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Guatemala's economy are , , cotton, , apparel, food processing, and tourism. According to the commercial law of has a total population of 17.3 Guatemala, a foreign person or million inhabitants (as October 2018). The economy of Guatemala is one that company can operate in Guatemala continues to grow and develop with each through the creation of a local company passing year. Although as stated in the or what is also called a branch. Guatemala is a presidential general description, Guatemala has a representative democratic republic smaller GDP per capita than such larger Guatemala's corporate law provides a whereby the president is both, the head countries as Brazil, Chile, and , flexible and liberal framework for the of state and government. This Guatemala is the most populous of the organization of subsidiaries or branches. governmental framework means that Central American countries and their There are no special legal or economic the general population votes for GDP is growing at a rate of nearly 5% per restrictions for a foreign businessman to individuals to represent their interests in year. do business in Guatemala. politics. In view of the foregoing, we find that in Guatemala is divided into 22 Guatemala, both the individual and the departments, which are in turn divided foreign legal entity can establish into 340 municipalities, each with its own Guatemala is a member state of the commercial operations provided they local authorities. North Triangle and part of the Central comply with simply legal requirements, America countries. to establish itself as a local Company o a Branch in Guatemala. The national language is Spanish. Guatemala is an attractive base for doing However, the linguistic landscape of business and for investment. Its open Guatemala is highly diverse with and international perspective, its 1. Sole proprietorship Spanish, 22 Mayan, one Xinca and one competitive work force and its strategic 2. Partnership Arawakan languages being spoken in the location are essential contributors to 3. Limited partnership country. achieve attractiveness for the foreign 4. Limited liability company investor. 5. Stock company 6. Branch office The national currency is the Quetzal. The attractive fiscal climate, the geostrategic position of Guatemala in the Central American area and GDP: USD75.6 billion technological create Stock Companies (SC) are the most Income per capita: USD4,471 favourable propositions for international common form of business vehicle used : 3.9% business. in Guatemala. It offers the most flexibility, allowing shares to be freely The geostrategic position of Guatemala transferred, which is not the case for a Guatemala's economy, while still largely in the Central American area and as an limited liability company. The costs are dependent on the income and integral part of the northern triangle is reasonable, as the minimum capital employment provided by the agricultural extremely important and attractive. required is the equivalent of sector, has been successful in Being Guatemala, the commercial link approximately USD650, and the cost of developing its manufacturing and service between South America and North setting up the company is approximately sectors, thereby remaining competitive America. USD1,850 (including legal fees). within the global market. Among the products and services most important to

Guatemala | 2 MSI Global Alliance

The shareholders of the SC are not 2. They are qualified as a Special 3. Prohibition of multiple taxation: personally liable for the SC's obligations Taxpayer. Double or multiple taxation is beyond the amount of capital each constitutional prohibited. shareholder subscribes and pays. The company’s assets and the shareholders' Discussing the issue of fiscal incentives In Guatemala, there are three subscribed and paid capital guarantee in Guatemala leads us to the idea of how fundamental that every business the SC’s obligations. the country has evolved. firm must pay: Value Added (VAT), Income Tax and Solidarity Tax. A Limited Liability Company requires two We are facing Guatemala that as part of shareholders, who invest more than at its fiscal policies has developed the least 260 US dollars ($ 260), textile sector, the tourism sector and the Sale of all goods and provision of approximately (GTQ2, 000) in the paid- rise of its free zones with all that this services in general, as well as other up capital of the company and one entails. activities regulated in Article 3 of the Law director. on Value Added Tax, are subject to VAT. With regard to tax incentives in the The VAT rate is 12% on all commercial However, it must be borne in mind that textile industry, we see how the growth transaction. There are few exceptions; in order for a company to have legal and and development of the maquilas has but it is noteworthy that among them, commercial viability, the requirements of been encouraged, which, together with one of the most significant is that the constituting it through Notary Public the ease of imports, provides machinery second and subsequent sale of real Deeds and the corresponding for this industry and causes the increase estate are not affected to VAT but to registration with the Commercial in employment. Stamp Tax at a rate of 3%. VAT must be Registry must be met. paid on a monthly basis. Regarding the Free Zones, we find areas In Guatemala, a branch of a foreign where multiple taxes are exempted such company is subject to taxation just as as Income Tax, Real Estate Tax, Stamp Guatemalan income tax system provides any other local business firm. Unlike the Tax and Value Added Tax) on internal different regimes to calculate and pay it. SC and Limited Liability Company, the transactions, among others. This always, These regimes are: foreign corporation is fully liable for the with the purpose of encouraging the obligations of its branch in Guatemala growth of productivity and production in  Small taxpayer and risks any assets it has, both in the country, while looking for an  Profit activities Guatemala and anywhere else. increase in direct foreign investment.  Optional simplified

The best tax regime is one that can

respond appropriately to the type of There are tax incentives for a 10-year business being planned or carried out, where you have to evaluate aspects such The financial/ coincides with term to renewable energy generation as sales, costs, profits, type of business, the calendar year. Notwithstanding not projects. etc. legally adopted, most business firms adopted the International Accounting Specifically for each business firm, there Standards (IAS) and the International are benefits and disadvantages that each Financial Reporting Standards (IFRS). Guatemala is very attractive for any investor, as only income generated tax regime can provide. Thus, is very important to evaluate which tax regime However, legal entities may choose for a within the is taxable. Guatemala is the most convenient and suitable. different financial year if they wish. All is one of the countries with the lowest business firms are subject to corporation tax burden in Latin America and the The profit activities regime is the most income tax. The branch is taxed with Caribbean. The constitutional widely used and recommended for corporation income tax as well. principles that rules taxation are: business firms that have a net margin 1. Legality: Only the Congress has the lower than 28%. The tax rate is 25% When is a statutory audit required? power to impose taxes, municipal over taxable income. Income tax is to A statutory audit is required for those taxes and special contributions, be paid on a quarterly basis tax payers subject to the profit activities according with the State needs, regimen, when 1 out of the following 2 equity and tax justice principles. If net margin is higher than 28%, then criteria are met: the optional simplified regime is the 2. Payment Capacity: The tax system most recommended one. The tax rate 1. They are qualified as a VAT should be fair and equitable is 7% over gross income. Income tax is withholding agent; to be paid on a monthly basis.

Guatemala | 3 MSI Global Alliance

Capital income and gains are also The are other specific tax law, such as must pay directly to the Guatemalan taxable with a 10% rate, except for the VAT, Solidarity Tax, Stamp Tax and Social Security Institute. dividends that are subject to a 5% Real Estate Tax, each of one addressing withholding tax rate. such specific taxes. The pension is included in the social Permanent Establishment (PE) and security payment that the employer Transfer Pricing (TP) rules apply in makes each month on the salary of each Guatemala since 2015, mostly employee. according to the OECD guidelines. An employment agreement may be Proper advice shall be sought on the agreed for an indefinite or fixed period The age for retirement is 62 years old application of such rules. of time. If an employment agreement for and pension is granted if the employees a fixed period of time is continued, a have accredited at least 240 quotas, new agreement will then be deemed to effectively paid to the Guatemalan Social have been entered into under the same This is a flat tax of 1% over gross income Security Institute. conditions and for the same period of or net assets whichever is greater, for time as the former employment those taxpayers subject to the profit agreement. activities regime and that have a gross When starting a business and employing margin higher that 4%. The tax is to be staff, the business firm must register at The employment agreement for a fixed paid on a quarterly basis and is the Social Security Institute when hires period of time can only be extended creditable to income tax and vice versa. more 3 or more employees. Staff can be once, for the same period. If the employed even if registration is not employment agreement is extended a complete. The social security is paid General obligations besides tax payment second time, it is considered that the monthly to Guatemalan Social Security are: accounting books, invoices, credit employment agreement is for an Institute. and debit notes authorized by the indefinite period. Superintendence of Tax Administration; file most tax reports and returns in It is compulsory to sign an individual All foreign employees need to process electronic formats provided by the work agreement between an employer their temporary residence visa, Superintendence of Tax Administration; and an employee, except the case of: (i) according to Guatemalan Laws. and for special taxpayer to issue agricultural or livestock work; (ii) electronic invoices and to be a VAT domestic service; or (iii accidental or After processing their temporary withholding agent. temporary work no exceeding 60 days residence, the foreign employee must process a work permit to be able to In that sense, Guatemala, has cutting- provide their services for a Guatemalan The rate of wage tax is 7% on taxable edge electronic tools for fulfilment in the employer. income. Wage tax is a withholding tax filing of tax returns and control of and as such it is an advance payment on taxpayers, what possessions the country income tax. as a place where it is very difficult to fall into tax non-compliance that generate monetary losses. All this, and the rules Participation in a social security not complicated for foreign investment, program is obligatory. Workers are makes Guatemala be the perfect place insured for disability, old age and to invest easily and with minimum risk. survival.

The employer is obliged to pay the The main tax instruments applicable in labour and employer quotas directly to Guatemala are as follows: the Guatemalan Social Security Institute 1. Tax Code, Decree Number 6-91 of Rates differ between the labour and Congress. employer quotas. The labour quota constitutes a 4.83% calculated on the 2. Organic Law of the Superintendence salary of the employee, which is of Tax Administration, Decree Number 1- deducted from the monthly payment. 98 of the Congress. The employer quota constitutes a 12.67%, which is calculated from the 3. Tax Update Law, Decree Number 10- monthly salary of the employee. Both 2012, addressing the income tax legal quotas total a 17.5% that the employer rules.

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Legal member

Integrum www.integrum.gt

Edson Lopez [email protected] +(502) 2259 1200

18 calle 24-69 Zona 10 Empresarial Zona Pradera, Torre 3 Nivel 12, Oficina 1208 01010 Guatemala

Accounting member

Orozco Monzon & Asociados www.orozcomonzon.com

Julio Cesar Orozco Monzon [email protected] +502 (2) 232 1507

7a, Avenida 8-56 Zona 1, Ofs. 807, 808 y 817 8º Nivel Edificio El Centro

MSI Global Alliance 147-149 Temple Chambers 3-7 Temple Avenue London EC4Y 0DA United Kingdom

www.msiglobal.org

Disclaimer: MSI Global Alliance (MSI) is an international association of independent legal and accounting firms. MSI does not accept any responsibility for the commission of any act, or omission to act by, or the liabilities of, any of its members. The information in this guide for general guidance only. It is essential to take professional advice on specific issues and their impact on any individual or entity.