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Subsidiaries In Guatemala

Guatemala is a resource-rich country. It has an advantageous geographical location due to its proximity to Mexico and the rest of Central America. The country acts as a bridge to the American market of 68 million inhabitants.  

Guatemala is ranked 96 among 190 countries in the World Bank Ease of Doing Business Report 2020. Hence, setting up a business in the country is not a hassle. Also, the cost-of-living index of the country stands at 44.76. This opens a massive opportunity for businesses looking to expand in Guatemala. Also, the country’s G.D.P. growth stands at 3.8%, providing good economic stability. The best part about setting up a business in Guatemala is that the people here speak global languages like English and Spanish. 

You can make the most out of Guatemala’s stable economy by setting up a subsidiary in Guatemala. Read on to understand the entire process of setting up a subsidiary in Guatemala. 

What are the Types of Subsidiaries in Guatemala?

There are different types of subsidiaries you can incorporate in Guatemala. Some of the common types of subsidiaries in Guatemala are:

Limited Liability Company:

– It is also known as Sociedad de Responsabilidad Limitada.  A limited liability company is one of Guatemala’s most common forms of a subsidiary. Several partners form an L.L.C. and pay their designated part of the share capital. 
– The partners are only liable for their share of capital and cannot use their personal assets to clear the company’s debts.
– A limited liability company is declared part of a mercantile society where the company’s main objective is to perform commercial activities in Guatemala.
– The number of shares does not represent the participation of the shareholders, but their value of contribution decides their extent of involvement.
– An L.L.C. in Guatemala can only have a maximum of 20 shareholders.
– When incorporating an L.L.C. in Guatemala, you need to add the phrase ‘limited company’ at the end of the name. Alternatively, you can add an abbreviation as S.R.L. or L.L.C.

Corporation:

  • A corporation is another popular form of company in Guatemala. It is also known as Sociedad Anónima in Spanish. In these companies, the capital is divided into smaller parts called shares and represented by shareholders.
  • A corporation is also a mercantile company that started to perform commercial activities in the country.
  • A  corporation’s capital is divided into shares (Acciones in Spanish).
  • A shareholder is free to sell the shares and transfer the ownership of the shares to any individual. The clauses defining the transfer of shares must be clearly stated in the Articles of Incorporation.
  • You can contribute to the capital formation via cash and bank transfers.
  • Every corporation should have the word ‘Corporation’ at the end of the name. Alternatively, companies can add ‘S.A.’ at the end. Also, the name of the company should indicate its nature.

Unlimited Partnership:

  • Sociedad Colectiva is another term for unlimited partnerships in Guatemala. Here, the partners and their assets are all liable to meet the company’s obligations.
  • All the partners have unlimited liability in the company and can use even their assets to pay off any debt the company has.
  • The name of such a company must have at least the name of one of the partners and the abbreviations ‘Ltda.” or ‘Cia Ltda.’ at the end.
  • These businesses are formed by stakeholders who have a limited scope of business.
  • Two to 20 partners can come together to start an unlimited partnership.

While setting up a subsidiary business in Guatemala, you can choose any of the business forms stated above based on your budget, scale of operations, etc. 

How to Set Up a Subsidiary in Guatemala?

The process of setting up a subsidiary in Guatemala can be challenging. However, it will become much easier if you take a step-by-step approach to incorporate the company.

Select the type of company:

  • Before starting the incorporation process, you must decide which business type you want to conduct in Guatemala.
  • You must consider the nature of your business and the parent company’s organizational structure. 

Decide on the name of the business:

  • Once you finalize the legal entity for your business, you must choose a name for the company’s subsidiary.
  • The abbreviation ‘Ltda’ will follow the business’s name, ‘S.A.,’ or ‘L.L.C.’ based on your chosen business type.

Draft the statutes of the subsidiary:

  • You need to draft the subsidiary’s statutes before starting the incorporation process.
  • The statutes must include the company’s structure and other essential details related to the day-to-day working of the company.
  • You can contact a local lawyer to understand the components of the statutes of the subsidiary.

Get a certificate of subsidiary registration:

  • Once you have drafted the statutes of the subsidiary, you need to submit the documents to the authorized body.
  • The company’s legal representative will then reach out to the Ministry of Foreign Relations for the certificate of incorporation of the subsidiary.

Register with the Guatemala Mercantile Registry:

  • Most subsidiaries are mercantile organizations, so you must register your subsidiary with the Guatemala Mercantile Registry.
  • You can register your company with Mercantile Registry online and pay a small fee to complete the process.

Insurance Bond:

  • Most companies that incorporate a subsidiary in Guatemala must post an insurance bond of $50,000.
  • The bond guarantees the business will conduct smooth operations in the country with all its resources.

Register the address:

  • Every subsidiary business in Guatemala must have a physical address. 
  • You need to find a suitable office or any other facility to conduct your business, and you can register the address for all kinds of official communication.

Onboard a legal representative:

  • You must appoint a legal representative for your business before operating in Guatemala.
  • The legal representative will complete all the incorporation formalities of the company on behalf of the parent company. 

The entire incorporation process takes around a month. Once all the documents are verified and you get a notification of incorporation, you can set up a bank account for your company and start with the commercial operations.

Benefits of Setting Up a Guatemala Subsidiary

Setting up a subsidiary in Guatemala offers various benefits to the organizations. Some of these benefits include:

  • You get to onboard the talented and experienced resources of Guatemala. The median age of the people in the country is 21.3 years. Hence, you have access to a young population.
  • Once you set up a subsidiary in Guatemala, you will enjoy all the legal rights given to Guatemalan companies.
  • Guatemala is situated close to Canada, Mexico, and the United States giving easy access to these markets.
  • The country has several ports, so you can easily incorporate a subsidiary in the exports-imports space.
  • Also, the country has an impactful agricultural sector, and you can quickly get into the space as it contributes to 10% of Guatemala’s G.D.P.
  • The country’s manufacturing sector is relatively developed, and subsidiaries can benefit significantly from economies of scale by manufacturing their goods in Guatemala.
  • The country is known for its excellent logistical conditions, as international transport modes are easily linked to Guatemala.
  • The country also attracts tourists from all over the world. Hence, you can easily tap into the tourist market via your subsidiary in Guatemala.

Documents to Prepare When Opening a Subsidiary in Guatemala

You need a set of documents to set up a subsidiary in Guatemala. Before starting the incorporation process, you must bring all the documents and copies. Some of these essential documents are:

  • The notarized Articles of Association. The Articles of Association must contain information about:
    1. Company’s name
    2. The legal representative of the subsidiary
    3. Information on the share capital
    4. Structure of the management
    5. Details on the company’s liquidation plan
  • The passports and address details of all the shareholders of the company
  • A duly filled incorporation form along with the statutes of the subsidiary stating the company’s regular business activities 
  • Documentary proof of the physical address of the subsidiary
  • The deed of insurance, along with the tax identification number of the company
  • The receipt of payment of the incorporation fees

If the documentation is correct, the Mercantile Registry will issue an identification number and a commercial patent called the ‘Patente de Comercio.’ Also, you need to obtain the company’s tax identification number by applying to the Registro Tributario Único. 

What Business Forms can Guatemala Subsidiaries Take?

You can incorporate both a wholly and a partially owned subsidiary in Guatemala. However, in the case of a wholly-owned subsidiary, you need to have 100% of the company’s ownership. 

The different forms that a subsidiary can take are:

  • Limited Liability Company
  • Corporation
  • Unlimited Partnership

In Guatemala, a limited liability company (LLC) is the most commonly established subsidiary form, as it is easy to incorporate. You must consider the government’s benefits to different types of companies before you incorporate a subsidiary in Guatemala.

Guatemala Subsidiary Laws

You must abide by all Guatemalan subsidiary laws, including zoning, environment, health and sanitary conditions, and immigration, as soon as you establish a subsidiary. You must ensure that your business complies with all applicable regulations, including minimum capital and shareholder requirements.

Taxes are among the essential elements of Guatemalan subsidiary law. You must register with the Guatemalan Social Security system as an employer and file taxes timely. To prevent draconian fines, parent firms must abide by Guatemalan tax laws.

Additionally, companies must pay salaries in quetzals through a Guatemalan bank account for subsidiaries in Guatemala. You can similarly pay your taxes to the Social Security Administration and other taxing agencies on time. 

L.L.C.s requires two shareholders, each contributing Q2,000 to the paid-up capital of the business. To assist in running the company, you also need one director. All these people may be foreigners, but you must choose a resident legal representative if your director does not live in Guatemala.

Post Incorporation Compliance

Once you complete the registration, you must adhere to Guatemala’s foreign subsidiary compliance.

  • Visit the Mercantile Registrar and collect the certificate and the company identification number.
  • Additionally, obtain the commercial license from the Mercantile Registrar
  • Gather the tax identification number 
  • Share all the details about the shareholder with the federal agencies
  • Onboard an auditor to take care of all the accounting requirements of the company
  • Open a bank account

Taxes on Subsidiaries in Guatemala

All subsidiaries established in Guatemala must pay income tax on their money. The corporate tax rate in Guatemala is 25%. The same tax rate will apply to all businesses, including branches, subsidiaries, etc. The corporation’s net income is not subject to state taxes.

Tax Incentives for Businesses Setting Up a Subsidiary in Guatemala

Several incentives are given to companies that establish subsidiaries in any industry designated as a drawback industry in Guatemala. Some of these incentives include:

  • Imports of machinery and equipment are exempt from taxes, import duties, and other fees, including V.A.T.
  • The importation of temporary raw materials is no longer subject to VAT.
  • The tax incentives law exempts profits from income tax for ten years.

Other Important Considerations

Setting up a subsidiary company in Guatemala is a time-consuming process.  You might start by setting up a few weeks from your schedule to concentrate on the growth and travel to and from Guatemala. If your parent firm keeps you too busy, you should outsource the job or collaborate with another corporate leader.

Next, save up all the funds you’ll need for incorporation. Working with your finance department to ensure you have the funds to cover the growth is advised because Guatemala subsidiary laws may charge various fees along the way.

How Multiplier’s Employer of Record Can Help You Hire & Expand in Guatemala

It takes time and money to plan a business expansion, whether domestic or international. However, complying with labor regulations and business norms may prove challenging when expanding to a foreign nation.

Why not hire a third-party service provider like Multiplier to resolve this obstacle in your company’s growth? Multiplier handles all the formalities in entering a new market, so you don’t need to worry about anything. We assist you in onboarding domestic and foreign personnel while ensuring that all labor rules and conventions in Guatemala are strictly followed. Without establishing a Guatemalan subsidiary, our team of professionals will assist you in hiring highly qualified personnel. We also provide our clients with payroll and employee management services.

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Frequently Asked Questions

No, there is no exchange control in place beyond the general reporting requirements of the company.

Yes, you can incorporate a civil association or a foundation if you want to take up charitable ventures in Guatemala.

Yes, you need to submit the Articles of Association during the time of incorporation of the company.

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