Guatemala legal in a Nutshell 2017 / 2018

Transcription

1 Guatemala legal in a Nutshell 2017 / 2018

2 MARKET OVERVIEW EASE OF DOING BUSINESS: GUATEMALA A regional comparison Doing Business Index Official name República de Guatemala Population in ,548,168 /152 /km2 Area 108,889 km2 Political division 22 Departments 340 Municipalities Official language Spanish Government Democratic Currency Quetzal (GTQ) Nominal GDP (2016) $68, Million GDB per Capita (2016) $4,154.7 Mexico Colombia Panama Guatemala El Salvador Dominican Republic Honduras Argentina Brazil Nicaragua The Ease Doing Business Index is a tool developed by the World Bank with the purpose of evaluating and comparing the ease or the difficulty of doing business in 189 countries. This index allows countries to determine the main barriers to their business development regulations, and in many cases has helped countries to carry out reforms to achieve a favorable business environment. A CLOSE UP TO OUR DIFFERENT PRACTICE AREAS: Banking and Finance -Trends in local and regional financing market 2017 / Local and regional banks are being very aggressive competing with foreign lenders for business. It seems international banks have lost some ground although there are some areas that are still dominated by overseas lenders, such as project finance and capital markets. Due to recent Constitutional and Supreme Court resolutions and continued occurrence of high profile corruption cases affecting both politicians and certain private sector individuals, deal activity, direct foreign investment and economic growth have been impacted. However, regional banks using their local know-how and multilaterals that know the challenges in developing countries will possibly make a strong comeback with more flexible financing options and alternatives. Private equity has slowly made its way by playing an important role in the local and regional emerging markets. Nevertheless, there is still skepticism and complex statutory limitations for fundraising. Increase in regulatory scrutiny is expected for the years to come. There is great need for infrastructure investment. The Government has made initial efforts for PPP project development through BOP schemes and local banks have responded with interest. This is still premature and it seems the real challenge for much-needed infrastructure improvement and development will be in Political stability and legal certainty on key topics (e.g. 169 ILO Convention and tax rulings) will be paramount factors to have a healthy environment to promote investment and financing opportunities in 2018 and onwards. 2

3 Corporate, Commercial & Transactional -What is going on and perspectives The laws in Guatemala regulating corporate, commercial & transaction matters provide a stable framework for fostering a free and vibrant marketplace. The government does not impose currency restrictions and, except for limited exceptions, it does not limit foreigners participation in the local markets either directly or through Guatemalan subsidiaries. This has resulted in sophisticated electricity, telecommunication and technology markets, which are pivotal for other industries and commerce in general. Even though the essential legal framework is in place for conducting business, recent political instability, corruption scandals and a shift towards criminal tax prosecution of selected corporate acquisition structures have slowed the economy and tempered investment. Currently, Guatemala is in the process of unifying and streamlining customs procedures with its neighboring countries. Implementing mechanisms for an easy flow of goods between the countries of the region is necessary to help position the small economies of Central America to better compete in global markets. If achieved, unification will help foster a positive investment environment, but the results will not be immediate. Historically, Guatemalan companies have limited their participation to the local economy, but recent trends suggest attitudes are changing. Local companies seem more confident and more aggressive in their domestic investment strategies, expanding their operations throughout Central America, the Caribbean, the United States and even further. Energy and Infrastructure -Key sectors with prosperous outcomes opportunities. The energy sector in Guatemala developed according to the privatization plan reflected in the Energy Law issued by Congress more than 20 years ago. It has proven a very successful national endeavor. Guatemalan power capacity currently doubles its demand and diversification of energy sources is ample. Therefore the need for new investment in power generation is no longer a short term issue. On the other hand, the ew opportunities for exporting electricity to Central America and Mexico. Certain renewable power plants should still have some space in the market, such as geothermal and wind. There are also opportunities in the M&A sector for other agents that are looking to participate in the energy field. However, the recent application of the 169 ILO Convention by Guatemalan courts has brought uncertainty to investors and lenders, so compliance and due diligence is a much needed task for present and future market participants. Infrastructure investment and development is in great need for 2018 and onwards. PPP projects are in the government s pipeline, including toll roads, train ways and ports. However, their success will greatly depend on certain critical factors including political stability, amending the current PPP law and the government s ability to attract local and foreign investors. Environmental -Recent developments and things to come. Guatemala is a diverse country with plenty of natural resources and possibilities. This reflects in its broad and complex environmental regulation as well. Figuratively speaking, it is a legal jungle. In general terms, the legal spectrum starts with general environmental principles dictated by our Constitution 3

4 complemented by international environmental treaties and agreements followed by local laws and statutes and finally municipal regulations on specific matters (e.g. waste water, solid waste disposal, recycling, etc.). As a recent development, the so-called Climate Change Mitigation Law was enacted in 2013 imposing several obligations on public and private sectors with respect to climate change initiatives and mitigation efforts. However, little has been implemented or enforced. Despite heavy regulation, contamination, deforestation and abuse is increasing without much action from the environmental authorities, except sporadic cases that get some follow-up and public scrutiny for political or social purposes. Weak environmental enforcement and sanctions in addition to undervalue of our natural resources seem to show that environmental protection and conservation has still a long way to go. Environmental compliance and enforcement is still low in Guatemala. However, we expect for this to change in the next few years due to, among other reasons, social awareness and education, existence of a national environmental policy, environmental covenants in international treaties and agreements, and private dealing covenants (e.g. IFC Guidelines, Equator Principles, CAFTA Environmental Chapter, Climate Change Initiatives, etc.) that are becoming more common in cross-border transactions. Real Estate -Diverse developments and growth to come. Real Estate laws in Guatemala are almost the same since However, the Tax Modernization Law enacted in 2012 drastically changed the tax legal framework for the real estate developments. Nowadays, real estate developers feel more comfortable with the new legal framework. However, there are still some loose ends pending tie up to assure that the legislation will continue to promote market growth. One example is the inequity and disproportionate regulations to determine the applicable Property Tax (Impuesto Unico Sobre Inmuebles). Unquestionably, the political situation in our country is another factor that has had a great impact in the real estate market. Nevertheless, we believe the real estate market will continue to have a robust growth and anticipate this trend will hold throughout 2018 and Mergers & Acquisitions -Opportunities and challenges ahead. M&A activity in Guatemala and the region is active, with some action from investment funds, including local, regional, U.S. and Canadian based funds. Cross border transactions within the Central American region also continues. Guatemalan companies have increasingly been involved in acquisitions throughout Latin America, including expansions not only within the Central American region but also in Mexico, Ecuador and Peru, among others. A strong local currency (Quetzal) with respect to the U.S. Dollar has provided challenges in competitiveness to Guatemalan export oriented businesses. On the other hand, without any restrictions nor regulations on concentrations of industries yet, consolidation and big industry mergers are still possible in Guatemala without requirement of authorization from any competition or anti-trust authorities, but probably not for long. Competition Law -Update and forecast. Guatemala s National Congress is still pending final draft approval of the Competition Bill # 5074, presented by the Ministry of Economy last year. Guatemala does not currently have a Competition Law, although it had agreed to approve a competition law and to implement a regulatory structure as established by the Association Treaty with the European Union by November 30th, Final approval has been in the Congressional agenda for some time but it still remains uncertain when will it actually happen. 4

5 Dispute Resolution -Key issues and prospect for In 2017, litigation in Guatemala has been dominated by high profile white collar, tax fraud and corruption cases. At least five major criminal charges were brought to court by the District Attorney s Office and the International Commission against Impunity in Guatemala CICIG, unveiling corruption and money laundering networks in political parties and in the construction and financial industry, involving state officials and private sector managers. Also, the Tax Authority (SAT) showed a new tendency in perusing criminal cases (instead of an administrative sanctions) for tax fraud against various sectors particularly agriculture, commerce and industry, having a more aggressive approach in collecting taxes and enforcing tax laws producing record extraordinary collections. This trend will likely continue in the future. Courts have also shown a strict position in dealing with key topics as the 169 ILO Convention in constitutional actions brought by indigenous communities and environmental organizations against the Ministry of Energy and Mines regarding various hydroelectric and mining projects and the consultation process to overcome before granting any license or authorization. We anticipate that 2018 will continue to bring big cases that will be game changers in the litigation and dispute resolution sector for Guatemala, including a visible forecast of investment arbitrations that will shape new and more modern and strict regulations both in public and private sectors, as well as the way in which law firms approach and manage big litigation. Labor and Employment -Modernization needed and expected. As of June 5th, 2017, new reforms of the Labor Code and labor regulation came into effect. Among them, labor inspectors have greater powers to proceed with their inspections, including the possibility to review electronic databases, documents and access to computers and servers, as well as carrying out any inspection and examination that they deem necessary to verify compliance with labor obligations. They may even declare the suspension of operations in the event that the non-compliance carries a serious and evident risk to employees security and wellbeing. Likewise, broad sanctioning powers were granted to the Departmental Delegate of the General Labor Inspectorate Office. Against the sanction decisions to an employer made by such Departmental Delegate, a revocation remedy may be filed. If the remedy is granted a labor administrative law Process may be filed before a labor court. A strong effort is being made by the Labor and Social Security authorities to improve the control and promotion of compliance with labor obligations and standards that will increase the inspection activity to companies. Consequently, now more than ever, employers must be prepared to demonstrate their level of compliance with the necessary documentation and evidence if a labor inspector shows up. Intellectual Property -More sophisticated things awaiting. Guatemala has been active signing new legislation to activate treaties such as the so-called Apostille Convention and the Marrakech Treaty for trademark registrations. With these new regulations, Guatemala is adjusting to the World Intellectual Property Organization suggestions. There are also great efforts to pass a new Plant Breeder`s Rights Law to be able to register patents on such technology. Even though Guatemala is part of UPOV, this new law is important given the commercial treaties that Guatemala has ratified. We expect these statutory developments to make IP work related matters more challenging and dynamic. 5

6 Mining -Magnet for DFI but uncertain. The mining sector has attracted direct foreign investment that has greatly benefited Guatemala in several ways. However, it has been recently under a lot of scrutiny, opposition by environmental groups, public pressure and a fear battle due to the application of the 169 ILO Convention public consultation requirement to one particular mining operation owned by a foreign investor. This has resulted in a lot of uncertainty and hold-out for future investment and development. Although this is a strategic sector for Guatemala s growth and development, we expect to see a difficult 2018 with significantly less investment and opportunities. Taxes -Very active and a lot of changes. The trend to prosecute large and medium cases via criminal court has continued in the third quarter of Nevertheless, a sudden change in high ranking officials at the Tax Superintendence may be a signal that authorities could further review cases before opting for criminal actions. Additionally, the Constitutional Court has issued rulings that contradict previous jurisprudence set by the Supreme Court of Justice. To tackle the uncertainty generated by such judgments, private entities and universities have opted to open academic discussions on what constitute elements for a tax criminal action. Also, the recently organized Guatemalan IFA Chapter plans to promote educational and informative talks by international speakers with newly created specialized tax criminal and appellate courts as well as special prosecutors. Compliance -Things to expect in 2018 and onwards. There has been an exceptionally high focus by local companies on establishing compliance programs principally to shield against an enhanced wave of investigations for illegal campaign financing and construction company payments. Guatemala standards commission recently adopted ISO anti-bribery management systems and is in the process of adopting ISO compliance management systems. This will bring additional awareness to focus on best international practices. Some governance requirements have been incorporated for banks and financial institutions. In addition, companies obligated to special money laundering reporting have been under higher scrutiny and have been required to register as such. Insurance and Reinsurance -Opportunities for acquisitions and expansion in a growing sector. The wave of consolidation in insurance companies seems to have waned, although smaller companies are still being regarded as takeover targets. There is growing concern for the future of a few insurance companies and hopes are set on regulators putting in place a credible program to ensure their liquidity and sustainability. This focused instability may create opportunities for acquisitions in the short and medium terms. In addition, regulators are in the process of reviewing norms for micro-insurance that has been unutilized until now. We expect some movement in this area for the remaining of 2017 and info@qil4.com Diagonal 6, Zona 10 Oficina 302A. Torre II Centro Gerencial Las Margaritas, Guatemala, Guatemala