GUATEMALAN FREE TRADE ZONES

UNCLAS GUATEMALA 000942

SIPDIS

USDOC FOR 5102/FOREIGN TRADE ZONES (ITA/IA)

E.O. 12958: N/A
TAGS: ETRD ECON GT
SUBJECT: GUATEMALAN FREE TRADE ZONES

REF: STATE 72748

Below are Post's responses to questions regarding the Free
Trade Zones (FTZs) Program in Guatemala. Answers are keyed
to match questions in reftel and are based on Decree 65-89,
Law of Free Trade Zones. Post also consulted experts on
FTZs issues at the Ministry of Economy and the Customs
Administration for clarification.

a. According to the Ministry of Economy, there are 20
authorized FTZs currently, but only 14 with operations.
FTZs may be established in any region of the country.

b. Private FTZs are managed by private administrative
agencies, which require authorization from the Ministry of
Economy to install and develop FTZs. FTZs are provided
special customs benefits under the supervision of the
Guatemalan customs authorities.

c. Businesses operating within FTZs require authorization
from the Ministry of Economy to operate, but the process is
done only once and not for each manufacturing activity. If
all the requirements are met, the process of obtaining
approval from the Ministry may take about three weeks.

d. There are three types of Free Trade Zones' users:
industrial, commercial and service permit holders.
Industrial permit holders can assemble or manufacture
products in the zone for export or re-export, and they can
use both foreign and domestic inputs. According to the Law
of Free Trade Zones, industrial permit holders may sell to
the domestic market a maximum of 20 percent of their total
production, but require previous authorization from the
Ministry of Economy. In such cases, the value of each sale
should not be lower than US$5,000 and should have only one
consignee in the national customs territory. Commercial
permit holders do not transform goods. They often use FTZs
for wholesale distribution of imported goods to the five
economies of the Central American Common Market. Service
permit holders are often firms engaged in washing and
treating fabric and apparel for the apparel maquila
industry.

e. Industrial permit holders, as well as service permit
holders, authorized to operate in Free Trade Zones are
exempted from duties and import taxes on equipment,
machinery, tools, raw materials, inputs, semi-elaborated
products, containers, packaging and are exempted from the
value added tax in the transfer of merchandise within and
between Free Trade Zones. Manufactured merchandise that
leaves the zone to be sold in the domestic market must pay
duties. According to the Customs Administration office
responsible for FTZs issues, the manufacturer must pay
duties at the rate that applies to the finished product,
and duties are paid on the entire value of the product.

f. There are no special provisions for small and medium
businesses or for new foreign direct investment operating
within Free Trade Zones.

g. Industrial and service permit holders also enjoy a ten-
year income tax exemption on income obtained exclusively
from the activity as an industrial permit holder.
Commercial permit holders enjoy a five-year income tax
exemption on income obtained exclusively from the activity.

h. There are no other financial incentives for business
operating in Free Trade Zones

i. There are no other exemptions contained in other laws or
regulations.

j. There are no other restrictions or requirements, such as
export requirements (other than for industrial permit
holders, as explained above), local content requirements,
or ownership requirements for businesses operating within
Free Trade Zones.