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Guatemala: New financing legislation

Diego Alejos

Bill 4895 (the Factoring Agreement and Discount Law) and Bill 4896 (the Leasing Agreement Law) have been thoroughly discussed in Congress recently. Both aim to help the development of the nation's economy, by providing individuals with new financing methods. Both bills also introduce some interesting concepts which, if applied, could be beneficial to the contracting parties.

The Factoring Agreement and Discount Law allows for the discount of credit rights relating to the payment received by the fulfillment of certain contractual duties. This is a new concept in Guatemalan legislation, and opens the door to a new scope of application of discounting. If the contracting parties embrace this new concept, the discounted parties will have a new way to obtain funds and liquidity. This would, in turn, boost the economy by providing new sources of financing to individuals that don´t necessarily qualify for traditional financing products.

Clearly, the Factoring Agreement and Discount Law may prove beneficial to Guatemalans. Nevertheless, it is the Leasing Agreement Law which may have the biggest effect on the economy. This piece of legislation is important because it seeks to establish the legal framework for leasing operations. Although these operations are already undertaken in Guatemala, they are not regulated and are governed solely by what the contractual parties agree to.

An important aspect of the Leasing Agreement Law is the tax treatment of the various payments made within the lease. Another important aspect relates to the enforcement of the agreement: the new law provides the lessor with a variety of options, depending on the nature of the leased asset.

If, as expected, Congress passes these two bills in the near future, a variety of financial products may soon enter the market. This will, in turn, give rise to numerous economic benefits.

Diego Alejos

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