquilas (factories that import duty-free materials and assemble products for export) – is aimed mainly at the apparel and textile sector and at services exporters such as call centers and business processes outsourcing (BPO) companies. The government grants investors in these two sectors a 10-year income tax exemption. Additional incentives include an exemption from duties and value-added taxes (VAT) on imported machinery and equipment and a one-year suspension of the same duties and taxes on imports of production inputs, samples, and packing material. The Free Trade Zone Law provides similar incentives to the incentive program described above. The Guatemalan congress approved the Law for Conservation of Employment (Decree 19-2016) in February 2016,amending Guatemala’s two major incentive programs to replace tax incentives related to exports that Guatemala dismantled on December 31, 2015, per WTO requirements. Congress approved new amendments to the Free Trade Zones (FTZ) Law in May 2021 to reincorporate some of the economic activities that had been excluded during the 2016 reforms, such as manufacturing of plastic products, medications, and electronic devices and household appliances. The amendments to the FTZ law establish that local and foreign businesses and individuals with activities already taxed in the national customs territory may not migrate to FTZ or benefit from the incentives provided by this law. However, companies already operating in country that create new businesses with different activities than those already taxed are exempt from this provision.

The public Free Trade Zone of Industry and Commerce Santo Tomas de Castilla (ZOLIC) that operates contiguous to the state-owned port Santo Tomas de Castilla issued a regulation in January 2019 allowing the establishment of ZOLIC’s special public economic development zones outside of ZOLIC’s customs perimeter. The ZOLIC law grants businesses operating within the new special public economic development zones a 10-year income tax exemption. Additional exemptions include an exemption from VAT, customs duties, and other charges on imports of goods entering the area, including raw materials, supplies, machinery and equipment, as well as a VAT exemption on all taxable transactions carried out within the free trade zone when goods are exported. The law states that the incentives are available to local and foreign investors engaged in manufacturing and commercial activities as well as the provision of services.

The Law on Incentives for the Development of Renewable Energy Projects (Decree 52-2003) is aimed at municipalities, the National Electricity Institute (INDE), joint ventures, individuals and businesses that develop any renewable energy projects. It grants a 10-year exemption from import duties, including value added tax on imported machinery and equipment used exclusively for the generation of electricity in the area where the renewable projects are located. This incentive is valid only during the pre-investment and construction periods. The law also provides a 10-year income tax exemption valid from the date when a project starts commercial operation. The incentive is granted only to individuals and businesses that directly develop the project and only for the project.

Decree 65-89, Guatemala’s Free Trade Zones Law and its amendments approved through Decree 19-2016, Law for Conservation of Employment and Decree 6-2021, permits the establishment of free trade zones (FTZs) in any region of the country. Developers of private FTZs must obtain authorization from MINECO to install and manage a FTZ. Businesses operating within authorized FTZs also require authorization from MINECO. The law specifies investment incentives, which are available to both foreign and Guatemalan investors without discrimination. As of March 2022, there were four authorized FTZs operating in Guatemala. The Guatemalan congress approved amendments to the Free Trade Zones Law in May 2021 to reinstate tax incentives to some of the activities removed during the previous reform. Decree 22-73, ZOLIC’s law and its amendments approved through Decree 30-2018, allow the establishment of ZOLIC’s special public economic development zones outside of ZOLIC’s customs perimeter as described under the Investment Incentives subsection above. Special public economic development zones can be installed in ZOLIC’s facilities or property owned by third parties that is leased or granted in usufruct to ZOLIC. Administrators of special public economic development zones must obtain authorization from ZOLIC’s board of directors for a minimum period of 12 years. ZOLIC´s board of directors had approved nine special public economic development zones as of March 2022.

Guatemalan law does not impose performance, purchase, or export requirements nor does the government require foreign investors to use domestic content in goods or technology. Companies are not required to include local content in production.

Guatemalan companies do not require foreign IT providers to turn over source code. Some industries, such as the banking and financial sector, can request that their institution or a source code facilities management company receive a copy of the source code in case of potential problems with the IT provider.

5. Protection of Property Rights

Guatemala follows the real property registry system. Defects in the titles and ownership gaps in the public record can lead to conflicting claims of land ownership, especially in rural areas. The government stepped up efforts to enforce property rights by helping to provide a clear property title. Nevertheless, when rightful ownership is in dispute, it can be difficult to obtain and subsequently enforce eviction notices.

Mortgages are available to finance homes and businesses. Most banks offer mortgage loans with terms as long as 25 years for residential real estate. Mortgages and liens are recorded at the real estate property registry. According to the 2020 World Bank’s Doing Business Report, registering property in Guatemala takes 24 days, and it costs 3.6 percent of the property value. In the 2020 report, Guatemala ranked 89 out of 190 countries in the category of Registering Property.

The legal system is accessible to foreigners who may buy, sell, and file suit under the law. However, the legal system is not easily navigated without competent counsel. Foreign investors are advised to seek reliable local counsel early in the investment process.

Guatemala has been a member of the WTO since 1995 and the World Intellectual Property Organization (WIPO) since 1983. It is also a signatory to the Paris Convention, Berne Convention, Rome Convention, Phonograms Convention, and the Nairobi Treaty. Guatemala has ratified the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT). In June 2006, as part of CAFTA-DR implementation, Guatemala ratified the Patent Cooperation Treaty and the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure. Also in June 2006, the Guatemalan congress approved the International Convention for the Protection of New Varieties of Plants (UPOV Convention). Implementing legislation that would allow Guatemala to become a party to the convention, however, is still pending. The Guatemalan congress approved the Trademark Law Treaty (TLT) and the Marrakesh Treaty in February 2016. Legislation to incorporate TLT provisions into local law is pending as of March 2022. The Guatemalan congress passed amendments to the Copyright and Related Rights Law to adapt Marrakesh Treaty provisions into local law in October 2018, and the Guatemalan government issued its implementing regulation in March 2022.

Guatemala has a registry for intellectual property. Trademarks, copyrights, patents rights, industrial designs, and other forms of intellectual property must be registered in Guatemala to obtain protection in the country.

The Guatemalan congress passed an industrial property law in August 2000, bringing the country’s intellectual property rights laws into compliance with the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. Congress modified the legislation in 2003 to provide pharmaceutical test data protection consistent with international practice and again in 2005 to comply with IPR protection requirements in CAFTA-DR. CAFTA-DR provides for improved standards for the protection and enforcement of a broad range of IPR, which are consistent with U.S. standards of protection and enforcement as well as emerging international standards. Congress approved a law to prohibit the production and sale of counterfeit medicine in November 2011. It approved amendments to the Industrial Property Law in June 2013 to allow the registration of geographical indications (GI), as required under the Association Agreement with the European Union. Guatemalan administrative authorities issued rulings on applications to register GIs that appear sound and well-reasoned for compound GI names, but U.S. exporters are concerned that 2014 rulings on single-name GIs will effectively prohibit new U.S. products in the Guatemalan market from using what appear to be generic or common names when identifying their goods locally.

Guatemala remains on USTR’s Special 301 Watch List in 2022 and has been on the Watch list for more than 10 years. Despite a generally sound legal framework, IPR enforcement remains limited due to resource constraints, and limited coordination among law enforcement agencies. Piracy and copyright and trademark infringement, including those of some major U.S. food and pharmaceutical brands, remain problematic in Guatemala.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

6. Financial Sector

Guatemala’s capital markets lack a securities regulator. The local stock exchange (Bolsa Nacional de Valores) deals almost exclusively in commercial paper, repurchase agreements (repos), and government bonds. The Guatemalan Central Bank (Banguat),the Superintendency of Banks (SIB), and the Ministry of Economy were drafting an updated capital markets bill that included a chapter on securitization companies and the securitization process as of March 2022. Notwithstanding the lack of a modern capital markets law, the government debt market continues to develop. Domestic treasury bonds represented 58.1 percent of total public debt as of December 2021.

Guatemala lacks a market for publicly traded equities, which raises the cost of capital and complicates mergers and acquisitions. As of December 2021, borrowers faced a weighted average annual interest rate of 15.4 percent in local currency and 6.1 percent in foreign currency, with some banks charging over 40 percent on consumer or micro-credit loans. Commercial loans to large businesses offered the lowest rates and were on average 5.5 percent in local currency as of December 2021. Dollar-denominated loans typically are some percentage points lower than those issued in local currency. Foreigners rarely rely on the local credit market to finance investments.

Overall, the banking system remains stable. The Monetary Board, Banguat, and SIB approved various temporary measures during 2020 to increase liquidity of the banking system during the first months of the pandemic and to allow banks to approve restructuring of loans or deferral of loans to businesses and individuals affected by the pandemic. About 5.8 percent of the total number of loans remained subject to the temporary measures approved in 2020 as of December 2021. Non-performing loans represented 1.8 percent of total loans as of January 2022. According to information from the SIB, Guatemala’s 17 commercial banks had an estimated $56 billion in assets in December 2021. The six largest banks control 88 percent of total assets. In addition, Guatemala has 11 non-bank financial institutions, which perform primarily investment banking and medium- and long-term lending, and three exchange houses. Access to financial services is very high in Guatemala City, as well as in major regional cities. Guatemala had 23.7 access points per 10,000 adults at the national level and 29.1 access points per 10,000 adults in the capital area as of December 2021. There were 12,446 banking accounts per 10,000 adults at the national level and 24,915 banking accounts per 10,000 adults in the capital area as of December 2021. Most banks offer a variety of online banking services.

Foreigners are normally able to open a bank account by presenting their passport and a utility bill or some other proof of residence. However, requirements vary by bank.

In April 2002, the Guatemalan congress passed a package of financial sector regulatory reforms that increased the regulatory and supervisory authority of the SIB, which is responsible for regulating the financial services industry. The reforms brought local practices more in line with international standards and spurred a round of bank consolidations and restructurings. The 2002 reforms required that non-performing assets held offshore be included in loan-loss-provision and capital-adequacy ratios. As a result, a number of smaller banks sought new capital, buyers, or mergers with stronger banks, reducing the number of banks from 27 in 2005 to 17 in 2021.

Guatemalan banking and supervisory authorities and the Guatemalan congress actively work on new laws in the business and financial sectors. In August 2012, the Guatemalan congress approved reforms to the Banking and Financial Groups Law and to the Central Bank Organic Law that strengthened supervision and prudential regulation of the financial sector and resolution mechanisms for failed or failing banks. The Guatemalan government submitted to congress proposed amendments to the Banking and Financial Groups Law in November 2016 and an anti-money laundering and counter-terrorism financing draft law in August 2020. Both proposed laws were pending congressional approval as of March 2022.

Foreign banks may open branches or subsidiaries in Guatemala subject to Guatemalan financial controls and regulations. These include a rule requiring local subsidiaries of foreign banks and financial institutions operating in Guatemala to meet Guatemalan capital and lending requirements as if they were stand-alone operations. Groups of affiliated credit card, insurance, financial, commercial banking, leasing, and related companies must issue consolidated financial statements prepared in accordance with uniform, generally accepted accounting practices. The groups are audited and supervised on a consolidated basis.

The total number of correspondent banking relationships with Guatemala’s financial sector showed a slight decline in 2016, but the changes in the relationships were similar to those seen throughout the region and reflected a trend of de-risking. The situation stabilized in 2017. The number of correspondent banking relationships remained stable in 2021.

Alternative financial services in Guatemala include credit and savings unions and microfinance institutions.

Guatemala does not have a sovereign wealth fund.

7. State-Owned Enterprises

Guatemala has three main state-owned enterprises: The National Electricity Institute (INDE) and two state-owned ports, Santo Tomas on the Caribbean coast, and Port Quetzal on the Pacific coast. INDE is a state-owned electricity company responsible for expanding the provision of electricity to rural communities. INDE owns approximately 14 percent of the country’s installed effective generation capacity, and it participates in the wholesale market under the same rules as its competitors. It also provides a subsidy to consumers of up to 88 kilowatt-hours (kWh) per month. Its board of directors comprises representatives from the government, municipalities, business associations, and labor unions. The board of directors appoints the general manager. The Guatemalan President appoints Santo Tomas Ports’ board of directors, and the board of directors appoints the general manager. The Guatemalan President also appoints the president of Port Quetzal’s board, and the president of the board appoints the general manager. The Guatemalan government also appoints the manager of state-owned telephone company GUATEL, which split off from the fixed-line telephone company during the 1998 privatization program. GUATEL’s operations are small, and it continuously fails to generate sufficient revenue to cover expenses. The GUATEL director reports to the Guatemalan President and to the board of directors.

The Guatemalan government currently owns 16 percent of the shares of the Rural Development Bank (Banrural), the second largest bank in Guatemala, and holds 3 out of 10 seats on its board of directors. Banrural is a mixed capital company and operates under the same laws and regulations as other commercial banks.

The Guatemalan government privatized a number of state-owned assets in industries and utilities in the late 1990s including power distribution, telephone services, and grain storage. Guatemala does not currently have a privatization program.

8. Responsible Business Conduct

There is a general awareness of expectations of standards for responsible business conduct (RBC) on the part of producers and service providers, as well as Guatemalan business chambers. A local organization called the Center for Socially Responsible Business Action (CentraRSE) promotes, advocates, and monitors RBC in Guatemala. They operate freely with multiple partner organizations, ranging from private sector to United Nations entities. CentraRSE currently has over 100 affiliated companies from 20 different sectors that provide employment to over 150,000 individuals. CentraRSE defines RBC as a business culture based on ethical principles, strong law enforcement, and respect for individuals, families, communities, and the environment, which contributes to businesses competitiveness, general welfare, and sustainable development. The Guatemalan government did not have a definition of RBC as of March 2022. Guatemala joined the Extractive Industries Transparency Initiative (EITI) in February 2011 and was designated EITI compliant in March 2014. The EITI board suspended Guatemala in February 2019 for failing to publish the 2016 EITI report and the 2017 annual progress report by the December 31, 2018 deadline. Guatemala published the 2016-2017 EITI report and the 2017 annual progress report in February and March 2019. The EITI board suspended Guatemala again in January 2020 after deciding that Guatemala has made inadequate progress in implementing the 2016 EITI standard. The EITI board requested Guatemala to undertake corrective actions before a second validation related to the requirements started on July 23, 2021. On December 24, 2020, the EITI board postponed the date to start Guatemala’s second validation process to April 1, 2022. Guatemala published the 2018-2020 EITI report in November 2021 but remained suspended as of March 2022.

The State Department has recognized U.S. companies such as McDonald’s, Starbucks, and Denimatrix for corporate social responsibility (CSR) programs in Guatemala that aimed to foster safe and productive workplaces as well as provide health and education programs to workers, their families, and local communities. Communities with low levels of government funding for health, education, and infrastructure generally expect companies to implement CSR practices.

Conflict surrounding certain industrial projects – in particular mining and hydroelectric projects – is frequent, and there have been several cases of violence against protestors in the recent past, including several instances of murder. On October 24, 2021, President Alejandro Giammattei declared a State of Siege in El Estor as dozens of protestors, including environmental defenders, indigenous activists, and outside agitators blocked coal trucks from accessing a nickel mine and clashed with National Police (PNC). Media reported that the government maintained a force of 500 police and military in El Estor during the 30-day State of Siege to carry out patrols, manage vehicle checkpoints, and conduct raids. Indigenous leaders, journalists, and civil society organizations alleged that they faced arbitrary detentions and persecution for participating in anti-mining protests. Lack of clarity over indigenous consultations continues to impact Guatemala’s investment climate. On December 10, 2021, the government declared the successful conclusion of the ILO consultations with those indigenous groups they designated as participants in the consultation process for the nickel mine. The community’s self-determined governance structure, the Ancestral Council of Q’eqchi Peoples, was excluded from the consultations, and critics claimed that the government purposely neglected to include the group.

Department of State

Department of the Treasury

Department of Labor

The Climate Change Framework Law (Decree 7-2013) outlines requirements for the government’s response to the impacts of climate change, in particular by reducing climate change vulnerability, improving adaptive capacity, and promoting mitigation activities. The law also creates a National Climate Change Information System, managed by the Ministry of Environment and Natural Resources (MARN), as well as a National Climate Change Council to supervise implementation of the law and its associated Climate Change Fund. The Climate Change Framework Law also enables development of the National Reducing Emissions from Deforestation and Degradation (REDD+) Strategy, which clarifies questions about carbon emission reduction ownership and charges MARN with the creation of the National Registry for Greenhouse Gas Emission Reduction Projects. The law establishes the groundwork for Guatemala’s Low Emission Development Strategy (LEDS) and is designed to align Guatemala’s emissions and development targets with national planning documents in six sectors: energy, transportation, industry, land use, agriculture, and waste management. In November 2020, the Guatemalan government endorsed the LEDS as the country’s official strategy for climate change mitigation.

In 2015, Guatemala submitted its first nationally determined contribution (NDC) under the Paris Accords, pledging to reduce current greenhouse gas (GHG) emissions by 11.2 percent by 2030 by its own means. With the support of the international community, Guatemala also committed to reducing GHG emissions by 22.6 percent compared to its emissions growth trend from 1990-2005. Guatemala’s NDC does not target net zero emissions by 2050, nor do local climate experts believe the country is likely to achieve its current goals, primarily due to resource and capacity constraints. Guatemala failed to submit a revised NDC at COP-26 in 2021 but continues to prepare a revision to its NDCs led by MARN, the Ministry of Finance (MINFIN) and SEGEPLAN with the support of United Nations Development Programme (UNDP) in Guatemala and the NDC Partnership’s Climate Action Enhancement Package. The revised NDC pledges the same level of GHG reductions as the 2015 version. The document assigns few specific emissions reductions targets except in the agricultural and energy sectors. It does not delineate specific targets for the private sector. Critics say the NDC lacks the specific policies necessary to achieve even these modest reductions.

In 2018, Guatemala submitted to the UNFCCC the second edition of its National Climate Change Action Plan known in general, as a National Adaptation Plan. It is important to highlith the updated NDC claims to integrate cross-cutting issues, such as gender and inclusion of indigenous peoples by integrating inputs from the strategy for mainstreaming gender considerations in climate change in support of the NDC (UNDP-MARN, 2020), institutional gender representatives, and the Indigenous Climate Change Roundtable. Furthermore, Guatemala stated it will undertake an analysis of available funding and gaps for implementing NDC goals, identifying capacity-building needs, and managing information.

The Law on Protected Areas (Decree 4-89) created both the Guatemalan System of Protected Areas (SIGAP) and the National Council of Protected Areas (CONAP), which oversees SIGAP. The general objectives of this law are to ensure the optimal functioning of essential ecological processes and key natural systems; preserve biological diversity; attain sustained utilization of species and ecosystems in the national territory; defend and preserve the natural patrimony of the country; and establish the protected areas in the country as a matter of public utility and social interest. Protected areas are defined as those created with the purpose of conserving, managing, and restoring wild flora and fauna, other related resources, and natural and cultural interactions. Guatemala’s congress must approve the designation of a new protected area and had so designated 349 areas as of January 2021. The Protected Areas law requires CONAP to determine fines for infractions, up to and including prison sentences for crimes against the nation’s natural and cultural patrimony, illegal wildlife trafficking, and squatting in protected areas. Regulatory fines are often challenged in the courts, delaying enforcement.

Within the Guatemala NDC, the Agriculture, Forestry, and Other Land Use sectors (AFOLU) are recognized as the largest sources of GHG emissions in the country and offer opportunities for emission reductions. Guatemala has experienced some of the highest deforestation rates in Latin America. From 1990 to 2015, overall forest cover declined by more than 1.2 million hectares, which accounts for nearly 12 percent of Guatemala’s total land area. To prevent further emissions in the AFOLU sectors, the Government maintains contracts with eleven community groups in northern Guatemala that derive significant income by sustainably managing over 500,000 hectares of certified forests. Both former President Morales and current President Giammattei directed their cabinets to approve the renewal of 25-year contracts for the concessions. So far, five of the original nine have been approved and President Giamattei in 2021 established two additional community managed concessions bringing the total to eleven community forest concessions. PROBOSQUE (created by Decree 2-2015) is a forestry program that devotes one percent of the national budget to incentivize the protection of natural forests, reforestation, and the establishment of agroforestry practices. While PROBOSQUE builds on past forestry incentive programs, key differences include a wider range of eligible activities and eligible groups, a minimum project size of 0.5 hectares, and the removal of earmarks distinguishing between plantation and natural forest subsidies. The Forest Incentives Law for Owners of Small Extensions of Forest or Agroforestry Land (PINPEP, created by Decree 51-2010) is a forest incentive program for forest and agroforestry plots of fewer than 15 hectares. PINPEP provides landowners with funds to plant trees or maintain existing forests.

9. Corruption

Bribery is illegal under Guatemala’s Penal Code. Guatemala scored 25 out of 100 points on Transparency International’s 2021 Corruption Perception Index, ranking it 150 out of 180 countries globally, and 28 out of 32 countries in the region. The law provides criminal penalties for official corruption, but the Public Ministry (MP) prosecuted very few government corruption cases.

Investors find corruption pervasive in government procurement, including payment of bribes in exchange for awarding public construction contracts. Investors and importers are frequently frustrated by opaque customs transactions, particularly at ports and borders. The Tax and Customs Authority (SAT) launched a customs modernization program in 2006, which implemented an advanced electronic manifest system and resulted in the removal of many corrupt officials. However, reports of corruption within customs’ processes remain. In 2021, SAT implemented additional customs reforms that route flagged shipments to a dedicated secondary inspection team for resolution, rather than assigning the case to the original inspector. The change eliminates opportunity for an inspector to impose deliberate delays.

From 2006 to 2019, the UN-sponsored International Commission against Impunity in Guatemala (CICIG) undertook numerous high-profile official corruption investigations, leading to significant indictments. For example, CICIG unveiled a customs corruption scheme in 2015 that led to the resignations of the former president and vice president. Since then-President Morales terminated CICIG in 2019 and actions by Attorney General Consuelo Porras to impede anti-corruption prosecutors, impunity has increased and poses significant risks for potential new investors.

Guatemala’s Government Procurement Law requires most government purchases over $116,363 to be submitted for public competitive bidding. Since March 2004, Guatemalan government entities are required to use Guatecompras ( https://www.guatecompras.gt/ ), an Internet-based electronic procurement system to track government procurement processes. Guatemalan government entities must also comply with government procurement commitments under CAFTA-DR. In August 2009, the Guatemalan congress approved reforms to the Government Procurement Law, which simplified bidding procedures; eliminated the fee previously charged to receive bidding documents; and provided an additional opportunity for suppliers to raise objections over the bidding process. Despite these reforms, large government procurements are often subject to appeals and injunctions based on claims of irregularities in the bidding process (e.g., documentation issues and lack of transparency). In November 2015, the Guatemalan congress approved additional amendments to the Government Procurement Law that tried to improve the transparency of the procurement processes by barring government contracts for some financers of political campaigns and parties, members of congress, other elected officials, government workers, and their immediate family members. However, there continue to be multiple allegations corruption and nepotism in the procurement process. The 2015 reforms expanded the scope of procurement oversight to include public trust funds and all institutions (including NGOs) executing public funds. The U.S. government continues to advocate for the use of open, fair, and transparent tenders in government procurement as well as procedures that comply with CAFTA-DR obligations, which would allow open participation by U.S. companies.

Guatemala ratified the U.N. Convention against Corruption in November 2006, and the Inter-American Convention against Corruption in July 2001. Guatemala is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. In October 2012, the Guatemalan congress approved an anti-corruption law that increased penalties for existing crimes and added new crimes such as illicit enrichment, trafficking in influence, and illegal charging of commissions.

Contact at the government agency or agencies that are responsible for combating corruption:

Public Ministry
Address: 23 Calle 0-22 Zona 1, Ciudad de Guatemala
Phone: (502) 2251-4105; (502) 2251-4219; (502) 2251-5327; (502) 2251-8480; (502) 2251-9225 Email address: fiscaliacontracorrupcion@mp.gob.gt 

Comptroller General’s Office
Address: 7a Avenida 7-32 Zona 13
Phone: (502) 2417-8700

Contact at “watchdog” organization:

Accion Ciudadana (Guatemalan Chapter of Transparency International)
Address: Avenida Reforma 12-01 Zona 10, Edificio Reforma Montufar, Nivel 17, Oficina 1701
Phone: (502) 2388- 3400

Toll free to submit corruption complaints: 1-801-8111-011 Email address: alac@accionciudadana.org.gt ; accionciudadana@accionciudadana.org 

10. Political and Security Environment

According to the National Civil Police (PNC), the murder rate in 2020 dropped 28 percent – from 20.8 per 100,000 to 15 per 100,000, compared to 2019, continuing a downward trend in recent years. The Guatemalan government attributed the general decline in violence to the economic downturn during the first months of the coronavirus pandemic, including interdepartmental travel restrictions and the prohibition of most alcohol sales. The murder rate increased to 16.6 per 100,000 in 2021, a 9 percent increase compared to 2020. Rule of law is a challenge and the judicial system is faces significant delays in case processing and inefficiency. Local police may lack the resources to respond effectively to serious criminal incidents. Major criminal groups operating in Guatemala are involved in a number of illicit activities, including violent street crime, drug trafficking, kidnaping, extortion, arms trafficking, illegal adoption rings, and environmental crimes. Although security remains a concern, foreigners are not usually singled out as targets of crime.

The political climate in Guatemala, marked by its 36 years of armed conflict, is characterized by periodic civil disturbances. For example, in October 2021, President Alejandro Giammattei declared a State of Siege in El Estor as dozens of protestors, including environmental defenders, indigenous activists, and outside agitators blocked coal trucks from accessing a nickel mine and allegedly clashed with National Police (PNC) forces who attempted to clear the road for mining traffic. Protests and highway roadblocks organized by transportation workers and military veterans have caused disruption and heightened security, impacting general mobility and traffic condition, on a recurring basis in recent years.

In November 2020 civil unrest sparked by congressional approval of the 2021 budget proposal, which added to long-standing grievances. Largely peaceful protests were marred by isolated acts of vandalism and violence, including fire damage to the national congress building, as well as acts of violence by both security forces against some protestors and by some protestors against security forces. The main source of tension among indigenous communities, Guatemalan authorities, and private companies is the lack of prior consultation and alleged environmental damage.

Damage to projects or installations is rare. However, there were instances in October 2018 and January 2019 in which unidentified arsonists burned machinery and other equipment at the site of a hydroelectric construction project near the northern border with Mexico. Additionally, activist groups at times have engaged in blockades to prevent personnel, materials, and equipment from entering or leaving disputed installations.

11. Labor Policies and Practices

According to the 2021 national survey of employment and income, the Guatemalan workforce consists of an estimated 2.1 million individuals employed in the formal sector. Additionally, roughly 5.1 million individuals, or 70.8 percent of the total workforce, work in the informal sector, including some who are too young for formal sector employment. According to the 2017 Survey on Employment and Income, the most recent survey with child labor data available, child labor, particularly in rural areas, remains a serious problem in certain economic activities. The informal economy represented 22 percent of GDP in 2019 according to official data. About 75.7 percent of female workers and 84.9 percent of indigenous workers were employed in the informal sector. Approximately 30 percent of the total labor force is engaged in agricultural work. The availability of a large, unskilled, and inexpensive labor force led many employers, such as construction and agricultural firms, to use labor-intensive production methods. Roughly, 14 percent of the employed workforce is illiterate. In developed urban areas, however, education levels are much higher, and a workforce with the skills necessary to staff a growing service sector emerged. Even so, highly capable technical and managerial workers remain in short supply, with secondary and tertiary education focused on social science careers. The Ministry of Labor issued a regulation in March 2022 that requires recruiters of Guatemalans being employed outside of Guatemala to be registered and to comply with all the requirements related to contracts established in Article 34 of the Labor Code.

No special laws or exemptions from regular labor laws cover export-processing zones. The Ministry of Labor issued a regulation in December 2021 that allows to set different minimum wages for two economic regions of the country starting in 2023. In July 2021, the Constitutional Court revoked the provisional suspension of the Ministry of Labor’s agreement on part-time work, based on ILO Convention 175, which enabled companies to hire workers for six hours or fewer per workday for wages equivalent to the fraction of full time work they complete.

The Labor Code requires that at least 90 percent of employees be Guatemalan, but the requirement does not apply to high-level positions, such as managers and directors. The Labor Code sets out: employer responsibilities regarding working conditions, especially health and safety standards; benefits; severance pay; premium pay for overtime work; minimum wages; and bonuses. Mandatory benefits, bonuses, and employer contributions to the social security system can add up to about 55 percent of an employee’s base pay. However, many workers, especially in the agricultural sector, do not receive the full compensation package mandated in the labor law. All employees are subject to a two-month trial period during which time they may resign or be discharged without any obligation on the part of the employer or employee. For any dismissal after the two-month trial period, the employer must pay unpaid wages for work already performed, proportional bonuses, and proportional vacation time. If an employer dismisses an employee without just cause, the employer must also pay severance equal to one month’s regular pay for each full year of employment. Guatemala does not have unemployment insurance or other social safety net programs for workers laid off for economic reasons.

Guatemala’s Constitution guarantees the right of workers to unionize and to strike, with an exception to the right to strike for security force members and workers employed in hospitals, telecommunications, and other public services considered essential to public safety. Before a strike can be declared, workers and employers must engage in mandatory conciliation and then approve a strike vote by 50 percent plus one worker in the enterprise. If conciliation fails, either party may ask the judge for a ruling on the legality of conducting a strike or lockout. Legal strikes in Guatemala are extremely rare. The Constitution also commits the state to support and protect collective bargaining and holds that international labor conventions ratified by Guatemala establish the minimum labor rights of workers if they offer greater protections than national law. In most cases, labor unions operate independently of the government and employers both by law and in practice. The law requires unions to register with the Ministry of Labor and their leadership must obtain credentials to carry out their functions. Delays in such proceedings are common. The law prohibits anti-union discrimination and employer interference in union activities and requires employers to reinstate workers dismissed for organizing union activities. A combination of inadequate allocation of budget resources for labor rights enforcement to the Ministry of Labor and other relevant state institutions, and inefficient administrative and justice sector processes, act as significant impediments for more effective enforcement of labor laws to protect these workers’ rights. As a result, investigating, prosecuting, and punishing employers who violate these guarantees remain a challenge, particularly the enforcement of labor court orders requiring reinstatement and payment of back wages resulting from dismissal. The rate of unionization in Guatemala is very low.

Both the U.S. government and Guatemalan workers have filed complaints against the Guatemalan government for allegedly failing to adequately enforce its labor laws and protect the rights of workers. In September 2014, the U.S. government convened an arbitration panel alleging that Guatemala had failed to meet its obligations under CAFTA-DR to enforce effectively its labor laws related to freedom of association and collective bargaining and acceptable conditions of work. The panel held a hearing in June 2015 and issued a decision favorable to Guatemala in June 2017. Separately, the Guatemalan government faced an International Labor Organization (ILO) complaint filed by workers in 2012 alleging that the government had failed to comply with ILO Convention 87 on Freedom of Association. The complaint called for the establishment of an ILO Commission of Inquiry, which is the ILO’s highest level of scrutiny when all other means failed to address issues of concern. In 2013, the Guatemalan government agreed to a roadmap with social partners in an attempt to avoid the establishment of a Commission. The government took some steps to implement its roadmap, including the enactment of legislation in 2017 that restored administrative sanction authority to the labor inspectorate for the first time in 15 years. As part of a tripartite agreement reached at the ILO in November 2017, a National Tripartite Commission on Labor Relations and Freedom of Association was established in February 2018 to monitor and facilitate implementation of the 2013 roadmap. Based in large part on the 2017 tripartite agreement, the ILO Governing Body closed the complaint against Guatemala in November 2018.

14. Contact for More Information

John Szypula
szypulaj@state.gov
Trade and Investment Officer
U.S. Embassy Guatemala
Av. Reforma 7-01 Zona 10, Guatemala
(502) 2326-4000

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