Guatemala - Income Tax

Guatemala - Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

Tax returns are due during January.

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in Guatemala?

Residents

Employers estimate the income tax liability of the employees on January each year, based on employees wages. Because some deductions are available, the exact amount might vary at the end of the fiscal year.

Non-residents

No tax returns have to be filed by non-residents. The employer is responsible for withholding the income tax liability to non-residents and has to file a withholding tax return before the fiscal authorities.

Tax rates

What are the current income tax rates for residents and non-residents in Guatemala?

Residents

Income tax of residents is calculated by applying a progressive tax rate schedule to taxable income as follows.

Income tax table for 2016

Taxable income bracket Total tax on income below bracket Tax rate on income in bracket
From GTQ To GTQ GTQ Percent
0 300,000
0 5
300,001 Over 15,000
7

Non-residents

Guatemalan-source income paid to non-resident persons is subject to a final withholding tax at a rate of 15 percent on salaries, wages, commissions, bonuses and any other remuneration. 

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Guatemala?

The distinction between residence and non-residence is discussed in Guatemalan tax law and is significant because the tax law relies almost exclusively on the source principle. The distinction is important with respect to tax rates and withholding taxes on payments to non-residents. A foreign individual is considered as domiciled in Guatemala if he/she has continuously lived in the country for more than one year. Likewise, he/she will have to take the necessary steps in order to legally remain and work in the country.

The application for a work permit will proceed once he/she started his/her request before the labor ministry, even though he/she has been in the country for a year. Upon receipt of the work permit, the worker should be included in the payroll and treated as a Guatemalan employee (resident).

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

For fiscal purposes, any person who comes to Guatemala can start to work as a resident as soon as he/she receives his/her work permit, which can occur before a uninterrupted year in the country. For fiscal purposes, residency can end at the time the work permit ends (a year) or when the company requests the revoke of the work permit.

What if the assignee enters the country before their assignment begins?

No specific matters would have to be considered; it is important to obtain the immigration and work permit as soon as possible. This is more important when the assignment is going to be for more than one year.

Termination of residence

Are there any tax compliance requirements when leaving Guatemala?

There are no formalities, but it is important to submit a formal letter informing the tax authorities that the person will be leaving the country. The same could be done before the work ministry.

What if the assignee comes back for a trip after residency has terminated?

Nothing should be done.

Communication between immigration and taxation authorities

Do the immigration authorities in Guatemala provide information to the local taxation authorities regarding when a person enters or leaves Guatemala?

No.

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

No specific requirement will have to be filed, but before they leave the country and repatriate, a tax return should be filed before tax authorities.

Economic employer approach

Do the taxation authorities in Guatemala adopt the economic employer approach1 to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Guatemala considering the adoption of this interpretation of economic employer in the future?

No.

De minimus number of days

Are there a de minimus number of days2 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?

No.

Types of taxable compensation

What categories are subject to income tax in general situations?

Typical items of an expatriate’s compensation package, which are taxable in Guatemala, include the following:

  • salary
  • bonus
  • cost-of-living allowance
  • free or below-market-value use of accommodation provided by an employer
  • reimbursement of moving expenses
  • childrens’ education allowance
  • housing allowances
  • home leave
  • employer-provided domestic assistance.

Tax-exempt income

Are there any areas of income that are exempt from taxation in Guatemala? If so, please provide a general definition of these areas.

In general, the following may be exempt from tax in Guatemala:

  • provision of a company car
  • Christmas bonus
  • Fourteen bonuses.

Provision of a company car

If the employer buys the car and it is provided without any charge to the employee, it should be exempt.

Christmas bonus

This is a specific exempt income included in the income tax law of Guatemala.

Fourteen bonuses

This is a specific exempt income included in the income tax law of Guatemala.

Expatriate concessions

Are there any concessions made for expatriates in Guatemala?

There are none in Guatemala.

Salary earned from working abroad

Is salary earned from working abroad taxed in Guatemala? If so, how?

Neither residents nor non-residents pay tax on non-Guatemalan earnings ontained from a foreign party.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Guatemala? If so, how?

Guatemalan investment income for both residents and non-residents is subject to Guatemalan income tax.

Capital gains tax could apply only if the sales correspond to goods except house furniture or personal items.

Dividends, interest, and rental income

Only incomes obtained from activities and investments in Guatemala would be taxable; any other scenario should be evaluated separately.

Gains from stock option exercises

Only incomes obtained for activities or investments in Guatemala would be taxable; any other scenario should be evaluated separately.

Foreign exchange gains and losses

Due to Free Foreign Currency Trading, companies consider many procedures for paying the salaries to its employees.  For this case, the specific scenario should be evaluated separately.

Principal residence gains and losses

Only incomes obtained for activities or investments in Guatemala would be taxable; any other scenario should be evaluated separately.

Capital losses

Only incomes obtained for activities or investments in Guatemala would be taxable; any other scenario should be evaluated separately.

Personal use items

Personal items should not be taxable.

Gifts

Gifts should be taxable, but particular cases should be evaluated.

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Guatemala? If so, please discuss?

See general comments above.

Are there capital gains tax exceptions in Guatemala? If so, please discuss?

See general comments above.

Pre-CGT assets

See general comments earlier.

Deemed disposal and acquisition

See general comments earlier.

General deductions from income

What are the general deductions from income allowed in Guatemala?

The following items of expenditure may be deducted from taxable income:

  • social security contributions
  • pension contributions
  • insurance payments, for either life or medical expenses
  • alimony payments directed by the legal courts
  • medical expenses.

Additionally, resident are entitled to a personal tax allowance of GTQ36,000.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Guatemala?

The income tax law establishes the employer is responsible for the reimbursement of taxes paid in excess by its employees (only during the period of time they have a work-relationship). There is a procedure for employers for recover before the tax Authorities those amounts reimbursed to its employees.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Guatemala? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

In Guatemala, taxes are calculated on the earnings received by the person. The withholding tax payments are made by the employer monthly. 

When are estimates/prepayments/withholding of tax due in Guatemala? For example: monthly, annually, both, and so on.

Monthly.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Guatemala? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

No, credit is given for foreign taxes paid

General tax credits

What are the general tax credits that may be claimed in Guatemala? Please list below.

Employees with a work relationship can claim VAT as a tax credit. A formal procedure should be done by the employee (file a list of purchases of goods and services in a fiscal year). 

Sample tax calculation

This calculation3 assumes a married taxpayer resident in Guatemala with two children whose three-year assignment begins 1 January 2014 and ends 31 December 2016. The taxpayer’s base salary is USD100,000 and the calculation covers three years.

  2014
USD
2015
USD
2016
USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = GTQ7.70.

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • Interest income is not remitted to Guatemala.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Calculation of taxable income

Year ended 2014
GTQ
2015
GTQ
2016
GTQ
Days in Guatemala during year 365 365 365
Earned income subject to income tax      
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Net housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Total earned income 171,000 156,000 171,000
Other income 0 0 0
Total income 171,000 156,000 171,000
Deductions 14,335 13,611 14,335
Total taxable income 156,665 142,389 156,665

Calculation of tax liability

  2013
GTQ
2014
GTQ
2015
GTQ
Taxable income as above 156,665 142,389 156,665
Guatemalan tax thereon 10,207 9,208 10,207
Less:      
Domestic tax rebates (dependent spouse rebate) 0 0 0
Foreign tax credits 0 0 0
Total Guatemalan tax 10,207 9,208 10,207

Footnotes

1Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.

2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.

3Sample calculation generated by KPMG de Guatemala, S.A, the Guatemalan member firm of KPMG International, a Swiss non-operating association, based on the Guatemala Income Tax Law Decree No. 26-92 (Article 36) and subsequent amendments.

© 2016 KPMG de Guatemala, S.A, a Guatemala corporation and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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