GuatemalaTax Obligations Detailed

In Guatemala, employers have various tax obligations, including income tax withholding, social security contributions, and year-end reporting.

Income Tax

• Withholding: Employers withhold income tax monthly from employee salaries. The tax calculation considers total income less an annual deduction of GTQ 48,000, VAT paid up to GTQ 12,000, donations (up to 5% of total income), and life insurance premiums.
• Rates: The tax rate is 5% for annual taxable income up to GTQ 300,000. Income exceeding GTQ 300,000 is taxed at a fixed rate of GTQ 15,000 for the first GTQ 300,000, plus 7% on the excess.
• Year-End Adjustment: Employers must reconcile withheld tax with the employee's final tax liability by the end of January. They must request supporting documentation from employees for VAT, donations, and life insurance. Any excess tax withheld is refunded, while any shortfall is deducted from the final salary payment.

Social Security

• Employee Contribution: Employees contribute 4.83% of their monthly salary.
• Employer Contribution: Employers contribute 12.67% of the employee's monthly salary.
• Payment: Contributions are made monthly.

Other Taxes and Obligations

• Value Added Tax (VAT): A 12% VAT is levied on most goods and services. Some items, such as those related to basic food necessities, have reduced VAT of 5%.
• Import Duties: Guatemala maintains an average import duty rate of 7%, although preferential rates may apply under free trade agreements.
• Excise Taxes: Excise taxes are imposed on specific products like soft drinks and alcohol.

It's important to consult with a tax advisor for personalized guidance. This information is current as of today, February 5, 2025, and might change.

In Guatemala, employers are responsible for withholding various taxes from employee salaries, including income tax and social security contributions.

Income Tax

Income tax is levied on all income derived from employment in Guatemala. A standard annual deduction of GTQ 48,000 is applied. Additionally, employees can deduct up to GTQ 12,000 for VAT paid on personal expenses, donations (up to 5% of total income), and life insurance premiums. The tax is calculated based on the net taxable income (gross income less deductions). The tax rates are progressive:

• Up to GTQ 300,000: 5%
• Above GTQ 300,000: GTQ 15,000 (on the first GTQ 300,000) plus 7% on the excess

Employers withhold income tax monthly and remit it to the tax authorities by the 10th of the following month. The annual summary of withheld taxes is due in February of the following year.

Social Security Contributions

Both employers and employees contribute to the Guatemalan social security system (IGSS).

• Employee Contribution: 4.83% of the monthly salary.
• Employer Contribution: 12.67% of the monthly salary.

These contributions cover various social security benefits such as healthcare, pensions, and maternity leave.

Value Added Tax (VAT) Credit

While not a deduction, employees can claim a credit of up to GTQ 12,000 annually for the VAT paid on personal expenses. This credit is applied against their income tax liability.

Other Deductions

Other potential deductions include union dues, court-ordered garnishments and voluntary deductions such as life insurance premiums. It's important to consult with local tax advisors for specific situations.

14-Month Salary System

Guatemalan law mandates a 14-month salary system, where employees receive two additional payments, often referred to as a "Christmas bonus" and a "mid-year bonus." These bonus payments are subject to income tax and social security contributions.

Additional Considerations

• The tax year in Guatemala ends on December 31st.
• The information above pertains to the tax year 2025 and may be subject to change in future years. It's essential to stay updated with the latest tax regulations.

In Guatemala, the Value Added Tax (VAT), known locally as Impuesto al Valor Agregado (IVA), is a consumption tax applied to most goods and services.

VAT Rates

• Standard Rate: 12% applies to most goods and services.
• Reduced Rate: 5% applies to small taxpayers (annual turnover below GTQ 150,000, approximately USD 19,380 as of 2021) and certain agricultural activities (annual sales below GTQ 3,000,000, approximately USD 380,000 as of 2021). Small taxpayers using this rate cannot recover input VAT.
• Zero Rate: 0% applies to exports of goods and services.

Exempt Goods and Services

Certain goods and services are exempt from VAT, meaning no VAT is charged on their sale, and businesses providing exempt supplies cannot generally reclaim any input VAT incurred. Examples include some basic foodstuffs, resales of real estate, certain financial and insurance services, and importations made by specific entities like cooperatives and diplomatic missions. Education-related supplies and services may also be exempt.

VAT Registration

There is no registration threshold for VAT in Guatemala. All businesses, including non-resident businesses making taxable supplies within the country, must register for VAT before conducting their first taxable sale. Registration involves obtaining a Taxpayer Identification Number (NIT) from the Superintendencia de Administración Tributaria (SAT). Non-resident businesses without a fixed establishment in Guatemala must submit specific documentation for registration, including incorporation certificates, articles of association, and translated/notarized versions.

VAT Filing and Payment

• Returns: Filed monthly, due by the last day of the following month.
• Payment: Due at the same time as the return filing.
• VAT Credits: Generally refundable only to certified exporters, through monthly claims. Other taxpayers seeking credit refunds require a qualified accountant's opinion as proof.
• Online Filing: Available since 2019.

Invoicing Requirements

Guatemala requires electronic invoicing for VAT purposes via the government-approved "FACE" system. Businesses must register for this system. Retailers can use government-approved cash registers logging transactions against the vendor's tax ID.

VAT Withholding

Certain entities act as VAT withholding agents and remit VAT directly to the tax office. These agents include large taxpayers (invoices above GTQ 2,500), credit card companies, government bodies (invoices above GTQ 30,000), and export businesses.

Time of Supply Rules

• Goods: The earlier of cash payment or VAT invoice issuance.
• Services: Issuance of the receipt, or cash payment if no receipt is issued.
• Continuing Services: Instalment payment dates.
• Imports: VAT due at customs before goods release.

It is essential to consult the latest official sources and seek professional tax advice for up-to-date and specific guidance on VAT obligations in Guatemala. This information is current as of February 5, 2025, and may be subject to change.

Guatemala offers several tax incentives designed to attract investment and stimulate economic growth. These incentives vary depending upon the specific industry, zone, or activity.

General Tax Incentives

• Income Tax Exemption: Businesses engaged in specific activities or located within designated zones can qualify for an income tax exemption for up to ten years. This exemption often applies to profits generated from eligible projects or operations within those zones.

• Exemption from Import Duties and VAT: Certain imported machinery, capital goods, and raw materials may be exempt from import duties and Value Added Tax (VAT). This exemption is often linked to specific projects or activities, such as renewable energy development. It can apply during the pre-investment and construction phases or for the duration of the project.

• VAT Exemption on Local Purchases: Manufacturers exporting to foreign markets can benefit from exemptions from VAT on the purchase of locally produced goods. This encourages local sourcing and supports export-oriented industries.

Specific Incentive Regimes

• Free Trade Zones (FTZs): Businesses operating within authorized FTZs enjoy a range of incentives, including income tax exemptions, and exemption from import duties, VAT, and other charges on imported goods.

• Special Public Economic Development Zones (ZOLICs): ZOLICs offer similar benefits to FTZs, providing tax exemptions and other incentives to promote investment and economic development in specific areas.

• Renewable Energy Projects: Developers of renewable energy projects can benefit from a 10-year income tax exemption and exemption from import duties and VAT on imported machinery and equipment.

• Drawback Industry: This industry-specific regime offers incentives to promote export-oriented manufacturing and processing activities.

• Emerging Law for the Conservation of Employment: Incentives for specific industries like the call center and the costumes industries were included by this law, which is an incentive for industries that generate higher number of jobs.

Other Tax Considerations

• VAT Credit for Individuals: Individuals can claim an income tax credit for VAT paid on personal purchases of goods and services, up to 12% of their net income. This credit is non-refundable, meaning any excess VAT paid over income tax due cannot be reimbursed.

• Solidarity Tax: A 1% solidarity tax is levied on individuals, legal entities, and other business structures based on the higher of one-fourth of total net assets or one-fourth of gross income. Certain exemptions apply, such as for newly established entities with low gross margins or those experiencing consecutive years of losses.

Note: The information provided is current as of February 5, 2025, and is subject to change. It is crucial to consult official sources and seek professional advice for the latest regulations and specific eligibility requirements for each incentive program.