uk – central america getting the right legal advice

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

http://www.centralbank.org.bz/

http://www.bancentral.gov.do/

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


1%-15% (different % depending






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


8 hrs. (day shift)

6 hrs. (night shift)

Agricultural: $307Non Agricultural:$307

Manufacture: $285Employer: 10.67%Employee4.83%

El Salvador


8 hrs. (day shift)


Agricultural: $113.70Manufacture: $202.80

Industry: $237Commerce and

Services: $242.40

Employer: 7.50% Employee: 3%

Honduras


8 hrs. (day 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)


Industry: $109Agricultural: $101Manufacture: $137

Services: $143

Employer:17%Employee: 6.25%

Costa Rica


8 hrs. (day 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.


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


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 ---



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.


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

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