2016/17
FOREWORD A country's tax regime is always a key factor for any business considering moving into new markets. What is the corporate tax rate? Are there any incentives for overseas businesses? Are there double tax treaties in place? How will foreign source income be taxed? Since 1994, the PKF network of independent member firms, administered by PKF International Limited, has produced the PKF Worldwide Tax Guide (WWTG) to provide international businesses with the answers to these key tax questions. As you will appreciate, the production of the WWTG is a huge team effort and we would like to thank all tax experts within PKF member firms who gave up their time to contribute the vital information on their country's taxes that forms the heart of this publication. The PKF Worldwide Tax Guide 2016/17 (WWTG) is an annual publication that provides an overview of the taxation and business regulation regimes of the world's most significant trading countries. In compiling this publication, member firms of the PKF network have based their summaries on information current on 30 April 2016, while also noting imminent changes where necessary. On a country-by-country basis, each summary such as this one, addresses the major taxes applicable to business; how taxable income is determined; sundry other related taxation and business issues; and the country's personal tax regime. The final section of each country summary sets out the Double Tax Treaty and Non-Treaty rates of tax withholding relating to the payment of dividends, interest, royalties and other related payments. While the WWTG should not to be regarded as offering a complete explanation of the taxation issues in each country, we hope readers will use the publication as their first point of reference and then use the services of their local PKF member firm to provide specific information and advice. Services provided by member firms include: Assurance & Advisory; Financial Planning / Wealth Management; Corporate Finance; Management Consultancy; IT Consultancy; Insolvency - Corporate and Personal; Taxation; Forensic Accounting; and, Hotel Consultancy. In addition to the printed version of the WWTG, individual country taxation guides such as this are available in PDF format which can be downloaded from the PKF website at www.pkf.com PKF Worldwide Tax Guide 2016/17 1
IMPORTANT DISCLAIMER This publication should not be regarded as offering a complete explanation of the taxation matters that are contained within this publication. This publication has been sold or distributed on the express terms and understanding that the publishers and the authors are not responsible for the results of any actions which are undertaken on the basis of the information which is contained within this publication, nor for any error in, or omission from, this publication. The publishers and the authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this publication. Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances. PKF International Limited (PKFI) administers a family of legally independent firms. Neither PKFI nor the member firms of the network generally accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. PKF INTERNATIONAL LIMITED JUNE 2016 PKF INTERNATIONAL LIMITED All RIGHTS RESERVED USE APPROVED WITH ATTRIBUTION PKF Worldwide Tax Guide 2016/17 2
STRUCTURE OF COUNTRY DESCRIPTIONS A. TAXES PAYABLE TAXES AND LEVIES COMPANY TAX SOLIDARITY TAX CAPITAL GAINS TAX BRANCH PROFITS TAX VALUE ADDED TAX (VAT) FRINGE BENEFITS TAX OTHER TAXES - REAL ESTATE TAX SOCIAL SECURITY CONTRIBUTIONS SOCIAL SECURITY CONTRIBUTIONS, IRTRA AND INTECAP B. DETERMINATION OF TAXABLE INCOME CAPITAL ALLOWANCES (DEPRECIATION) STOCK / INVENTORY INTEREST DEDUCTIONS LOSSES FOREIGN SOURCE INCOME INVESTMENT IN RENEWABLE ENERGY SOURCES C. FOREIGN TAX RELIEF D. CORPORATE GROUPS E. RELATED PARTY TRANSACTIONS AND TRANSFER PRICING TAX F. WITHHOLDING TAX G. EXCHANGE CONTROL H. PERSONAL TAX I. TREATY WITHHOLDING TAX RATES PKF Worldwide Tax Guide 2016/17 3
MEMBER FIRM City Name Contact information Guatemala City Hugo Arevalo Perez +502 2332 8831 /32 / 2363-1068 harevaloperez@pkfguatemala.com Siomara Arevalo Iralda sarevalo@pkfguatemala.com BASIC FACTS Full name: Republic of Guatemala Capital: Guatemala City Main languages: Spanish, more than 20 indigenous languages Population: 15.81 million (2014 estimate) Major religions: Christianity, indigenous Mayan beliefs Monetary unit: Guatemalan Quetzal (GTQ) Internet domain:.gt Int. dialling code: +502 KEY TAX POINTS Companies are subjected to income taxes, known as the income on lucrative activities regime, with rates at 31% for 2013, 28% for 2014 and 25% starting 2015. Solidarity tax is a way to anticipate income taxes so that the amount paid may be credited to income taxes over the following three years. VAT is payable on the domestic supply of goods and services and the import of goods. A standard rate of 12% applies although some supplies are exempted. There are no specific transfer pricing and thin capitalisation rules. For income from entities not residing in the country and acting with or without a permanent establishment, tax regimes do exist for the specific computation of withholding of taxes from rates ranging from 5% up to 15%. A. TAXES PAYABLE TAXES AND LEVIES Tax laws in Guatemala are based on the territoriality principle. There are a few exceptions, mainly those related to withholdings in origin, and all taxes are applicable to activities conducted within the Guatemalan territory. The Political Constitution of Guatemala provides legislative power to the Congress of the Republic. This provides certainty that no other entity, either local or foreign, shall create indirect or direct taxes. Guatemala is part of the Multilateral Investment Guarantee Agency (MIGA), which is responsible for facilitating a private capital investment flow to developing countries, while providing guarantees against risks such as expropriation, lack of currency convertibility, civil war or riots, etc. In addition, the country has benefited from the Overseas Private Investment Corporation (OPIC) with the promotion and fostering of private investments from the United States of America. COMPANY TAX Companies are subjected to income taxes, known as the income on lucrative activities regime, with rates at 25% starting 2015. There is also an optional simplified regime on income from lucrative activities with rates ranging from 5 to 7% starting 2014. In addition, a 5% income tax payment exists on distribution of dividends, earnings and profits. PKF Worldwide Tax Guide 2016/17 4
SOLIDARITY TAX This tax is a way to anticipate income taxes so that the amount paid may be credited to income taxes over following three years. The tax rate is 1% on gross income or the net asset amount and is applicable only to taxpayers opting for taxes on income from lucrative activities (25% income tax regime). Taxpayers that pay taxes under the optional simplified tax regime on income from lucrative activities (7% tax regime) are exempt from this tax. CAPITAL GAINS TAX Current laws, starting 1 January 2013, provide for an applicable tax rate on capital from furniture and real estate gains at 10%. A 5% income tax rate is applicable to payments made to stockholders during the distribution of dividends, earnings or profits. BRANCH PROFITS TAX There is no separate branch profits tax. Overseas companies with a permanent establishment in Guatemala pay tax on the profits of the permanent establishment under the same rules applied to Guatemala resident companies. VALUE ADDED TAX (VAT) VAT is collected during the exchange of goods or services at the local level as well as during the provision of services and importation of goods. Exportation of goods and services are tax exempt. The tax rate is 12%, although some exemptions do exist including: Services provided by entities controlled by the Superintendent of Banks, stock exchange brokers, insurance and reinsurance operations; Issuance and transfer of some securities; Grants and donations to not-for-profit entities; Transactions among co-operative entities and their participants; Importation of furniture by cooperative entities exclusively for their operations; Imports under the temporary importation system: VAT tax returns shall be filed on a monthly basis within a month following that month reported in the tax return. The tax amount in debt shall be payable in the due date. FRINGE BENEFITS TAX All benefits in kind are taxable on individuals receiving those benefits from their employers. OTHER TAXES - REAL ESTATE TAX An annual tax is payable on the owners of real estate and levied at the following rates: Taxable amount (GTQ'000) Rate Up to 2,000 0.0% 2,000.01 to 20,000 0.2% 20,000.01 to 70,000 0.6% Over 70,000 0.9% Tax is also charged on rural land declared to be uncultivated (i.e. not used for agricultural purposes). PKF Worldwide Tax Guide 2016/17 5
SOCIAL SECURITY CONTRIBUTIONS Employer's social security is payable at a rate of 10.67% on the total salary of employees. SOCIAL SECURITY CONTRIBUTIONS, IRTRA AND INTECAP Contributions made by employers to the social security and other recreational or training institutions shall be payable at 12.67% on the overall employees' salaries. A contribution made by employees to the social security is 4.83% on their salaries. B. DETERMINATION OF TAXABLE INCOME The information provided in the following section is applicable to tax payers opting for the income on lucrative activities regime. CAPITAL ALLOWANCES (DEPRECIATION) Tax deduction is available in respect of fixed assets used in the business. Generally speaking, only the straight-line method is allowed, although other methods may be used if agreed by the tax authorities. Maximum depreciation rates are set and include the following: Assets Rate Buildings and construction 5% Furniture and equipment 20% Vehicles 20% Computers (including software) 33.33% Tools 25% STOCK / INVENTORY In general, the following four methods may be used for valuation of inventories: 1) Production cost; 2) First-in, first-out system "FIFO"; 3) Weighted average; and, 4) Historic cost of goods. Other methods are allowed with prior authorisation from the Tax Office. INTEREST DEDUCTIONS Interest paid is deductible for both loans provided by banks or financial institutions and other institutions or individuals. Interest paid abroad when payable to banking or financial institutions registered or authorized by the corresponding banking government oversight and inspection entity in their respective country. The limit of this deduction shall not exceed the amount resulting from multiplying the corresponding interest rate by three times the average total net assets. LOSSES Losses other than capital losses may not be carried back or forward. Capital losses may only be offset by two years with capital gains. PKF Worldwide Tax Guide 2016/17 6
FOREIGN SOURCE INCOME Tax is only chargeable on Guatemala source income. INVESTMENT IN RENEWABLE ENERGY SOURCES Exemption of importation, income and value-added taxes exist by way of the "Incentives for development of renewable energy projects' law. C. FOREIGN TAX RELIEF Only Guatemala source income is subject to tax. Foreign investment is governed by the Foreign Investment Act, which among others, provides for equal conditions for either domestic or foreign investors. Likewise, this law establishes that the Government may not directly or indirectly expropriate investments made by foreign investors. D. CORPORATE GROUPS There are no special tax provisions relating to groups of companies. E. RELATED PARTY TRANSACTIONS AND TRANSFER PRICING From 1 January 2013, legislation on new transfer pricing rules has been enacted. The "special standards on the valuation among related parties" requires that from 1 January 2013, transactions made by Guatemalan companies with non-residing related parties must be valued under the "arm's length" principle. F. WITHHOLDING TAX For income from entities not residing in the country, and acting with or without a permanent establishment, tax regimes exist for the specific computation of withholding of taxes from rates ranging from 5% up to 15%. G. EXCHANGE CONTROL There are no exchange controls in Guatemala. Decree Number 94-2000 Law of Free Negotiation of Foreign Currency. H. PERSONAL TAX Individuals residing in the country and receiving income from labour under a dependency relationship are subject to a progressive tax rate as shown below: Taxable Base (GTQ) Fixed Tax Amount (GTQ) Marginal Rate On Excess 0.01 to 300,000 0 5% Over 300,000 15,000 7% Social security contributions and total personal expenses for up to CTQ 60,000 are deductible. PKF Worldwide Tax Guide 2016/17 7
I. TREATY WITHHOLDING TAX RATES Guatemala does not have any tax treaties in force. Guatemala entered into an agreement before the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, regarding tax information exchange with 42 countries, which includes among others, taxes on transfer pricing as explained in the preceding paragraphs. PKF Worldwide Tax Guide 2016/17 8