42550 Guatemala Doing Business 2008 Guatemala A Project Benchmarking the Regulatory Cost of Doing Business in 178 Economies Doing Business Project World Bank Group © 2007 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail feedback@worldbank.org All rights reserved. 1 2 3 4 5 09 08 07 06 A copublication of the World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. 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Contents Introduction......................1 Economy rankings.............2 Reforms...........................3 Summary of indicators........6 Starting a business.............8 Dealing with licenses.........13 Employing workers............18 Registering property...........22 Getting credit....................27 Protecting investors............31 Paying taxes.....................35 Trading across borders.......39 Enforcing contracts............43 Closing a business.............47 Topic details......................51 Introduction Doing Business 2008 is the fifth in a series of annual reports investigating the regulations that enhance business activity and those that constrain it. Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 178 economies-from Afghanistan to Zimbabwe-and over time. Regulations affecting 10 stages of a business's life are measured: starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. Data in Doing Business 2008 are current as of June 1, 2007. The indicators are used to analyze economic outcomes and identify what reforms have worked, where, and why. The Doing Business methodology has limitations. Other areas important to business -- such as a country's proximity to large markets, the quality of its infrastructure services (other than those related to trading across borders), the security of property from theft and looting, the transparency of government procurement, macroeconomic conditions, and the underlying strength of institutions -- are not studied directly by Doing Business. To make the data comparable across countries, the indicators refer to a specific type of business -- generally a limited liability company operating in the largest business city. Because standard assumptions are used in the data collection, comparisons and benchmarks are valid across economies. The data not only highlight the extent of obstacles to doing business; they also help identify the source of those obstacles, supporting policymakers in designing reform. The data set covers 178 economies: 46 in Sub-Saharan Africa, 31 in Latin America and the Caribbean, 28 in Eastern Europe and Central Asia, 24 in East Asia and Pacific, 17 in the Middle East and North Africa and 8 in South Asia-as well as 24 OECD high-income economies as benchmarks. Some of the regions have been divided into subregions to generate a total of 13 regional profiles. The following pages present the summary Doing Business indicators for Guatemala along with the comparator economies selected. The data used for this country profile come from the Doing Business database and are summarized in graphs and tables. This report allows a comparison of the economies not only with one another but also with the "best practice" economy for each indicator. The best-practice economies are identified by their position in each indicator as well as their overall ranking and by their capacity to provide good examples of business regulation to other economies. These best-practice economies do not necessarily rank number 1 in the topic or indicator, but they are in the top 5. More information is available in the full report. Doing Business 2008 presents the indicators, analyzes their relationship with economic outcomes and recommends reforms. The data, along with information on ordering the report, are available on the Doing Business website . http://www.doingbusiness.org 1 Economy Rankings - Ease of Doing Business Guatemala is ranked 114 out of 178 economies. Singapore is the top ranked economy in the Ease of Doing Business. Guatemala - Compared to Global Best / Selected Economies: Guatemala's ranking in Doing Business 2008 Rank Doing Business 2008 Ease of Doing Business 114 Starting a Business 128 Dealing with Licenses 167 Employing Workers 105 Registering Property 23 Getting Credit 68 Protecting Investors 122 Paying Taxes 116 Trading Across Borders 116 Enforcing Contracts 98 Closing a Business 86 2 Reforms - Who is reforming? This year Egypt tops the list of reformers that are making it easier to do business. Egypt's reforms went deep with reforms in 5 of the 10 areas studied by Doing Business, and it greatly improved its position in the global rankings as a result. Besides Egypt, the other top 10 reformers are, in order, Croatia, Ghana, FYR Macedonia, Georgia, Colombia, Saudi Arabia, Kenya, China, and Bulgaria. 1. Egypt, the top reformer in the region and worldwide, greatly improved its position in the global rankings on the ease of doing business. Its reforms went deep. Egypt cut the minimum capital required to start a business, from 50,000 Egyptian pounds to just 1,000 and halved the time and cost of start-up. It reduced fees for registering property from 3 percent of the property value to a low, fixed amount. It eased the bureaucracy that builders face in getting construction permits. It launched new one-stop shops for traders at Egyptian ports, cutting the time to import by seven days and the time to export by five. And it established a new private credit bureau that will soon be making it easier for borrowers to get credit. 2. Croatia reformed in four of the 10 areas studied by Doing Business. Two years ago, registering property in Croatia took 956 days. Now it takes 174. Company start-up also became faster, with procedures consolidated at a "one-stop shop" and pension and health services registration now online. Credit became easier to access: a new credit bureau was launched, and a unified registry now records charges against movable property in one place. In its first two months, 1.4 billion in credit was registered. In addition, amendments to the country's insolvency law introduced professional requirements for bankruptcy trustees and shorter timelines. 3. Ghana, a top 10 reformer for the second year running, continues to increase the efficiency of its public services. It cut bottlenecks in property registration, reducing delays from six months to one. Greater efficiency at the company registry and the environment agency cut the time for business start-up to 42 days. Changes in the port authority's operations sped up imports. New civil procedure rules and mandatory arbitration and mediation reduced the time it takes to enforce contracts. 4. FYR Macedonia eliminated the minimum capital requirement for business start-up, sped up the process for getting construction permits, lowered the corporate income tax rate to 12 percent (with another cut to 10 percent planned for 2008), and simplified tax payment procedures. Its ranking on the ease of doing business rose from 96 to 75. 5. Georgia reformed in six areas. It strengthened investor protections, including through amendments to its securities law that eliminate loopholes that had allowed corporate insiders to expropriate minority investors. It adopted a new insolvency law that shortens timelines for reorganization of a distressed company or disposition of a debtor's assets. Georgia sped up approvals for construction permits and simplified procedures for registering property. It made starting a business easier by eliminating the paid-in capital requirement. In addition, the country's private credit bureau added payment information from retailers, utilities, and trade creditors to the data it collects and distributes. 6. Colombia, the region's top reformer, has made great strides in easing trade. By extending port operating hours and adopting more selective customs inspections, it reduced the time for port and terminal handling activities by three days. The country strengthened investor protections by increasing disclosure requirements for related-party transactions. It introduced an electronic tax filing system, cutting the average time businesses must spend on tax compliance each year by 188 hours, or 41 percent. And it is progressively reducing the corporate income tax rate, from 35 to 34 percent in 2007 and 33 percent in 2008. 7. Saudi Arabia, the runner-up reformer in the region, eliminated the minimum capital requirement of 1,057 percent of income per capita and reduced the days needed for company start-up from 39 to 15. It launched a commercial credit bureau whose reports include the credit exposure of companies. It also sped up trade, reducing the number of documents required for importing and cutting the time needed for handling at ports and terminals by two days for both imports and exports. 8. Kenya, the region's other top 10 reformer, launched an ambitious licensing reform program. So far the program has eliminated 110 business licenses and simplified eight others. The changes have streamlined business start-up and cut both the time and cost of getting building permits. The program will eventually eliminate or simplify at least 900 more of the country's 1,300 licenses. Property registration is also faster now, thanks to the introduction of competition among land valuers. And the country's private credit bureau now collects a wider range of data. 3 9. In China, a new property law put private property rights on equal footing with state property rights. The law also expanded the range of assets that can be used as collateral to include inventory and accounts receivable. The new bankruptcy law gives secured creditors priority to the proceeds from their collateral. Construction also became easier, with electronic processing of building permits reducing delays by two weeks. 10. Bulgaria eased the tax burden on businesses and made it easier to pay taxes online. Bulgaria also introduced private bailiffs to improve efficiency in enforcing judgments. And it made building inspections less burdensome. Number of reforms in Doing Business 2008 Positive Reform Borders Licenses Workers Property Investors Total Negative Reform Business Contracts Business a with Credit Taxes Across a number of reforms Economy Starting Dealing Employing Registering Getting Protecting Paying Rank Trading Enforcing Closing 1 Egypt 5 2 Croatia 4 3 Ghana 5 4 Macedonia, FYR 3 5 Colombia 3 6 Georgia 6 7 Saudi Arabia 3 8 Kenya 4 9 China 3 10 Bulgaria 3 Guatemala 5 Costa Rica 1 El Salvador 1 Honduras 4 Mexico 2 Note: Economies are ranked on the number and impact of reforms, Doing Business selects the economies that reformed in 3 or more of the Doing Business topics. Second, it ranks these economies on the increase in rank in Ease of Doing Business from the previous year. The larger the imporvement, the higher the ranking as a reformer. 5 Summary of Indicators - Guatemala Starting a Business Procedures (number) 11 Duration (days) 26 Cost (% GNI per capita) 47.3 Paid in Min. Capital (% of GNI per capita) 24.9 Dealing with Licenses Procedures (number) 22 Duration (days) 235 Cost (% of income per capita) 1142.2 Employing Workers Difficulty of Hiring Index 44 Rigidity of Hours Index 40 Difficulty of Firing Index 0 Rigidity of Employment Index 28 Nonwage labor cost (% of salary) 13 Firing costs (weeks of wages) 101 Registering Property Procedures (number) 5 Duration (days) 30 Cost (% of property value) 1.0 Getting Credit Legal Rights Index 3 Credit Information Index 5 Public registry coverage (% adults) 20.7 Private bureau coverage (% adults) 13.1 Protecting Investors Disclosure Index 3 Director Liability Index 3 Shareholder Suits Index 6 Investor Protection Index 4.0 Paying Taxes Payments (number) 39 Time (hours) 344 Profit tax (%) 2.6 Labor tax and contributions (%) 14.3 Other taxes (%) 20.6 Total tax rate (% profit) 37.5 6 Trading Across Borders Documents for export (number) 11 Time for export (days) 19 Cost to export (US$ per container) 1052 Documents for import (number) 11 Time for import (days) 18 Cost to import (US$ per container) 1177 Enforcing Contracts Procedures (number) 28 Duration (days) 1459 Cost (% of claim) 26.5 Closing a Business Time (years) 3.0 Cost (% of estate) 15 Recovery rate (cents on the dollar) 28.1 Starting a Business in Guatemala: Entry Regulation When entrepreneurs draw up a business plan and try to get under way, the first hurdles they face are the procedures required to incorporate and register the new firm before they can legally operate. Economies differ greatly in how they regulate the entry of new businesses. In some the process is straightforward and affordable. In others the procedures are so burdensome that entrepreneurs may have to bribe officials to speed the process--or may decide to run their business informally. The data on starting a business are based on a survey and research investigating the procedures that a standard small to medium-size company needs to complete to start operations legally. These include obtaining all necessary permits and licenses and completing all required inscriptions, verifications and notifications with authorities to enable the company to formally operate. The time and cost required to complete each procedure under normal circumstances are calculated, as well as the minimum capital that must be paid in. It is assumed that all information is readily available to the entrepreneur, that there has been no prior contact with officials and that all government and nongovernment entities involved in the process function without corruption. To make the data comparable across economies, detailed assumptions about the type of business are used. Among these assumptions are the following: the business is a limited liability company conducting general commercial activities in the largest business city; it is 100% domestically owned, with start-up capital of 10 times income per capita, turnover of at least 100 times income per capita and between 10 and 50 employees; and it does not qualify for any special benefits, nor does it own real estate. Procedures are recorded only where interaction is required with an external party. It is assumed that the founders complete all procedures themselves unless professional services (such as by a notary or lawyer) are required by law. Voluntary procedures are not counted, nor are industry-specific requirements and utility hook-ups. Lawful shortcuts are counted. Cumbersome entry procedures are associated with more corruption, particularly in developing countries. Each procedure is a point of contact--an opportunity to extract a bribe. Analysis shows that burdensome entry regulations do not increase the quality of products, make work safer or reduce pollution. Instead, they constrain private investment; push more people into the informal economy; increase consumer prices; and fuel corruption. 8 1. Historical data: Starting a Business in Guatemala Starting a Business data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 130 128 Procedures (number) 15 13 11 Duration (days) 39 30 26 Cost (% GNI per capita) 58.4 52.1 47.3 Paid in Min. Capital (% of GNI per capita) 29.3 26.4 24.9 2. The following graph illustrates the Starting a Business indicators in Guatemala over the past 3 years: 4. 58 1. 52 3. 47 39 30 3. 29 4. 9. 26 26 24 15 13 11 mber) ) ta) GNI (days capi of s (nu tion per (% dure ) Dura GNI pital (% .Ca capita Proce Cost Min in per 2005 2006 2007 Paid 9 3. Steps to Starting a Business in Guatemala It requires 11 procedures, takes 26 days, and costs 47.26% GNI per capita to start a business in Guatemala. List of Procedures: 1. Search the company name 2. Obtain a letter from the Notary 3. Deposit the subscribed capital in a bank 4. A Notary Public draws, notarizes and records the Deed 5. The notary buys the fiscal stamps 6. File documents with the commercial registry 7. Name legal representative 8. Obtain the definite registration,tax and social security numbers, and authorization to print invoices 9. Obtain the trading license 10. Get authorization for the company accounting books 11. Obtain the authorization of a book of salaries More details are available in the appendix. 10 4. Benchmarking Starting a Business Regulations: Guatemala is ranked 128 overall for Starting a Business. Australia is the top ranked economy followed by Canada, New Zealand and United States. Ranking of Guatemala in Starting a Business - Compared to best practice and selected economies: 11 The following table shows Starting a Business data for Guatemala compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% GNI Paid in Min. (number) (days) per capita) Capital (% of GNI per Australia* 2 2 0.0 Denmark 0.0 Selected Economy Guatemala 11 26 47.3 24.9 Comparator Economies Colombia 11 42 19.3 0.0 Costa Rica 12 77 21.3 0.0 El Salvador 9 26 73.1 112.5 Honduras 13 21 59.9 27.4 Mexico 8 27 13.3 11.6 * The following economies are also best practice economies for : Procedures (number): Canada, New Zealand Paid in Min. Capital (% of GNI per capita): Canada, Ireland, Israel, Mauritius, New Zealand, Puerto Rico, Thailand, Trinidad and Tobago, United Kingdom, United States 12 Dealing with Licenses in Guatemala: Building a Warehouse Once entrepreneurs have registered a business, what regulations do they face in operating it? To measure such regulation, Doing Business focuses on the construction sector. Construction companies are under constant pressure--from government to comply with inspections and with licensing and safety regulations and from customers to be quick and cost-effective. These conflicting pressures point to the tradeoff in building regulation--the tradeoff between protecting people (construction workers, tenants, passersby) and keeping the cost of building affordable. In many countries, especially poor ones, complying with building regulations is so costly in time and money that many builders opt out. Builders may pay bribes to pass inspections or simply build illegally--leading to hazardous construction. In other countries compliance is simple, straightforward and inexpensive--yielding better results. The indicators on dealing with licenses record all procedures officially required for an entrepreneur in the construction industry to build a warehouse. These include submitting project documents (building plans, site maps) to the authorities, obtaining all necessary licenses and permits, completing all required notifications and receiving all necessary inspections. They also include procedures for obtaining utility connections, such as electricity, telephone, water and sewerage. The time and cost to complete each procedure under normal circumstances are calculated. All official fees associated with legally completing the procedures are included. Time is recorded in calendar days. The survey assumes that the entrepreneur is aware of all existing regulations and does not use an intermediary to complete the procedures unless required to do so by law. To make the data comparable across economies, several assumptions about the business and its operations are used. The business is a small to medium-size limited liability company, located in the most populous city, domestically owned and operated, in the construction business, with 20 qualified employees. The warehouse to be built: · Is a new construction (there was no previous construction on the land). · Has complete architectural and technical plans prepared by a licensed architect. · Will be connected to electricity, water, sewerage (sewage system, septic tank or their equivalent) and one land phone line. The connection to each utility network will be 32 feet, 10 inches (10 meters) long. · Will be used for general storage, such as of books or stationery. The warehouse will not be used for any goods requiring special conditions, such as food, chemicals or pharmaceuticals. · Will take 30 weeks to construct (excluding all delays due to administrative and regulatory requirements). Where the regulatory burden is large, entrepreneurs move their activity into the informal economy. There they operate with less concern for safety, leaving everyone worse off. 13 1. Historical data: Dealing with Licenses in Guatemala Dealing with Licenses data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 166 167 Procedures (number) 22 22 22 Duration (days) 346 286 235 Cost (% of income per capita) 1258.8 1159.6 1142.2 2. The following graph illustrates the Dealing with Licenses indicators in Guatemala over the past 3 years: 8. 6. 2. 1258 1159 1142 346 286 235 22 22 22 mber) ) per (days s (nu tion income ) dure of Dura (% capita Proce Cost 2005 2006 2007 14 3. Steps to Building a Warehouse in Guatemala It requires 22 procedures, takes 235 days, and costs 1,142.16% GNI per capita to build a warehouse in Guatemala. List of Procedures: 1. Request and obtain a certificate of land ownership for the property where the warehouse is to be built 2. Hire an environmental specialist and prepare an environmental impact assessment 3. Request and obtain a favorable resolution by the Infrastructure Department (Dirección de General de Caminos) based on a road system i 4. Submit a brief or simple industrial report 5. Request and obtain a favorable decision by the Ministry of the Environment and Natural Resources (Ministerio de Ambiente y Recursos N 6. Request and obtain a construction license 7. Receive an inspection by the Construction Licensing Department (Departamento de Licencias de Construcción) - I 8. Receive inspection by the Construction Licensing Department (Departamento de Licencias de Construcción) - II 9. Receive inspection by the Construction Licensing Department (Departamento de Licencias de Construcción) - III 10. Receive inspection by the Construction Licensing Department (Departamento de Licencias de Construcción) - IV 11. Receive inspection by the Construction Licensing Department (Departamento de Licencias de Construcción) - V 12. Receive inspection by the Construction Licensing Department (Departamento de Licencias de Construcción) - VI 15 13. Receive inspection by the Construction Licensing Department (Departamento de Licencias de Construcción) - VII 14. Notify the Construction Licensing Department on construction completion and return the license 15. Receive final inspection and obtain occupancy permit 16. Request sewerage connection and receive requirements from EMPAGUA 17. Request and obtain a feasibility study by EMPAGUA 18. Receive water connection 19. Request and receive installation of the transformer 20. Request electricity connection 21. Receive inspection and connection by the electric power company (Empresa Eléctrica de Guatemala) 22. Obtain a telephone line More details are available in the appendix. 16 4. Benchmarking Dealing with Licenses Regulations: Guatemala is ranked 167 overall for Dealing with Licenses. St. Vincent and the Grenadines is the top ranked economy followed by New Zealand, Belize and Marshall Islands. Ranking of Guatemala in Dealing with Licenses - Compared to best practice and selected economies: * The following economies are also best practice economies for Building a Warehouse: St. Vincent and the Grenadines 17 The following table shows Dealing with Licenses data for Guatemala compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) income per capita) Denmark 6 Korea 34 United Arab Emirates 1.5 Selected Economy Guatemala 22 235 1142.2 Comparator Economies Colombia 14 146 602.8 Costa Rica 23 178 244.2 El Salvador 34 155 197.9 Honduras 17 125 634.1 Mexico 11 131 103.5 18 Employing Workers in Guatemala: Labor Regulations Every economy has established a complex system of laws and institutions intended to protect workers and guarantee a minimum standard of living for its population. This system encompasses four bodies of law: employment, industrial relations, social security and occupational health and safety laws. Doing Business examines government regulation in the area of employment and social security laws. Three measures are presented: a rigidity of employment index, a nonwage labor cost measure and a firing cost measure. The rigidity of employment index is the average of three subindices: difficulty of hiring, rigidity of hours and difficulty of firing. Each index takes values between 0 and 100, with higher values indicating more rigid regulation. The difficulty of hiring index measures the flexibility of contracts and the ratio of the minimum wage to the value added per worker. The rigidity of hours index covers restrictions on weekend and night work, requirements relating to working time and the workweek, and mandated days of annual leave with pay. The difficulty of firing index covers workers' legal protections against dismissal, including the grounds permitted for dismissal and procedures for dismissal (individual and collective). The nonwage labor cost covers all social security payments and payroll taxes associated with hiring an employee, expressed as a percentage of the worker's salary. The firing cost indicator measures the cost of advance notice requirements, severance payments and penalties due when terminating a redundant worker, expressed in weeks of salary. The indicators on employment regulations are based on a detailed study of employment laws. Data are also gathered on the specific constitutional provisions governing the two areas studied. To ensure accuracy, both the actual laws and the applicable collective bargaining agreements are used. Finally, all data are verified and completed by local law firms through a detailed survey of employment regulations. To make the data comparable across economies, a range of assumptions about the worker and the company are used. Assumptions about the worker include that he is a nonexecutive, full-time male employee who has worked in the same company for 20 years and is not a member of the labor union (unless membership is mandatory). The company is assumed to be a limited liability manufacturing corporation that operates in the country's most populous city, is 100% domestically owned and has 201 employees. The company is also assumed to be subject to collective bargaining agreements in countries where such agreements cover more than half the manufacturing sector and apply even to firms not party to them. Most employment regulations are enacted in response to market failures. But that does not mean that today's regulations are optimal. Analysis across countries shows that while employment regulation generally increases the tenure and wages of incumbent workers, rigid regulations have many undesirable side effects. These include less job creation, smaller company size, less investment in research and development, and longer spells of unemployment and thus the obsolescence of skills--all of which may reduce productivity growth. Many countries err on the side of excessive rigidity, to the detriment of businesses and workers alike. 19 1. Historical data: Employing Workers in Guatemala Employing Workers data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 106 105 Rigidity of Employment Index 28 28 28 Nonwage labor cost (% of salary) 13 13 13 Firing costs (weeks of wages) 101 101 101 2. The following graph illustrates the Employing Workers indicators in Guatemala over the past 3 years: 101 101 101 28 28 28 13 13 13 of s of yment (% cost of Emplo costs(week) wages dity Index age labor salary) Firing Rigi 2005 Nonw 2006 2007 20 3. Benchmarking Employing Workers Regulations: Guatemala is ranked 105 overall for Employing Workers. Marshall Islands is the top ranked economy followed by Brunei, Georgia and Tonga. Ranking of Guatemala in Employing Workers - Compared to best practice and selected economies: * The following economies are also best practice economies for Employing Workers: Marshall Islands, Singapore 21 The following table shows Employing Workers data for Guatemala compared to best practice and comparator economies: Best Practice Economies Rigidity of Nonwage Firing costs Employment labor cost (% (weeks of Index of salary) wages) Bangladesh* 0 Denmark* 0 Hong Kong, China* 0 Selected Economy Guatemala 28 13 101 Comparator Economies Colombia 27 29 59 Costa Rica 32 26 35 El Salvador 24 15 86 Honduras 43 10 74 Mexico 48 21 52 * The following economies are also best practice economies for : Rigidity of Employment Index: Singapore, United States Nonwage labor cost (% of salary): Botswana, Ethiopia, Maldives Firing costs (weeks of wages): New Zealand, United States 22 Registering Property in Guatemala: Regulation of Property Transfer Property registries were first developed to help raise tax revenue. Defining and publicizing property rights through registries has also proved to be good for entrepreneurs. Land and buildings account for between half and three-quarters of the wealth in most economies. Securing rights to this property strengthens incentives to invest and facilitates commerce. And with formal property titles, entrepreneurs can obtain mortgages on their home or land and start businesses. Doing Business measures the ease of registering property based on a standard case of an entrepreneur who wants to purchase land and a building in the largest business city. It is assumed that the property is already registered and free of title dispute. The data cover the full sequence of procedures necessary to transfer the property title from the seller to the buyer. Every required procedure is included, whether it is the responsibility of the seller or the buyer or must be completed by a third party on their behalf. Local property lawyers and officials in property registries provide information on required procedures as well as the time and cost to complete each one. For most countries the data are based on responses from both. Based on the responses, three indicators are constructed: · Number of procedures to register property. · Time to register property (in calendar days). · Official costs to register property (as a percentage of the property value). A large share of the property in developing countries is not formally registered, limiting financing opportunities for businesses. Recognizing this constraint, some developing country governments have embarked on extensive property titling programs. Yet bringing assets into the formal sector is of little value unless they stay there. Many titling programs in Africa were futile because people bought and sold property informally--neglecting to update the title records in the property registry. Why? Doing Business shows that completing a simple formal property transfer in the largest business city of an African country costs 12% of the value of the property and takes more than 100 days on average. Worse, the property registries are so poorly organized that they provide little security of ownership. For both reasons, formalized titles quickly go informal again. Efficient property registration reduces transaction costs and helps keep formal titles from slipping into informal status. Simple procedures to register property are also associated with greater perceived security of property rights and less corruption. That benefits all entrepreneurs, especially women, the young and the poor. The rich have few problems protecting their property rights. They can afford to invest in security systems and other measures to defend their property. But small entrepreneurs cannot. Reform can change this. 23 1. Historical data: Registering Property in Guatemala Registering Property data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 25 23 Procedures (number) 5 5 5 Duration (days) 69 37 30 Cost (% of property value) 3.3 1.1 1.0 2. The following graph illustrates the Registering Property indicators in Guatemala over the past 3 years: 69 37 30 5 5 5 3.3 1.1 1 mber) ) (days s (nu property tion of ) dure (% Dura value Cost Proce 2005 2006 2007 24 3. Steps to Registering Property in Guatemala It requires 5 procedures, takes 30 days, and costs 1.00% GNI per capita to register the property in Guatemala. List of Procedures: 1. Obtain a certificate at the Property Registry to verify the status of the property 2. Obtain the cadastral value of the property from the Municipality and from DICABI (Dirección de Catastro y Avalúo de Bienes Inmuebles) 3. Lawyer/notary prepares the sale agreement and notarizes it, along with the public deed 4. Public deed is delivered to the Property Registry for its recording 5. Notify the Municipality and/or DICABI of the transaction More details are available in the appendix. 25 4. Benchmarking Registering Property Regulations: Guatemala is ranked 23 overall for Registering Property. New Zealand is the top ranked economy followed by Armenia, Saudi Arabia and Lithuania. Ranking of Guatemala in Registering Property - Compared to best practice and selected economies: 26 The following table shows Registering Property data for Guatemala compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) property value) New Zealand* 2 Norway* 1 Saudi Arabia* 0.0 Selected Economy Guatemala 5 30 1.0 Comparator Economies Colombia 9 23 2.5 Costa Rica 6 21 3.3 El Salvador 5 31 3.6 Honduras 7 24 5.8 Mexico 5 74 4.7 * The following economies are also best practice economies for : Procedures (number): Sweden Duration (days): Sweden, Thailand Cost (% of property value): Bhutan 27 Getting Credit in Guatemala: Legal Rights and Credit Information Firms consistently rate access to credit as among the greatest barriers to their operation and growth. Doing Business constructs two sets of indicators of how well credit markets function--one on credit registries and the other on legal rights of borrowers and lenders. Credit registries--institutions that collect and distribute credit information on borrowers--can greatly expand access to credit. By sharing credit information, they help lenders assess risk and allocate credit more efficiently. And they free entrepreneurs from having to rely on personal connections alone when trying to obtain credit. Three indicators are constructed to measure the sharing of credit information: · Public registry coverage, which reports the number of individuals and firms covered by a public credit registry as a percentage of the adult population. · Private bureau coverage, which reports the number of individuals and firms covered by a private credit bureau as a percentage of the adult population. · Depth of credit information index, which measures the extent to which the rules of a credit information system facilitate lending based on the scope of information distributed, the ease of access to information and the quality of information. The data are from surveys of public registries and the largest private credit bureau in the country. Effective regulation of secured lending--through collateral and bankruptcy laws--can also ease credit constraints. By giving a lender the right to seize and sell a borrower's secured assets upon default, collateral limits the lender's potential losses and acts as a screening device for borrowers. The strength of legal rights index measures 10 aspects of the rights of borrowers and creditors in collateral and bankruptcy laws, including whether: · General rather than specific description of assets and debt is permitted in collateral agreements (expanding the scope of assets and debt covered). · Any legal or natural person may grant or take security in assets. · A unified registry operates that includes charges over movable property. · Secured creditors have priority both within bankruptcy and outside it. · Parties may agree on out-of-court enforcement of collateral by contract. · Creditors may both seize and sell collateral out of court, no automatic stay or "asset freeze" applies upon bankruptcy, and the bankrupt debtor does not retain control of the firm. The index ranges from 0 (weak legal rights) to 10 (strong legal rights). The data were obtained by examining collateral and bankruptcy laws and legal summaries and verified through a survey of financial lawyers. Where good-quality credit information is available and legal rights are stronger, more credit is extended. Benefits flow beyond those gaining access to credit. With better-functioning credit markets, unemployment is lower, and women and low-income people benefit the most. 28 1. Historical data: Getting Credit in Guatemala Getting Credit data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 62 68 Legal Rights Index 3 3 3 Public registry coverage (% adults) 0.0 16.1 20.7 Private bureau coverage (% adults) 9.9 9.2 13.1 2. The following graph illustrates the Getting Credit indicators in Guatemala over the past 3 years: 7. 20 1. 16 1. 13 9.9 2.9 3 3 3 0 Index ge(% ge (% Rights covera covera ts) au ts) Legal registryadul bure adul te lic Pub Priva 2005 2006 2007 29 3. Benchmarking Getting Credit Regulations: Guatemala is ranked 68 overall for Getting Credit. United Kingdom is the top ranked economy followed by Hong Kong, China, Germany and Australia. Ranking of Guatemala in Getting Credit - Compared to best practice and selected economies: 30 The following table shows Getting Credit data for Guatemala compared to best practice and comparator economies: Best Practice Economies Legal Rights Public Private Index registry bureau coverage (% coverage (% Argentina* 100.0 Hong Kong, China* 10 Portugal 67.1 Selected Economy Guatemala 3 20.7 13.1 Comparator Economies Colombia 2 0.0 39.9 Costa Rica 4 6.1 52.7 El Salvador 3 17.2 74.6 Honduras 6 12.7 58.0 Mexico 3 0.0 61.2 * The following economies are also best practice economies for : Legal Rights Index: United Kingdom Private bureau coverage (% adults): Australia, Canada, Iceland, Ireland, New Zealand, Nicaragua, Norway, Sweden, United States 31 Protecting Investors in Guatemala Officials at Elf Aquitaine, France's largest oil company, awarded business deals in return for large side payments. Along with the extra cash, they got seven years in jail and a 2 million fine for abuse of power. Russian oil firm Gazprom purchased materials for new pipelines through intermediaries owned by company officers. The high cost raised eyebrows, but not court battles. Big cases make headlines. But looting by corporate insiders occurs every day on a smaller scale, and often goes unnoticed. To document the protections investors have, Doing Business measures how countries regulate a standard case of self-dealing--use of corporate assets for personal gain. The case facts are simple. Mr. James, a director and the majority shareholder of a public company, proposes that the company purchase used trucks from another company he owns. The price is higher than the going price for used trucks. The transaction goes forward. All required approvals are obtained, and all required disclosures made, though the transaction is unfair to the purchasing company. Shareholders sue the interested parties and the members of the board of directors. Several questions arise. Who approves the transaction? What information must be disclosed? What company documents can investors access? What do minority shareholders have to prove to get the transaction stopped or to receive compensation from Mr. James? Three indices of investor protection are constructed based on the answers to these and other questions. All indices range from 0 to 10, with higher values indicating more protections or greater disclosure. The extent of disclosure index covers approval procedures, requirements for immediate disclosure to the public and shareholders of proposed transactions, requirements for disclosure in periodic filings and reports and the availability of external review of transactions before they take place. The extent of director liability index covers the ability of investors to hold Mr. James and the board of directors liable for damages, the ability to rescind the transaction, the availability of fines and jail time associated with self-dealing, the availability of direct or derivative suits and the ability to require Mr. James to pay back his personal profits from the transaction. The ease of shareholder suits index covers the availability of documents that can be used during trial, the ability of the investor to examine the defendant and other witnesses, shareholders' access to internal documents of the company, the appointment of an inspector to investigate the transaction and the standard of proof applicable to a civil suit against the directors. These three indices are averaged to create the strength of investor protection index. This index ranges from 0 to 10, with higher values indicating better investor protection. If the rights of investors are not protected, majority ownership in a business is the only way to eliminate expropriation. But then investors must devote more oversight attention to fewer investments. The result: entrepreneurship is suppressed, and fewer profitable investment projects are undertaken. Where self-dealing is curbed, equity investment is higher, ownership concentration lower and trust in the business sector deeper. Investors gain portfolio diversification, and entrepreneurs gain access to cash. 32 1. Historical data: Protecting Investors in Guatemala Protecting Investors data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 120 122 Investor Protection Index 4.0 4.0 4.0 2. The following graph illustrates the Protecting Investors index in Guatemala compared to best practice and selected Economies: 7.9 0.6 3.6 0.4 3.4 0.3 3.3 Rica s la r ura atema ico mbia Mex Costa Hond Gu Salvado El Colo Zealand w Ne Note: The higher the score, the greater the investor protection. 33 3. Benchmarking Protecting Investors Regulations: Guatemala is ranked 122 overall for Protecting Investors. New Zealand is the top ranked economy followed by Singapore, Hong Kong, China and Malaysia. Ranking of Guatemala in Protecting Investors - Compared to best practice and selected economies: 34 The following table shows Protecting Investors data for Guatemala compared to best practice and comparator economies: Best Practice Economies Investor Protection Index New Zealand 9.7 Selected Economy Guatemala 4.0 Comparator Economies Colombia 6.3 Costa Rica 3.0 El Salvador 4.3 Honduras 3.3 Mexico 6.0 35 Paying Taxes: Tax Payable and Compliance in Guatemala Taxes are essential. Without them there would be no money to fund schools, hospitals, courts, roads, water, waste collection and other public services that help businesses to be more productive. Still, there are good ways and bad ways to collect taxes. The Doing Business tax survey records the effective tax that a company must pay and the administrative costs of doing so. Imagine a medium-size business, TaxpayerCo, that started operations last year. Doing Business asked accountants in 178 economies to review TaxpayerCo's financial statements and a standard list of transactions the company completed during the year. Respondents were asked how much tax the business must pay and what the process is for doing so. The business starts from the same financial position in each country. All the taxes and contributions paid during the second year of operation are recorded. Taxes and contributions are measured at all levels of government and include corporate income tax, turnover tax, all labor contributions paid by the company (including mandatory contributions paid to private pension or insurance funds), property tax, property transfer tax, dividend tax, capital gains tax, financial transactions tax, vehicle tax and other small taxes (such as fuel tax, stamp duty and local taxes). A range of standard deductions and exemptions are also recorded. Three indicators are constructed: · Number of tax payments, which takes into account the method of payment or withholding, the frequency of payment or withholding and the number of agencies involved for the standard case. · Time, which measures the hours per year necessary to prepare, file and pay the corporate income tax, value added or sales tax and labor taxes. · Total tax rate, which measures the amount of taxes payable by the company during the second year of operation. This amount, expressed as a percentage of commercial profit, is the sum of all the different taxes payable after accounting for various deductions and exemptions. Businesses care about what they get for their taxes and contributions, such as the quality of infrastructure and social services. Poor countries tend to use businesses as a collection point for taxes. Rich countries tend to have lower tax rates and less complex tax systems. And rich countries get more from their taxes. Simple, moderate taxes and fast, cheap administration mean less hassle for businesses--and also more revenue collected and better public services. More burdensome tax regimes create an incentive to evade taxes. 36 1. Historical data: Paying Taxes in Guatemala Paying Taxes data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 115 116 Time (hours) 344 344 344 Total tax rate (% profit) 39.7 39.7 37.5 Payments (number) 39 39 39 2. The following graph illustrates the Paying Taxes indicators in Guatemala over the past 3 years: 344 344 344 7. 7. 5. 39 39 39 39 39 37 mber) ) t) urs (nu Time (ho profi (% rate ments tax Pay tal 2005 2006 2007 To 37 3. Benchmarking Paying Taxes Regulations: Guatemala is ranked 116 overall for Paying Taxes. Maldives is the top ranked economy followed by Singapore, Hong Kong, China and United Arab Emirates. Ranking of Guatemala in Paying Taxes - Compared to best practice and selected economies: * The following economies are also best practice economies for Paying Taxes: Maldives 38 The following table shows Paying Taxes data for Guatemala compared to best practice and comparator economies: Best Practice Economies Payments Time (hours) Total tax (number) rate (% profit) Sweden* 2 United Arab Emirates* 12 Vanuatu 8.4 Selected Economy Guatemala 39 344 37.5 Comparator Economies Colombia 69 268 82.4 Costa Rica 43 402 55.7 El Salvador 66 224 33.8 Honduras 47 424 51.4 Mexico 27 552 51.2 * The following economies are also best practice economies for : Payments (number): Maldives Time (hours): Maldives 39 Trading Across Borders: Importing and Exporting from Guatemala The benefits of trade are well documented--as are the obstacles to trade. Tariffs, quotas and distance from large markets greatly increase the cost of goods or prevent trading altogether. But with faster ships and bigger planes, the world is shrinking. Global and regional agreements have brought down trade barriers. Yet Africa's share of global trade is smaller today than it was 25 years ago. So is the Middle East's, excluding oil exports. The reason is simple: many entrepreneurs face numerous hurdles to exporting or importing goods. They often give up. Others never try. Doing Business compiles procedural requirements for trading a standard shipment of goods by ocean transport. Every official procedure--and the associated documents, time and cost--for importing and exporting the goods is recorded, starting with the contractual agreement between the two parties and ending with delivery of the goods. For importing the goods, the procedures measured range from the vessel's arrival at the port of entry to the shipment's delivery at the factory warehouse. For exporting the goods, the procedures measured range from the packing of the goods at the factory to their departure from the port of exit. To make the data comparable across countries, several assumptions about the business and the traded goods are used. The business is of medium size, with 100 or more employees, and is located in the periurban area of the country's most populous city. It is a private, limited liability company, domestically owned, formally registered and operating under commercial laws and regulations of the country. The traded goods are ordinary, legally manufactured products, and they travel in a dry-cargo, 20-foot FCL (full container load) container. Documents recorded include port filing documents, customs declaration and clearance documents, and official documents exchanged between the concerned parties. Time is recorded in calendar days, from start to finish of each procedure. Cost measures the fees levied on a 20-foot container in U.S. dollars. All the fees associated with completing the procedures to export or import the goods are included, such as costs for documents, administrative fees for customs clearance and technical control, terminal handling charges and inland transport. The cost measure does not include tariffs or trade taxes. Countries that have efficient customs, good transport networks and fewer document requirements--making compliance with export and import procedures faster and cheaper--are more competitive globally. That leads to more exports--and exports are associated with faster growth and more jobs. Conversely, a need to file many documents is associated with more corruption in customs. Faced with long delays and frequent demands for bribes, many traders avoid customs altogether. Instead, they smuggle goods across the border. That defeats the very purpose in having border control of trade--to levy taxes and ensure high quality of goods. 40 1. Historical data: Trading Across Borders in Guatemala Trading Across Borders data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 134 116 Documents for export (number) 8 9 11 Time for export (days) 20 20 19 Cost to export (US$ per container) 1785 1783 1052 Documents for import (number) 7 7 11 Time for import (days) 36 33 18 Cost to import (US$ per container) 1985 1985 1177 2. The following graph illustrates the Trading Across Borders indicators in Guatemala over the past 3 years: 1985 1985 1785 1783 1177 1052 8 9 11 20 20 19 7 7 11 36 33 18 ) rt export per ) per (US$ impo (days for rt (days nts ber) rt nts ber) for (US$ er) m expo m (nu (nu import to Docume Time for expo er) to contain Cost Docume Time for import contain Cost 2005 2006 2007 41 3. Benchmarking Trading Across Borders Regulations: Guatemala is ranked 116 overall for Trading Across Borders. Singapore is the top ranked economy followed by Denmark, Hong Kong, China and Norway. Ranking of Guatemala in Trading Across Borders - Compared to best practice and selected economies: 42 The following table shows Trading Across Borders data for Guatemala compared to best practice and comparator economies: Best Practice Economies Documents Time for Cost to Documents Time for Cost to for export export (days) export (US$ for import import (days) import (US$ (number) per (number) per Canada* 3 China 390 Denmark* 5 3 Singapore 3 367 Selected Economy Guatemala 11 19 1052 11 18 1177 Comparator Economies Colombia 6 24 1440 8 20 1440 Costa Rica 7 18 660 8 25 660 El Salvador 8 21 540 11 18 540 Honduras 7 20 1065 11 23 975 Mexico 5 17 1302 5 23 2411 * The following economies are also best practice economies for : Documents for export (number): Estonia, Micronesia, Panama Time for export (days): Estonia, Singapore Documents for import (number): Sweden 43 Enforcing Contracts: Court Efficiency in Guatemala Where contract enforcement is efficient, businesses are more likely to engage with new borrowers or customers. Doing Business tracks the efficiency of the judicial system in resolving a commercial dispute, following the step-by-step evolution of a commercial sale dispute before local courts. The data are collected through study of the codes of civil procedure and other court regulations as well as surveys completed by local litigation lawyers (and, in a quarter of the countries, by judges as well). The dispute, between two businesses (the Seller and the Buyer) located in the country's most populous city, concerns a contract for the sale of goods. The Seller agrees to deliver the goods, worth 200% of the country's income per capita, to the Buyer. After receiving and inspecting the goods, the Buyer concludes that their quality is inadequate. The Buyer sends the goods back without paying for them. The Seller disagrees and argues that their quality is adequate. The Seller seeks full payment from the Buyer, arguing that the goods cannot be sold to a third party because they were custom-made for the Buyer. The Seller sues the Buyer before the court in the most populous city to recover the amount due under the sales agreement (200% of the country's income per capita). Three indicators of the efficiency of commercial contract enforcement are developed: · Number of procedures, which includes all those that demand interaction between the parties or between them and the judge or court officer. · Time, which counts the number of days from the moment the plaintiff files the lawsuit in court until the moment of payment. This measure includes both the days on which actions take place and the waiting periods between actions. · Cost, which measures the official cost of going through court procedures, expressed as a percentage of the claim (assumed to be equivalent to 200% of income per capita). The cost includes court costs, enforcement costs and attorney fees where the use of attorneys is mandatory or common. Businesses that have little or no access to efficient courts must rely on other mechanisms, both formal and informal--such as trade associations, social networks, credit bureaus or private information channels--to decide whom to do business with and under what conditions. Or they might adopt a conservative approach to business, dealing only with a small group of people linked through kinship, ethnic origin or previous dealings and structuring transactions to forestall disputes. In either case economic and social value may be lost. The main reason to regulate procedures in commercial dispute resolution is that informal justice is vulnerable to subversion by the rich and powerful. But heavy regulation of dispute resolution backfires. Across countries, the more procedures it takes to enforce a contract, the longer the delays and the higher the cost. The result: less wealth is created. 44 1. Historical data: Enforcing Contracts in Guatemala Enforcing Contracts data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 98 98 Procedures (number) 28 28 28 Duration (days) 1459 1459 1459 Cost (% of claim) 26.5 26.5 26.5 2. The following graph illustrates the Enforcing Contracts indicators in Guatemala over the past 3 years: 1459 1459 1459 5. 5. 5. 28 28 28 26 26 26 mber) ) (days claim) s (nu of tion (% dure Dura Cost Proce 2005 2006 2007 45 3. Benchmarking Enforcing Contracts Regulations: Guatemala is ranked 98 overall for Enforcing Contracts. Hong Kong, China is the top ranked economy followed by Luxembourg, Latvia and Singapore. Ranking of Guatemala in Enforcing Contracts - Compared to best practice and selected economies: 46 The following table shows Enforcing Contracts data for Guatemala compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) claim) Bhutan 0.1 Ireland 20 Singapore 120 Selected Economy Guatemala 28 1459 26.5 Comparator Economies Colombia 34 1346 52.6 Costa Rica 40 877 24.3 El Salvador 30 786 19.2 Honduras 45 480 30.4 Mexico 38 415 32.0 47 Closing Business in Guatemala: Bankruptcy The economic crises of the 1990s in emerging markets--from East Asia to Latin America, from Russia to Mexico--raised concerns about the design of bankruptcy systems and the ability of such systems to help reorganize viable companies and close down unviable ones. In countries where bankruptcy is inefficient, unviable businesses linger for years, keeping assets and human capital from being reallocated to more productive uses. The Doing Business indicators identify weaknesses in the bankruptcy law as well as the main procedural and administrative bottlenecks in the bankruptcy process. In many developing countries bankruptcy is so inefficient that creditors hardly ever use it. In countries such as these, reform would best focus on improving contract enforcement outside bankruptcy. The data on closing a business are developed using a standard set of case assumptions to track a company going through the step-by-step procedures of the bankruptcy process. It is assumed that the company is a domestically owned, limited liability corporation operating a hotel in the country's most populous city. The company has 201 employees, 1 main secured creditor and 50 unsecured creditors. Assumptions are also made about the debt structure and future cash flows. The case is designed so that the company has a higher value as a going concern--that is, the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. The data are derived from questionnaires answered by attorneys at private law firms. Three measures are constructed from the survey responses: the time to go through the insolvency process, the cost to go through the process and the recovery rate--how much of the insolvency estate is recovered by stakeholders, taking into account the time, cost, depreciation of assets and the outcome of the insolvency proceeding. Bottlenecks in bankruptcy cut into the amount claimants can recover. In countries where bankruptcy is used, this is a strong deterrent to investment. Access to credit shrinks, and nonperforming loans and financial risk grow because creditors cannot recover overdue loans. Conversely, efficient bankruptcy laws can encourage entrepreneurs. The freedom to fail, and to do so through an efficient process, puts people and capital to their most effective use. The result is more productive businesses and more jobs. 48 1. Historical data: Closing Business in Guatemala Closing a Business data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 83 86 Time (years) 3.0 3.0 3.0 Cost (% of estate) 15 15 15 Recovery rate (cents on the dollar) 27 28 28.1 2. The following graph illustrates the Closing Business indicators in Guatemala over the past 3 years: 1. 27 28 28 15 15 15 3 3 3 ) the ) on estate (cents) Time (years of (% y ratedo llar Cost cover Re 2005 2006 2007 49 3. Benchmarking Closing Business Regulations: Guatemala is ranked 86 overall for Closing a Business. Japan is the top ranked economy followed by Singapore, Norway and Canada. Ranking of Guatemala in Closing Business - Compared to best practice and selected economies: 50 The following table shows Closing Business data for Guatemala compared to best practice and comparator economies: Best Practice Economies Recovery Time (years) Cost (% of rate (cents estate) on the Colombia 1 Ireland* 0.4 Japan 92.6 Selected Economy Guatemala 28.1 3.0 15 Comparator Economies Colombia 58.3 3.0 1 Costa Rica 23.1 3.5 15 El Salvador 28.4 4.0 9 Honduras 20.3 3.8 15 Mexico 63.9 1.8 18 * The following economies are also best practice economies for : Time (years): Cape Verde 51 APPENDICES Starting a Business in Guatemala This table summarizes the procedures and costs associated with setting up a business in Guatemala. STANDARDIZED COMPANY Legal Form: Sociedad Anónima (SA) - Corporation Minimum Capital Requirement: GTQ 5,000 City: Guatemala City Registration Requirements: No: Procedure Time to complete Cost to complete 1 Check the proposed company name at the Mercantile Registry of 1 day no charge Guatemala 2 Obtain letter from a Guatemalan notary public to open bank 1 day no charge account 3 Deposit the subscribed capital in a bank and obtain a receipt 1 day no charge 4 A notary public draws the deed of constitution 3 days GTQ 6,800 average notarial fees + tax 5 The notary buys the fiscal stamps and issues a certified copy of 1 day QTQ 250 stamp tax the deed of incorporation for filing with the commercial register (company deed) + QTQ 300 (corporation license) + 2 stamps of QTQ 0.50 (Act for nomination of representative, constitution testimony) 6 File notarized unique registration form and documents with the 1 day see comment Commercial Register (Registro Mercantil) 7 File for nomination of legal representative of the company 1 day included in previous procedure 8 Obtain the definite registration, tax and social security numbers, 14 days included in previous and authorization to print invoices procedure 9 Obtain trading license 1 day QTQ 165 10 * Present accounting books and books of minutes to the 1 day GTQ 0.15/page, Commercial Register for its authorization assuming 100 pages 11 * Obtain the authorization of a book of salaries by the Inspection of 1 day GTQ 0.5/page, the Department of Labor assuming 100 pages * Takes place simultaneously with another procedure. 52 Procedure 1 Check the proposed company name at the Mercantile Registry of Guatemala Time to complete: 1 day Cost to complete: no charge Comment: Before initiating the constitution process, the entrepreneur must conduct a company name availability search to avoid submitting a preexisting name. Since June 2006, the Commercial Registry provides the option of searching via the Internet at no cost, but this option is limited to five consults for each user. A manual search is still available. Procedure 2 Obtain letter from a Guatemalan notary public to open bank account Time to complete: 1 day Cost to complete: no charge Comment: The minimum paid capital requirement of GTQ 5,000 must be deposited in a local bank before the articles of incorporation are signed. For this purpose, a notary public must issue a letter confirming that he or she has been requested to record the company's deed of constitution. This letter allows for the opening of a temporary bank account while registration is completed. If the company capital is composed of an asset instead of cash, this procedure is not required. Procedure 3 Deposit the subscribed capital in a bank and obtain a receipt Time to complete: 1 day Cost to complete: no charge Comment: The Registry does not require filing of the deposit slip or the bank statement. The notary public transcribes the deposit of subscribed capital in the articles of incorporation. Procedure 4 A notary public draws the deed of constitution Time to complete: 3 days Cost to complete: GTQ 6,800 average notarial fees + tax Comment: The deed is executed by the founding shareholders and attested by the notary public, and provisional stock certificates are issued. Once the company is duly registered, definitive stock certificates are issued and substituted for the provisional stock certificates. The notary public generally charges a package fee (up to USD 2,000) for the entire process of setting up a company, including the preparation of the provisional stock certificates. They will be issued and signed by the company's president and the secretary of the initial board of directors, which is appointed in the deed of incorporation. Procedure 5 The notary buys the fiscal stamps and issues a certified copy of the deed of incorporation for filing with the commercial register Time to complete: 1 day Cost to complete: QTQ 250 stamp tax (company deed) + QTQ 300 (corporation license) + 2 stamps of QTQ 0.50 (Act for nomination of representative, constitution testimony) Comment: Only a notary public can buy the fiscal stamps at the Superintendency of Tax Administration. 53 Procedure 6 File notarized unique registration form and documents with the Commercial Register (Registro Mercantil) Time to complete: 1 day Cost to complete: see comment Comment: A new fast-track system was introduced in May 2006 and fully implemented in September, requiring only a single registration form (which must be legalized either by a lawyer or notary public) for several formalities: notice of issuance of stock certificates, notice of appointment of legal representative, commercial registration, application for business license (patente), and tax and social security registration (which can be processed, together with the other formalities, through a single registration form). This fast-track system requires the submission of two documents: (1) form of the commercial registry (sold for GTQ 2); and (2) the deed of constitution (original and simple photocopy of the certified notarized copy).The Registry analyzes the documents presented, and if they fulfill legal requirements, it issues the public notice of authorization or edict (edicto) and assigns a provisional registration number, which allows for the nomination of the legal representative (Procedure 7). The Registry then coordinates the publication of the edict, as well as tax registration, the authorization to print invoices, and social security registration. A single fee payment is necessary and includes: - Registration fee: GTQ 275 plus 0.6% of the authorized capital (up to a maximum cost of GTQ 25,000) and plus GTQ 15 (for issuance of the public notice, or edicto). - Edict publication fee: GTQ 525.62 for publication in the Diario de Centro America. - Authorization to print invoices: GTQ 0.5/page (assuming 100 pages). Procedure 7 File for nomination of legal representative of the company Time to complete: 1 day Cost to complete: included in previous procedure Comment: Once the provisional registration number has been assigned, the Commercial Registry calls the applicant or his/her representative (e.g., notary public), who returns to nominate the company's legal representative. Procedure 8 Obtain the definite registration, tax and social security numbers, and authorization to print invoices Time to complete: 14 days Cost to complete: included in previous procedure Comment: Preliminary registration and registration with the tax and social security authorities can be completed in 2­3 days. However, following the publication of the edict, a protest period of 8 days applies before the Commercial Registry can finalize the registration. Once registration is completed, tax and social security identification numbers can be obtained. Procedure 9 Obtain trading license Time to complete: 1 day Cost to complete: QTQ 165 Comment: Procedure 10 Present accounting books and books of minutes to the Commercial Register for its authorization 54 Time to complete: 1 day Cost to complete: GTQ 0.15/page, assuming 100 pages Comment: Procedure 11 Obtain the authorization of a book of salaries by the Inspection of the Department of Labor Time to complete: 1 day Cost to complete: GTQ 0.5/page, assuming 100 pages Comment: This requirement to obtain authorization of the book of salaries applies to entities employing more than 10 workers. 55 Dealing with Licenses in Guatemala The table below summarizes the procedures, time, and costs to build a warehouse in Guatemala. BUILDING A WAREHOUSE Date as of: January 2,007 Estimated Warehouse Value: City: Guatemala City Registration Requirements: No: Procedure Time to complete Cost to complete 1 Request and obtain a certificate of land ownership for the property 10 days GTQ 35 where the warehouse is to be built 2 * Hire an environmental specialist and prepare an environmental impact 30 days GTQ 40,000 assessment 3 * Request and obtain a favorable resolution by the Infrastructure 18 days GTQ 1,700 Department (Dirección de General de Caminos) based on a road system impact assessment 4 * Submit a brief or simple industrial report 1 day no charge 5 Request and obtain a favorable decision by the Ministry of the 60 days no charge Environment and Natural Resources (Ministerio de Ambiente y Recursos Naturales) based on an environmental impact assessment 6 Request and obtain a construction license 51 days GTQ 175,581 7 Receive an inspection by the Construction Licensing Department 1 day no charge (Departamento de Licencias de Construcción) - I 8 Receive inspection by the Construction Licensing Department 1 day no charge (Departamento de Licencias de Construcción) - II 9 Receive inspection by the Construction Licensing Department 1 day no charge (Departamento de Licencias de Construcción) - III 10 Receive inspection by the Construction Licensing Department 1 day no charge (Departamento de Licencias de Construcción) - IV 11 Receive inspection by the Construction Licensing Department 1 day no charge (Departamento de Licencias de Construcción) - V 12 Receive inspection by the Construction Licensing Department 1 day no charge (Departamento de Licencias de Construcción) - VI 13 Receive inspection by the Construction Licensing Department 1 day no charge (Departamento de Licencias de Construcción) - VII 56 14 Notify the Construction Licensing Department on construction 1 day no charge completion and return the license 15 Receive final inspection and obtain occupancy permit 14 days no charge 16 * Request sewerage connection and receive requirements from 20 days no charge EMPAGUA 17 * Request and obtain a feasibility study by EMPAGUA 70 days no charge 18 * Receive water connection 60 days GTQ 8,800 19 * Request and receive installation of the transformer 30 days no charge 20 * Request electricity connection 1 day GTQ 2,500 21 * Receive inspection and connection by the electric power company 30 days no charge (Empresa Eléctrica de Guatemala) 22 * Obtain a telephone line 1 day GTQ 625 * Takes place simultaneously with another procedure. 57 Procedure 1 Request and obtain a certificate of land ownership for the property where the warehouse is to be built Time to complete: 10 days Cost to complete: GTQ 35 Comment: The certificate is valid for 3 months. Procedure 2 Hire an environmental specialist and prepare an environmental impact assessment Time to complete: 30 days Cost to complete: GTQ 40,000 Comment: The environmental impact assessment must be prepared by a professional (engineer/architect) authorized to do so. The company owning the project must hire the professional, and the cost will vary depending on the type of assessment to be completed, based on project characteristics. In many cases technical opinions or analyses by several professionals are required. The minimum cost is GTQ 40,000. All types of buildings require an environmental impact assessment. Procedure 3 Request and obtain a favorable resolution by the Infrastructure Department (Dirección de General de Caminos) based on a road system impact assessment Time to complete: 18 days Cost to complete: GTQ 1,700 Comment: The road system impact assessment has to be completed by the Planning and Design Unit (Departamento de Planificación y Diseño) of the Infrastructure Department (Dirección de Infraestructura). Professional personnel in this unit perform the assessment and issue a resolution regarding the aspects that must be emphasized during project execution. The resolution may be issued as "not authorized" until the necessary corrections are submitted, after which the resolution can be changed to "authorized." According to the applicable regulation, the cost may be up to GTQ 1,700 depending on the project's complexity. In practice, this assessment is actually a notification of the General Directorate for Roads (Dirección General de Caminos). The applicant contacts officials at the Dirección General, who grant the authorization during the inspection. Procedure 4 Submit a brief or simple industrial report Time to complete: 1 day Cost to complete: no charge Comment: This report contains an affidavit regarding storage use and any industrial process to be carried out in the warehouse. Procedure 5 Request and obtain a favorable decision by the Ministry of the Environment and Natural Resources (Ministerio de Ambiente y Recursos Naturales) based on an environmental impact assessment Time to complete: 60 days Cost to complete: no charge 58 Comment: The environmental impact assessment submitted by the company owning the project is analyzed by Ministry of the Environment and Natural Resources (Ministerio de Ambiente y Recursos Naturales, MARN) personnel, who make a decision which, if favorable, is immediately submitted to the Urban Construction Control Department at the municipality of Guatemala for the appropriate processing. If the judgment is unfavorable, the company owning the project must make the necessary corrections for the project to be approved. Because of reforms enacted in 2007, every municipality now has an assigned representative of the MARN, which should reduce the time for obtaining the decision from 120 days to 60. Procedure 6 Request and obtain a construction license Time to complete: 51 days Cost to complete: GTQ 175,581 Comment: BuildCo must submit the corresponding form with all the requested specifics together with all the requirements in the previous procedures, photocopies of the identification cards of its legal agent and the professional responsible for the construction, and a photocopy of the latest Single Real Estate Tax (Impuesto Unico sobre Inmueble) receipt and any other required receipts. An architect or engineer must be responsible for the construction work, signing the submitted form and the plans. The cost of the license is the estimated cost of the area per square meter, to which a fee of 4.5% is applied. There is no time limit. This procedure depends on the time taken by the company applying for the license to complete all the requirements. If any requirements are still pending and there is no action on the record after 60 days, the process is deemed canceled and is sent to the general files, after which the company must start another application. If BuildCo starts the procedures for the license application with all requirements in order and duly authorized (approved decisions and resolutions), the license may be delivered after a minimum of 4 working days. According to law, required deposits are as follows: - Article 183: The recipient of a construction license must make a guarantee deposit of GTQ 5 (for buildings up to a cost of GTQ 5,000) or 0.01% of the cost of the building (if the cost exceeds GTQ 5,000). This amount shall be refunded when the building has been completed and the license has been returned after the approval of the Construction Licensing Department. - Article 184: If, after a year from the date of license expiration, the interested party does not claim the deposit, it will automatically be incorporated into the municipal treasury - Article 43: The maximum time for the resolution of a license application complying with all municipal requirements is 30 days, which may be extended for another 30 days if an extension is justified by the size of the building or the complexity of the problem. Procedure 7 Receive an inspection by the Construction Licensing Department (Departamento de Licencias de Construcción) - I Time to complete: 1 day Cost to complete: no charge Comment: The Construction Licensing Department has technical/professional personnel in charge of inspecting how the building is being constructed. Inspections are monthly. There is no average duration for an inspection; each depends on what is considered in the inspection. 59 Inspections of buildings under construction are unannounced. They focus mainly on verifying that the authorized areas are constructed in accordance with submitted plans, as well as other aspects deemed important pursuant to licensing conditions. Procedure 8 Receive inspection by the Construction Licensing Department (Departamento de Licencias de Construcción) - II Time to complete: 1 day Cost to complete: no charge Comment: Procedure 9 Receive inspection by the Construction Licensing Department (Departamento de Licencias de Construcción) - III Time to complete: 1 day Cost to complete: no charge Comment: Procedure 10 Receive inspection by the Construction Licensing Department (Departamento de Licencias de Construcción) - IV Time to complete: 1 day Cost to complete: no charge Comment: Procedure 11 Receive inspection by the Construction Licensing Department (Departamento de Licencias de Construcción) - V Time to complete: 1 day Cost to complete: no charge Comment: Procedure 12 Receive inspection by the Construction Licensing Department (Departamento de Licencias de Construcción) - VI Time to complete: 1 day Cost to complete: no charge Comment: Procedure 13 Receive inspection by the Construction Licensing Department (Departamento de Licencias de Construcción) - VII Time to complete: 1 day 60 Cost to complete: no charge Comment: Procedure 14 Notify the Construction Licensing Department on construction completion and return the license Time to complete: 1 day Cost to complete: no charge Comment: The license must be returned to the Construction Licensing Department, which performs the last inspection. If the construction work conforms to approved specifications, the occupancy permit is issued. When the license is returned, the municipality notifies the cadastre office about the construction and its cost. Within 7­14 days, the municipality visits the site to verify that the building complies with approved specifications. Procedure 15 Receive final inspection and obtain occupancy permit Time to complete: 14 days Cost to complete: no charge Comment: According to Article 78, on completion of the construction work, the interested parties shall request final inspection from the Construction Licensing Department. This inspection shall be performed by the supervisor in charge, who shall record the result on an inspection card. If the building does not comply with approved specifications, the card must state the reasons and the appropriate remedies. If all aspects are in order and the card expressly states so, after the return of the respective license, the interested parties may request the building occupancy permit from the head of the office by completing the form stated in Annex 1 of the Regulation. If no objections are raised during the inspection (meaning that every part of the construction is authorized as complying with the plans submitted to the Construction Licensing Department, the professional in charge of the inspection may immediately go back to the office and issue the occupancy permit to be delivered to the company. Procedure 16 Request sewerage connection and receive requirements from EMPAGUA Time to complete: 20 days Cost to complete: no charge Comment: BuildCo must fill out the application and receive the requirements at office of the Water and Sewerage Authority (Empresa Municipal de Agua, EMPAGUA). There they will be notified of the fee to be paid as a deposit to cover the completion of the procedure and a service feasibility study that must be carried out by EMPAGUA. EMPAGUA will start the feasibility study within about 15 days. Procedure 17 Request and obtain a feasibility study by EMPAGUA Time to complete: 70 days Cost to complete: no charge 61 Comment: This study takes at least 60 days, after which EMPAGUA must issue a resolution regarding feasibility or nonfeasibility and the steps to be taken by BuildCo for EMPAGUA to make the necessary hook-up connections. On completion of the feasibility study, EMPAGUA notifies the applicant of the amount to be paid to the municipality for the feasibility study and the connections to be made. The cost may vary depending on the work to be done and the estimated required potable water supply and sewage volume to be drained from the project. The inspections performed by EMPAGUA experts may vary depending on the number of inspections needed to determine service feasibility. Procedure 18 Receive water connection Time to complete: 60 days Cost to complete: GTQ 8,800 Comment: Procedure 19 Request and receive installation of the transformer Time to complete: 30 days Cost to complete: no charge Comment: The transformer has to be installed by certified companies. In Guatemala, there are only about 10. Procedure 20 Request electricity connection Time to complete: 1 day Cost to complete: GTQ 2,500 Comment: An application must be submitted to the Electric Power Company of Guatemala (Empresa Eléctrica de Guatemala) Procedure 21 Receive inspection and connection by the electric power company (Empresa Eléctrica de Guatemala) Time to complete: 30 days Cost to complete: no charge Comment: The Empresa Eléctrica de Guatemala visits the site before approving the electrical power hook-up. Procedure 22 Obtain a telephone line Time to complete: 1 day Cost to complete: GTQ 625 Comment: 62 Employing Workers in Guatemala Employing workers indices are based on responses to survey questions. The table below shows these responses in Guatemala. Employing Workers Indicators (2007) Answer Score Rigidity of Employment Index 28.1 Difficulty of Hiring Index 44.4 Are fixed-term contracts prohibited for permanent tasks? Yes 1 What is the maximum duration of fixed-term contracts (including renewals)? (in months) No limit 0.0 What is the ratio of mandated minimum wage to the average value added per worker? 0.34 0.33 Rigidity of Hours Index 40.0 Can the workweek extend to 50 hours (including overtime) for 2 months per year to respond to a Yes 0 seasonal increase in production? What is the maximum number of working days per week? 6 0 Are there restrictions on night work? Yes 1 Are there restrictions on "weekly holiday" work? Yes 1 What is the paid annual vacation (in working days) for an employee with 20 years of service? 15 0 Difficulty of Firing Index 0.0 Is the termination of workers due to redundancy legally authorized? Yes 0 Must the employer notify a third party before terminating one redundant worker? No 0 Does the employer need the approval of a third party to terminate one redundant worker? No 0 Must the employer notify a third party before terminating a group of 25 redundant workers? No 0 Does the employer need the approval of a third party to terminate a group of 25 redundant No 0 workers? Can an employer make redundant a worker only if the worker could not have been reassigned or No 0 retrained? Are there priority rules applying to redundancies? No 0 Are there priority rules applying to re-employment? No 0 Firing costs (weeks of wages) 101.1 What is the notice period for redundancy dismissal after 20 years of continuous employment? 0.0 (weeks of salary) 63 What is the severance pay for redundancy dismissal after 20 years of employment? (weeks of 101.1 salary) What is the legally mandated penalty for redundancy dismissal? (weeks of salary) 0.0 Nonwage labor cost (% of salary) 12.7 Note: The first three indices measure how difficult it is to hire a new worker, how rigid the regulations are on working hours, and how difficult it is to dismiss a redundant worker. Each index assigns values between 0 and 100, with higher values representing more rigid regulations. The overall Rigidity of Employment Index is an average of the three indices. 64 Registering Property in Guatemala This topic examines the steps, time, and cost involved in registering property in Guatemala. STANDARDIZED PROPERTY Property Value: 132,000.00 City: Guatemala City Registration Requirements: No: Procedure Time to complete Cost to complete 1 * Obtain a certificate at the Property Registry to verify 7-8 days (depending $7 (expenses) (or more, the status of the property on length of the real depending on length of the estate file or if it is real estate file) + $ 20 digitalized) (legal fees plus VAT) (simultaneous with procedure 2) 2 * Obtain the cadastral value of the property from the 1 day (simultaneous $ 20 (legal fees plus VAT) Municipality and from DICABI (Dirección de Catastro y with procedure 1) Avalúo de Bienes Inmuebles) 3 Lawyer/notary prepares the sale agreement and 2 days $62.50 + ($800 - $1000) notarizes it, along with the public deed (notary fees) + $65 (tax stamps, copies, and others) + registration fees (Q.160.00 plus Q 1.5 for each Q 1,000 of transaction value) 4 Public deed is delivered to the Property Registry for its 8 - 12 days Q.160.00 + 0.15% of recording transaction value (registration fee­already paid to notary) 5 Notify the Municipality and/or DICABI of the transaction 10 days Q. 10 (If Municipality file is updated, then no cost.) * Takes place simultaneously with another procedure. 65 Procedure 1 Obtain a certificate at the Property Registry to verify the status of the property Time to complete: 7-8 days (depending on length of the real estate file or if it is digitalized) (simultaneous with procedure 2) Cost to complete: $7 (expenses) (or more, depending on length of the real estate file) + $ 20 (legal fees plus VAT) Comment: The seller obtains a certificate at the Property Registry in which the buyer can verify that the property is free from mortgages and encumbrances, and to verify that the property is owned by the seller. In order to obtain the certificate the buyer needs to know the registry numbers where the property is registered. Usually this information is provided by the seller. It is usually the lawyer who verifies the books at the registry and obtains this information. This updated certificate of the property will be used later by the lawyer/notary to prepare the public deed. Procedure 2 Obtain the cadastral value of the property from the Municipality and from DICABI (Dirección de Catastro y Avalúo de Bienes Inmuebles) Time to complete: 1 day (simultaneous with procedure 1) Cost to complete: $ 20 (legal fees plus VAT) Comment: The seller must obtain the cadastral value of the property from the Municipality of the place where the property is located. Sometimes, the city where the property is established does not have a Municipality registry of the property value, so this information has to be obtained in DICABI (Dirección de Catastro y Avalúo de Bienes Inmuebles). DICABI is a national institution containing information based on a "personal registry type" on all the regional registries in the country. In any case, it is very important also to obtain property's value information at DICABI as the price in the contract for VAT purposes must be set at least equal to the value registered at DICABI. Procedure 3 Lawyer/notary prepares the sale agreement and notarizes it, along with the public deed Time to complete: 2 days Cost to complete: $62.50 + ($800 - $1000) (notary fees) + $65 (tax stamps, copies, and others) + registration fees (Q.160.00 plus Q 1.5 for each Q 1,000 of transaction value) Comment: If the seller is a registered VAT Taxpayer, the tax must be paid with an invoice, in which the tax is charged. The lawyer/notary (In Guatemala, the lawyer is also the notary public) prepares the sale agreement and notarizes it by preparing the public deed. There is a scale in the Notary Bill that regulates the fees, but nowadays since the market has driven prices for notary services down, one will likely pay between $800 and $1000 for such a transaction. The notary will be in charge of buying the state stamps for VAT payment if necessary (12% of transaction value), and adhere the stamps to the Public Deed; it is safer to the buyer to process VAT payment directly in cash. The documentation shall include: -Property Title issued by the Real Estate Office (advisable) -Actualized Certificate of the property issued by the Property Registry (Obtained in step 1) -Photocopy of the ID of seller and buyer (pasport or local ID). In case the seller/buyer is a Company, photocopy of the appointment in which the Company gives sufficient faculties to proceed with the transfer of property. In some cases, a Board of Director resolution may be required -Invoice issued by the seller or Form in which the Tax Authorities certified that the consumption tax (VAT that is 12% of the value of the transaction) is paid; 66 Nevertheless, the sale agreement must be formalized with the public deed -Cadastral value (Obtained in step 2) Procedure 4 Public deed is delivered to the Property Registry for its recording Time to complete: 8 - 12 days Cost to complete: Q.160.00 + 0.15% of transaction value (registration fee­already paid to notary) Comment: The public deed is delivered to the Property Registry for its recording under the name of the buyer. It is also advisable to obtain a certificate at the Property Registry to verify that the change of ownership is properly recorded. The internal procedures conducted by the Property Registry are as follows: 1. Departamento de Reparto ­all incoming cases are assigned to the officials (operadores), whose salaries are based on a percentage of the fees. Since 2005, an electronic system is fully implemented to assign cases based on current workload (1 business day). 2. The official registers the property electronically; and issues the case file (expediente) 3. Departamento de Revision (legal assessors) reviews and approves the transaction 4. Accounting department verifies the payment of fees 5. Departamento de Firma Electronica: Registrar or auxiliary registrars (14 full-time and 5 part-time) sign the registration certificate. As of Decree 42-2006, electronic signatures from auxiliary registrars are legally valid. Each one is assigned a unique number by which they can electronically sign, facilitating the registration process. 6. Departamento de Archivo ­updates the information in the system 7. Certificate is signed. Procedure 5 Notify the Municipality and/or DICABI of the transaction Time to complete: 10 days Cost to complete: Q. 10 (If Municipality file is updated, then no cost.) Comment: Notification to the Municipality and/or DICABI of the transaction. Sometimes this information is not updated, so in order to register the transaction it is mandatory to update prior information. This step is important to update the cadastral value of the property for the purpose of tax collection. There is a small fine if this procedure is not fulfilled, but it has no effect on the validity of the title obtained in the previous step. In the future it will also be necessary to obtain cadastral certificates of the property in order to comply with the recently approved DECRETO No. 41-2005 (LEY DE REGISTRO DE INFORMACION CATASTRAL). The cadastral certificate is a document issued by the Registrar of the Cadastral Information which contains the cadastral information of a determined piece of land. 67 Getting Credit in Guatemala The following table summarize legal rights of borrowers and lenders, and the availability and legal framework of credit registries in Guatemala. Getting Credit Indicators (2007) Indicator Private credit Public credit Private bureau coverage (% adults) 5 bureau registry Are data on both firms and individuals distributed? Yes Yes 1 Are both positive and negative data distributed? Yes Yes 1 Does the registry distribute credit information from retailers, trade creditors or Yes No 1 utility companies as well as financial institutions? Are more than 2 years of historical credit information distributed? Yes Yes 1 Is data on all loans below 1% of income per capita distributed? Yes Yes 1 Is it guaranteed by law that borrowers can inspect their data in the largest No No 0 credit registry? Coverage 13.1 20.7 Number of individuals .. 1,504,680 Number of firms .. 15,764 Legal Rights Index 3 Does the law allow all natural and legal persons to be party to collateral agreements? Yes Does the law allow for general descriptions of assets, so that all types of assets can be used as collateral? No Does the law allow for general descriptions of debt, so that all types of obligations can be secured? No Does a unified registry exist for all security rights in movable property? No Do secured creditors have absolute priority to their collateral outside bankruptcy procedures? Yes Do secured creditors have absolute priority to their collateral in bankruptcy procedures? No During reorganization, are secured creditors' claims exempt from an automatic stay on enforcement? Yes During reorganization, is management's control of the company's assets suspended? No Does the law authorize parties to agree on out of court enforcement? No May parties have recourse to out of court enforcement without restrictions? No 68 Protecting Investors in Guatemala The table below provides a full breakdown of how the disclosure, director liability, and shareholder suits indexes are calculated in Guatemala. Protecting Investors Data (2007) Indicator Disclosure Index 3 What corporate body provides legally sufficient approval for the transaction? (0-3; see notes) 0 Immediate disclosure to the public and/or shareholders (0-2; see notes) 0 Disclosures in published periodic filings (0-2; see notes) 1 Disclosures by Mr. James to board of directors (0-2; see notes) 2 Requirement that an external body review the transaction before it takes place (0=no, 1=yes) 0 Director Liability Index 3 Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to 1 the company. (0-2; see notes) Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) liable for for 0 damage to the company. (0-2; see notes) Whether a court can void the transaction upon a successful claim by a shareholder plaintiff (0-2; see 0 notes) Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the 1 shareholder plaintiff (0=no, 1=yes) Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 shareholder plaintiff (0=no, 1=yes) Whether fines and imprisonment can be applied against Mr. James (0=no, 1=yes) 0 Shareholder plaintiff's ability to sue directly or derivatively for damage the transaction causes to the 1 company (0-1; see notes) Shareholder Suits Index 6 Documents available to the plaintiff from the defendant and witnesses during trial (0-4; see notes) 4 Ability of plaintiffs to directly question the defendant and witnesses during trial (0-2; see notes) 1 Plaintiff can request categories of documents from the defendant without identifying specific ones (0=no, 0 1=yes) Shareholders owning 10% or less of Buyer's shares can request an inspector investigate the transaction 0 (0=no, 1=yes) Level of proof required for civil suits is lower than that for criminal cases (0=no, 1=yes) 0 Shareholders owning 10% or less of Buyer's shares can inspect transaction documents before filing suit 1 (0=no, 1=yes) 69 Investor Protection Index 4.0 Notes: Extent of Disclosure Index What corporate body provides legally sufficient approval for the transaction? 0=CEO or managing director alone; 1=shareholders or board of directors vote and Mr. James can vote; 2=board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote Immediate disclosure to the public and/or shareholders 0=none; 1=disclosure on the transaction only; 2=disclosure on the transaction and Mr. James' conflict of interest Disclosures in published periodic filings 0=none; 1=disclosure on the transaction only; 2=disclosure on the transaction and Mr. James' conflict of interest Disclosures by Mr. James to board of directors 0=none; 1=existence of a conflict without any specifics; 2= full disclosure of all material facts Director Liability Index Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to the company 0= Mr. James is not liable or liable only if he acted fraudulently or in bad faith; 1= Mr. James is liable if he influenced the approval or was negligent; 2= Mr. James is liable if the transaction was unfair, oppressive or prejudicial to minority shareholders Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) liable for for damage to the company 0=members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1=liable for negligence in the approval of the transaction; 2=liable if the transaction is unfair, oppressive, or prejudicial to minority shareholders Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0=rescission is unavailable or available only in case of Seller's fraud or bad faith; 1=available when the transaction is oppressive or prejudicial to minority shareholders; 2=available when the transaction is unfair or entails a conflict of interest Shareholder plaintiffs' ability to sue directly or derivatively for damage the transaction causes to the company 0=not available; 1=direct or derivative suit available for shareholders holding 10% of share capital or less Shareholder Suits Index Documents available to the plaintiff from the defendant and witnesses during trail Score 1 each for (1) information that the defendant has indicated he intends to rely on for his defense; (2) information that directly proves specific facts in the plaintiff's claim; (3) any information that is relevant to the subject matter of the claim; and (4) any information that may lead to the discovery of relevant information. Ability of plaintiffs to directly question the defendant and witnesses during trial 0=no; 1=yes, with prior approval by the court of the questions posed; 2=yes, without prior approval 70 Paying Taxes in Guatemala The table below addresses the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year in Guatemala, as well as measures of administrative burden in paying taxes. Tax or mandatory Payments Notes on Time Statutory tax Tax Totaltax rate Notes on contribution (number) Payments (hours) rate base (% profit) TTR Value added tax (VAT) 12 156 12.0% value added not included and land sale Advertising tax 1 0.5% advertising 0.01 expenses Tax on interest 1 10.0% interest 0.26 income Property tax 4 0.9% property 0.45 value Capital gains tax 1 31.0% capital gain 2.63 Social security 12 144 12.7% gross 14.29 contributions salaries Corporate income tax 4 44 31% (5%) taxable 18.36 included in profits other taxes (turnover) Extraordinary and 4 1% and turnover 19.89 temporary tax -IETAAP 1.25% Tax Totals 39 344 37.5 Notes: a) data not collected b) VAT is not included in the total tax rate because it is a tax levied on consumers c) very small amount d) included in other taxes e) Withheld tax f) electronic filling available g) paid jointly with another tax Name of taxes have been standardized. For instance income tax, profit tax, tax on company's income are all named corporate income tax in this table. When there is more than one statutory tax rate, the one applicable to TaxpayerCo is reported. The hours for VAT include all the VAT and sales taxes applicable. The hours for Social Security include all the hours for labor taxes and mandatory contributions in general. 71 Trading Across Borders in Guatemala These tables list the procedures necessary to import and exports a standardized cargo of goods in Guatemala. The documents required to export and import the goods are also shown. Nature of Export Procedures (2007) Duration (days) US$ Cost Documents preparation 12 242 Customs clearance and technical control 2 75 Ports and terminal handling 2 250 Inland transportation and handling 3 485 Totals 19 1052 Nature of Import Procedures (2007) Duration (days) US$ Cost Documents preparation 11 242 Customs clearance and technical control 2 75 Ports and terminal handling 3 300 Inland transportation and handling 2 560 Totals 18 1177 Export Bill of lading Certificate of origin Commercial invoice Consular invoice Customs export declaration Export license Foreign exchange authorization Inspection report Packing list Technical standard/health certificate Terminal handling receipts Import Bill of lading Certificate of origin 72 Commercial invoice Consular invoice Customs import declaration Foreign exchange authorization Import license Inspection report Packing list Technical standard/health certificate Terminal handling receipts 73 Enforcing Contracts in Guatemala This topic looks at the efficiency of contract enforcement in Guatemala. Nature of Procedure (2007) Indicator Procedures (number) 28.00 Duration (days) 1,459.00 Filing and service 66.0 Trial and judgment 796.0 Enforcement of judgment 597.0 Cost (% of claim)* 26.50 Attorney cost (% of claim) 15.0 Court cost (% of claim) 11.5 Enforcement Cost (% of claim) 0.0 Court information: Guatemala City First Instance("Juzgado de Primera Instancia Civil") www.oj.gob.gt Civil Court * Claim assumed to be equivalent to 200% of income per capita. 74