UK – CENTRAL AMERICAGetting the right legal
advice
Regional Generalities
Geographic Region: 571.202 km21
Population: 54.16 millions of
inhabitants.
Nominal GDP :$ 244,053millions
1. Including: Belize, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama and the Dominican Republic
Competitive advantages of the Region
Open Markets Solid Banking Systems Quality of Local Providers Transfer of technologies and FDI Availability of Financial Services Quality of airport infrastructure Regulations that favor Foreign
Investment
Source: Global Competitivity Report 2013-2014, WEF
Basic Indicators of the Region
INDICATORSBelize Guatemal
aEl
SalvadorHondura
sNicaragu
aCosta Rica
Panamaa
Dominican Republic Totals
and %
GDP at current prices (US$ millions)
1,493 49,895.9 23,844.2 17,968.8 10,517.6 45,127.3 36,252.5 59,945.00 244,053
GDP growth (constant
prices in %)
5.3% (app. by
2012)3,2% 1.3% 3.5% 5.20% 5.1% 10.7% 3.90% 4.77%
GDP per capita (in
US$)
8,700 (app. by
2012)3,315.34 3,796.85 2,268.79 1,758.80 9,421.15 10,126.4 5,802.62 5,648.74
Total Population (millions of inhabitants)
0.34(app. by
July 2013)
15.05 6,28 7,92 5,98 4,79 3.58 10.16 54.16
Labor Force (millions of
persons)0.12 5.03 3.23 4.05 2.54 2.41 1.74 4.54 23.66
Foreign Direct Investment
(US$ millions)
194.2(app. by 2012)
1,063.9 257.6 1,058.7 858.8 2,200 2,822.9 3,771.10 12,227.2
Foreign Debt (US$ millions)
1,017.8 (app. by
2012)6,308.9 8,050.3 3,646.8 4,289.4 5.569 10,751.2 13.89 52,503.0
0Source: “Indicators”, Strategy & Business Magazine, Edition No. 165, September-October , 2013World Bank : www. worldbank.orgWorld Factbook 2012 : www.cia.govCEPAL :http://www.eclac.cl/ Central Bank of Belize: www.centralbank.org.bz
Indicators
(Amounts in US$
millions)
Belize Guatemala
El Salvad
or
Honduras
Nicaragua
Costa Rica
Panama
DominicanRepublic
TOTAL C.A.
Foreign CIF Imports 468.6 11,247.5 7,573.7 6,784.9 4,080.7 13,055.
6 9,595.3 17,761.0 70,567.3
Foreign FOB
Exports290.48 5,340.3 3,354.6 3,032.7 1,872.5 8,515.4 660.8 9,069.1 32,126.88
Trade Balance 178.15 5,907.2 4,219.1 3,752.2 2,208.2 4,540.2 8,934.5 8,691.9 38,431.45
Exports within the
Region- 2,038.1 1,618.5 741.0 394.6 1547.9 66.3 - 6,406.3
Imports within the
Region- 1,641.9 1,459.6 1,579.3 951.2 864.8 694.8 - 7,191.6
Economy of the Region
Source: Central American Foreign Trade. January- September Report, 2013. Statistics Office, Central American Economic Integration System (SIECA)Note: Trade of Goods. Does not include inward processing arrangements or assembly plants. Data updated to January 2014Central Bank of Belize: www.centralbank.org.bz Data from the Visible Trade Table. Data from July to September 2013.Central Bank of the Domincan Republic: www.bancentral.gov.do Payments Balance Table 1993-2012
Legal Framework for Investment and Trade in
Central America
Legal Systems
Based on the analysis of judicial resolutions by Courts of equal or higher hierarchy as well as the interpretations of laws that these Courts issue.
Jurisprudence is the main source of Law.
A solution applicable to the case derives from the already created legal rules.
The main source of Law is created by the Legislative Branch of the Government. Jurisprudence only plays a secondary role.
The interpretation of a rule applied in a particular resolution is only obligatory for Courts of lower hierarchy.
Legal norms, which are generic, derive from the law and are applied by Courts in a case by case basis.
“Common Law System”“Continental System”
Getting the Right Legal Advice
Small local firms
Regional Firms
Regional Networks
Cooperation Agreements
General framework for the Investor
INCENTIVES AND CONSTITUTIONAL
GUARANTEES
BEL GUA ES HON NIC CR PAN DR
Right to private property X X X X X X X X
Free distribution of profits and equity X X X X X X X X
Free currency conversion X X X X X X X X
Inverstment is not subject to a financial minimum or cap X X X* X X X X X
Foreigners may be Shareholders at local entities
X X X X X X X X
Constitutional Guarantee: equal treatment for local or foreign investments
X X X X X X X X
No expropriation without prior compensation X X X X X X X X
Free Access to bank credits X X X X X X X X
Fiscal benefits for Free Zone and other special regimes X X X X X X X X
Protection to trademarks and patents X X X X X X X X
Free imports and exports X X X X X X X X
*A mínimum of US$12,000.00 of initial investment capital is required but it is only applicable to Branches.
CORPORATE STRUCTURES
Belize Guatemala
El Salvador
Honduras Nicaragua
Costa Rica
Panama Dominican Republic
Corporations Closely held corporations
Partnerships Limited Liability
partnership
Foreign Entities
Individual Corporations
Corporate Structures in the Region
Agreements: Public and Private Documents
It is granted before a public officer or a public notary
It is always formal It entails authenticity: its autor is
deemed to be certain, authorized by law and granted credibility.
Public instruments are erga omnes evidence of the act granted and its date.
Some transactions must be done thru public document.
PUBLIC DOCUMENT PRIVATE DOCUMENT
It does not require special formalities
It does not give faith on its own, its author must acknowledge it or the judge may consider it recognized
Third parties are not bound to acknowledge their existance but until an irrefutable fact takes place
Taxation in the RegionTAX
Belize Guatemala El Salvador Honduras
Value Added Tax (VAT)
General Sales Tax: 12.5% 12% 13%
Executive Class 15% and 18% applicable to alcoholic
beverages, tobacco and airfare
Transfer of assets Rendering of
services Imports Import Taxes (0-15%)
plus VAT Use or consumption
of merchandise
Income Tax from Work Activities
General Rate: 25% (variable taxable
amount)
Q. 0.01 a 300,000.00 5% and 7% for
(US$38,309.28 or more)
$ 4,064.01 or more:From 10% to 30%
($22,857.15 or more)
L.500,000.00 or more: 25% (US$25,455.78 or more)
Income Tax from Economic Activities
General Rate: 25%The first $10,000 of annual income: non
taxable
Profit from Lucrative Activities: 28%
Simplified Optional Regime: from 5% to
7%
Less than US$150,000: 25%
US$150,000 or more: 30%
L 500,000 or more: 25%. (US$25,455.78 or more):
25% + 5% Temporal Contribution
Income Tax on Capital Gains or
Losses---
Movable assets and real estate:10% Gains
and Profits: 5% Capital Gains: 10% Ganancias de Capital: 10%
Customs (VAT, Selective Consumption Tax, Import Taxes, Central American Integration System, Rate
for Services of Importation of Merchandise amongst
others)
0%-70%(different % depending
on the type of merchandise)
0%-15%0% and 40%.
(different % depending on the type of merchandise)
0%- 40%(different % depending on the type of merchandise)
5%-20% (different % depending on the type of merchandise)
Official Exchange Rate of the Central Bank of each country for January 20, 2014
TAXNicaragua Costa Rica Panama Dominican Rep.
Value Added Tax (VAT) 15% Sales Tax: 13% ITBMS: 7% ITBIS: 18% (2013-2014)
Transfer of assets Rendering of
Services Imports
Use or consumption of merchandise
Income Tax from Work Activities
Progressive: 15%-30% C$ 500,000.00 or more 30% (US$19,685.35 or
more)
¢1.128.000 or more: 15%
(US$2,215.15 or more)
Income Tax from Economic Activities
C$ 500,000.00 or more: 30% (US$19,685.35 or
more)
Entities: ¢100.513.000 or more: 30% (US
$197,386.19 or more)Entities: B/.1,500,000.00
or more: 25%Entities: 29% on its taxable net income
Individuals: ¢16.667.000 or more: 25% (US
$32,730.45 or more)
Individuals: Progressive from 0%-25%
B/. 50,000.00 or more shall pay B/.5,850.00 for the first B/.50,000.00 and
a rate of 25% on the excess of B/.50,000.00
Individuals: Progressive from 0%25%
(RDS833,171.01 or more: 25%)
Income Tax on Capital Gains or
LossesMovable and Real Estate:
10% --- Capital Gains: 10% Capital Gains: 25%
Customs (VAT, Selective Consumption Tax, Import Taxes, Central American
Integration System, Rate for Services of Importation of
Merchandise amongst others)
0%-40%(different % depending
on the type of merchandise)
1%-15% (different % depending
on the type of merchandise)
8%-30% (different % depending
on the type of merchandise)
0%-40% (different % depending
on the type of merchandise)
Taxation in the Region
Labor Aspects in C.A.COUNTRY Younge
st AgeMain
Agreements -ILO
Working Day
Minimum wage Social duties
Belize
14 years Ratified and in force
Not more than 9hrs daily.
Not more than 45hrs weekly
Agricultural: $3.30 p/hr
Non Agricultural: $3.30 p/hr
Commerce and Household: $3.30 p/hr
Employer: 20.08% Employee: 11,92%(wages of $300 or
more weekly)
Guatemala
14 years Ratified and in force
8 hrs. (day shift)
6 hrs. (night shift)
Agricultural: $307Non Agricultural:$307
Manufacture: $285Employer: 10.67%Employee4.83%
El Salvador
14 years Ratified and in force
8 hrs. (day shift)
6 hrs. (night shift)
Agricultural: $113.70Manufacture: $202.80
Industry: $237Commerce and
Services: $242.40
Employer: 7.50% Employee: 3%
Honduras
14 years Ratified and in force
8 hrs. (day shift)
6 hrs. (night shift)
Agricultural $273Textile manufacture:
$386Services: $397
Employer: 7%Employee: 3.5%
COUNTRY Youngest Age
Main Agreements -
ILOWorking
DayMinimum
wage Social Duties
Nicaragua14 years Ratified and in
force
8 hrs. (day shift)
7 hrs. (night shift)
Industry: $109Agricultural: $101Manufacture: $137
Services: $143
Employer:17%Employee: 6.25%
Costa Rica
15 years Ratified and in force
8 hrs. (day shift)
6 hrs. (night shift)
Qualified E.: $536.67 Un-qualifed E:
$465.11 Higher Education
technician: $794.02 University Graduate:
$972.69 University Degree:
$1,167.27
Employer: 26,17%Employee: 9.17%
Panama 15 years Ratified and in
force
8hrs. (day shift)7hrs. (night
shift)Zone 1: $624Zone 2: $490
Employer: 12.5%Employee: 9.5%
Dominican Rep.
14 years Ratified and in force
Not more than 8hrs daily
Not more than 44hrs weekly
Qualified E.: $1,098Semi-qualified E.:
$439Un-qualified E.: $145
Employer: 15.19%Employee: 5.91%
Labor Aspects in C.A.
Incentives and Tax Benefits for particular Economic Activities
ACTIVITY TAX BENEFITS
ENERGY
Tax for the importation of machinery and generation equipment.
VAT for 10 years Customs
Import Taxes for 5 to10
years
Customs Import Taxes
and VATX
100% Customs
Import Taxes
Income Tax X10 years
X5 to 10 years X X
10 years
Other taxes (Temporal Solidarity Contribution Tax on the net active value; Capital Gains, Municipal taxes)
AST, IVAN, IGC for 10
years
Municipal Tax for 10 years.Hydroelectric Projects with wáter permits for 10 years
75% of the investment
cost on equipment as credit against
income tax
TOURISM
Tax on the transfer of real estate or Real Estate Tax
--- X X X for 10 years
X 10 years
X20 years x
Import tax (on vehicles and others) X
X (20 vehicles a year max)
X x
Income Tax or Value Added Tax
From 80% to 100% for 10
years 15 years 15 years x
Sales Tax (except in the case of initial investment)
X for 6 years
ACTIVITY TAX BENEFITS
TELE-COMMUNICATION
SMovile and conventional phone Operators
15% of the taxes charged
by the Municipality
Concession request for 30
years
X No license for
foreign entities in the
case of TV and
broadcasting
Special Contribution
between 1.5% and 3% on
gross income obtained in
the operation of public networks
Local customs duties and others that levy the importation of equipment
100 % exemption
FORESTRY
Exemptions and Tax Subsidies
Depending on Number of
Has. 5 years---
Minimum Plantation of
15Has.
5 years after the beginning of operations
For 25 years
20 years after the
beginning of
operations
Income tax payment / Incentives
To establish energy plants
Deduction of 100% for
reforastation
Income from the sale of plantation products
Income tax, importation
of equipment, dividends
X
Other taxes ---- ---Import tax, Sales and
aquisition of equipment
50% of the Municipal Sales Tax
Uncultured land ---
Incentives and Tax Benefits for particular Economic Activities
ACTIVITY TAX BENEFITS
FREE ZONE
Import taxes xX
100% DA and importation of
machineryX X
100 % exempted,
including vehiclesX 100%
exempted
Income Tax or Value Added Tax
X (20 years) X X
X (up to a
maximum of 12 years)
X (100 % the first 10 years
and 60% after year 11)
Manufacturers that export more than 75% of the production: 100% exemption for entities during the first 8 years and 50% during the following 4 years. 10% of credit against income tax as well as the deferral of payment for up to 10 years provided that the Head Office does not receive dividends
X x
Real Estate taxes X X X X (For 10 years)
100 % exemption
Other taxesPerpetual
exemption of taxes on dividends
Tax for the rendering of
services (13%)
Consular dutiesLocal or
municipal taxes on purchases
Taxes on profits (conditions)
Taxes on dividends and profits
100 % Municipal
Tax on exportation and re-exportation
Tax on the transfer of industrialized assets (ITBIS).
Exemption of the tax on the formation of the entity and capital increase.
Incentives and Tax Benefits for particular Economic Activities
INDICATORS 2011-2012
Belize Guatemala
El Salvador Honduras Nicaragua Costa Rica Panama Domin. Rep Totals
and %
No. of Free Zones and
Entities (ent.)- 24 FZ
270 Ent.16 FZ
200 Ent. - 35 FZ 696 Ent. 256 Ent. 14 FZ
94 Ent.
At Zona Colón 2,960 Ent.
51 FZ586 Ent.
165FZ1665,06
Ent.
Free Zone FDI (US$ millIions) - 251 - 688 67 470 5 386 2,098 3,965
Free Zone Exports (US$
millions)
119.2Sept
2013)350 2,238 - 1,200 4,833 70 11 4,080 12,782
Employment at Free Zones 17,000 70,321 120,000 99,506 58,012 2,729 30,000 121,000 518,568
MAIN SECTORS
Mariculture XManufacture
(textiles, shoes, etc.)
X X X X X X X X*Tobacco
Electronic devices X X X X
Pharmaceutical Products X X X
Agro-industry X X XMedical
Equipment X
Services by Third Parties X X X X X
Commercialization X X
Free Zones: Special Regime
Source: SELA (2012) Influence of Free Zones in the diversity of production and the participation of countries in Latin America and the Caribbean. Table 7: Prepared by Araujo Ibarra y Asociados.
Migratory Simplicity for Investors
Country
Migratory Category Documentation
Minimum Capital
(General or Sectors)
Other requirements
BEL Members of the EU do not need a visa.
Foreign Investor
PassportBirth CertificateMarriage and/or divorce certificatePhoto ID
US$ 50,000,00Register at the Income Tax Department and the Social Security Board.
GUA Temporal Resident/ Permanent ResidentVisa for persons with independent icome (rentistas)
Passport and certificate of validity Birth Certificate Criminal Record – Passport and certificate of validity; In the case of visas for persons with independent income: the type of investment must be justified.
Minimum income for persons with
independent inome
US$1,000.00
Bank statements that reflect the deposit of monies from abroad
ES
Temporal Resident/ Permanent Resident
Passport Health Certificate (issued by a Salvadorian doctor) Criminal Record (from the country of origin) Police Record (Salvadorian) Tax Identification Document Verify that the Direct Investment is registered at the National Office of Investments (ONI)
Higher than 4,000 minimum
wages in force at the date of
request.
Corporate documents duly registered at the Mercantile Registry / Investment doument.
Documentation to evidence that the entity is operating.
HON
Investing Resident
PassportPolice Record duly apostilled.Photos (3)Migratory movements, Medical Certificate and Criminal Record from Honduras.
US$50,000.00
Feasibility StudyProposed Schedule including the investment amount. Deposit of a guarantee of US$5,000.00 and Registration Certificate at the Investors Registry at SIC.
Migratory Simplicity for Investors
Country
Migratory Category Documentation Minimum Capital
(General or Sectors) Other Requirements
NIC
Temporal Resident/ Permanent Resident
Passport Birth, Health and Marriage Certificates Criminal Record
US$30,000
Certificate of Registration as Foreign Investment at MIFIC, Legalized copy of the corporate documents and the authorization to exercise commerce duly registered at the Mercantile Public Registry; copy of the registration before the municipality and the tax authorities.
CR Temporal Investing Resident
Passport, Birth Certificate Criminal RecordsEvidence of fingerprint registry and consular registration
US$200.000.00 in the real estate sector, assets subject to registration, shares, securities, porductive projects or projects of national interest.Forestry: US$100,000.00
PAN
Temporal Investing Resident
PoA and residency request Passport photocopy (certified by Notary Public or corresponding authority); Criminal Record;Certified Check for B/.250.00 in favor of the National Treasury; Certified Check for B/.800.00 in favor of the National Migration Service; Health Certificate;Affidavit of personal criminal background.
Forestry: B/.80,000.00Macro-entity: B/.160,000.00Processing Zones for Exportation: B/.250,000.00Agrarian Sector: B/.60,000.00
If an entity: evidence their activities and ownership of shares as well as the amount of owner´s equity.Certificate by an Accountant detailing the total amount invested. Original certificate of the registration of the entity
RD
Investing Resident
Two copies of the complete passportNational Identification Document, Birth CertificateHealth Certificate and Criminal Record Evidence of registration as Foreign Investment
US$200,000.00
Document evidencing the type of business
Residency card if investor resides in another country
Country Free Trade Agreements by Region Bilateral Free Trade
AgreementwsPartial Sope Agreements
Association
Agreements
DR-CAFTA
C.A Common Mark
et
Chile
and C.A
Panama and C.A.
Domin.
Rep. and C.A
C.A Mexico and C.A.
Colombia
Canada
Taiwan
Venezuela and
Colombia
CARICOM
CARIFORUM and the
EU
EU and C.A
Free Trade
http://www.sice.oas.org/agreements_s.asp
Central American Common Market
General Treaty on Central American Economic Integration
Purposes: It establishes a Free Trade regime for all Products of Origin, except for the limitations contained in Annex A of the Treaty.
Benefits:Products of Origin are exempted from: Import and Exports Custom Taxes Consular Duties and other taxes, charges, contributions that derive from the respective importation or exportation.
Criteria to determine Merchandise of Origin: (C.A Regulation on the Origin of Merchandise)
Totally obtained or produced in the territory of 1 or more Parties. Produced in the territory of 1 or more Parties with materials that qualify as being of Origin. Produced in the territory of 1 or more Parties with materials that do not qualify as being of origin but that comply with a change of tariff classification. There are specific considerations when they do not comply with the change of tariff classification.
IT IS OBLIGATORY TO OBTAIN A CERTIFICATE OF ORIGIN OF THE MERCHANDISE
Merchandise of Origin with materials that are not of origin :
It shall be considered as being of Origin provided that the materials that are not of origin and that do not comply with a tariff reclassification do not exceed 10% of the transaction value.
Some exceptions that do not grant the qualification of origin to a merchandise:
Manipulation during transportation and storage aiming conservation Separation of the merchandise in parts Packing, packaging, re-packaging and conditioning for transportation purposes Testing or calibration Assembly of parts Animal sacrification Removal of rust, grease, paint and other covering substances Others
Merchandise of Origin imported within the Parties:
When a merchandise that qualifies as being of Origin of one Party has been imported into the territory of another Party and then exported somewhere else, it shall not affect its condition as of being of Origin.
Association Agreement by and between the EU and C.A
Relevant Aspects of the Association Agreement
Association CouncilShall prepare its Internal Regulation and create the Association Committee which shall be responsible for the general application of the Agreement. May create Sub-committees.
1. Political Dialogue
Scope
Institutional State; good governance; democracy; human rights; promotion and protection of the rights and fundamental liberties of indigenous population.Equality of opportunities and gender: structure and orientation of international cooperation; migration, reduction of poverty and social pressure. Fundamental labor norms; protection to the environment and sustainable procurement of natural resources; Safety and regional stability: fight for citizen safety; fight against corruption; drugs; transnational organized crime; weapon trafficking. Fight against terrorism; prevention and pacific solution of controversies.
Agreements To create a common financial and economic mechanism that includes the participation of the European Ivestment Bank (EIB) and the Investment Mechanism for Latin America (LAIF)
2. Cooperation
ScopeTo strenghten peace and safetyContribute by reinforcing democratic institutions, good governance, eauality of gender, all forms of non discrimination, transparency and citizen participation.
Agreements
Application of international instrumentsCreation and promotion of nacional policies and development plans, statistical cooperationTo promote the protection of personal data, measures of citizen safety and transparencyFight against organized crimePrograms that promote employment and social security; improving the quality of educationDEVELOPMENT of the Knowledge Space LAC EU (Latin America and the Caribbean – European Union) and initiatives such as the Common Space of Higher Education LAC EU
Association Agreement ratified in 2013. The Trade core pillar is in force since August, October and December 2013. The other two core pillars await legislative ratification in the 28 countries of the European Union. Based in 3 independent core pillars:
1. Political Dialogue 2. Cooperation 3. Trade
Association Agreement EU-CA
Main Aspects
Trade Scope
Simplification and modernization of Customs proceduresCompliance with intellectual property rights by Customs authoritiesFree circulation of mercandise and regional integrationCreate mechanisms that reinforce FDI in high technology sectorsStructuring and modernization of transportation and infrastructure located at border cheeckpointsParticipation of micro and medium enterprises (MIPYMEs) in international markets.
Products Preferred treatment: Bananas
Main Challenges of the Region
Simplicity in the commercialization of merchandise that is subject to sanitary and pesticide controls (One import certificate, One sanitary inspection and One Tariff for products from the EU)
Unification of import and export declarations; reimbursement of the fee paid (Customs procedure) Definition of the Central American Competition Regulation
Panama shall adjust its regulations, personnel and infrastructure to allow a larger management of cargo
It establishes a term of 10 years to complete the Central American Customs Union Perfection of a common external fee using the variable geometric principle Achieve an efficient mechanism for the collection, administration and distribution o income derived from importations as well as systems to give back taxes paid in excess Panama shall recognize 224 Geographic Indications in Intellectual Property
Legal Advise
Challenges
Need of regional firms to provide counselingMulticultural attorneys at law
Type of advice
Exportation of Central American goods to the EUImportation of goods from the EUProtection to Intellectual PropertyAdvice in customs issuesInquiries of European Investors about regional laws
Source: Association Agreement between the EU and CA. Reynols Luisa. “ Challenges and opportunities of the Association Agreement” Strategy and Business Magazine. January 2014
¡Thank you!