Guatemala Personal Income Tax

Resident and nonresident individuals are taxed on Guatemalan-source income only. Individuals are considered resi­dents for tax purposes if they meet any of the following condi­tions:

  • They spend more than 183 days in a calendar year in Guatemala, even if not on a continuous basis.
  • The center of their economic interests is located in Guatemala.
  • They are Guatemalan diplomats with residence abroad.
  • They are Guatemalan individuals with residence abroad for less than 183 days in a calendar year as a result of employment by a private entity.
  • They are foreign diplomats on assignment to Guatemala, unless a reciprocity condition with their country of origin exists.

Income subject to tax. Under the Income Tax Law, income derived from activities rendered or services used within Guatemala qualifies as Guatemalan-source income and must be classified and taxed in one of the following categories:

  • Employment income
  • Income from a trade or business engaged in for profit (self-employment income)
  • Investment income

The taxation of the various types of income is described below.

Employment income. Taxable income, includes wages and all types of remuneration or payments, regardless of their denomina­tion, earned by employed resident individuals.

Self-employment and business income. Both resident and non­resident individuals are subject to tax on Guatemalan-source self-employment and business income derived from ordinary or occasional trade or business. Individuals who earn such income may choose to be taxed under one of the following tax regimes:

  • Regime on Profits from Business Activities, which applies on a net income basis (authorized expenses are deductible)
  • Optional Simplified Regime on Revenue from Business Activities, which applies on a gross income basis (no deduc­tions are allowed)

Under the Regime on Profits from Business Activities, individu­als may deduct expenses incurred to generate taxable income or to preserve the source of such income, except for certain speci­fied cases in which the law has imposed limits on deductibility.  Net taxable income is subject to tax at a rate of 25%. In addition, a 1% Solidarity Tax applies.

Alternatively, individuals may elect to be taxed under the Optional Simplified Regime on Revenue from Business Activities. Under this regime, taxpayers are subject to income tax on taxable income, which equals gross income less exempt income. No deductions are allowed. The final withholding tax rate is 5% for the first GTQ30,000 (approximately USD3,915) of monthly taxable income and 7% for the amount exceeding GTQ30,000.

Investment income. Dividends paid are subject to a tax rate of 5%, regardless of the beneficiary’s country of residence.

Interest paid to resident and nonresident individuals is subject to a final 10% withholding tax. However, withholding tax is not imposed on the following interest payments:

  • Interest paid by local taxpayers to local banks or representative offices authorized to operate in Guatemala by the Guatemalan Law on Banks and Financial Groups.
  • Interest paid by local taxpayers to non-domiciled first-order banks. This exemption is based on criteria set by the tax author­ities. Consequently, a private letter ruling should be obtained to secure the position of the borrower.

Royalties paid to nonresident individuals are subject to withhold­ing tax at a rate of 15%.

Directors’fees. Directors’ fees paid to nonresident individuals are subject to a final withholding tax at a rate of 15%. Resident indi­viduals must include directors’ fees, which are considered self-employment income, in their taxable income.

Capital gains and losses. Capital gains are taxed at a rate of 10%, regardless of the regime elected by the individual taxpayer. They include gains from the sale of the following:

  • Movable assets
  • Immovable assets
  • Lottery winnings

The following types of income are subject to capital gains tax if they are generated from Guatemalan sources:

  • Royalties paid to Guatemalan residents
  • Leasing and subleasing income (when not part of the taxpayer’s ordinary trade or business)
  • Gains from the transfer of shares issued by resident entities
  • Gains from the transfer of shares issued by foreign entities that own immovable property located in Guatemala
  • Gains derived from the transfer of movable or immovable assets
  • Income from lotteries, raffles and similar earnings

Deductions

Personal expenses. Deductible personal expenses consist of the following items:

  • Personal deduction of GTQ48,000 (approximately USD6,263), without the need for documentation
  • Social security contributions
  • Life insurance premiums
  • Exempt income (special bonus and Christmas bonus)
  • Charitable contributions (maximum annual deduction of 5% of net income)
  • A maximum of GTQ12,000 (approximately USD1,566) of value-added tax (VAT) paid during the tax year

Rates. Income tax is levied on employment income received by resident individuals at the rates set forth in the following table.

Taxable income Tax rate Tax due Cumulative tax due
GTQ % GTQ GTQ
First 300,000 5 15,000 15,000
Above 300,000 7

 

Nonresident individuals are subject to a final withholding tax at a rate of 15% on salaries, fees, commissions and allowances. To apply the 15% withholding tax rate to salaries paid to nonresident individuals, the tax authorities require that a labor relationship be documented through a written contract between the foreign indi­vidual and the Guatemalan employer. For fees received for pro­fessional services rendered by a nonresident individual in a non­dependent relationship, a 15% withholding tax applies.

Nonresident individuals with income subject to tax at a fixed withholding rate are not subject to further taxation.

Foreign individuals who render local services for more than 183 days in Guatemala are considered residents for tax purposes and are required to register with the tax authorities as self-employed persons and pay taxes in Guatemala under the Regime on Profits from Business Activities or the Optional Simplified Regime on Revenue from Business Activities (see Self-employment and business income). In addition, VAT at a rate of 12% applies to the services rendered in Guatemala.

Relief for losses. Self-employed individuals may not carry for­ward losses to offset future income from self-employment.

  1. Inheritance and gift taxes

A separate tax law governs inherited property and gifts resulting from death. The tax rates range from 0% to 7% for bequests or gifts resulting from death to the spouse, ascendants and descen­dants. For relatives within the second, third and fourth degree of consanguinity, the applicable rates range from 3% to 12%. Rates from 9% to 25% apply to relatives and unrelated parties. A VAT rate of 12% applies to inter vivos gifts.

Social security

Social security contributions are levied on salaries. The contribu­tion rates are 12.67% for employer contributions and 4.83% for employee contributions. No limits are imposed on the amount of earnings subject to social security contributions.

Tax filing and payment procedures

Employers are responsible for withholding income tax and social security contributions from the employee’s salary on a monthly basis. Consequently, an annual income tax return is not required for employed individuals if all compensation is subject to with­holding at source through the local payroll. Self-employed indi­viduals engaged in either commercial or non-commercial activi­ties must issue invoices, and monthly or quarterly income tax reporting is required depending on the tax regime elected by the individual. In additional, self-employed individuals must pay VAT and file monthly VAT returns.

The ordinary tax year runs from 1 January to 31 December. Returns must be filed, and any tax liabilities due must be paid within three months after the end of the tax year (31 March). Interest and penalty charges are imposed on late payments.

Nonresident individuals with income subject to tax at a fixed withholding rate are not subject to further taxation and are not required to file an annual income tax return.

Double tax relief and tax treaties

Guatemala has signed a tax treaty with Mexico, but Congress has not yet approved the treaty. As a result, the treaty is not yet in effect.

Temporary visas

Depending on their country of citizenship, individuals may be required to apply for and obtain an entry visa before traveling to Guatemala. A Guatemalan consulate overseas grants the visa. Because the rules indicating the countries of citizenship of indi­viduals who are required to obtain an entry visa before entering Guatemala and requirements for obtaining a visa often vary, it is necessary to check the entry visa requirements on a case-by-case basis.

Work visas (and/or permits)

Before obtaining a work permit in Guatemala, an applicant must request a temporary residence permit (see Section H). An applica­tion for a work permit is filed by the employer with the General Direction of Employment of the Labor Ministry and must include the following documents:

  • A certified copy of the employee’s passport (all pages including the blank ones)
  • Proof that a temporary residence permit has been applied for or granted
  • A certified copy of the applicant’s appointment, registered with the corresponding authorities
  • A sworn statement given by the employer that assumes full responsibility for the employee’s conduct
  • Accounting certification stating the number of Guatemalan and foreign employees employed by the entity
  • A certified copy of the designation of the foreigner by the employer to execute the job in Guatemala
  • For an employee who comes from a non-Spanish-speaking country, a sworn statement indicating that he or she is fluent in Spanish

For each work permit requested, the employer must pay a fee to the Guatemalan Learning and Training Department. This pay­ment serves as evidence of the employer’s commitment to the training policies for Guatemalan employees.

The work permit is valid for renewable periods of one year. A request for an extension must be filed 15 days before the expira­tion of the period for which the work permit is issued.

Residence visas (and/or permits)

The government of Guatemala may grant residencies to nationals of other countries who are interested in residing at Guatemala as foreign workers, renters, retirees or relatives of nationals. An application for a temporary residence permit for a foreign indi­vidual in Guatemala must be submitted to and processed by the immigration authorities in Guatemala. It must include the follow­ing items:

  • A form filled out with the personal data of the applicant and the members of the applicant’s family who wish to reside in Guatemala
  • A recent photograph
  • Passport and a legalized photocopy of the passport
  • Certification stating the validity of the passport and term (in Spanish or in the original language translated into Spanish) issued by the embassy or consulate in the applicant’s country or a birth certificate for persons from countries with which Guatemala does not have diplomatic relations
  • Proof stating that the applicant does not have a criminal record in the country or countries where he or she has lived during the last five years (or, for countries that do not issue these certifi­cates, a certificate stating the country’s refusal)
  • Proof of a Guatemalan guarantor, whether an individual or an entity (see next paragraph)

If the guarantor for an applicant is a legal entity, the following documents are required:

  • Financial statements
  • Legalized copy of the incorporation license
  • Legalized copy of the legal representative’s personal identifica­tion document
  • Legalized copy of the power of attorney granted to the legal representative
  • Offer of employment letter
  • Work permit (if available)

Application requirements may vary from case to case. Consequently, the requirements need to be checked in advance.

When the temporary residence permit is granted, the applicant’s passport is sealed. A temporary residence permit is valid for up to two years and may be renewed for equal periods. In addition, after a temporary residence permit is granted to an individual, he or she can request permanent residence, which, if granted, guar­antees the domicile of the person in the country.

Family and personal considerations

Family members. Guatemalan law does not automatically grant work authorizations to family members of foreign workers. Family members wanting to work in Guatemala must apply inde­pendently for work authorizations.

Marital property regime. The following marital property regimes apply under the Guatemalan Civil Code:

  • Absolute community: All assets brought into the marriage by the spouses or assets acquired during the marriage belong to the conjugal estate and are divided in half in the event of a divorce.
  • Absolute separation: Each spouse keeps the ownership, man­agement and income of his or her own assets. Each spouse owns the salaries, wages, emoluments and profits obtained by his or her own personal services.
  • Community property: The husband and wife each keep the own­ership of assets they had before the marriage and certain assets acquired during the marriage. In the event of a divorce, they each own half of the following assets:

— The profits of the assets owned by each of the spouses, from which the production, repair, conservation expenses and tax and municipal burden of the corresponding assets are deducted.

— Assets purchased with such profits, even if the acquisition is made in the name of only one of the spouses.

— Assets acquired by each one of the spouses through his or her work, employment, profession or industry.

A marital property regime that was adopted outside Guatemala is valid in Guatemala if such regime is expressly provided by the Guatemalan Civil Code (absolute community, absolute separa­tion and community property) and if the regime does not infringe on the public order.

Forced heirship. If an individual dies without leaving a will, the beneficiaries of the individual’s assets and patrimony according to the law are in the following order:

  • First: Descendants and spouse
  • Second: Ascendants and spouse
  • Third: Any other family members up to the fourth degree of relationship

The decedent’s estate must respect the maintenance and mone­tary obligations of the deceased.

Driver’s permits. To obtain a driver’s permit in Guatemala, a for­eign person must submit the following documents:

  • Request addressed to the Chief of the Department of Transit indicating a phone number and address to receive correspon­dence.
  • Original and legalized copy of a valid driver’s license from the applicant’s country.
  • Sworn translation of the driver’s license if the document is not in Spanish.
  • Two identity-card-size photographs.
  • Original and legalized copy of the passport.
  • Migratory certification of the status of the foreign person.
  • Eye test by an authorized ophthalmologist or optometrist.
  • Proof of a Guatemalan guarantor certified by a Notary Public. The guarantor must prove that it has sufficient financial means to pay for any potential damages caused by the nonresident.
  • Legalized copy of the guarantor’s personal identification docu­ment.
  • Payment for the driver’s permit.

Depending on the circumstances, the Transit Department may request technical and practical driving tests.

A driver’s license is granted for a period of one year to four years and may be extended on request.