1. TARIFF SYSTEM

Guatemala, as signatory of the Central American Common Market, applies the Central American Tariff System (SAC), according to the Nomenclature of the Harmonized System.

The levies are fixed on the CIF value of the goods, and since January 1, 1997, Guatemala began with its tariff reduction program, which consists of progressive reductions of valid tariff rights for countries outside the Central American region, which was end on January 1999 with levels of 5%, 10% and 15%. Raw materials and capital goods not produced in Central American enjoy a 0%.

Guatemala offers preferential treatment to members of the Central American Common Market, exempting the products, which originate in it from the payment of custom tariffs.

2. INTERNATIONATIONAL TRADE AGREEMENTS

Guatemala receives preferential tratment for the exportation of a certain kind and quantity to various markets of commercial interest, withouth granting any reciprocity. In that way, it enjoys of unilateral concessions from the following countries or unions:

USA: Caribbean Bowl Initiative (CBI)
European Union: Preferences Generalized System
Mexico: Partial Reach Agreement
Colombia and Venezuela: Partial Reach Agreement

In addition, Guatemala cunrently has a Free Trade Agreement with Panama, in which preferential tariffs and are granted to a reduced number of products.

In September 1996, Guatemala ratified its adhesion to the comitments assumed at the GATT 94 Uruguay Round of Negotiations, for which it is a member of the OMC. Since that date, all the established and negotiated agreements take part of the national legislation, Maximum tariff rates of 45% are established in it, which should be unburdened in the year 2005 at 10%.

The negotiation and suscription to treaties and trade agreements are justified in the Guatemalan Exterior Trade Integrated Policy, as one of the three big areas of it, being the other two the Competivity Development and the Productive Reconversion, which is being implemented with the National Program of Quality, and the other with the Promotion of Exports Investments, with the creation of the Investments Sole window and PROGUAT

Final Negotiations:

Free Trade Aareement with the Dominican Republic:
This treaty is still in the process of approval by the Guatemalan Congress and the Dominican Republic Assembly When approved, immediate free trade between both countries will be obtained, contemplating some exceptions to it. Meaning that, a special treatment to merchandise will be given between the two parts, similar to that granted in the Central American common market.

PARTIAL REACH AGREEMENT WITH CUBA:
This agreement is still pending of approval by the Guatemalan Congress. When it comes into forece, the granting of non-reciprocal tariff preferences between both countries will be obtained, from a reduced list of products, which will be extended every year, through an Agreement Administrative Commission.

Negotiations in Process:

FTA CHILE:
The negotiation is being made by Guatemala along with El Salvador and Honduras (Noth Triangle) - Chile.

The texts of the FTA were suscribed on October 18* at the Central American and Chile Presidential Meeting, which took place in Guatemala city. A program of lowering duties and rules of origin will be negotiated in a new opportunity.

FTA North Triangle - Mexico:
This treaty is still being negotiated, and when coming into forece contemplates diverse forms of lowering duties between both parts, and the completion of rules of origin to enjoy tariff preferences, contemplating also the exclusion of

products considered sensible for both parts. It also includes the promotion of investment.

Partial reach Agreement with Andean Pact:

They change list of products of interest for bouth part and texts of access origin, investment and solution of controversies. Which is thought to be a similar treaty with the one signed with Cuba.

FTA Panama:
Through this treaty, the Panama Republic and the Central American Common Market would be integrating, which is thought to be a similar treaty with the one signed with the Dominican Republic.

Free Trade Areas of the Americas - ALCA - and World Trade Organization OMC-
Guatemala is working hard in the conformation of the ALCA for the hemispherical Free Trade, and in the Free Trade liberalization in the OMC. In this last front, it is done along with the Cairns Group, of which it has been taking part recently.

3. EXPORTS SOLE WINDOW

The exports sole window was created by the Governmental Agreement 790-86 dated October 28, 1986. It is a branch offfice of the Ministry of Economy, which started operating on March 2, 1997.

The Exports sole window counts with a system which as it technicalizes and mechanizes authorization of export licenses, conforms a process of elaborating statistical data, making it fast, timely and easy to obtain. This information includes the products country of destination, quantity, variety, and their price in the International market.

4. FOREIGN INVESTMENT

The Guatemalan Government has opened doors to foreign investment, which in general receives the same treatment and privileges as national investment being liable to the same fiscal legislation. Also, a big advance has been made with the promulgation of the Free Trade Law, decreet 9-98, which encourages and promotes foreign investment, given that it generates employment, assists the development of all productive sectors, and strengthens national investment.

5. LAW OF TRADE AGENTS, DISTRIBUTORS AND REPRESENTATIVES

Decree number 8-98 regulates all which refers to all mercantile Contracts establishing the different norms to make effective the compliance of each of them.

The law of Trade Agents Distributors and representatives makes a classification of trade agents in the following way:

a) Dependent: Those who act to the principal's count, they are part of his company and are bonded to him by a relationship of labor character b) Independent: Those who act by means of their own company, and are bonded to the principal by a mercantile contract.

Establishing that, when any of the parts wished to cancel the contract or labor relationship, and disagreed with the amount of indemnization, he can resolve by the summary or arbitral way

6. FREE TRADE ZONES

Decree 65-89 of the Congress of the Republic promotes and regulates the establishment of Free Trade Zones in Guatemaia, which encourages national develpment through activities carried out in them, particularly in actions aimed to the strengthening of foreign trade, generation of employment, and technology transference.

Free trade zones are physically delimitaded areas, designed and planned, liable to a special customs regimen established by law, in which individual or legal persons can devote indistinctively to the production or commercialization of goods for exportation or reexportation, and to providing services related to international trade. Free trade zones are guarded and controlled by customs authorities.

Free trade zones may be public or private, and will physically separate thf areas in which industrial and service users, and commercial users are located, being able to be established in any regions of the country, according to the legal dispositions in force.

According to the activities they perform, users may be:

a) Industrial: When they take up the production and assembly of goods for exportation outside the national customs tenritory, reexportation or the re search and technological development. b) Of services: When they take up the supply of services related to internE tional trade. C) Commercial: When they dedicate to the commercialization of goods bound for exportation outside the national customs territory, and to reexportation without performing activities which may change the product's characteria bcs or alter Its ongin.

FISCAL INCENTIVES AND BENEFITS.

TO ADMINISTRATIVE ENTITIES:

a) Total tax exoneration, tariff rights and charges applicable to the importa tion of machinery, equipment, tools and materials bound exclusively for construction of infrastructure, buildings and facilities which are used for the development of the Free Trade Zone, properly identified in the autho rization resolution for its installation and development.

b) Total exoneration of the Income Tax, which cause the dividends originated exclusively from the activity as an administrative entity of the Free Trade Zone, for a period of fifteen years from the date of the term of immediate imposition following the date in which the authorization mentioned in part b) of article 6 of the law is emitted. The administrative entities established in the exterior, which operate in Guatemala, will not enjoy this exoneration if in the country of origin, fiscal credit is given for the income tax paid in Guatemala. Dividend or utilities distributed to individual or legal person established in the country are also considered as exempt dividends.

c) Exoneration of Real Estate fax, for a period of five years on the landed property exclusively bound for the development of a Free Zone.

d) Exoneration of the Revenue Stamp tax, affecting documents through which the property of real estate bound for development and expanding of a Free Zone is transfenred to its administrative entity and users.

e) Total exoneration of taxes, tarifffights and other charges applied to the importation of fuel oil, bunker, propane and butane gas, which are strictly necessary for the proper generation of electricity which may be used for the function and service supply for the users for the Zone, from the date of its operations' authorization.

TO INDUSTRIAL AND SERVICES USERS:

a) Not affected to taxes, the tariffrights and additional charges applicable to the importation to the Free Trade Zone of machinery, equipment, tools raw materials, inputs, semi-finished products, containers, components, and merchandise in general, which will be used in the production of goods and rendering of services.

b) Total exoneration of the Income Tax, which cause dividends that exclu sively originate from the activity as an industrial or service user of the Free Trade Zone, for a period of twelve years from the date of imposition period immediately following the date on which the authorization of sub-para graph c) of article 6 of the law, is granted. Industrial and service users established outside the country, who operate in Guatemala, will not enjoy this exoneration if in the country of origin, fiscal credit is given for the income tax paid in Guatemala. Dividends or utilities distributed to indi vidual or juridical persons established in the country are also considered as exempt dividends.

c) Exoneration of the added value Tax, in the transfers canried out within anti between the Free Trade Zones.

d) Exoneration of the revenue Stamp Tax, affecting documents through which real estate located in the Free Trade Zone is transferred.

Industrial users located under the regimen of the Free Trade Zone will be allowed to export to the national customs territory, with previous authorization of the Industrial Political Direction, which will notify to the Customs Quartermaster Corps up to a maximum of twenty percent (20%) of its total production.

TO COMMERCIAL USERS:

a) Not affected to taxes, tariff rights, or applicable carges, the importation to the Free Trade Zones of merchandise or components in general, which are stored in the Zone for their commercialization.

b) Exoneration of the Income Tax which cause the dividends that originate exclusivley from the activity as commercial users of the Zone, for a period of five years from the date of imposition period immediately following the date on which the authorization of sub-paragraph c) of article 6 of the law is granted. The commercial users established in the exterior, operating in Guatemala, will not enjoy this exoneration if in the country of origin, hscal credit is given for the income tax paid in Guatemala. Dividends or utilities distributed to individual or legal persons established in the country are also considered exempt dividends.

c) Exoneration of the Added Value Tax, in the transfers carried out within and between the Free Trade Zones.

d) Exoneration of the revenue Stamp Tax, affecting the documents through which real estate located in the Free Trade Zone is transferred.

CUSTOMS REGIME:

All types of products that go in or out of the Free Trade Zones are subject to the merchandise traffic requirements specified in the National Legislation. All exports of goods and services of the individual or legal persons established in the national customs territory, an administrative entity, or a Free Trade Zone, are considered customs operations of definitive exportation to countries outside the Central American area. Individual or legal persons located in the national customs territory who produce, process, export or reexport merchandise to Free Trade Zones may work under the specific laws, which give incentives to exportations.

The administrative entities, commercial and Industrial users of the Free Trade Zones are affected to the payment of the Mercantile and Agricultural Enterprises Tax, according to Decree 99-98.

At present, two Free trade Zones, one state and one public, are operating in Guatemala:

I.Grupo Z. located on the Pacific Highway, Kilometer 29.5
II.Zolic, is the Industry and Commercial Free Zone in Puerto Santo
Tomas de Castilla (state), created and regulated by decree 22-73,
modified by decree 15-79

7. PROMOTION AND DEVELOPMENT OF TOLL MANUFACTURING ACTIVITES (MAQUILA)

The law of promotion and development of Maquila Export Activity decree 2989 of the Congress of the Republic searches to promote, encourage and develop in the area, the production of merchandise with destiny to countries out of Central America, and to regulate the performance of exporting activity, or toll manufacturing of the companies, with the purpose of encouraging foreign investment in this area, and generating employment sources.

The law of Suppresion of Exemptions, Exonerations and Deductions in Tax and Fiscal Matter, decree 117-97, exempt of these to the Law of Promotion and Development of Maquila Export Activity.

8. LABOR CODE

The Labor Code, decree 1441 of the Congress of the Republic, is the law that has as an objective to regulate the rights and obligations of the employers and employees in work, establishing a set of juridical norms, tending to solve labor conflicts. These dispositions subject all inhabitants, without distinction of sex or nabonality.

8.1 WAGES
All workers have the right to a minimum wage, which covers all the basic needs in the virtue of the completion of a labor relationship or labor contract.

The calculation for this payment, may be agreed: a) By unit of time. (montly, fortnightly, dayly or by the hour) b) By unit of work (piece, task, raised price or piecework) c) By participation in utilities, sales or charge made by the employer

8.2 LABOR TIME:
The effective diurnal labor time (between 6 a.m. and 6 p.m. of the same day) cannot be more than wight hours without exceeding forty eight hours a week, equivalent to forty eight hours for payment effects.

The effective nightly labor time (between 6 p.m. to 6 a.m. of the following day) cannot be more than six hours, without exceeding thirty-six hours a week.

The ordinary labor time of effective mixed work cannot be more than seven hours a day, without exceeding forty-two hours a week.

8.3 BENEFITS

8.3.1 VACATION
LABORE CODE ARTICLE 130

Every worker has a right of a period of fifteen working days, remunerated after each year of continuous work for the same employer; also having the right to a resting day after six consecutive working days, with an exception of the workers in the agricultural sector, who have a right to only ten working days.

8.3.2 CHRISTMAS BONUS (DECREE 76-78)
The employer must grant, each year, a Christmas bonus equivalent to a hundred percent of the monthly salary in December

8.3.3 ANNUAL BONUS
It is established for every employer, from the private or public sectors, the payment of an annual bonus equal to a hundred percent of an employee's monthly wage. This bonus must be paid during the first Steen days of July each year.

8.3.4 INDEMNIZATION PAYMENT
When an employer dismisses an employee without justified cause, he must pay a monthly salary for each year worked, calculated over the average wage of the last six months.

8.3.5 MINIMUM WAGES
According to Government Agreement 20-2000, The following minimum wages are settled:

FOR AGRICULTURE ACTIVITIES: Twenty-one quetzales and sixty-two cents (Q21.62) a day, for one ordinary work duty.

FOR NON-AGRICULTURE ACTIVITIES: Twenty-three quetzales and eight-five cents (Q23.85) a day, for one ordinary work duty.

Minimum wages will come in force in February 2000 .

9. CONTRIBUTIONS TO SOCIAL SECURITY (IGSS)

The percentages that mus be paid as contributions to the Guatemalan Social Security Institute (IGSS) are the following:

A: From the employers, a contribution of twelve, sixty seven percent (12.67%), excluding the Christmas bonus. This percentage is conformed with ten, sixty seven percent (10.67%) as contribution to IGSS, one percent (1%) as contribution to the Workers Recreational Institute and one percent (1 %) to the Traingin Techinical Institute (INTECAP).

B: Workers pay four, wighty three percent (4.83%) as contribution to IGSS.

10. MIGRATION LAW DECREE NUMBER 95-98

The Migration Law guarantees an effective migratory orderliness, regulating the access and departure of cititzens and foreingners from the national territory, establishing modern legal procedures, which also allow the exercise of the regth of free Emotion for all the world's inhabitants. It establishes the requieremtns, breaches, offenses, and also the sanctions and penalties for those people, citizens or foreingners, who pretend to infringe threm for the benefit of third parties and not to the state as head entity.

11. REAL ESTATE TAXES

Is the one that defines the National System of Registration and Cadastre in the geographical location of the estates by sector for payment of the tax.
To determine the annual Real Estate Tax, the following scales and rates are established:

12. HOW TO APPLY FOR REGISTRATION AS A TAXPAYER

a) Individual person
He must fill out the application for registration affiliation and updating for Individual Persons in the unified Tax Registration Office and present it to the Ministry of Public Finances along with the applicant's l.D. Card (Cedula), which will be returned when the information has been checked.

b) Legal Person
The applicant must fill out the forms for registration affiliation and updating for legal person in the Unified Tax Registration Office, along with the legal representative's l.D. Card (Cedula) and the Charter Deed.

13. LEGAL FMMEWORKAPPLICABLE TO THE ESTABLISHMENT OF ENTERPRISES

The requirements to establish an enteprise in Guatemala, whether individual or legal, are stipulated in the Political Constitution of the Republic, in the Civil Code and Commerce code.

The principal fiscal obligations are: Income Tax (ISR), Added Value Tax (IVA), Law of Tax to Mercantile an Agricultural Enterprises, Law of Supression of Exemptions, Exonerations and Deductions in Tax and Fiscal Matter, and Real Estate Tax.

There are other obligations and contributions such as the payment to social security (IGSS), and labor relationships controlled by the labor code.

14. INCOME TAX

It is established in article 44 of the Income Tax Law, ammended by article 18 of decree 36-97 of the Congress of the Republic that the legal persons and individuals domiciled in Guatemala who develop mercantile and agricultural activities, as well as other propietary capital which is affected and entities to which paragraph 2 of article 3 of that law refers, shall calculate the tax applying the rate of 25% to taxable income.

In the case of activities with periods of less than a year, the rate of 25% shall be applied to the taxable income to determine the tax to be paid for the period of less than a year

14.1 WITHHOLDINGS OF INCOME TAX

Withholdings of the Income Tax may be: a) definite withholdings b) credited withholdings

14.2 Payment of the tax through withholdings

a) Individual persons domiciled in Guatemala must withhold and annual 4% of thetas payment, if his yearly income is more than Q36,000.
b) Corporations shall withhold an annual 10% of the tax payment.

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