Doing Business Guatemala, Business in Guatemala, Guatemala Commerce Guide

INTRODUCTION

In recent years, Central American countries have embarked on a process of economic liberalization that is modernizing and improving the efficiency of their productive and financial sectors. Every Central American country has implemented neo-liberal economic reforms: privatizing public enterprises, liberalizing foreign trade, reforming the tax system, freeing interest and exchange rates, increasing fiscal austerity, and enacting laws to attract and facilitate foreign investment. The Caribbean Basin Initiative (CBI), unilateral trade concessions and foreign assistance from the United States, has undoubtedly been a driving force behind these significant incentives for foreign direct investment in Central America especially in draw back activities for the apparel industry (maquiladoras).

After the conclusion of the North American Free Trade Agreement (NAFTA) in late 1994, the future of foreign investment in maquiladoras in Central America looks vis a vis, NAFTA made foreign investment in Mexico more attractive than in Central America. The phase-out of quotas for textiles under de MFA under the Uruguay Round of the GATT sounded the death of foreign investment in the textile and apparel assembly industry in CBI beneficiary countries. In addition, the CBI is vulnerable to political pressures within the United States, which threatens to Killed CBI as an incentive for future foreign investment in maquiladoras in Central America.

Do to the above mention factor the governments of Guatemala and the rest of Central America countries aggressively pursued, negotiated and concluded a free trade agreement with the United States of America (pendent Congressional approval). Guatemala has also made commendable diplomatic efforts to attract the interest of the European Community in signing a "free trade agreement". These effort have not materialized but possibilities are rising sin European Official had made remarks that indicate the willingness of the European Union to start negotiating a "free trade agreement" with the region. Guatemala has concluded other very import "free trade agreements" with countries like Mexico, República Dominicana and Chile.

EXPROPIATION

No expropriations in Guatemala have been carried out since World War II. The Guatemala Constitution authorizes expropriation for "collective use or social benefit", but prior compensation is mandatory. The Expropriation Law fixes the grounds for expropriation, indemnification, and their procedures. Although the Expropriation Law contains provisions, which ensure adequate compensation in case of expropriation, such as requiring compensation to be paid in currency, many other provisions appear deficient. Most of the problems with the expropriation procedures center around the property or rights expropriated valuation. To determine just compensation courts have resolve that market value and just compensation are synonymous, market value is determined by what a willing buyer would pay a willing seller, its highest and most profitable use result in costly and time-consuming delays. These problems, however, are mitigated by the fact that, as noted earlier, no expropriations have occurred in Guatemala since World War II. Expropriation risk in Guatemala, therefore, is low.

The traditional formulation of the compensation standard is the famous phrase coined in 1938 by U.S. Secretary of State Cordell Hull: "Prompt, adequate and effective compensation". The Hull formula was reformulated in the Restatement (Third) of the Foreign Relations Law of the United States as payment of "just compensation", meaning, "in the absence of exceptional circumstances,... an amount equivalent to the value of the property taken ... paid at the time of the taking ... and in a form economically usable by the foreign national." The Hulla Formula has been refined by later practice and statements to mean full compensation of "fair market value" and "value as an ongoing concern."

Guatemala's expropriation laws fall short of the internationally recognized standard for compensation for expropriation. Guatemala fails the "adequate" prong of the standard, since the valuation procedures result in compensation at less than full market value. Since the Guatemalan government has not expropriated any properties in over fifty years, the actual promptness or effectiveness of compensation for expropriation cannot be evaluated. The cumbersome valuation procedures now on the books, however, could result in delays or even the failure to resolve expropriation claims.

INVESTMENT INSURANCE

The two main sources of investment insurance in the United States, the Overseas Private Investment Corporation (OPIC) and private insurers, are examined in this subsection.

OPIC, is a United States government-owned corporation, which offers political risk insurance, loan guarantees, and direct loans to small businesses doing business in Guatemala. OPIC also offers insurance against inconvertibility, that is, "the inability of an investor to convert into dollars the local currency received as profits, earnings or return of an original investment. OPIC insurance is not available retroactively; investors must obtain an OPIC "insurance registration letter" before making their investment or irrevocably committing to invest. OPIC cannot insure projects, which would have a detrimental effect on United States balance of payments or employment.

Obtaining insurance from private companies, likes Lloyd's of London or the Chubb Group, offers several advantages over OPIC investment insurance. Private insurers frequently cover existing projects, while OPIC only covers "new projects". Private insurers may also cover a wider range of contingencies, resolve claims more quickly, and indemnify a greater amount of loss than OPIC. The disadvantages of using private insurers are shorter coverage terms and significantly higher premium rates.

CONVERTIBILITY AND PROFIT REPATRIATION

Guatemalan Foreign Currency Exchange act:

On May 1, 2001 Congress enacted the "Free Negotiation of Foreign Currency act" (in Spanish "Ley de Libre Negociación de Divisas"), which grants the general public the following rights:

According to this act, and in conformance with the Guatemalan Constitution, the Guatemalan Central Bank (BANGUAT) retained the prerogative to influence the foreign currency market by buying or selling currencies in the open market. Because of this fact, it is safe to say, that despite it name, "The Free Negotiation of Foreign Currency Act", what the law really creates is a Dirty Float Exchange Rate.

One relevant aspect of this act is that it authorizes the execution of administrative contracts (contract regulated by the procurement act, decree number 57-92) in foreign currency.

This law also enables the general public, as well as corporations and financial institutions (authorized by the bank superintendence), to create securities or stocks, listed or not, expressed in foreign currencies.

Finally this act imposes on the Guatemalan Central Bank (BANGUAT) the obligation to publish in the official gazette, "Diario de Centro America", the applicable exchange rate for compliment of tax obligations as well as for proper payment of contract obligation stipulated in foreign currency when parties did not specifically (in writing do to the high risk of fraud) excluded the legal right to pay in local currency. This official exchange rate is applicable also to payments made under administrative contracts as well as to any other payments made to or by the state of Guatemala or its administrative agencies.

It is also important for the investor to consider the provision contained in article 8 of the "Foreign Investment Act" that establishes the following: ACCESS TO FOREIGN EXCHANGE. Foreign investors shall enjoy free access to the purchase and sale of available foreign currency, and to the free convertibility of currency, in accordance with the provisions of the "Free Negotiation of Foreign Currency act" and the administrative laws applicable to the general public. Foreign investors may freely engage in the following activities, among others: a) Transfers abroad of currency related to their investment, or as a result of the voluntary dissolution and liquidation or sale of the assets; b) Remittance of any profits or earning generated in Guatemalan; and, c) Transfer of payment and remittance of dividends, debts, contracted abroad and interests accrued, royalties, income, and technical assistance, as well as payments derived from compensation for expropriations.

Guatemala has made commendable progress in liberalizing its exchange rates and allowing the free repatriation of profits by foreign exchange are particularly attractive to foreign investors. Guatemala has liberalized exchange rates and minimal encumbrances on profit repatriation definitely conform to the recommendations in the World Bank Guidelines.

BUSINESS ORGANIZATION AND ENTRY RESTRICTIONS

Foreign investment in Guatemala is generally welcome. The country imposes relatively few restrictions on foreign investment. A foreign enterprise intending to do business in Guatemala, however, must register with the Mercantile Registry and the internal Revenue Service named the SUPERINTENDENCIA DE ADMINISTRACION TRIBUTARIA (S.A.T.). There are no limits on foreign participation in domestic enterprises. Foreigners may own 100% of a domestic enterprise. In addition, foreign investors are guaranteed national treatment by law.

Guatemalan law, however, does impose restrictions on foreign investment in certain sectors of the economy. There are also restrictions, in the form of cumbersome prior governmental approval requirements. Prior approval from INGUAT, the tourism ministry, is also required for investment in tourism sector, including the building of hotels and marinas, and the set-up of travel agencies. In addition, the exploitation of forestry resources is reserved exclusively for Guatemalan investors.

The World Bank Guidelines emphasize the importance of national treatment for foreign investors. Guatemala's laws generally provide for non-discrimination of foreigners. Their laws also permit 100% ownership of enterprises by foreigners. The combination of non-discrimination of foreigners and 100% ownership of enterprises by foreigners satisfies the guidelines standards on national treatment. The state-monopolies held by Guatemala on certain sectors of the economy do not contravene the World Bank Guidelines, since they apply non-discriminately to national and foreign investors alike. On the other hand, the cumbersome approval requirements required by Guatemalan law for entry into the transportation and tourism sectors appear to go against the guidelines recommendation that "each State ... promptly issue licenses and permits and grant such concessions a may be necessary for the uninterrupted operation of admitted investment ..."

TAX LAW

The Income Tax Law establishes a maximum 35% tax rate on income obtained in Guatemala for capital investments, services rendered, or both. This tax rate applies to all companies and legal entities. Interestingly, dividends or similar benefits paid by a corporation are exempt from taxation, (provided the company has paid its income tax). The Value-Added Tax (VAT) was also recently simplified and remains one of the lowest in Latin America at 12%. The VAT is imposed on imports or sales of goods in the domestic market, services (other than personal services), or rental of property. No VAT is imposed on commodities exports (coffee, sugar, bananas, meat, cardamom, or cotton).

Guatemalan law provides for CATs, which are issued for up to 15% of the Value of non-traditional exports. The CAT, which lapses after two years, can be used to pay certain taxes and has several interesting characteristics: it is paid in national currency, is negotiable, and is not subject to any taxes. CATs, however, are only available when the product is exported to a country, which has not signed a bilateral or multilateral free-trade treaty with Guatemala.

Special tax incentives, which are really a type of subsidy, remain the single most common instrument in foreign investment regimes. These incentives may be a form of "signaling" which shows a country's willingness and commitment to attract foreign investment. Many commentators, however, have noted that special tax incentives do not, on the margin, always attract foreign investment. The World Bank Guidelines also recommend against special tax incentives for foreign investors. Most countries in Central and Eastern Europe have actually rescinded their special tax incentives for foreign investors and treated foreign and domestic investment on equal terms.

INCOME TAX

In the Guatemala, it is an essential constitutional principle (Article 239 of The National Constitution) that no one has to pay any taxes unless Congress legally establishes it, and unless collection is carried out as prescribed by law. Article 243 of The Constitution of Guatemala also prohibits double taxation and/or confiscatory or expropriatory taxation.

Decree number 26-92 "Income Tax Act" regulates income tax; this law was enacted by Congress the 1 of December 1992 and has suffered the following reforms 36-97 and 80-2000. Income tax is only collected at a national government level. Congress enacted decree number 1-98 by means of which control over tax and duties collection was transferred to the "Superintendencia de Administración Tributaria" (SAT), created as a technical, autonomous administrative agency not politically influenced.

1. BASIC PRINCIPLES GOVERNING INCOME TAXES

The Guatemalan Income Tax Law definition of taxpayer is "any person or legal entity (corporation or partnership), national or foreign, receiving taxable income".

     a) INCOME SOURCE

According to the Fiscal Code (article 4, decree number 26-92), any income that is generated from any source within the territory of the Republic of Guatemala is subject to income tax, regardless of the place where it is paid or received, of who may be the payer of the same and independently of the nationality, domicile or residence of the recipient. Incomes from a source in the Republic of Guatemala (articles: 4 and 5, decree number 26-92) are:

i) Income generated from civil, commercial, industrial or similar activities and from the practice of professions, occupations, or any other kind of service rendered, performed or exercised within the territory of the Republic of Guatemala.

When the services rendered implies the performance of wok both inside and outside Guatemala, only those services rendered within said National territory shall be considered of Guatemalan source.

ii) Income generated from goods produced or rights economically used in the Republic of Guatemala or from capitals or securities economically invested in the National territory, such as interests on loans, interest on monetary deposits, interest on securities and documents, dividends and other distribution of profits among shareholders or partners; profits from branch offices established in Guatemala by borne offices located abroad, lease payments from movable goods economically used in Guatemala, royalties, periodic subsides, income from the assignment of manufacturer's or merchant's trademarks, patents of invention, life annuities and any other income or rent obtained from (sources) within the Republic of Guatemala, either through the use of goods or the rendering of services.

     b) FOREIGN INCOME SOURCE

Exclusively for income tax purposes, income derived from the following activities is not considered as produced within the territory of Guatemala:

i) Interest, financial commissions or other similar captions earned by natural or juridical personas, independently of their place of organization or domicile, coming from loans, money deposits or any other financial operation, carried out with borrowers domiciled outside the national territory, as long as the service rendered and the use of the money are made outside Guatemala, even though, the capital or interest reimbursement is effected in the country.

ii) Re-invoicing, merchandise that arrives to Guatemalan National Ports, or Airports in transit to another destination (by transit meaning merchandise or products that arrive in Guatemala Airports or Ports only to continue on to another foreign destination, with documents that indicate that they are consigned to persons or corporations not resident in the Republic of Guatemala, and with shipping documents that indicate that such merchandise or products shall be shipped abroad immediately after arrival). These merchandises shall remain under the official custody of Customs authorities, which will ensure that such merchandises are not illegally introduced into the fiscal territory.

vi) Dividends or profits-sharing earnings received from corporations as long as tax payments are made at a corporate level.

     c) GROSS INCOME

Article 8 of the Income Tax Act determines that the phrase "gross income" refers to the total income, before deductions, that the taxpayer receives from whatever source and under whatever form (in money or in kind). Items to be included in gross income are provided by law such as: salaries, wages, overtime, commissions, bonuses, fees, rental payments, profits from industrial, commercial and agricultural activities, royalties, goodwill, trademarks and patents, interest and revenues and profits from sale of realty and/or personal property (capital gains).

2. EXEMPTIONS

According to article 6 of the Income Tax Act the following are some types of incomes exempted from taxation:

3. TAXABLE CORPORATIONS INCOME

Taxable income of corporations is the balance of gross income less deductible disbursements and expenses (article 38).

4. DEDUCTIBLE EXPENSES

Deductible expenses are disbursements incurred in the production of taxable income or in the maintenance of its source. The expenses incurred must be related to Guatemalan income source. Consequently, expenses incurred to produce foreign source of tax-exempt income are non-deductible.

All disbursements related to expenses must be supported by proper documentation in order to be deductible, and it is understood that "proper documentation".

a) INTERESTS AND ROYALTIES

Interests and royalties are deductible expenses under the general principle and are taxable income to the recipient (art. 38, m.). When payments are made to non-resident individuals or corporate entities, income tax must be withheld.

b) DEPRECIATION

Concerning this matter, it is appropriate to point out that the annually permitted depreciation due to wear and tear or exhaustion is that which is affected over fixed assets employed by the taxpayer in its business, industry or profession and activities linked with the production of taxable income.

As a rule of thumb, the correct value of the asset over which depreciation is to be calculated upon shall be that of its cost, and also that of the permanent improvements to said asset, if that is the case. The value of its cost shall also include, besides the value of the invoice, all expenses associated with the purchase, installation and assembly of said asset, such as purchase commissions, insurance and freight expenses, introduction taxes and other expenses related with the purchase and installation and interests incurred during the period of construction.

To calculate the depreciation of a particular asset, the useful economic life of a particular asset has to be taken unto consideration, which shall depend on the activity and conditions under which said asset is used, the regular turns of activity, the quality of maintenance, the possibility of obsolescence and the depreciation tables of technical value. Nonetheless, in no case shall it be permitted to have useful economic life of less than three (3) years for personal property and less than thirty (30) years for real estate property.

According to article 18 of the Income Tax Act the methods for calculating depreciation of assets are: a) direct or straight line calculation, which applies a fixed percentage over the original cost; b) decreasing value, which applies a fixed percentage to the decreasing balance of the value in terms of cost; c) that which employs the digit sum of the years of useful life and, dividing its original value cost from said sum, and multiplying, each year, the quotient by the digit of that particular year be it in a decreasing or increasing manner.

No mater the method of depreciation article 91 of the law establishes maximum depreciation percentages that may not be exceeded. Examples of said maximum depreciation percentages are:

a) Computer equipment: 33.33%; b) Furniture and Office equipment: 20%; c) Machinery and manufacturing equipment: 20%; d) Buildings and other constructions: 5%; e) Vehicles: 20%.

In financial leasing contracts, it is up to the lesser to depreciate the asset over the term of the contract, using the depreciation criteria provided by the law. The base for the calculation of the depreciation will be the acquisition value including sales taxes.

c) OTHER DEDUCTIBLE EXPENSES

Other deductible items are:

5) DIVIDENDS

Corporations distributing dividends or profits to their shareholders are exempt of taxes as long as the applicable taxes are paid at a corporate level.

Profits derived from the dispositions of securities, even if registered with the National Securities Exchange Commission (whose securities are negotiated in a stock exchange), will be subjected to capital gain taxes (10%).

6. CAPITAL GAINS

Profit obtained from the sale of any personal property is considered taxable income (see articles 28 - 30, Income Tax Act).

7. BRANCH OFFICES OF FOREIGHN CORPORATIONS
For tax purposes, branches of foreign corporations established in the Republic of Guatemala must keep their accounting records for the Guatemalan operations separated from head office or other branch records. Foreign corporation branches will be taxed as Guatemalan corporations and are not subjected to withholding tax (provided that this branch is registered with the Mercantile Registry and the IRS, "Superintendencia de Administración Tributaria").

TARIFFS

Guatemala acceded to the GATT (latter WTO) in 1991. Guatemala, as noted earlier, is also a member of the CACM. Guatemala, El Salvador and Honduras have formed a "Northern Triangle" free-trade area to augment the accomplishments of the CACM, but it has suffered from implementation problems and its provisions have not been finalized. Current import tariffs in Guatemala, as those in the other CACM-member countries, range from a low 5% to a high of 20%, although there are some exceptions to the 20% ceiling, such as tires (30%) and textiles (25%).

As noted earlier Guatemala has signed "free-trade" agreements with countries such as Mexico, Dominican Republic and Chile. Its is easily predictable that Guatemala will continue promoting free trade agreements with other countries and that duties will continue to disappear within the next 15 year. Said trade agreements include the following topics: a) National Treatment and access of goods to the market; b) Rules of Origin; c) Customs Procedures; d) Sanitary and Phytosanitary Measures; e) Illegal Commercial Practices; f) Protective Measures; g) Investments; h) Trade of Services; i) Temporary entry of businesspeople; j) Procurement by the Public Sector; k) Technical Obstacles to Trade; l) Intellectual property; m) Competition Policy; n) Solutions to disputes; o) Exceptions; p) Administration of the Agreement; q) Transparency; r) Final Provisions.

LABOR REGULATIONS

Guatemala enjoys an abundant supply of unskilled and inexpensive labor, making the country attractive to labor intensive enterprises. Skilled manual workers and management and information processing professional, however, can be hard to find. Restrictions on the number of foreign employees who may work for a given enterprise exacerbate the problem of low availability of skilled workers and management professionals.

Labor regulation in Guatemala is primarily the responsibility of the Labor Code. Under the Guatemalan Labor Code, the government plays a significant role in labor-management relations. The Labor Code, which dates from 1947, has been described as a "New Deal" labor code, since the government assumes paternalistic responsibility over the welfare of employees. The Labor Code contains provisions prescribing workplace conditions, work-periods, and collective bargaining.

Although the Labor Code provides for the organization of employee associations and labor unions, labor unions in Guatemala remain relatively weak. Labor unions are found mostly in the public sector, although labor organization in the private sector has increased recently. Membership in employee associations, such as the Solidarity groups, is increasing in Guatemala.

Work-periods and holidays

According to the Labor Code, the ordinary workday (6 a.m. to 6 p.m.) lasts eight (8) hour per day, not to exceed forty-eight (48) hours per week. The ordinary working hours (6 p.m. to 6 a. m.) lasts six (6) hours per night, not to exceed thirty-six (36) hours. For mixed work-periods the ordinary workday, consists of seven (7) hours per day not to exceed forty-two (42) hours. The normal workweek lasts forty-five (45) hours, but employers pay for forty-eight (48) hours.

Guatemalan employees receive twelve (12) paid holidays per year (January 1st., Easter Thursday and Friday, May 1st., June 30th, September 15th, October 20th, November 1st, December 24th and 25th, and December 31st) plus local holidays. Annual vacations are fifteen (15) days after one year of continuous employment workers employed in commerce; ten (10) days after a minimum of 150 days of continuous employment for workers employed in industry; and six (6) days after a minimum of 150 days to continuous employment in all other cases.

Wages

Wages are negotiated between the employer and the employee (or the union), but the Ministry of Employment fixes minimum wages. Overtime is calculated at time-and-a-half (1 + ½) for employees in commercial or manufacturing industries; time-and-a-quarter (1 + ¼) for all other employees. Employers must pay wages for the seventh (7) day after six (6) consecutive workdays or 48 hours of work in six (6) days. The basis for determining the rate of pay for the seventh day and paid holidays in the daily average of total pay for the week. Interestingly, the Labor Code permits workers to negotiate increases to the already generous list of benefits it provides for, but workers cannot bargain collectively not negotiate reductions in benefits in return for higher wages.

Employers must pay a Christmas bonus, the aguinaldo, consisting of one month's salary for a full year worked and proportionally for shorter periods; one half of the aguinaldo must be paid before December 15th, while the other half is not due to the employee until January 30th.

Social security rates vary depending on whether the enterprises are located in Guatemala City or in areas outside of the capital, an obvious incentive for investment in rural areas of the country. The rate for employers in Guatemala City is 17.5% that is booth by the employer in a rate of 12.67 and by the worker in a rate of 4.83, while the rate in other areas is lower.

Foreign investors should be wary of indirect compensation for Guatemalan employees under the Labor Code. If an employer establishes traditions of paying a bonus in addition to a statutory required bonus, like the Christmas aguinaldo, such a bonus could become an "acquired right". The employee could sue to collect an acquired right bonus if, for example, the enterprise's earning were down and the employer did not pay the bonus.

Terminating a business enterprise in Guatemala may also require the employer to pay severance benefits equal to one month's pay for each year the employee worked for the enterprise. In addition, if the employer provided "economic benefits", such as transportation, meals, etc., which employees normally pay themselves, the employer must add 30% to the employee's normal pay to compensate her for the loss of those benefits.

Termination of employment

The Labor Code establishes a two-month probation period for new employees. If the employee is dismissed after of two-month probation period, the employer must pay her severance pay equal to one month's wages for every year worked.

Restrictions on foreign employees

A significant obstacle for foreign direct investment can be found in the Labor Code's restrictions on the employment of foreigners. The Labor Code requires that a least 90% of the total employees be Guatemalan, and these must collectively earn at least 85% of the total salaries paid by the employer. Two high-level administrative positions, such as managers or directors, are exempt from the percentages discussed above. Another significant restriction relates to work permits in those cases where it cannot supply qualified Guatemalan workers. Work permits are granted for a tem of one year. In addition, a company employing foreign technicians must also employ and train an equal number of Guatemalan workers for the job relating to the work permit, making renewal of the work permit more difficult.

The World Bank Guidelines recognize the importance of the foreign investor's freedom to hire foreign personnel. Although the guidelines recognize restrictions on hiring foreign employees, by limiting these restrictions to restrictions on hiring foreign employees, by limiting these restrictions to requiring the foreign investor to establish his or her inability to recruit required personnel locally before recruiting foreign employees. The restrictions implemented by the Guatemalan labor code do not conform with the World Bank Guidelines. These restrictions exceed the scope of the restrictions envisioned in the World Bank Guidelines and pose a severe constraint on foreign direct investment. Guatemala's exemption of two high level administrative position from the quotas on the hiring of foreign employees mitigate this problem and is more in tune with the guidelines stress on the investor's freedom to hire top managers regardless of their nationality.

FREE-TRADE ZONES

FTZ in Guatemala have not been a successful as in other countries since maquiladoras enjoy virtually the same incentives as enterprises located in FTZ without the site restrictions. Nonetheless, Guatemala counts with one government-owned FTZ, (ZOLIC), and ten private ones. An enterprise located in and FTZ benefits from relative physical security, building facilities, installed infrastructure, expedited customs clearance, and tax and other fiscal incentives. All labor laws apply fully in Guatemalan FTZs.

The Guatemalan government provides few inducements for investing in FTZs. There is an import duty exemption for raw materials, equipment, and tools used in the FTZ. Goods produced in FTZ are exempt from the 2% withholding tax on exports. In addition, essential items such as food are exempt from sales taxes within an FTZ.

ENVIRONMENTAL REGULATIONS

Foreign investors should take steps to comply with Guatemala's ever-more-stringently enforced environmental regulations to avoid civil and criminal sanctions. Compliance with the host country's environmental regulations also improves the image of the foreign investor in a region leery of perceived "exploitation" of a country's natural resources by foreigners. In addition, anecdotal evidence suggests that businesses will increasingly factor environmental quality issues into their foreign investment decisions, increasing the value of knowing the host country's environmental regulations and their administration.

Careful planning around existing and imminent environmental laws also reduces the cost of investment projects. In addition, environmental protection plans may prevent accidents, speed the project through a complex system of laws and institutions, which is always confusing, sometimes duplicate, and never easy to navigate. The regulation of water pollution was tightened in 1986 with the enactment of the Law for the Protection and Improvement of the Environment (Law for the Protection of the Environment). The Law for the Protection of the Environment contains an entire chapter devoted to the protection of water resources, which includes measures to evaluate the quality, prevent the pollution, and control the use of continental and maritime waters. CONAMA (Comisión Nacional del Medio Ambiente), however, has been unable to enforce many of the provisions of the Law for the Protection of the Environment because their regulations have not been promulgated.

The Health Code also contains provisions regarding water resources contamination from household or industrial wastes, or sewage. The Health Code prohibits the discharge of all wastes which endanger human health into the nation's waters, yet authorizes the Ministry of Health to permit the discharge of waster treated in conformity with the applicable regulations. The discharge of solid or liquid household or industrial wastes requires authorization of the respective municipal governments, however, final authorization of the respective municipal governments, however, final authorization from the Ministry of Health is also required. Approval by the Ministry of Health is also required for any construction, repair, or modification of a public or private facility used for the discharge or treatment of waster or sewage.

The Law for the Protection of the Environment also regulates forest resources. The law contains general provisions for the conservation of forest resources, but the exploitation of forestry resources is governed by the Forestry and Wildlife (DIGEBOS). The Forestry Law establishes a system of concessions for the exploitation of forest resources, including resins, saps, non-cultivated vegetable products, etc., in the national o municipal forests, which have not been declared, protected areas. Concessions for the exploitation of forest resources, which last for ten years, are only given to Guatemalan nationals or enterprises that are al least 70% Guatemalan-owned. The legal representatives of the concession-holders must also be Guatemalan nationals. In addition, concession-holders must also post a bond, equal to the value of the forest resources they intend to exploit, to guarantee the reforestation of the used land.

Guatemala is generally receptive to foreign direct investment, the country provide for national treatment of foreign enterprises and have few restrictions on profit repatriation. Expropriation risk in both countries is also rather low. There are, however, significant legal restrictions on foreign direct investment. One can generally conclude that, from a legal point of view, certain types of investments are better suited to these countries than others. Taken as a whole, the laws affecting foreign direct investment Guatemala makes both countries best suited for labor intensive, "low-tech" enterprises, such as light manufacturing and agriculture for export. Guatemala provides opportunities for investment in large enterprises, such as power plants, telecommunications, utilities or insurance companies. Investment is smaller enterprises faces no significant legal obstacle.

CORPORATIVE AND BUSINESS

This general overview of the profit corporations will focus only on the so-called mercantile corporations (Commercial Code). There are of course other forms for operating a business such as the sole proprietorship and partnership (Commercial Code and Civil Code respectively). The reader must consider that there are some special areas of business in which special forms of corporations are permitted such as; Investment corporations or Banking.

The following is a list of the alternative options for creating a corporation in Guatemala:

1) Sociedad Colectiva (Articles 59-67 of the Commercial Code): The definition of corporation is valid for this form of corporation, except for the fact that there is no limited liability and partners are jointly and extensively liable for damages or debts incurred by the corporation. The most obvious distinction between a sociedad colectiva and a partnership is that in a partnership each partner retains the right to manage and bind the partnership while in a sociedad coletiva these rights are granted to elected officials who may or may not be partners. No issue of shares is permitted and the only means to show participation is through a copy of the bylaws.

2) Sociedad en comandita Simple o por Acciones (Articles 68-77 and 195-202 of the Commercial Code): These are two different types of corporation that due to their proximity can be explained together. This corporations are formed by two or more persons, having as members one or more general partner and one or more limited partner. General partners are granted the right to manage and bind the corporation since they are subject to unlimited liability. The general partners' unlimited liability in this case is not joint and extensive, and their assets can only be touched after foreclosure on corporation assets (capital). Shares may or may not be issued depending on prohibitions in the bylaws, hence the difference between one and the other.

3) Sociedad Anónima (Articles 86-183 of the Commercial Code): This is the most commonly used form of corporation due to the benefits of limited liability and the fact that its capital is divided into shares of stock (face value shares) that facilitate transfer and appreciation (market value).

4) Sociedad de Responsabilidad Limitada (Articles 78-85 of the Commercial Code): These types of corporations are a device designed to limit responsibility to the participation of capital from each partner. All of the partners are treated equally and officials are elected to manage the business. Partner participation is limited to 30 members and no shares of stock are issued due to the fact that capital is divided into each person's participation (Commercial Code). This type of corporation is especially attractive for American (US.) corporations interested in investing or co-investing (with local capital or Know how) in Guatemala doe to taxing provisions in bought countries (Guatemala has not signed any double or multiple taxation treaties).

GENERAL INFORMATION ON GUATEMALAN CORPORATIONS:

According to the Guatemala's Commercial Code, two or more individual persons or corporations (juridical entities), even though not citizens, residents or domiciled in the Republic of Guatemala, may organize a local corporation (company) for any lawful purpose or purposes.

Under the law, corporations must file Articles of Incorporation (Escritura Social), under the form or public document, with the Mercantile Public Registry. The standard procedure to form a corporation in Guatemala is to resort to Guatemalan attorneys/notary public who, acting on behalf of the client, files the articles of Incorporation, and then assign their rights to the client. Therefore the client needs not to come to Guatemala.

1. Why Guatemala?

2. Information Required to Form a Corporation

The articles of incorporation shall contain, at least, the following basic information:

REGISTRATION OF FOREIGN CORPORATIONS FOR DOING BUSINESS IN GUATEMALA:

Foreign corporations that wish to do business in Guatemala must seek prior registration with the General Mercantile Registry (administrative agency in charge of authorizing corporations) and the intern of revenue service (SAT). According to the law there are two alternatives for the registration of foreign corporations, with the Mercantile Registry that are: a) Permanent Registration; and, b) Temporary Registration for a period of no more than 2 years. Before providing an overview of the procedures for registration, it is important first to bear in mind that no matter which alternative is chosen, the foreign corporation must open a branch office by listing a registered agent, who must be a Guatemalan attorney, and a registered office in the country. For these purposes, the enjoiner must file the following documents: a) A copy of the articles of incorporation, the bylaws and the charter of incorporation, all of which must comply with the following requirements; a.1) Certification by a Notary Public or an equivalent official in the country were the articles of incorporation, the bylaws and the charter of incorporation were issued; a.2) Certification by the State Department or equivalent authority in the issuing country; a.3) Certification by the Consulate of Guatemala in the issuing country; a.4) Certification by the Ministry of Foreign Affairs in Guatemala; a.5) If the document is in a foreign language, translation by a certified translator; a.6) Establishment of document protocol by a Notary Public (in Guatemala all attorneys are Notary Publics as well). It is important to keep in mind that steps a.4 through a.6 are usually handled by the corporation's registered agent; b) A power of attorney (in the hands of a Guatemalan lawyer) that complies with the same requirements established by the articles of incorporation, bylaws and charter of incorporation and; c) General Mercantile Registry fee payment invoice (this fee is calculated according to the capital assigned to branch office).

Temporary Registration Procedures:

1) Registration Application: The first step in registering a foreign corporation is to file an application with the General Mercantile Registry (GMR), attaching the documents already described. The legal department of the GMR then examines the application and if it complies with all requirements a file identification number will be assigned.

2) Preliminary Registration and Publication in the Official Gazette: Once the file number is assigned the next step calls for the file to be sent to an official in charge of preliminary registration. When preliminary registration is completed, the GMR will issue a general information notice that is later handed over to the enjoiner. The law mandates that this general information be published for notice in the Official Gazette and a mayor newspaper.

3) Registration Bond: During the publication period a surety bond the enjoiner must present warranty of $50,000.00 (Decree 62-95) to the GMR. This bond serves the purpose of securing possible liabilities left by the foreign corporation once the two-year term expires.

4) Approval of the Attorney General's Office: Once the file contains the information for publication and the surety bond, it is sent to the Attorney General's Office for his approval. The approval serves as notice that the State of Guatemala has no opposition to the registration.

5) Final Registration (Charter of Registration): After the Attorney General's approval, the GMR proceeds to final registration by issuing a temporary charter of registration and printing the file number, registration date, GMR seal of approval and the signature of the GMR Commissioner on the copies of the bylaws presented with the application.

Permanent Registration Procedures:

1) Registration Application: The first step for registering a foreign corporation is to file an application with the GMR, attaching the documents already described in the paragraphs dealing with general information. The legal department of the GMR then examines the application and if it complies with all requirements a file identification number will be assigned.

2) Preliminary Registration and Publication in the Official Gazette: Once the file number is assigned the next step calls for the file to be sent to an official in charge of preliminary registration. When preliminary registration is completed, the GMR will issue a general information notice that is later handed over to the enjoiner. The law mandates that this general information be published for notice in the Official Gazette and a mayor newspaper.

3) Registration Bond: During the publication period a surety bond warranty of $50,000.00 (Decree 62-95) must be posted by the enjoiner with the GMR. This bond serves the purpose of securing possible liabilities left by the foreign corporation after termination of business operations.

4) Final Registration (Charter of Registration): Once the file contains all information for publication and the surety bond, the GMR proceeds to final registration by issuing a charter of registration and printing the file number, registration date, GMR seal of approval and the signature of the GMR Commissioner on the copies of the bylaws presented with the application. No approval notice is required from the Attorney General's Office.

Opposition to Registration:

Interested parties can oppose the registration of a corporation. Oppositions are commonly filed in order to protect corporate names (corporate names differ from trade names; see trade names under Intellectual Property). Other factors, such as non-compliance will bylaw requirements, may serve as basis for filing an opposition. Enumerating the grounds for opposition to a registration is virtually impossible here due to the fact that the law does not list them. According to the statutes, there are two basic opposition procedures, which are, a) Administrative proceeding (a resolution is reached by the General Mercantile Registry Commissioner); and, b) Judicial proceeding. Finally, it is important to note that administrative proceeding resolutions can be and commonly are challenged in a court of law.

Joint Ventures:

An enterprise entered into by two or more people for a limited purpose. A joint venture contains most of the elements of a partnership, such as division of profits and joint responsibility of losses. However, unlike a partnership, a joint venture anticipates a specific area of activity and/or period of operations, so that once the purpose is fulfilled, bills paid and profits divided and the joint venture is terminated. The joint venture document must stipulate a managing partner or promoter, who will have the right to bind the parties. In Guatemala, registration of joint venture contracts (contratos de negocios en participación) is not required by statute.

PUBLIC BIDDING AND ADMINISTRATIVE CONTRACTING

State Contract Law:

State contracting is regulated by decree number 57-92 ("Ley de Contrataciones del Estado"), enacted in 1992. This law establishes five different applicable contracting procedures, which are: 1) public biding, 2) private biding, 3) open contract, 4) direct acquisition, and 5) public auctioning of state-owned goods and enterprises (divestiture procedures). The law also contains statutes that clearly determine which procedure is applicable and the prior steps to be taken. State contracting is a very vast and specialized matter that must be studied case by case. For this reason, we will only include general information to give the reader a preliminary understanding of the requirements and procedures required by state contracting legislation.

Pre-qualification (Articles 71, 72, 73 and 74):

Corporations as well as individuals must go through a pre-qualification procedure before becoming eligible bidders or contractors. There are three different administrative agencies that handle pre-qualification procedures, which are 1) the Registry Office for Construction Contractors (Registro de Precalificados de Obra), 2) the Registry Office for Consulting Contractors, and 3) the Registry Office for Wholesale Goods (Registro de Proveedores). The main objective of these administrative offices is to serve as filters for eligible bidders.

Public Bidding vs. Private Bidding:

The difference between public and private bidding lies mainly in the offering parties allowed to participate in the process. In a public bid, anyone can participate as long as the individual or corporation meets the special requirements set forth by the terms of references. In a private bid, invitations are issued to pre-qualified participants and no one else is allowed to participate in the process. In a public bid, the law mandates that a general invitation to participate in a bid be published in the Official Gazette and a major newspaper; while this is not a requirement in the process of private bidding.

Public Auctioning of State-Owned Goods and Enterprises (Divestiture Procedures)

The legal procedure for the sale of State-owned goods or enterprises is described in Articles 89 and 90 of the State Contracting Law, which, in essence, mandates the use of competitive procedures such as auctions. The procedures required in Article 90 include:

a) A detailed description of the property to be sold.
b) The terms of the auction or similar method of sale (approved in the resolution of the Board of Directors or similar regulatory body), including the means of publicizing the sale and the bonds or guarantees required.
c) The contracting of internationally-recognized parties (optional), presumably investment banks and other advisors, to promote the transaction internationally.

Other issues Potentially Relevant to Public Contracting

The following is a list of issues potentially relevant to public contracting. The purpose for providing this list is to give the reader a preliminary idea of issues that may be considered relevant.

Pre-qualifying Registration
Public/Private Bidding Committee
Terms of References (technical, financial and specific)
Invitation to bid
Bid presentation and opening
Bid consideration
Adjudication
Notification
Bond (surety, maintenance, contract, performance, construction and bid)
Insurance (liability, compensation, political risk, loan guaranties and inconvertibility).

INDUSTRIAL PROPERTY (IP LAW):

Legal Protection of Trademarks, Services Marks, Trade Names and Slogans:

Articles 35 and 36 of the "Industrial Property Law", decree number 57-2000, establish legal protection of trademarks, service marks, trade names, trade dress and slogans. This law grants the owner of a registered trademark, service mark, slogan, well-known mark, inventions, utility model, industrial model or trade secrets all rights that derive from exclusive use, or better said, the right to exclude other from the use of a substantially indistinguishable from a trademark or slogan.

Patent, Trademark and Copyright Office (PTCO):

The Patent, Trademark and Copyright Office (the PTCO), which is an administrative agency, is in charge of registering trademarks, service marks, trade names, certification marks, utility model, patents, copyrights and slogans. Act number 148 created this administrative agency as part of the Ministry of Development in 1886. After its creation the PTCO has undergone many changes in terms of its responsibilities as well as in its structure. The first major change occurred when Congress enacted the "Central American Agreement for the Protection of Industrial Property Act", by which this agency became part of the Ministry of Economic Planning. The second change occurred in1983, when the Government of Guatemala and the World Intellectual Property Organization (WIPO) undertook the effort to reorganize the administration of the PTCO. The third important change, occurred recently in 1998 when Congress enacted the "Copyright Act", which modifies the PTCO structure by adding to its responsibility the registration of copyrights in cases were the petitioner wishes do so (protection of Copyright does not depend on registration, but when possible, it is highly recommended). The final change occurred with the enactment by Congress, of the new IP law, Act number 57-2000.

A Commissioner appointed by the President, through the Ministry of Economic Planning, heads the PTCO. The Commissioner must be a lawyer with no prior criminal record. It is also important to keep in mind that the information collected by, or given to, the PTCO, due to its administrative function, is of public domain and as such remains accessible to everyone. There is of course and exemption to this general rule, which is intended to protect computer programs (software) and pharmaceutical formulas.

PTCO has the following departments: general management, accounting, secretarial, legal, data management, trademark and service mark division, patent and utility models division and copyright division, oppositions and general records.

The PTCO is in charge of the following registration records: 1) Presentation (Filling) or application records (this help determine preemptive rights); 2) Registry of Trademarks; 3) Registry of Slogans; 4) Record of Utility Models (Graphics); 5) Patents Records; 6) Certification Marks Record, and 7) Copyright Records. It is important to state, at this point, that the Central American Agreement for the Protection of Industrial Property contemplates the use of two books of records or (data bases) not in use in Guatemala: the Resolutions Records and the Procedural Records. Finally, the IP and Copyright Laws mandates for these records books (data bases) to be in the public domain, but under no circumstances the records are to leave the premises of the PTCO. To obtain copies of the PTCO records (or part of) the interested party must file a written request and certification of said documents will be issued.

Practical Aspects of the Industrial Property Statutes:

1) Industrial Property Registration Procedure for Foreign Petitioners (Trademarks and Service Marks):

a) Legal Representative (power of attorney): According to the Guatemalan IP law, the first step for registering a Trademark or a Service Mark is to appoint a legal representative in Guatemala, which must be an attorney at law. This is done by granting a power of attorney (see model enclosed) that must comply with the following requirements; a.1) Certification by a Notary Public or equivalent official in the country were the power of attorney is issued; a.2) Certification by the State Department or equivalent authority in the issuing country; a.3) Certification by the Consulate of Guatemala in the issuing country or the nearest consulate in charge of the region; a.4) Certification by the Ministry of Foreign Affairs in Guatemala; a.5) Translation by a certified translator (if applicable); a.6) Establishment of the power of attorney by the legal representative in his capacity as a Notary Public, this is called in Spanish "protocolización de documento proveniente del extranjero"; a.7) Registration of the power of attorney with the Supreme Court; and, a.7) Registration of the power of attorney with the Mercantile Registry Office (this is only applicable if the power of attorney is granted by a Corporation). It is important to Know that steps a.4 to a.8 are handled by the appointed legal representative in Guatemala.

b) Registration Form: Once the legal representative is appointed, the next step is to fill out a form provided by the PTCO and attach the required documents in order to comply with Articles 5, 6, 7, 22, 23 of the decree 57-2000. One important provision of the IP law to point out is Article 22, which mandates that separate application forms are to be presented to the PTCO for each international category (classification) were the trademark applicant wishes to register the trademark (Guatemala as a WIPO member uses the international Nice Classification).

c) Filing of the Application Form: The application form is then posted with the Secretary of the PTCO, which takes notice of the presentation by an official sign and date a copy of the form and handing it over to the legal representative or his proxy. This signing and dating of the form has important significance because it grants preemptive rights if registration is later approved by the PTCO.

d) Trademark eligibility Analysis: Next, the PTCO conducts a preliminary examination of the trademark or service mark to determine if the application form filed and the mark itself complies with the requirements of Articles 5, 20, 21, 22, 23. After this, preliminary examination, and if all requirements are properly met, the PTCO conducts what is called an eligibility exam.

e) Publication in the Official Gazette (OG): Once the eligible exam has been past and the PTCO has given approval for registration, three separate publications, with no more than 15-day intervals, must be printed in the OG.

f) Opposition: The right to oppose registration by the owner of a registered trademark, service mark, notorious trademark has a statutory limitation of two (2) months (from the date the latest publication appeared in the Official Gazette). The opposition should be presented to the PTCO in writing and singed by an attorney. The opposition must comply with the requirements of Article 27. Once the opposition is filed, the PTCO will notify the legal representative of the applicant granting a hearing (procured all in writing) will be conducted over a two (2) months period. After this period has expired the PTCO will render a resolution, either accepting the opposition or denying it. It is important to take notice that after the resolution has been rendered by the PTCO, the opposing party or the applicant has the right to appeal the decision and take the matter to a court of justice (judicial review of an administrative decision). Also you must know that; it would be erroneous to say that after opposition period has expired, or even if opposition presented and denied by the PTCO, the trademark has become uncontestable (incontestable). This is so because under predetermine circumstances a trademark applications and registrations can still be attacked and rendered null or void (articles 67, 139 and 201-203).

g) Granting of Trademark Certificate (Registration Certificate): Once the statutory limitation for the opposition procedure has expired, or when the opposition has been rejected, the PTCO will proceed to register the trademark or service mark. A record of protected trademarks or service marks will be kept for prior searches, registrability exams and opposition filings. As explained above, the PTCO extends two different certificates which are; g.1) the ownership registration certificate (deed) and, g.2) the preemptive rights certificate.

2) Registration of Licensing Contracts: The owners, representatives or licensees (if properly authorized to do so) of trademark can license Trademark, Service Marks, Slogans and Patents. This subject is too complicated to be dealt with in this brief introduction but it is important to let the reader know the procedure for registering licensing contracts with the PTCO:

a) Registration Form: For registration of licensing contracts, the IP act requires a form (provided by the PTCO) to be filled with PTCO along with some documents provided by the trademark owner. The documents required to be attached to the form include, a.1) Power of attorney (if applicable, see registration procedures); a.2) PTCO fee payment invoice; and, a.3) Trademark or service mark certificate (deed) of ownership.

b) Registration Form Analysis: The form should then be presented to the Secretary of the PTCO, which takes official notice of the presentation by dating, signing and delivering a copy to the petitioner. The officer then elevates the application form to the appropriate department, which conducts an analysis of the form to determine if all requirements (Articles 45 and 46) are met.

c) Licensing Certificate: Once the analysis is complete the PTCO extends a licensing certificate.

3) Assignment Contract Registration:

a) Assignment of IP Registration Application: By law trademarks, service marks, patents, utility models and slogans are considered personal property (movable property) and as such the ownership can be transferred totally or partially through a contract. Articles 42 and 43 of the IP Act determine the procedure for registration of sale (assignment) contracts. Registration is obtained by filling an application form with PTCO that asserts: a.1) Name or denomination (corporate name) of the "assignor" or transferring party; a.2) Indication of the trademarks, service marks, trade names, patents, copyrights and slogans transferred by the contract; a.3) Designation of a notification address; a.4) Signature of the "assignor" or its (hers or his) legal representative; a.5) A copy of the power of attorney (should this be the case); a.6) PTCO fee payment invoice; a.7) A copy of the document of transfer (contract); and, a.7) Seven (7) copies of the trademark, service mark, trade name or slogan to be transferred (if applicable).

b) Registration Analysis: The application is next presented to the Secretariat of the PTCO, which takes official notice of the presentation by dating, signing and delivering a copy to the applicant. The officer courses the application to the appropriate department, which conducts an analysis to determine if all the requirements of Articles 28, 29, 124 y 135 are met.

c) Publication in the Official Gazette: Once the exam has been conducted and the PTCO has given approval, the assignor or assignee must publish a single publication with the OG, which serves as public notice of the transfer.

d) Transfer Certificate: Once publication has been placed, the PTCO, issues a Certificate of Ownership to the acquiring party.

Renewal of registration of a Trademark:

4) Renewal of Registration: Initial registration of trademarks, service marks and slogans granting the right to exclude other from use is valid for a ten-year (10) period that may be renewed indefinitely for additional ten (10) years periods, if the owner files the required application with the PTCO in a timely manner.

a) Renewal Application: The owner of a trademark, service mark or slogan seeking renewal of his registration must file an application with the PTCO before the initial ten-year period expires. This application must be filled along with the following documents: a.1) Power of Attorney (should this be the case) and, a.2) the PTCO fee payment invoice.

b) Registration of Renewal Application Analysis: The application is then filed with the Secretariat of the PTCO, which takes official notice of the presentation by dating, signing and delivering a copy to the applicant. The officer in charge then elevates the application to the appropriate department, which conducts an analysis to determine if all the requirements of Article 32 are met.

c) Renewal Certificate: Once all the requirements are met, the PTCO issues a renewal certificate.

5) Trademark Searches:

In Guatemala as a civil law country (unlike common law countries were use is not a valid way to acquire ownership rights) trademark ownership is only legally recognized with the proper registration certificate. This means that direct hit search with the PTCO is the only type of search needed to determine if a trademark, service mark, trade name or slogan is similar enough to cause confusion with other trademarks already registered. To conduct a trademark search, the interested party must present a search application signed by an attorney. This application is examined by the Data Record Keeping Department of the PTCO, which gives the applicant a list of similar trademarks registered within the appropriate listing or international category.

6) What do I need for filing a trademark application?

a) 10 copies of the trademark (word/design)
b) Power of attorney (same as for a trademark application)
c) International class or product/services in which renewal is requested.

7) Power of Attorney:

Applicant's signature should be notarized not only as to the authenticity of the signature but also -if the principal is a company- as to the capacity of the individual person signing it. Guatemalan is not a member the Hague Convention of 1961, regarding "Apostille".

Suggested model of the Power of Attorney:

The undersigned ____________________________________________________
______________ residing at ______________________________ hereby, declares that it/he grants indistinctly to Marisol Campollo Méndez, Allan Herbert Marroquin Castillo and/or Jose Maria Marroquin Samayoa a full and sufficient power of attorney in the Guatemala Republic for the obtainment of patents, utility models, trademarks, ornamental models and designs, filing copyrights and any other matter related to Intellectual Property Rights; either through application or assignment from third parties, and also to intervene in court or administrative actions of any kind related therewith, including cancellation and misuses, even criminal ones, to which end they shall be empowered to take jointly or severally all necessary steps before the proper administrative or judicial authorities for the object stated, to name and appoint translators, engineers or any other expert as required, to file applications, prepare descriptions, make statements, and particularly statements of use, enter oppositions, pay taxes, prove workings, bespeak certified copies, receive documents, grant accept and record assignments, withdraw applications, collect or recover any sums of money, file and answer complaints, submit and answer interrogatories, submit and produce of any kind, enter and answer nullities and appeals, to desist and settle, and do all and whatsoever shall be necessary before any judicial or administrative authorities, with power also to appoint a substitute in whole or in part hereunder, and again to revoke such substituted power.

Done and subscribed in_________________________this__________________________
_____________day of ______________________________________

by _____________________

8) ADVERTISING EXPRESSION OR SIGNAL

According to article 4 of the Industrial Property Act (decree number 57-2000) advertising expressions or signals refers to all adds, slogans, phrases, combination of words, designs, engravings or any other similar means, provided to be original or distinguishable, used to attract consumers attention over an specific product, service or commercial establishment.

As with trademarks, exclusionary right is not acquired by means of use of the advertising expression, slogan or signal. In Guatemala, as in all other civil law countries, such right is granted by means of proper registration with the PTCO. This right legitimates the registration holder or his assignee the right to exclude others form using or profiting from an advertising expression, signal or slogan (art 35) or even opposing the registering of similar slogan or advertising expression or signal (or asking for voidance to be declared by courts). According to article 31 of the IP Act this exclusionary right shall keep good standing for an initial ten (10) year period (from application filing date) which may be renewed indefinitely for other ten (10) years periods (one at a time).

It is important to say that exclusionary right may be extended to not registered slogans, advertising expressions or signals in such cases were said phrases are considered notorious (internationally or locally recognizable) or famous.

One of the most important aspects of slogan or advertising expression protection is that it is provided in concerned with the whole expression, signal or slogan and not with parts or isolated elements (Art. 70 of the IP Law).

Use of a mark within the slogan or advertising expression requires the express consent of the trademark owner (legitimate right holder).

Article 68 of the IP Act determines that Advertising expression are subject to the same rules as trademark concerning; a) registration; b) use (article 66 determines that not using of a slogan, advertising expression or signal within a five year period, from registration, may result in cancellation of said registration); c) cancellation; and, d) nullity.

9) PATENTS:

A) LEGAL FRAMEWORK

In Guatemala, Title III of the IP Law governs Invention Patents utility models as well as industrial designs. The Republic of Guatemala has subscribed and ratified the Paris Convention.

B) DEFINITION OF INVENTION

An invention is an idea applicable in practice to the solution of a given technical problem. Our law classifies inventions according the following: a) Invention of a product: which Include substance, composition, material, articles, devices, machinery, etc; and, b) Invention of a process: which include, among others, any method, system or sequence of phases leading to the manufacturing or the obtainment of a product or result, as well as the use or the application of a process or of a product for the obtainment of a given result.

Article 91 of the IP Law determines that the following are not considered inventions (not eligible for patent protection):

     C) PATENTABILITY

For an invention to be granted a patent the following must be met the following requirements:

     a. Novelty.

An invention is not eligible for a patent if it is not consider novel. Novelty refers to different to prior art (comparison between the invention requesting patent protection to previous products, devises, method and document). An important note regarding invention patentability is that even if a product is considered novel it is possible to fail the novelty exam if the invention has been described within a published document or put to public use, one year before filling a patent application.

At the time of ascertainment of the patentability, any other patent application in progress in Guatemala shall be taken into account, whether filed before or with a previous priority, with respect to the applications currently examined.

     b. That the invention resulted from an inventive activity (nonobvios).

This is when the invention is not obvious or not evidently derived from the state of the art by a person normally acquainted with the corresponding field (the novelty consideration regards the ability of the invention to produce unexpected or surprising new results).

The IP Law provides that even if a patent is issued (granted), the patent may be challenged in court on the ground that the patent examiner made a mistake on the question of nonobviousness.

     c. That the invention has industrial application.

This is the situation when the invention may be produced or used in any type of industry or activity, whether crafts, agriculture, mining, fishing and services, in other words, that the invention satisfies a need.

     D) RIGHTS RESULTING FROM PATENTS

Patent of a product: The holder shall have the right to prevent or impede others from manufacturing the product, offering the patent product for sale, selling or using the product, or from importation or storing the product for any of such purposes.

Patent of a process: The holder shall have the right to prevent or impede others from, use the protected process, manufacturing the product, offering for sale, selling or importation or storing the product obtained by means of the patented process.

The patent right holder shall have the right to assign or to transfer these rights to third parties, as well as to grant exploitation licenses to one or several persons.

     E) EFFECTIVENESS

The patent exclusionary right (monopoly) is effective for 20 years (from the filing of the patent application). This term is not extendable.

     F) PRACTICAL ASPECTS

The prosecuting of a patent application entails the following:

G) NULLITY

Any interested party may challenge before competent courts a patent registration by alleging violation or error of legal or jurisprudence interpretation committed by PTCO in granting the patent application on one or more of the statutes regulating: a) Novelty; b) Level of inventiveness; c) Whether or not the invention is susceptible of industrial application; d) Products or processes not considered inventions e) Pubic protection; and/or, f) Description of the invention.

Of course the patent can also be challenged in cases where a patent was granted to a person not legally entitled to own it. In this situation the law determines that the nullity challenge is reserved to the rightful holder of the affected of the invention (product or) process or his/hers (its) proxy. This action has a statute of limitations of five (5) years.

10. UTILITY MODEL:

Utility model refers to all forms, configurations or dispositions of elements of some artefact, tool, instrument, mechanism or other object, or of any of its parts, that result in a better or different function, use or manufacturing of the object intended for the application thereof, or that add some utility, advantage or technical effect, that did not exist before.

Alike inventions, the utility model shall be novel and applicable to industry. Furthermore, it shall be substantially different with respect to previous utility models or inventions, and shall not violate the law, the public order and morals.

Processes, Chemical substances or compounds, whether metallurgic or of any other class and inventions related to living materials are not subject of utility model protection.

The utility model grants the right holder an exclusionary right of preventing third parties from conducting the following activities in relation with the patented object: Manufacturing of a product incorporating the utility model protected, offering for sale, selling, using the product, or importing or storing said products for the purpose of the activities previously mentioned.

Utility model rights shall remain in good standing for ten (non extendable) years.

For registration requirements, see patent application information.

11. INDUSTRIAL MODEL AND DRAWING

The industrial model is a tri-dimensional form serving as type or pattern for the manufacturing of an industrial product, endowing it with a special appearance, as long as it does not imply technical effects.

On the other hand, industrial drawing refers to all combination of forms, lines or colours that, once incorporated in an industrial product, endow it with a peculiar aspect. It is essentially bi-dimensional.

The industrial model or drawing shall be a novelty otherwise any interested person may ask the court to declare its nullity. Novelty is ascertained by the promotion received by the industrial model or drawing.

Application for registry shall include:

After fulfilment of formalities, the application is published in the official gazette. Within a two months period from the publication of the application in the official gazette, third parties claiming opposition rights to the application may exercise it by introducing an opposition request in writing to the PTCO. If no opposition is introduced, or if the administrative resolution accepts registration of the application after considering the opposition, the registry will be granted.

In addition to protection granted by the IP Law, industrial model and drawings may be protected under copyrights law.

12. INDUSTRIAL AND TRADE SECRET

It refers to any information, entailing trade or industrial application, kept confidential by a natural or juridical person for obtaining or maintaining competitive or economic advantages, while engaged in economic activities, and having adopted the means or systems sufficient to protect its confidential character and access restrictions.

To be considered a secret, the information shall not be of public knowledge resulting evident for a specialist on the field, or publicized by legal disposition or judicial order.

IP Law protects industrial and commercial secrets without need for registration. Protection shall consist of the right of the holder of the secret to demand the suspension of the publicizing of the secret and the compensation for damages.

However, this protection is subject to the adoption, by the holder, of measures sufficient as to the preserve confidentiality of the secret. For example, to use the word "Secret", keep the secret in a safe place, warning about the secret of confidentiality to the persons to which the secret is transmitted or having access to it, drafting and executing confidentiality agreements with employees, suppliers, service providers or any other person which might need to know the information intended to be kept, warning of the prohibition concerning publicizing, etc.

13. GENERAL INFORMATION ON THE PROTECTION OF INDUSTRIAL PROPERTY:

Legitimate holders of IP right enjoy full protection of their rights. The Government of Guatemala acting through its courts or/and the District Attorney (criminal cases) materializes this protection. This protection extends to: i) Constitutional or Administrative challenges in the event of IP expropriation or individual attack on acquired rights; ii) Civil actions mostly intended to obtaining injunctions or/and payment of damages; and, iii) Criminal actions based on one of the following offences: a) trading, selling or storing products covered by registered trademarks, or to imitate or falsify such trademarks. b) To use in the trade protected commercial names, emblems or advertising expression. c) To trade or sell products covered by new registered trademarks, after being altered, substituted or totally or partially eliminated. d) To use trademarks, which may cause confusion with other registered trademarks, after a resolution has been issued ordering discontinuance of the use of the trademark. e) To manufacture labels, containers or packing materials which reproduce or imitate a registered trademark. f) To reuse or refill used containers of a registered expression. g) To use or exploit a trade secret which belongs to another. h) To reveal to third parties professional secrets of which it has become aware due to work, position or business. i) To manufacture or market products covered under a patent belonging to another. j) To use false geographic indicators; and k) to use false or deceiving names. These penal actions are independent from civil actions that may be taken in each case for annulment and disloyal competition.

. Constitutional, Construction and Procurement Law
Lic. José María Marroquín (L.LM)

. International Law, Financial and Notary Agreements
Lic. Arturo Fajardo Maldonado (PHD)

. Intellectual Property, Corporations and Business Law and Construction Law
Lic. Allan H. Marroquín Castillo (L.LM)

. Claims, Collections and Counterclaims
Licda. Marisol Campollo Méndez