Guatemala is an upper-middle-income country in the Central American region. It is geostrategically located to the south of Mexico and acts as a commercial link between South American and North America.
Predominantly an agrarian economy, Guatemala also has a proven infrastructure for the growth of the manufacturing and service sectors and a national GDP of USD 75.6 billion. It makes it a favorable proposition for international business.
Any non-resident entrepreneur looking to bring legal recognition to their self-employed activities or engage in commercial activities without getting into much legal hassle can set up a sole proprietorship in Guatemala.
To register a sole proprietorship in Guatemala, you need a tax identification number (Número de Identificación Tributaria, NIT), a local bank account, an entry in the Guatemala Mercantile Registry, and verified physical space (if necessary).
Continue reading this page to learn more about registering a sole proprietorship in Guatemala and the benefits of switching to contemporary global business solutions.
Do you Have to Register Your Sole Proprietorship in Guatemala?
A sole proprietorship puts unlimited risk liability on the business owner. As a sole proprietor, there is no legal difference between you and your business in Guatemala, i.e., all profits & losses are borne by the owner.
Guatemala recognizes sole proprietorship under its national Company Act as a sole trader or an individual trader (comerciante individual). Entrepreneurs, contractors, or even freelancers who wish to register self-employed activity in the form of a company with a legal personality may set up a sole proprietorship in Guatemala.
To invest in Guatemala, any legally established foreign business must create or acquire a local commercial entity or open a branch. Depending on the different needs of investors, companies can organize a business as a sole proprietorship, company, partnership, or corporation. However, you must register your business with the concerned authorities.
Incorporating a sole proprietorship in Guatemala requires creating a local commercial entity through formalization before a Guatemalan Notary, followed by online registration on the government website.
The following sections elaborate more on the benefits & registration of sole proprietorship in Guatemala.
Benefits of Sole Proprietorship in Guatemala
Sole proprietorships are the most straightforward business structures. A registered sole proprietorship in Guatemala can employ staff and withdraw payroll taxes.
Here are more specific benefits of starting a sole proprietorship in Guatemala.
Easy access to the international market
- Guatemala belongs to several free trade agreements with major economies like the United States, Mexico, the EU, the UK, Chile, Taiwan, El Salvador, Honduras, and Colombia.
- Guatemala has good internal accessibility too. Small ports offer convenient transport links to easily distribute manufactured and agricultural products.
Minimum tax obligations
- Resident & non-resident sole traders are subject to income tax on Guatemalan-sourced income. Foreign-sourced income is not taxed.
- It is sufficient for registered proprietors below a threshold income of Q30.000.00 (US$3,896.10) to pay progressive income tax between 5% to 7% as sole proprietorship taxes in Guatemala.
Younger skilled demography
- The median age of Guatemala’s population is about 23 years.
- It has an economically active population of 6.7 million.
- In the context of significant investment & growth in services and tech sectors, Guatemala has a rich talent pool of young skilled workers.
Documents Required for Registering Your Business in Guatemala
The documents required for setting up a sole proprietorship in Guatemala are as follows:
Company documents
Here is a list of documents required by the Mercantile Registry in Guatemala to begin your registration for a sole proprietorship
- A locally notarized company agreement & articles of incorporation
- A power of attorney and legal representation information, if any
- Latest certified copies of the company owner’s financial statements
- A declaration that the entity recognizes the jurisdiction of the courts and laws of Guatemala concerning its activities and operations in the country
- A declaration that the company representatives will not seek special rights as foreigners
Temporary residence for investors
- Any foreigner can start a sole proprietorship in Guatemala after receiving a valid work permit.
- Identity documents like a passport, photograph, etc., usually require proof of financial stability and a police verification certificate from the home country.
- Applicants must present documentary evidence that the investment is higher than USD 100,000.
Tax identification number
- The tax identification number for any sole proprietorship is its owner’s Número de Identificación Tributaria (NIT).
- The tax identification number is mandatory for opening a corporate bank account, payment invoicing, filing tax returns as separate entities, tax payments, and managing payroll.
Other Criteria for Registering a Sole Proprietorship in Guatemala
Foreign investors may incorporate wholly owned unlimited liability entities like a sole proprietorship in Guatemala without special requirements or restrictions concerning local partners.
Certain restrictions apply to certain activities, such as owning property along the country’s borders or operating TV and satellite broadcasting by foreigners.
Usually, countries do not impose minimum capital requirements for the incorporation of a sole proprietorship. The minimum capital to establish a local entity in Guatemala can be USD 25.00 or Q.200.00
How to Register a Sole Proprietorship Firm in Guatemala
Follow the below steps to set up a sole proprietorship in Guatemala:
Step 1: Do your research
- In Guatemala, entrepreneurs, contractors, or even freelancers can register self-employed activities as legal entities.
- The easiest option per the Guatemala Companies Act is to register an unlimited liability business – sole trader or individual trade (comerciante individual).
- Now is the right time to choose the name of your business and search for a physical location in Guatemala.
- You may appoint a representative to coordinate registration with the local authorities and help you legally set up a sole proprietorship in Guatemala.
Step 2: Obtain tax identification number
- The Superintendencia de Administración Tributaria (SAT) assigns a unique tax identification number to every company or individual in Guatemala.
- The personal tax identification number or Número de Identificación Tributaria (NIT) will act as proof of incorporation of your sole proprietorship in Guatemala.
Step 3: Applying to the Guatemala Mercantile Registry
- You must fill out the application with the Mercantile Registry before starting operations of your sole proprietorship.
- Upon successful registration, the Mercantile Registry issues a Commercial Patent or ‘Patente de Comercio’.
- This document is proof to pursue commercial activities in Guatemala.
Step 4: Open a corporate bank account
- A separate bank account for a sole proprietorship in Guatemala is desirable to efficiently manage finances and tax filings.
- Documents required to open a sole proprietorship bank account may vary between internal bank policies. However, keeping business registration and tax identity certificates ready is a universal practice before applying for a new corporate bank account.
- Choose a bank based on international transaction fees, interest rates on financing, and convenience of access.
Step 5: Plan for hiring & managing employees
- Employers need a strategy for hiring and compliance with the sole proprietorship Guatemalan law.
- Guatemalan employers must account for a social security tax of 12.67%. Employee contribution to social security tax is 4.83% of their wages.
- You can develop an in-house team of human resource (HR) experts or follow standard templates to draft employment contracts, conduct background checks, manage payroll, and ensure compliance with the labor code in Guatemala.
What if an alternate way allows you to skip registration for sole proprietorship yet conduct business activities legally in Guatemala?
Fortunately, there is Multiplier.
How can Multiplier Help You Carry Out Business in Guatemala?
Guatemala’s economic reform agenda promises free trade, transparency, and a reduction in red tape, but navigating the business environment can be difficult.
While a sole proprietorship offers the most straightforward legal entity to recognize self-employed activities, sole proprietorship taxes in Guatemala and other legal liabilities are directly linked to the owners. Further, hiring employees, payroll management, and team management will require significant investment in time and effort.
The most recommended alternative for new-age entrepreneurs and global businesses is looking beyond setting up a sole proprietorship and adopting innovative Employer Of Record (EOR) solutions like Multiplier.
Multiplier is a global employment solution designed exclusively for sole proprietors looking to expand globally. It offers reliable EOR solutions to manage recruits, onboard employees, and undertake HR responsibilities in Guatemala.
The highlight among EOR services is that one-click payroll processing can make seamless payments to your international employees and freelancers. You can manage any legal entity with 100% compliance with the Guatemala business rules and regulations with Multiplier!