The principle of legality, the sovereignty that emanates from the people, the recognition of human rights and the separation of the three branches of government imply that Guatemala exists under and is inextricably linked to the Rule of Law (Civil Law).

There are six types of business structure:

1. General Partnership;
2. Limited Partnership;
3. Limited Liability Company;
4. Corporation;
5. Partnership limited by shares; and
6. Entrepreneurship.

Some activities mighty been carried out in Guatemala without having to incorporate or register an entity, for example: to obtain or give loans, acquire assets, opening bank accounts, sell or purchase merchandise, among others.

The minimum capital to establish an entity in Guatemala has been placed at approximately USD25.00 (local currency Q.200.00).

Commercial companies are divided into three types: personalist, capitalist, and mixed, with each of these companies having their own and general characteristics. The most common is the Corporation, which is a capitalist entity.

The entity is operated and managed as follows:

1. General Shareholders’ Meeting
2. Management: Sole Administrator or Board of Directors (three or more members)
3. Oversight: Performed by the shareholders, accountants, auditors, or commissioners, as established in the articles of incorporation.

Decisions are taken by the majority.

No restrictions apply. Some industries might have restrictions i.e.: Energy, Banks, among others.

From a corporate law perspective, there are no restrictions in expanding business operations in Guatemala. An entity or establishment is free to work with trade/commercial agents and resellers.

There are no corporate governance codes for privately owned companies, only the mandatory rules in our commercial code and the provisions of the bylaws of each entity.

The shareholders of the company may provide working capital by subscribing for further shares in the company.

A company may also consider a loan to finance working capital loans. This could be from the shareholders, another entity within the same company group or from a third party.

Private companies can return value to their shareholders in several ways, as set out below. As a general rule, companies are bound by strict maintenance of capital rules and only subject to certain exceptions can return value to their shareholders.

Dividends

The most popular method of a company returning value to its shareholders is a dividend.

Dividends are paid in cash. Before recommending or declaring a dividend, the company should review their provisions. 

Capital reduction

A reduction of capital occurs where a company reduces the amount of its share capital. This may be an option when the company has capital that is surplus to its requirements and that it wishes to return to shareholders.

Every share represents one vote. No specific voting requirements may apply, and decisions are taken by the majority in most cases, but for specific cases a minimum or percentage may apply.

The shareholders or partners meeting is the highest authority, therefore their decisions are binding to the management. The only reason that the instruction is not binding, is if that decision is illegal or the management does not agree with the decision of the shareholders meeting giving the reasons of such decision.

The employer has the right to dismiss any employee at any time, the only exemption is in case of immunity for the employee i.e.: maternity, trade unions, among others.

The trade unions are regulated in the labor code, looking for improvements in working conditions.

No specific system applies, but the bribery and corruption are sanctioned by our law. The reach is territorial.

The economic crimes are regulated in our Criminal Code, and it establishes that the officials who have knowledge of a crime have the obligation to report it.

There are specific rules that regulate these activities, which are sanctioned by the state of Guatemala.

No state regulations regarding the compliance in the supply chain apply.

The book or record of financial statements shall include:

1^st The opening balance sheet and the ordinary and extraordinary balance sheets that are prepared for any circumstance.

2^nd The profit and loss statements or those that serve as such, corresponding to the respective balance sheet.

3^rd Any other statement that in the merchant’s judgment is necessary to present its financial situation.

The only annual requirement is to have an annual shareholders meeting.

The ordinary shareholders’ meeting shall take place at least once a year, within the four months following the closing of the accounting period and also at any time that it is convened. In addition to the matters included in the agenda, it must also deal with the following matters:

1. Discuss, approve or disapprove the profit and loss statement, the balance sheet and the management’s report, and if applicable, the report from the oversight body, if any, and take the appropriate measures.
2. Appoint and remove the administrators, the oversight body, if any, and determine their respective remuneration.
3. Hear and decide on the plan for the distribution of profits that the administrators must submit for its consideration.
4. Hear and decide on the matters that the articles of incorporation specifically indicate.

The meetings can be held virtually if the bylaw of the entity allows it.

N/A

The Guatemalan tax system is based on the territoriality principle. With few exceptions, mainly related to withholdings tax on source, almost all of the taxes apply to the activities carried out within the Guatemalan territory.

Companies can opt to pay the Income Tax under one of the following regimes: (1) Over Profits from Lucrative Activities, in which the tax base is calculated based on the accounting profit and the tax rate of 25% is applied, with three quarterly pre payments and one definitive annual settlement of the tax being required each fiscal year (same as the calendar year) by 31 March of the following year; or (2) Simplified Optional Regime over Income from Lucrative Activities, in which the tax base is the gross revenues, without deducting any costs or expenses, and a rate of 5% or 7% is applied, with monthly tax payments and an annual informational return, also due on 31 March, being required.

Guatemalan source income obtained by non-resident entities without a permanent establishment in the country is subject to withholdings tax on the total amount paid.

Each year, companies must file an informative tax return, which summarizes the annual income earned and the withholdings made. This tax return is due by 31 March of the following calendar year.

There are established incentive regimes for the drawback industry and free trade zones.

No general impediments/taxes charges apply to inflow of capital and in the outflow of capital a 5% might apply in some cases.

The main laws regulating tax matters include the Tax Code, and Income Tax, Law which includes the Transfer Pricing Regulations, Value Added Tax Law (VAT), Solidarity Tax Law (ISO), Property Tax (Law IUSI), Stamp Tax Law (ITF), the Specific Tax on the First Registration of Land Motor Vehicles, tax incentive laws for the drawback industry and free trade zones, the National Customs Law, and the law regulating employer and employee Social Security contributions.

Guatemala has not signed any international double or multiple taxation agreements.

In the case of certain industries, there are specific consumption taxes, such as the Tax on the Distribution of Cement, the Tax on the Distribution of Tobacco, the Tax on the Distribution of Alcoholic Beverages, the Specific Tax on the Distribution of Soft Drinks, Other Beverages and Bottled Water, and well as the Tax on the Distribution of Fuels.

No public takeover rules apply only on specific industries might apply some rules i.e.: Bank, energy, among others.

There is not a merger control regime, only rules and procedures for mergers apply, which are established in the commercial code. In general, this procedure seeks to make the public aware of the mergers.

Obligations and commercial contracts will be interpreted, executed and fulfilled in accordance with the principles of known truth and good faith kept, in order to preserve and protect the upright and honorable intentions and wishes of the contracting parties.

There are no specific disposals for protection to employees in cases of M&A, only the general labor law will apply.

The are no restrictions for foreign investments, only to consider that the money should be transferred through a bank.

No.

Companies are totally dissolved for any of the following reasons:

1. Expiration of the term set in the articles of incorporation.
2. Impossibility to continue performing the principal objective of the company or because such objective has been consummated.
3. Resolution of the partners made at a board meeting or extraordinary general shareholders’ meeting.
4. Loss of more than 60% of the paid-in capital.
5. The shares or contributions of a company are held by one sole person.
6. Those foreseen in the articles of incorporation.
7. In the specific cases determined by the Law.

As soon as the administrators are aware of the existence of any cause for dissolution, they shall place it on record in the minutes and have it signed by all, and they shall convene a board meeting or general shareholders’ meeting that must be held within the shortest possible term and in all cases within the month following the date of the minutes.

The liquidators cannot distribute among the partners, not even partially, the corporate assets, so long as the creditors of the company have not been paid or the sums necessary to pay them have not been segregated.