Guatemala has the largest economy in Central America, with a USD 76.7 billion gross domestic product (GDP) and an estimated 3.8 percent growth rate in 2019. Remittances, mostly from the United States, increased by 13.1 percent in 2019 and were equivalent to 13.7 percent of GDP. The United States is Guatemala’s most important economic partner. The Government of Guatemala (GoG) 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 USD 17.3billion in 2019, a 5.7 percent increase over 2018. Despite this, FDI flows increased only 0.4 percent in 2019. Some of the activities that attracted most of the FDI flows in the last three years were manufacturing, commerce and vehicle repair, financial and insurance activities, and water, electricity, and sanitation services.
Despite steps to improve Guatemala’s investment climate, international companies choosing to invest in Guatemala face significant challenges. Complex and confusing laws and regulations, inconsistent judicial decisions, bureaucratic impediments, and corruption continue to constitute practical barriers to investment. Under CAFTA-DR obligations, the United States has raised concerns with the GoG regarding its enforcement of both its labor and environmental laws.
The UN-sponsored International Commission against Impunity in Guatemala (CICIG) undertook numerous high-profile official corruption investigations, leading to significant indictments from 2006 to 2019. In 2015, CICIG uncovered several cases of high-level official corruption. A case revealing a customs corruption scheme led to the resignations of the president and vice president. Former President Morales announced he would not renew CICIG’s mandate on August 31, 2018. CICIG’s mandate expired on September 3, 2019.
|TI Corruption Perceptions Index||2019||146 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report||2020||96 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2019||107 of 129||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, historical stock positions)||2018||USD 1,026||http://apps.bea.gov/
|World Bank GNI per capita||2018||USD 4,400||http://data.worldbank.org/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The GoG continues to promote investment opportunities and work on reforms to enhance competitiveness and the business environment. Guatemala’s investment promotion office, Guatemala Trade and Investment (GTI), currently operates within the Ministry of Economy and Foreign Trade (MINECO). GTI provides support to potential foreign investors by offering information, assessment, and personalized assistance, including coordination of country visits and contact referrals. Services are available to all investors without discrimination. The 2020 Heritage Economic Freedom Index gave Guatemala a score of 64 out of 100, up 1.4 points from 2019, mostly due to improvements in business freedom and monetary freedom. The 2020 Economic Freedom Index noted judicial effectiveness remained as an area of concern. The World Bank’s Doing Business 2020 ranked Guatemala 96 out of 190 countries, one position lower than its rank in 2019. The two areas where the country had the highest rankings were getting credit and electricity. Areas where challenges remain and reforms are most needed are: protecting minority investors, enforcing contracts, and resolving insolvency. Guatemala’s ranking in the 2019 World Economic Forum’s Global Competitiveness Index 4.0 declined two positions from 96 to 98 (out of 141 economies). Guatemala ranked highly in internal labor mobility, soundness of banks, complexity of tariffs, and attitudes towards entrepreneurial risk, but ranked 137 in organized crime, 134 in road connectivity, 132 in both quality of road infrastructure and mobile-broadband subscriptions, and 131 in homicide rate.
International investors tend to engage with the GoG via chambers of commerce or industry associations, or directly with specific government ministries. There is no formal business roundtable with regard to investment retention.
Limits on Foreign Control and Right to Private Ownership and Establishment
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 Guatemalans. Guatemalan law prohibits foreigners, however, from owning land immediately adjacent to rivers, oceans, and international borders.
There are no impediments to 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, therefore, operate through locally incorporated subsidiaries.
There are no restrictions on 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 GoG currently does not have any screening mechanisms 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. In July 2010, the Guatemalan Congress approved an insurance law that 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.
Other Investment Policy Reviews
Guatemala has been a World Trade Organization (WTO) member since 1995. The GoG 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 zone and export-focused manufacturing and assembly operation (maquila) regimes as well as the passage of amendments to the government procurement law to improve transparency and efficiency. The WTO TPR also 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 GoG agreed to approve a competition law by November 2016 as part of its commitments under the Association Agreement with the European Union, but it has not been approved as of May 2020. 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 as of May 2020 the GoG had not made substantive progress on these recommendations either.
The GoG has a business registration website ( ), which facilitates on-line registration procedures for new businesses. Foreign companies are able to use the online business registration, but the process is faster, less expensive, and requires fewer official notifications if the company is incorporated locally. As a result of the entry into force of the Commercial Code amendments in January 2018, the time to register a new business online for a locally incorporated company went down from an average of 18.5 days in 2016 to an average of six days in 2019. The legal cost to register a business also fell by approximately 75 percent. The new procedures allow locally incorporated businesses to receive their business registration certificates online. At minimum, each company must register with the business registry, the tax administration authority, the social security institute, and the labor ministry.
Guatemala does not incentivize nor restrict outward investment.
2. Bilateral Investment Agreements and Taxation Treaties
In 2004, the United States, the Dominican Republic, Guatemala, Costa Rica, El Salvador, Honduras and Nicaragua signed the Central America Free Trade Agreement (CAFTA-DR). The agreement entered into force in Guatemala on July 1, 2006. CAFTA-DR contains a chapter on investments.
Guatemala has bilateral investment agreements with Argentina, Austria, Belgium, Cuba, Chile, Finland, France, Germany, Israel, Italy, South Korea, Spain, Sweden, Switzerland, Taiwan, the Czech Republic, the Netherlands, Trinidad and Tobago, and Turkey. It also signed a bilateral investment agreement with Russia, which was not in force as of April 2020.
In addition to CAFTA-DR, Guatemala signed bilateral or regional free trade agreements with Chile, the European Union, Peru, Mexico, Colombia, Taiwan, Panama, the United Kingdom, and the European Free Trade Association (EFTA) countries and is currently negotiating a free trade agreement with Israel and Guatemala’s adhesion to the free trade agreement signed between Central America and South Korea. Guatemala also signed partial-scope agreements, which cover a reduced number of products and do not include chapters beyond trade, with Belize, Cuba, Ecuador, Trinidad and Tobago, and Venezuela while also currently negotiating expansion of partial-scope agreements with Ecuador and Cuba.
The United States and Guatemala do not have a bilateral taxation agreement. The GoG signed a bilateral taxation agreement with Mexico in 2015 but it has not yet ratified it.
3. Legal Regime
Transparency of the Regulatory System
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 and receive shipments. The legal and regulatory systems are confusing and not transparent. Regulations often contain few explicit criteria for government administrators, resulting in ambiguous requirements that are applied inconsistently by different government agencies and the courts. While there is no apparent systematic discrimination against foreign companies in these processes, these inconsistencies can favor local firms that are more familiar with these challenges.
Public participation in the promulgation of laws or regulations is rare. In some cases, private sector or 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 consistent legislative oversight of administrative rule making. The Guatemalan congress publishes all draft bills on its official website, but 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 going 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 contingent and state-owned enterprise debt.
The Guatemalan Congress passed the Law to Strengthen Fiscal Transparency and Governance of Guatemala’s Tax and Customs Authority (SAT) in July 2016, which included amendments to SAT’s Internal Law, the Tax Code, and other laws to allow SAT’s access to banking records for auditing purposes with a judge’s approval. Guatemala’s Constitutional Court (CC) provisionally suspended the 2016 law’s provision that allowed SAT’s access to banking records in August 2018 due to a claim of unconstitutionality filed against that provision. The CC issued its final decision in August 2019, in which it revoked the provisional suspension and returned SAT’s access to banking records. The SAT is also analyzing methods to streamline various internal and external procedures.
International Regulatory Considerations
Guatemala is a member of the Central American Common Market and as such adopted the Central American uniformed customs tariff schedule. As a member of the WTO, the GoG notifies the WTO Committee on Technical Barriers to Trade (TBT) of draft technical regulations. The Guatemalan Congress approved the WTO’s Trade Facilitation Agreement 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 to be 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. Guatemala transmitted its list of official websites with information for governments and trade participants to the WTO’s Committee on Trade Facilitation in March 2019.
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 GoG lead a consultation process in compliance with ILO 169. The Guatemalan Congress is currently considering a draft law to create a community consultation mechanism to fulfill its ILO-mandated obligations.
Legal System and Judicial Independence
Guatemala follows the 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 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. However, there have been accusations of corruption within the judicial branch.
Laws and Regulations on Foreign Direct Investment
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 foreign investment. The GoG continues to work on legislative reforms aimed at supporting economic growth and closing regulatory loopholes that are barriers to 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. The GOG does not regulate online payments outside of the formal financial sector, however.
The United States has filed two separate cases regarding concerns with the GoG’s adherence to its CAFTA-DR obligations. For a labor law case, the GOG established an arbitration panel, pursuant to CAFTA-DR procedures, to consider whether Guatemala met its obligations to effectively enforce its labor laws. The arbitration panel held a hearing in June 2015 and issued a decision favorable to Guatemala in June 2017. Regarding an environmental case, the CAFTA-DR Secretariat for Environmental Matters suspended its investigation in 2012 when the GoG provided evidence that the relevant facts of the case were under consideration by Guatemala’s Constitutional Court. The 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 paying system (“Declaraguate”) and by lowering the corporate income tax rate. The GoG developed a useful website to help navigate the laws, procedures and registration requirements for investors ( ). 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. During the past few years, local and foreign companies experienced significant delays in receiving their 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, which are expected to contribute to expediting VAT credit refunds to exporters.
As part of its 2012 income tax reform, the GoG began implementing transfer pricing provisions in 2016.
Competition and Anti-Trust Laws
Guatemala does not currently have a law to regulate monopolistic or anti-competitive practices. The GoG agreed to approve a competition law by November 2016 as part of its commitments under the Association Agreement with the European Union. The GoG submitted a draft competition law to Congress in May 2016, but it was still pending approval by Congress as of May 2020.
Expropriation and Compensation
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 GoG 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.
In June 2007, a U.S. company operating in Guatemala filed a claim under the investment chapter of CAFTA-DR against the GoG with the International Centre for Settlement of Investment Disputes (ICSID Convention). The claimant alleged the GoG indirectly expropriated the company’s assets through a breach of contract. The company requested USD 65 million in compensation and damages from the GoG. The ICSID court issued its ruling on this case in June 2012 and stated that the GoG had in fact breached the minimum standard of treatment under Article 10.5 of CAFTA-DR and required the GoG to pay an award of USD 14.6 million. The GoG paid the award in November 2013.
ICSID Convention and New York Convention
Guatemala is a signatory to convention on the Recognition and Enforcement of Foreign Arbitration Awards (1958 New York Convention), the Inter-American Convention on International Commercial Arbitration (Panama Convention), and is a member state to the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).
Investor-State Dispute Settlement
CAFTA-DR incorporated dispute resolution mechanisms for investors. Over the past ten years, two investment disputes involving U.S. businesses were filed under the investment chapter of CAFTA-DR against the GoG with the ICSID –one in 2010 and the other in 2018. A Spanish firm filed a claim with the ICSID in 2009 on the same case filed by the U.S. investor in 2010. A U.S. investor filed the first claim under the agreement in June 2007 and the status of that case is described under the Expropriation and Compensation section of this report.
In October 2010, a U.S. company operating in Guatemala filed the second claim against the GoG with the ICSID. The claim seeks to resolve a dispute against the GoG regarding the regulation of electricity rates and the eventual sale of the company. In 2013, ICSID’s arbitration tribunal issued its judgment and awarded the company over USD 21 million in damages over electricity rates and USD 7.5 million to cover legal expenses. In 2014, the GoG filed an appeal to have the 2013 award annulled. On the same date, the company also filed for a partial annulment of the award. The ICSID ad-hoc committee issued its decision on both annulment proceedings in April 2016. The company then filed a request to resubmit the dispute over the sale to a new tribunal in October 2016. The new ICSID tribunal, constituted in February 2017, held a hearing on jurisdiction and merits of this case in March 2019. The tribunal declared the proceeding closed in April 2020, and the case remains pending before the ICSID as of May 2020.
In December 2018, a U.S company operating in Guatemala filed the third claim against the GoG under the investment chapter of CAFTA-DR with the ICSID. The claim seeks to resolve a dispute against the GoG regarding the suspension of the claimant’s mining exploitation license by the Guatemalan courts in 2016 due to lack of consultations with local communities pursuant to International Labor Organization (ILO) 169 Convention. The ICSID tribunal, constituted in July 2019, held a hearing on preliminary objections in December 2019. The case remains pending before the ICSID as of May 2020.
International Commercial Arbitration and Foreign Courts
Guatemala’s Foreign Investment Law also allows alternative dispute resolution mechanisms, if agreed to by the parties. Currently, there are two alternative dispute resolution mechanisms available in Guatemala to settle disputes between two private parties: the Center of Arbitration and Conciliation of the Guatemalan Chamber of Commerce (CENAC) and the Conflict Resolution Commission of the Guatemalan Chamber of Industry (CRECIG). Both dispute resolution centers provide support with arbiters and logistics. Guatemala’s Arbitration Law of 1995 uses the U.N. Commission on International Trade Law (UNCITRAL) Model Law as the basis for its rules on international arbitration. The Convention on the Recognition and Enforcement of Foreign Arbitration Awards (1958 New York Convention), of which Guatemala is a signatory, recognizes the subsequent enforcement of arbitration awards under these arbitration rules. The Law of the Judiciary recognizes judgments of foreign courts, but judgments must be final and comply with a legalization process to corroborate validity of the judgment.
Guatemala does not have an independent bankruptcy law. However, the Code on Civil and Mercantile Legal Proceedings 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. The Ministry of Economy and members of the Congressional Economic and Foreign Trade Committee submitted a draft bankruptcy law to Congress in May 2018, which is pending Congressional approval as of May 2020.
4. Industrial Policies
Guatemala’s main investment incentive programs are specified in law and are available countrywide 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 – 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. Taxes are waived when the goods are re-exported. The Free Trade Zone Law provides similar incentives to the incentive program described above, but its beneficiaries include only some services providers and a limited number of manufacturing activities such as apparel manufacturers and motorcycle assemblers. 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.
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 and a VAT exemption on all taxable transactions carried out within the free trade zone. Incentives are available to local and foreign investors engaged on manufacturing and commercial activities as well as on the provision of services.
Foreign Trade Zones/Free Ports/Trade Facilitation
Decree 65-89, Guatemala’s Free Trade Zones Law and its amendments approved through Decree 19-2016, Law for Conservation of Employment, 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 November 2019, there were seven authorized FTZs operating in Guatemala. Currently, services and a limited number of manufacturing activities are the only beneficiaries of Guatemala’s Free Trade Zones Law. The Guatemalan Congress is considering amendments to the Free Trade Zones Law to reinstate tax incentives to some of the activities removed during the previous reform.
Performance and Data Localization Requirements
Guatemala does not impose performance, purchase, or export requirements, other than those normally associated with free trade zones and duty drawback programs. The Labor Code requires that at least 90 percent of employees must be Guatemalan, but the requirement does not apply to high-level positions such as managers and directors. Companies are not required to include local content in production.
Guatemalan companies do not require foreign IT providers to turn over source code and/or provide access to surveillance. 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 in the software license contract.
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. Approximately half of the banks offer mortgage loans with terms as long as 15-20 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 readily accessible to foreigners. Foreign investors are advised to seek reliable local counsel early in the investment process.
Intellectual Property Rights
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, the Berne Convention, the Rome Convention, the Phonograms Convention, and the Nairobi Treaty. Guatemala has ratified the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. 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) in February 2016 and the GoG is currently reviewing draft amendments to the Industrial Property Law to incorporate TLT provisions into local law.
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.
Guatemala has a sound IPR legal framework. 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 in some cases has effectively prohibited new U.S. products in the Guatemalan market from using what appear to be generic or common names when identifying their goods locally.
Piracy of works protected by copyright and infringement of other forms of intellectual property, such as trademarks, including those of some major U.S. food and pharmaceutical brands, remains problematic in Guatemala.
Guatemala remains on the United States Trade Representative Special 301 Report’s Watch List in 2020 and has been on the Watch List for more than 10 years. Despite a generally strong legal framework in place, resource constraints, a lack of political will, and poor coordination among law enforcement agencies have resulted in IPR enforcement that appears inadequate in relation to the scope of the problem in Guatemala. Guatamala is not included in the Notorious Markets List.
6. Financial Sector
Capital Markets and Portfolio Investment
Guatemala’s capital markets are weak and inefficient because they 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) and the Superintendence of Banks (SIB) were drafting an updated capital markets bill that included a chapter on securitization companies and the securitization process as of May 2020. Notwithstanding the lack of a modern capital markets law, the government debt market continues to develop. Domestic treasury bonds now represent 55.4 percent of total public debt.
Guatemala lacks a market for publicly traded equities, which raises the cost of capital and complicates mergers and acquisitions. As of December 2019, borrowers faced a weighted average annual interest rate of 15.6 percent in local currency and 7 percent in foreign currency, with some banks charging over 30 percent on consumer or micro-credit loans. Commercial loans to large businesses offered the lowest rates and were on average 7 percent as of December 2019. Dollar-denominated loans typically are several percentage points lower than those issued in local currency. Foreigners rarely rely on the local credit market to finance investments.
Money and Banking System
Overall, the banking system remains stable. According to information from the SIB, Guatemala’s 16 commercial banks had an estimated USD 45.4 billion in assets in December 2019. The six largest banks control about 89 percent of total assets. In addition, Guatemala has 12 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 has 15.1 access points per 10,000 adults at the national level and 22.3 access points per 10,000 adults in the metropolitan area. 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 may 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 2018.
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. In July 2010, the Guatemalan Congress approved a new insurance law, which strengthened supervision of the insurance sector and allowed foreign insurance companies to open branches in Guatemala. 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.
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.
There have been some changes to correspondent banking relationships over the past few years, but the changes were similar to those seen throughout the region and reflected a trend of de-risking. The total number of relationships with Guatemala’s financial sector showed a slight decline in 2016 but the situation stabilized in 2017.
Alternative financial services that are present in Guatemala include credit and savings unions and microfinance institutions, which serve those segments not covered by banks.
Foreign Exchange and Remittances
Guatemala’s Foreign Investment Law and CAFTA-DR commitments protect the investor’s right to remit profits and repatriate capital. There are no restrictions on converting or transferring funds associated with an investment into a freely usable currency at a market-clearing rate. U.S. dollars are freely available and easy to obtain within the Guatemalan banking system. In October 2010, monetary authorities approved a regulation to establish limits for cash transactions of foreign currency to reduce the risks of money laundering and terrorism financing. The regulation establishes that monthly deposits over USD 3,000 will be subject to additional requirements, including a sworn statement by the depositor stating that the money comes from legitimate activities. There are no legal constraints on the quantity of remittances or any other capital flows and there have been no reports of unusual delays in the remittance of investment returns.
The Law of Free Negotiation of Currencies allows Guatemalan banks to offer different types of foreign-currency-denominated accounts. In practice, the majority of such accounts are in U.S. dollars. Some banks offer “pay through” dollar-denominated accounts in which depositors make deposits and withdrawals at a local bank while the bank maintains the actual account on behalf of depositors in an offshore bank.
Capital can be transferred from Guatemala to any other jurisdiction without restriction. The exchange rate moves in response to market conditions. The government sets one exchange rate as reference, which it applies only to its own transactions and which is based on the commercial rate. The Central Bank intervenes in the foreign exchange market only to prevent sharp movements. The reference exchange rate of Quetzals (GTQ) to the U.S. dollar has remained relatively stable since 1999.
There are no time limitations on remitting different types of investment returns.
Sovereign Wealth Funds
Guatemala does not have a sovereign wealth fund.
7. State-Owned Enterprises
With the exception of the National Electricity Institute (INDE) and two state-owned ports, Guatemala does not have significant state-owned enterprises (SOEs). 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 GoG currently owns 16 percent of the shares of 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 GoG also appoints the manager of GUATEL, the former state-owned telephone company dedicated to providing rural and government services that split off from the fixed-line telephone company during its privatization in 1998. 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 GoG 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 represent about 30 percent of GDP and 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 GoG does not have a definition of RBC as of April 2020. 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 related to the requirements by July 23, 2021.
In January 2014, the State Department recognized a U.S.-based company as one of twelve finalists for the Secretary of State’s 2013 Award for Corporate Excellence for its contributions to sustainable development in Guatemala. The Department has also recognized U.S. companies such as McDonald’s, Starbucks, and Denimatrix for corporate social responsibility (CSR) programs 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 extractive 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. The GoG continues to improve its capacity to respond to protests and help facilitate a peaceful resolution. Protests against companies are normally peaceful and usually take place only after the aggrieved parties have attempted to dialogue directly with the company in question.
Bribery is illegal under Guatemala’s Penal Code. However, corruption remains a serious problem that companies may encounter at many levels. Guatemala scored 26 out of 100 points on Transparency International’s 2019 Corruption Perception Index, ranking it 146 out of 180 countries globally, and 29 out of 32 countries in the region. The score dropped one point compared to the score observed in the 2018 report.
Investors find corruption especially pervasive in customs transactions, particularly at ports and borders away from the capital. The Tax and Customs Authority (SAT) launched a customs modernization program in November 2006, which implemented an advanced electronic manifest system and resulted in the removal of many corrupt officials. However, reports of corruption at major customs locations such as ports and border points remain prevalent. 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. Notably, CICIG unveiled a customs corruption scheme in 2015 that led to the resignations of the president and vice president.
Guatemala’s Government Procurement Law requires most government purchases over USD 116,933 to be submitted for public competitive bidding. Since March 2004, GoG entities are required to use Guatecompras, an Internet-based electronic procurement system to track GoG procurement processes. GoG entities must also comply with GoG 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 improved transparency of 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. 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 increases penalties for existing crimes and adds new crimes such as illicit enrichment, trafficking in influence, and illegal charging of commissions.
Resources to Report Corruption
Contact at government agencies responsible for combating corruption:
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: firstname.lastname@example.org
Comptroller General’s Office
Address: 7a Avenida 7-32 Zona 13
Phone: (502) 2417-8700
Contact at “watchdog” organization:
Name: 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: email@example.com; firstname.lastname@example.org
10. Political and Security Environment
Guatemala has one of the highest violent crime rates in Latin America. According to the National Civil Police (PNC), the murder rate in 2019 was 21.5 per 100,000, making Guatemala one of the most dangerous countries in the world. Rule of law is lacking and the judicial system is weak, overworked, and inefficient. The police are understaffed and sometimes corrupt.
Given the weak rule of law, violent crime such as armed robbery and murder, is common. Gang activity, such as extortion, violent street crime, and narcotics trafficking, is widespread. Local police may lack the resources to respond effectively to serious criminal incidents. Although security remains a widespread concern, foreigners are not usually singled out as targets of crime. Recent examples of violence include extrajudicial killings, illegal detentions, and property damage as a result of protests against some investment projects.
The main source of tension among indigenous communities, Guatemalan authorities, and private companies is the lack of prior consultation and alleged environmental damage. The UN’s Office of the High Commissioner for Human Rights (OHCHR) reported an increase in conflicts over the exploitation of natural resources in indigenous areas between 2012 and 2014. In a few incidents between 2012 and 2014, the government’s response was the declaration of a state of emergency, limiting certain constitutional rights in the conflicted areas.
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.
11. Labor Policies and Practices
The Guatemala workforce consists of an estimated 2.07 million individuals employed in the formal sector and roughly 4.87 million individuals who work in the informal sector, including some who are too young for formal sector employment. According to the 2017 Survey on Employment and Income, child labor, particularly in rural areas, remains a serious problem in certain industries. Approximately 32 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 16 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.
No special laws or exemptions from regular labor laws cover export-processing zones. In December 2015, then-President Alejandro Maldonado issued an executive order establishing a lower minimum wage for workers employed by light manufacturing export companies in four of 340 municipalities of the country, with the intention of attracting foreign investment and creating jobs in those areas. The order never took effect due to a temporary injunction filed against it. The Morales Administration revoked the executive order in February 2016. The Labor Code requires that at least 90 percent of employees be Guatemalan, but the requirement does not apply to high-level positions. 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. According to the Human Rights Ombudsman (PDH) 2019 report, the Social Security Institute in Guatemala reported that in 2018 the social security system covered 21.4 percent of the Guatemalan population. 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. An employer may dismiss an employee at any time, for any reason (except pregnancy) and without giving the employee any notice during the trial period. 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’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 (MinTrab) and their leadership must obtain credentials from MinTrab 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 to MinTrab 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. The PDH’s 2019 report indicates that there were only 532 active unions and 64 percent of those were in the public sector. The PDH report notes a reduction of 34 percent in the number of private sector active unions in 2019.
Both the U.S. government and Guatemalan workers have filed complaints against the GoG 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 GoG 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 GoG 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. Nevertheless, the ILO noted several areas where additional and urgent action was needed, including investigation and prosecution of perpetrators of trade union violence, the adoption of protection measures for union officials and members, additional legislative reforms to bring national law into compliance with Convention 87, and significantly increasing compliance with labor court orders related to anti-union dismissal. Based in large part on the 2017 tripartite agreement, the ILO Governing Body closed the complaint against Guatemala in November 2018.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs
Guatemala ratified the Multilateral Investment Guarantee Agency (MIGA) Convention in 1996. The Overseas Private Investment Corporation (OPIC) is active in Guatemala, providing both insurance and investment financing. OPIC applicants are generally able to obtain foreign government approval quickly. For more information, U.S. investors should contact OPIC headquarters in Washington, D.C., at (202) 336-8799, or go to www.opic.gov.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Guatemala has the largest economy in Central America, reaching a USD 76.7 billion gross domestic product (GDP) in 2019, with an estimated 3.8 percent growth rate in 2019. Remittances, mostly from the United States, increased by 13 percent in 2019 and were equivalent to 13.7 percent of GDP. The United States is Guatemala’s most important economic partner. According to preliminary Banguat data, FDI stock was USD 17.3 billion in 2019, a 5.7 percent increase in relation to 2018. Preliminary foreign portfolio investment totaled USD 5.541 billion in 2019, with about 71.7 percent invested in government bonds. There is no official data available on sources of stock of FDI or foreign portfolio investment.
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||16,383||100%||Total Outward||1,198||100%|
|United States||3,593||21.9%||El Salvador||237||19.8%|
|“0” reflects amounts rounded to +/- USD 500,000.|
According to data from the Coordinated Investment Survey for 2018 published by the IMF, about one fifth of FDI in Guatemala comes from the United States. Other important sources of FDI are Mexico, Colombia, and Spain (please see Table 3 on sources and destinations of FDI above). Preliminary data from Banguat also show that the flow of FDI totaled USD 998.2 million in 2019 (1.3 percent of GDP), a 0.5 percent increase compared to USD 993.9 million (1.55 percent of GDP) received in 2018. Some of the activities that attracted most of the FDI flows in the last three years were manufacturing, commerce and vehicle repair, financial and insurance activities, and water, electricity, and sanitation services.
Table 4: Sources of Portfolio Investment
Data not available.
14. Contact for More Information
U.S. Embassy Guatemala
Av. Reforma 7-01 Zona 10, Guatemala