Top challenges of doing business in Guatemala

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Free trade, transparency and a reduction in red tape have all been placed at the forefront of Guatemala’s economic reform agenda, but navigating the complex business environment is notoriously tricky, which is why having local help on board is a major asset.

Guatemala’s strategic location acts like a magnet for international firms looking for access in lucrative economies in North America and developing nations in Latin America and the Caribbean. With privileged access to both the Atlantic and Pacific Oceans, Guatemala is developing into a nucleus for global trade between Asia, North America and Europe, as well as local markets around its periphery.

In an attempt to reform economic fortunes, the government has turned its attention to cutting red tape and promoting overseas trade by being more transparent and open. Steady economic growth is returning to the Central American nation as exports to the US pick up, and international businesses are once again considering growth strategies in the country as custom barriers are reduced or removed and legal certainty is restored.

Despite the obvious appeal of Guatemala as an investment destination, it still ranks poorly for ease of doing business and economic freedom. The 2013 Index of Economic Freedom ranks it as the 85th freest in country in the world after declines in the ‘freedom from corruption’ and ‘labour freedom’ indices pushed the country down. The World Bank and International Finance Corporation (IFC) have improved its rank by five places in 2013, but that still leaves it in a lowly position of 93rd in the world in terms of ease of doing business.

Starting a Business
Starting a business is a process shrouded in red tape and can take over 40 days to complete. A notary is required for many stages and several government bodies are to be consulted in order to set up, from the Mercantile Registry of Guatemala to the Commercial Registry and Department of Labour. A legal representative is also required to represent the company. The elongated nature of company formation in Guatemala prompted the World Bank and IFC to rank it 172nd in the world (out of 185 economies).

Dealing with Construction Permits
Construction permits take an average of 158 days to obtain thanks to various licences, inspections and registrations that must be completed with several disparate governmental bodies. The cost of dealing with construction permits is considerably higher than elsewhere in Latin America and the Caribbean.

Getting Electricity
Empresa Eléctrica de Guatemala (EEGSA) deals with the formalities of electrical connections, although the company must hire a private contractor to lay out the underground cables and other work needed for the external connection. EEGSA finalises the external connection and installs the meter.

Registering Property
Registration is by far the most streamlined process of the property process, taking less than a month to complete and with a limited amount of associated costs. The company must first obtain a property certificate before a lawyer or notary prepares the sale agreements and the public deed is delivered to the Property Registry for its recording. The Municipality and DICABI must be notified of the transaction.

Getting Credit
Guatemala's economy is dominated by the private sector, which generates nearly 90% of GDP. Getting credit is therefore a relatively easy task, and the World Bank and IFC rank it positively on all tracked indices.

Protecting Investors
Investor protection is a particularly weak aspect of the Guatemalan economy, and one that is constantly cited as being in need of an overhaul. In the 2013 Index of Economic Freedom, the ‘Rule of Law’ and ‘Regulatory Efficiency’ are both areas in which Guatemala ranks poorly.

Paying Taxes
There are 24 tax payments to make each year which take an average of 332 company hours to process. VAT payments alone can take up to 156 hours to file.

Trading Across Borders
Trading across borders is a timely and expensive procedure. It takes an average of 17 days to both export and import goods, and the cost of shipping is far more expensive than the OECD average. There are also several forms to process which can lead to a backlog of goods.

Enforcing Contracts and Resolving Insolvency
Enforcing contracts takes a massive 1,459 days (four years) to complete, and resolving insolvency is similarly burdensome, taking three years with a low recovery rate compared to the OECD norm.

Business is business in Guatemala, and topics surrounding the country’s heritage and culture are best avoided. Hierarchy is important so be sure to use titles and address the most senior member of the party when negotiating.

TMF Group
We have the local knowledge to help you navigate these minefields. Whether you want to set up in Guatemala or just want to streamline your Guatemalan operations, talk to us.