Franchising in Guatemala: agree on the payment currency

When buying a franchise in Guatemala, a seemingly manageable fee can become a difficult obligation if it is denominated in a different currency from your income. In franchising, agreeing on how payments are converted and settled helps prevent disputes. Before signing, check not only how much you will pay, but also in which currency, which exchange rate will apply and who will bear each cost.

1. Distinguish between the pricing currency and the payment currency

A contract may quote a fee in US dollars while allowing payment in Guatemalan quetzales. Alternatively, it may require the franchisor to receive dollars in an overseas account. These are not equivalent commitments: in the second case, you will need to buy foreign currency and accept the terms of the transfer.

Prepare a table listing each obligation: the initial fee, recurring payments, technology licences and other services contracted with the brand. For each one, identify:

• The currency in which the amount is calculated.
• The currency the recipient must receive.
• The destination account and country.
• Who carries out the conversion.
• What document confirms that payment has been completed.

If a royalty is calculated on sales in quetzales but settled in dollars, ask for the formula to specify the order of operations. First, it must be clear how the amount due is calculated in the original currency, and then how it is converted. Avoid having different parts of the contract allow conflicting calculations.

2. Set out a verifiable conversion rule

The phrase ‘at the exchange rate on the day’ is not enough. Does it mean the invoice date, the due date or the date when the bank processes the transaction? Which bank’s rate or reference rate applies? Is it a buying or selling rate?

Negotiate a clause identifying the source, the reference date and the procedure to follow if no rate is published that day. If you agree to use the Bank of Guatemala’s reference exchange rate, make clear that this contractual benchmark may differ from the rate at which your bank sells you foreign currency.

It is also worth defining how discrepancies and rounding differences will be corrected. A small, recurring discrepancy can lead to claims if the franchisor considers that each transfer leaves an outstanding balance.

Both parties must be able to reproduce the calculation using the same data. Before agreeing, request a worked payment example and check the calculation with your accountant. It is not enough for the result to look reasonable: the method must be written down and work without either party making unilateral decisions later.

3. Separate bank charges from taxes

The amount leaving your account will not always match the amount the franchisor receives. Charges may be imposed by the sending bank, intermediary banks and the receiving bank. Ask your bank to explain the applicable charges, without assuming that an initial quote will remain valid throughout the contract.

Define who bears each charge and what happens if a bank deduction reduces the amount received. Avoid accepting an obligation to deliver a ‘net’ amount without understanding its scope: it could shift additional costs onto you that were not included in the commercial proposal.

Taxes require a separate review. In Guatemala, the Tax Update Law (Ley de Actualización Tributaria), Decree 10-2012, governs income tax (ISR), including circumstances involving payments to non-residents. The applicable withholding tax depends on the nature of the payment and the recipient’s circumstances; it should not be determined solely by the description on the invoice.

Ask your accountant to establish whether tax must be withheld, how to document it and whether the contract requires you to increase your payment so that the franchisor receives the full amount after tax. That difference must be included in your budget before you sign.

4. Assess the risk and address it in the contract

Guatemala has no franchise-specific law or special mandatory pre-contractual disclosure regime for these transactions. General legislation applies, including the Commercial Code, Decree 2-70; the Civil Code, Decree-Law 106; and, for trademark licensing, the Industrial Property Law, Decree 57-2000. Foreign exchange arrangements should also be reviewed under the Law on the Free Negotiation of Foreign Currency (Ley de Libre Negociación de Divisas), Decree 94-2000.

The absence of a mandatory franchise disclosure document does not remove the need for your own due diligence. Request the currency and payment terms in writing and ask a local lawyer to check that they are consistent with the rest of the agreement.

Next, prepare cash flow scenarios using different costs of buying foreign currency, without treating them as forecasts. Keep sales constant to see how much margin you would lose solely through conversion and the associated charges. If the business would no longer cover its obligations, negotiate before committing.

Practical takeaway: do not sign with a defined currency but an undefined calculation. Take a payment schedule, a reproducible exchange rate formula and a budget covering fees and taxes to your legal review.