Employers in Guatemala are required to make contributions to the Guatemalan Social Security Institute (IGSS - Instituto Guatemalteco de Seguridad Social) on behalf of their employees. The standard employer contribution rate to IGSS is 12.67% of the employee's gross salary. IGSS contributions cover benefits such as pensions, healthcare, disability coverage, and maternity benefits.

Withholding and Payment

Employers are responsible for withholding the employee's share of IGSS contributions (4.83%) and remitting both their own contributions and the employee contributions to IGSS on a monthly basis. Employers may also be responsible for contributions to the Recreational Training Institute (IRTRA) at varying rates depending on the industry.

Calculation and Payment

Employers must deduct both their own and employees' share of social security from the employees' salary. Contributions are typically due to IGSS on a monthly basis.

Other Employer Obligations

Employers must register with IGSS and appropriate authorities, such as IRTRA. They must also maintain accurate payroll records for tax and audit purposes.

In Guatemala, a progressive income tax system is used, meaning that your tax rate increases as your income rises. Tax brackets and rates are adjusted periodically, so it's important to stay updated with the latest information.

Income tax, also known as Impuesto Sobre la Renta (ISR), is generally withheld directly from your salary by your employer throughout the year. This is part of the PAYE (Pay As You Earn) system.

Social Security Contributions

As an employee in Guatemala, you are required to contribute to the Guatemalan Social Security Institute (Instituto Guatemalteco de Seguridad Social - IGSS). The employee contribution rate to IGSS is 4.83% of your gross salary. These contributions are withheld directly from your pay by your employer.

Other Potential Deductions

If you're a member of a trade union, your union dues may be deducted from your salary. However, this is not a common practice in Guatemala.

Tax Returns

Employees are generally required to file an annual income tax return, even if your income tax has been fully withheld at the source. This allows you to declare any deductions, claim tax credits, and report additional income. You can file your tax return online through the Superintendence of Tax Administration's (SAT) portal.

The standard VAT rate in Guatemala is 12%. This rate applies to most supplies of goods and services within the country.

Certain services are exempt from VAT in Guatemala. These include financial services (specific conditions apply), insurance services, educational services (from approved institutions), healthcare services, public transportation services, and rental of residential property.

VAT Registration and Liability

Businesses exceeding a specific annual turnover threshold are generally required to register for VAT. VAT-registered businesses must charge VAT on their services, collect it from their customers, and file regular VAT returns.

Place of Supply Rules

The place of supply rules determine where a service is considered to be supplied for VAT purposes. This is crucial for establishing whether to charge Guatemalan VAT. In general, the place of supply for services is where the supplier belongs (i.e., has their business establishment). There are specific rules for services related to immovable property, electronic services, and others.

Invoicing Requirements

Businesses must issue proper VAT invoices to their customers containing specific information like the VAT registration number, VAT rate applied, and the VAT amount charged. Detailed records of invoices must be maintained for auditing purposes.

Guatemala offers attractive tax incentives for businesses operating within designated Free Trade Zones (FTZs). Key benefits include a 10-year exemption from corporate income tax, followed by a period of paying an income tax rate of 12.5%. Additionally, there is an exemption from VAT and import duties on machinery, equipment, raw materials, and other goods brought into the FTZ.

Export and Re-export Law (Decree 29-89)

This law offers incentives for businesses engaged in export-oriented activities. There is a 10-year exemption from income tax on profits derived from export activities (outside of Central America). Also, there is an exemption from import duties and VAT on goods used in the production of exported goods.

Sector-Specific Incentives

Tax incentives exist for investments in the tourism sector, including hotels and tourism developments. Incentives may also be available for reforestation and sustainable forestry projects, including income tax breaks.

Other Incentives

Exporters may be eligible for a refund of duties and taxes paid on imported inputs used in the manufacture of exported goods, under the Drawback Regime.

Obtaining Incentives

Businesses interested in applying for tax incentives typically need to obtain approval from relevant government agencies, such as the Ministry of Economy and the Directorate General of Free Zones and Industry.