Guatemala’s tax system is characterized by its territorial tax regime, which means that it only taxes income generated within its borders. This approach to taxation allows for a distinct separation between local and foreign-source income, with the latter being exempt from taxation. The structure of the tax system is designed to encourage investment and economic activity within the country, while also simplifying the tax obligations for individuals and corporations. The rates and rules for various taxes, including corporate income tax, personal income tax, and the absence of inheritance, gift, and wealth taxes, reflect Guatemala’s strategic approach to fiscal policy. This overview provides insight into the core components of Guatemala’s tax system, highlighting its implications for both local and international taxpayers.
Guatemala’s Tax System overview
| Corporate Income Tax: | 25% |
| Personal Income Tax: | 5/7%, progr. |
| Inheritance Tax: | None |
| Gift Tax: | None |
| Wealth Tax: | None |
Territorial Tax Regime
Corporate Income Tax
Corporations incorporated in Guatemala are subject to tax on local source income at a rate of 25% of net income. Corporations can elect to be taxed on net income or gross revenue. Foreign sourced income is not subject to tax. Passive income is taxed separately at different rates. Capital gains sourced in Guatemala are taxed at 10%. There are withholding taxes on dividend payments at 5% and interest at 10%, except in the case of interest payments between banking entities.
Personal Income Taxation
Guatemalan residents are only subject to tax on local source income. Employment income is taxed at 5% or 7%; and passive income is generally taxed at 10%. Guatemala does not impose gift, inheritance tax or wealth tax.
Anti-Avoidance Rules
Guatemala has no General Anti-Avoidance Rules. Guatemala has Transfer Pricing rules, which require transactions between related parties to be arms-length, and has Thin Capitalization rules. However, Guatemala has no Controlled Foreign Corporation (CFC) rules.
Double Tax Treaties (DTTs)
Foreign Investment Protection
OECD Multilateral Convention
Common Reporting Standard (CRS)
FATCA
In conclusion, Guatemala’s tax system is structured around the principle of territoriality, offering a straightforward and favorable tax regime for those earning income within the country. The absence of taxes on foreign-source income, inheritance, gift, and wealth, combined with specific rules for corporate and personal income taxation, positions Guatemala as an attractive location for investment and residency. Despite the lack of General Anti-Avoidance Rules and Double Tax Treaties, Guatemala’s commitment to international cooperation is evident through its participation in the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Finally, the country’s tax policy framework, characterized by selective taxation and investment protection mechanisms, underscores its strategic approach to fostering economic growth and attracting foreign investment.
