Guatemala imposes corporate and personal income tax under a territorial system in which the income tax is levied only on Guatemalan-sourced income. Therefore, resident individuals and corporations are subject to income tax on Guatemalan-sourced income only. On the other hand, non-residents are taxed via withholding on their Guatemalan-sourced income.

Corporations are considered residents of Guatemala if they are incorporated under Guatemalan law and have their fiscal domicile or corporate headquarters in Guatemala, or if they are a branch of a foreign company operating in Guatemala.

The statutory tax year runs from January 1 to December 31. Under the territorial tax system, residents can opt to be taxed under one of two regimes: (i) the simplified optional tax regime, under which tax is charged on gross revenue at a rate of 5% or 7%; or (ii) the general tax regime, under which tax is charged on net taxable income at a rate of 25%. If the residents opt for the general tax regime, a solidarity tax is also imposed with a rate of 1% on total assets or gross revenue, depending on which one is greater. Passive income is taxed separately, with dividends taxed at a rate of 5% and capital gains taxed at a rate of 10%.

Non-residents taxed via withholding are subject to different tax rates that depend on the type of Guatemalan-sourced income earned. In addition to income tax, a value-added tax (VAT) of 12% is charged on the sale of most goods, the provision of services, and the lease and transfer of real estate.

Guatemala has not concluded any bilateral or multilateral tax treaties.

In this chapter

• Legal system
• Taxation authorities
• Business vehicles
• Financing a corporate subsidiary
• Corporate income tax
• Cross-border payments
• International tax reform
• Payroll taxes
• Indirect taxes

Legal system

Guatemala operates under a civil law system. It makes use of a civil law framework for private law, which is based on the Civil Code and Mercantile Code. In Guatemala, which is a unitary state, there are three main bodies of government: the executive, the judicial and the legislative. Because the Guatemalan Constitution grants to the Guatemalan Congress the exclusive right to legislate, it is the only body with the authority to levy taxes. The Tax Code, the Income Tax Law, the VAT Law and the Solidarity Tax Law are the primary tax laws in Guatemala.

Taxation authorities

The tax system in Guatemala is administered by the Superintendency of Tax Administration of Guatemala (SAT). This decentralized government entity is in charge of collecting taxes throughout the entire Guatemalan territory. Additionally, Guatemala has special tax courts that hear tax litigation cases.

Business vehicles

A non-resident may either establish a Guatemalan business vehicle to carry on business in Guatemala, or operate directly through a foreign entity, with or without a Guatemalan permanent establishment. Guatemalan business vehicles include corporations (limited liability or unlimited liability) and partnerships. It is also possible to use a trust to carry on business in Guatemala.

Partnerships

Guatemalan legislation differentiates between partnerships and non-profit partnerships. While non-profit partnerships are exempt from income tax, partnerships are not. Partnerships and corporations are taxed similarly.

Corporations

Corporations can be incorporated in Guatemala within eight days. The use of a limited liability or unlimited liability corporation does not impact the corporation’s income tax liability. Although Guatemalan law does not require the directors of the corporation to be Guatemalan residents, the Mercantile Registry regulation does require at least one of the directors to be registered with the SAT as a resident. A corporation must receive capital before it may issue shares and must receive a minimum of Q. 200.00 (US$25) in capital before being incorporated.

Foreign corporations

A foreign corporation with a permanent establishment that carries on business in Guatemala is subject to income tax as if it was a Guatemalan-resident corporation. Under Guatemalan law, it is understood that a foreign corporation operates with a permanent establishment when:

1. It has a continuous place of business or places of work of any kind, in which all or part of its activities take place in the country; or
2. A person or entity (not an agent) acts in Guatemala on behalf of the non-resident, especially if that person holds and exercises habitually in Guatemala powers that enable it to conclude contracts on behalf of the company; or, if the person does not have such powers, usually stocks in Guatemala goods for delivery on behalf of the non-resident person or entity.

On the other hand, non-residents— foreign corporations without a permanent establishment—are taxed via withholding on their Guatemalan-sourced income.

The tax rate for a foreign corporation without a permanent establishment varies depending on the type of Guatemalan-sourced income. Dividends and branch remittance are taxed at 5% on the gross amount, whereas interest is taxed at 10% of the gross amount (with exemptions given for banking and finance sectors). Technical service fees and royalties are taxed at 15% on the gross amount, and all other types of Guatemalan-sourced income not specifically covered are taxed at 25% on the gross amount.

Financing a corporate subsidiary

Equity financing

Contributions for shares

Where an equity investment is made into a Guatemalan corporation in exchange for shares, the amount of the investment is added to the corporation’s stated capital account. This transaction is not subject to income tax.

Distributions of dividends and profits

A corporation is permitted to make distributions of dividends and profits to a non-resident shareholder, but these distributions are subject to a withholding tax of 5%.

Debt financing

Withholding tax implications

Guatemalan corporations are permitted to borrow funds from related or non-related parties. There are no Guatemalan tax implications on the repayment of the principal amount of such debt. However, interest payments made by a Guatemalan resident corporation to a non-resident are subject to a withholding tax of 10%.

Stamp duty

Guatemala imposes a stamp duty levied on certain official and legal documents related to different transactions. Stamp duty is an ad valorem tax or flat tax levied on certain legal transactions such as the transfer of a property. Documents evidencing such transactions are recorded and become legally enforceable only if they are stamped to show that the proper amount of tax has been paid. The stamp duty tax generally has a rate of 3% but tax rates may vary depending on the concluding document and transaction.

Corporate income tax

Income tax rate

The corporate tax rate depends on the regime the corporation opted to be taxed under. The different regimes available include:

1. The simplified optional tax regime, under which tax is charged on gross revenue at a rate of 5% or 7%, with 5% applying to the first Q30,000.00 (US$3,896.10) of monthly taxable income and 7% applying to monthly taxable income in excess of Q30.000.00 (US$3,896.10); there have been discussions in Congress to modify the tax rate on this regime and apply only the 7% rate, and
2. The general tax regime, under which tax is charged on net taxable income at a rate of 25% and a solidarity tax is imposed at a rate of 1% on total assets or gross revenue (depending on which one is greater). 
   If a taxpayer does not specifically choose a tax regime, then the general tax regime will apply.

Capital gains

When income originates from assets or rights, and the ownership of which is attributed to the taxpayer, such income is regarded as taxable income in Guatemala. Taxable income from capital gains generally falls under one of the following categories:

1. Guatemalan-sourced real estate income arising from leases, sub-leases or constitution and transfer of rights for the use and enjoyment of the property;
2. Income from movable assets located in Guatemala including interests from loans, leases, subleases or constitution and transfer of rights for the use and enjoyment of the property, and distribution of dividends and profit; and
3. Capital gains from:
   • the transfer of movable or immovable assets, lottery tickets, raffle tickets or similar items;
   • the transfer of shares issued by resident entities;
   • the incorporation of assets located in Guatemala into the taxpayer´s property; and
   • the transfer of shares issued by foreign entities that own movable or immovable property located in Guatemala.

Royalties

Income earned by a Guatemalan-resident corporation from real estate, moveable assets and capital gains are subject to a tax rate of 10%, whereas the distribution of dividends and profits are subject to a tax rate of 5%.

Computation of taxable income

Taxable base

The taxable base depends on the regime the tax payer chooses. Under the simplified optional tax regime, the income tax is charged on gross revenue at a rate of 5% or 7%, though Congress is discussing removing the 5% rate. Under the general tax regime, the income tax is charged on net taxable income at a rate of 25%.

Deductions

Deductions depend on the regime that the taxpayer chooses. Under the general tax regime, corporations may deduct expenses incurred to generate taxable income or to preserve the source of such income. On the other hand, under the simplified optional tax regime, no deductions are permitted.

Income tax reporting

Guatemalan-resident corporations operating under the general tax regime must file an annual income tax return and make, within three months after the end of the taxation year, any payment that is due. Additionally, corporations must make quarterly advance income tax payments, which are credited against its final income tax liability. In addition, taxpayers that qualify as special taxpayers must file annual income tax returns together with financial statements that are audited by a certified public accountant or an independent audit firm.

Corporations operating under the simplified optional tax regime must file an annual information tax return within three months after the end of the taxation year. Interest and penalty charges are imposed for late payments of taxes. Corporations settle their tax through final withholding payments made by the payer. They must file monthly tax returns in which they separately determine the total amounts of gross income, exempt income, income subject to withholding tax and income subject to direct payment. Companies may be required to make direct payments of tax if they are transacting with persons not required by law to make withholdings or if they have been previously authorized by the tax authorities. The tax return must be filed within the first 10 business days of the month following the month in which the tax was incurred.

Cross-border payments

Transfer pricing

Guatemalan transfer pricing rules apply to any transactions between a Guatemalan-resident taxpayer and a related non-resident party where the transaction affects the calculation of the taxable income of the fiscal year and subsequent fiscal year. It is understood that parties are related to one another if one of the entities controls the other entity with at least 25% of capital stock or voting rights; it is also understood that parties are related when five or less persons control both related parties, or own together, directly or indirectly, at least 25% of participation in the capital stock or voting rights of both persons; and finally parties are related when both legal entities belong to the same business group. The transfer pricing rules are aligned with the Organization for Economic Co-operation and Development (OECD) guidelines. There is a sixth transfer pricing method for commodities.

Withholding tax on passive income

Payments made by a resident of Guatemala to a non-resident from Guatemalan-sourced income are subject to withholding tax at different tax rates. As previously mentioned, dividends are subject to a 5% rate on the gross amount; interest to a 10% rate of the gross amount (exemptions are given for banking and finance sectors); royalties to a 15% rate on the gross amount; and all the other types of Guatemalan-sourced passive income not specifically covered are subject to a 25% rate on the gross amount.

Withholding tax on services fees

Payments made by a resident of Guatemala to a non-resident in respect of services performed in Guatemala are subject to a withholding tax rate of 15%.

Multilateral Instrument

The Republic of Guatemala has not yet ratified or signed any treaties for the prevention of double or multiple taxation. Accordingly, Guatemala is not part of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, also known as the Multilateral Instrument (MLI).

International tax reform

On October 2021, 138 countries committed to a two-pillar plan for international corporate tax reform that supports the OECD Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy. However, Guatemala is not one of the 138 countries committed to the plan.

Even though Guatemala is not a part of the of the Two-Pillar solution mentioned above, it is part of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which enables Guatemalan Tax administration to engage in an effective exchange of information with a growing number of countries like Argentina, Canada, Mexico, the United Kingdom and the United States, among others. This convention seeks to strengthen the Guatemalan tax system and demonstrate that Guatemala is working hard on preventing international tax evasion.

Payroll taxes

Social security tax

Guatemalan employers are obliged to withhold a social security tax that contributes towards the Guatemalan pension plan and employment insurance. The social security tax is withheld from the employee’s wages. The employer contributes 12.67% and the employee contributes 4.83% of the employee’s wages.

Indirect taxes

Value-added tax (VAT)

The VAT is an indirect tax levied specifically on consumption. Guatemala imposes a VAT of 12% which applies to all transactions and contracts regarding:

1. The sale or exchange of personal property (movable or immovable) or rights in rem
2. The provision of services in Guatemalan territory;
3. Imports;
4. The leasing of movable or immovable property;
5. Assets (movable or immovable property) received in lieu of payment, except those that are carried out on the occasion of the partition of the inheritance or the termination of joint ownership;
6. Withdrawals of personal property made by a taxpayer or by the owner, partners, directors or employees of the respective company for their personal or their family use or consumption, whether from their own production or purchased for the resale, or the self-supply of services, whatever the legal nature of the company;
7. The destruction, loss or any event that implies a lack of inventory, except in the case of perishable goods, fortuitous events, force majeure or crimes against property;
8. The inter vivos donation of movable and immovable property; and
9. The capital contribution of real estate made by companies that are dedicated to real estate development to another company (dedicated or not to real estate).

Levies on petroleum distribution

For levies on petroleum distribution, the rate varies by type of fuel between Q.1.38 – 0.50 (US$0.18 – 0.064) per US gallon of 3.7858 liters.

Land tax

Guatemala imposes a land tax annually on the value of land. The tax rates vary depending on the land´s value and are applied as follows: i) if the estate´s value is below Q.2,000.01 (US$259.74)  then the tax payer is exempt of paying the land tax; ii) if the estate´s value is below Q.20,000.01 (US$259.74) then the tax to be paid would be Q.2.00 (US$0.25) per every thousand Quetzales, respective to the property´s value; iii) if the estate´s value is below Q70,000.01 (US$9,090.91) then the tax to be paid would be Q.6.00 (US$0.77) per every thousand Quetzales, respective to the property´s value; and iv) if the estate´s value is over Q.70,000.01 (US$9,090.91) then the tax to be paid would be Q.9.00 (US$1.16) per every thousand Quetzales, respective to the property´s value.

Revaluation tax

Guatemala imposes a revaluation tax of 10% on the appreciation in value resulting from a revaluation by an authorized third-party adjuster of immovable property or any other fixed assets.

Import duties

Guatemala is a State Party of the Convention on the Central American Tariff and Customs Regime. In said Convention, a Central American Import Tariff is regulated, which is the instrument containing the nomenclature for the official classification of goods that are likely to be imported into the territory of the Member States Party, as well as customs duties on imports and the rules that regulate the execution of its provisions. According to said rules, Guatemala imposes import duties (Derechos Arancelarios de Importación known as DAI) that range from 0% to 20% depending on the type of goods that are being imported.

Solidarity tax (ISO)

Individuals, legal entities, trusts, participation agreements, partnerships, and branches of foreign companies that do business in Guatemala are all subject to the Solidarity Tax. Guatemalan law imposes a tax rate of 1% that applies to whichever is the greater of: i) one-fourth of total net assets; or ii) one-fourth of total gross income. Newly organized entities that have a gross margin lower than 4% of its gross income, and entities that incur losses for two consecutive years, are both not subject to the Solidarity Tax.