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International companies looking to expand in Guatemala will find that the country is continuing its steady growth in Latin America. Its GDP rose about 3% to USD $68.8 billion in 2016 (after a 4.1% increase in 2015), and is expected to show a 3% growth again in 2017.

Imports and exports help drive Guatemala's economy. The USA is Guatemala’s largest trading partner. U.S exports of food and agricultural products to this country of 16.3 million people grew slightly in 2016 to just over USD $1 billion. However, other issues have forced Guatemala’s Congress to address stricter tax and financial reforms in competition and antitrust matters. Observers feel that these setbacks if left unchecked, could hinder the country’s economic activity growth in 2017.

With cooperation from the government, however, it's seen that multinational companies can thrive, provided they work with a  payroll solution provider  to remain compliant in local labor and payment laws and manage the complexity of the local employment market. 

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Getting Started

Multinationals with an international payroll looking to broaden existing operations in Guatemala must register new operations with the General Mercantile Registry, the government office under the Ministry of Economy in charge of handling all commercial activities around company registrations, individual and company tax IDs, certifications, and more.

When the required business documents are submitted and awaiting approval, companies can set up temporary bank accounts, with a minimum deposit of GTQ 5,000 ($688, £528, €583) in capital funds. Because of the corruption in some areas, foreign companies in Guatemala generally turn to a global payroll provider for compliance in these tasks, along with areas like employment matters of hirings, compensation, company taxes, and employee terminations.

Employment Laws/Employee Rights

Full-time workers generally work 8 hours/day, max 44 hours/week. Many of these workers are at jobs in Guatemala City, by far the largest city in the country. Employment laws are set according to The Labor Code, managed by the government, which oversees the necessary laws around hiring employees, collecting overtime and dealing with labor unions.  

Foreign workers must have a current Work Permit, as well as a temporary residence in Guatemala. These foreign workers get a one-year permit and must train local Guatemalans in work practices while in the country. This helps to prevent automatic renewals of foreign work permits. Regular company employees in Guatemala are among the top wage earners in the country. 

Compensation, Bonuses , and Severance

Guatemala’s minimum wage was increased in 2017 to  GTQ 2,643.21/month ($363,  £279 ,   €308 )   for both agricultural and nonagricultural work. The wage is slightly lower for export and maquila work. Employees in Guatemala receive compensation 14 times annually, with 12 individual monthly payments, and additional bonus payments at mid-year (July) and an end-year bonus at Christmas.

If an employee gets terminated without justification, the employee can seek severance equal to one month’s salary for each year of work. There is no limit on the number of years worked. The employee has 30 days to file a severance claim for unjustified dismissal.

Tax Requirements/Collection/Withholding

Companies operating in Guatemala can opt to pay tax either on profits from income or revenues from income. The first (Regime on Profits from Business Activities) is a flat 25% tax rate on companies with deductions allowed, while the second (Optional Simplified Regime on Revenue from Business Activities) rate applies to taxable income, or gross receipts, without any deductions. A tax rate of 5% is applied to the initial GTQ 30,000  ($4,125,  £3,168 ,   €3.590 ) , and a 7% rate is applied to the amount thereafter.

Companies operating under either one of the tax payment systems must file monthly tax returns to determine the amounts of the income levels for the withholding tax.

Leave - Sick, Maternity, Vacation, Absence, Holidays

Guatemala employment law allows for employees to receive up to 10 days/year paid holidays. Companies give up to 15 work days/year, after a year of uninterrupted service, to employees for holiday time off. 

Maternity leave is generous in Guatemala. The laws allow for female workers to receive 12 weeks (84 days) for maternity leave. This includes 30 days prior to birth and 54 days afterward. The leave is paid 100% by both the employer and government social security.

Summary

Guatemala’s steady growth is expected to stay consistent for 2017, mainly due to its high level of U.S. trades. The country still remains attractive to foreign investors, who can own investment operations or real estate in the country, without having to work with any designated local partners. By meeting payroll regulations, and staying compliant with the country's laws, multi-country corporations can become successful when working in Guatemala. 

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.