Guatemala

Registrations and Establishing an Entity

Registering a local corporation in Guatemala includes the following requirements:

• A minimum of two persons, individual or corporate, is necessary to form a corporation
• There are no restrictions on the origin of the parties
• The charter of the corporation must be executed in a public deed
• The deed must be submitted for registration in the Commercial Registry for legal authorization within 20 days after the registration of the corporation

The procedure of registering a company is as follows:

• Check the proposed company name online and obtain a letter from a Guatemalan notary public. It takes one day to open a bank account.
• With the name already investigated, request a letter from a Guatemalan attorney to open a bank account in the name of the company
• Select a person who will be the legal representative of the company
• Deposit the subscribed capital in a bank and get a receipt, this will take one day and will not be charged, this management must be done personally by the legal representative
• An attorney will issue the public deed of the constitution of the company and must be signed by each partner in Guatemala
• Complete the forms required by the Commercial Registry and the tax authority then pay the registration fees online. This is an online procedure of less than one day.
• Obtain the provisional registration of the new company before the Mercantile Register; the Tax Identification Number; the Edict; the registration of the legal representative appointment
• Publication of the edit in the “Diario Oficial de Centro América”, and opposition to the provisional registration of the company by affected third parties
• Obtain the definitive registration, the commercial license
• Register with the “Superintendencia de Administración Tributaria” to obtain the Company Tax Identification Number (NIT); authorization for accounting books and authorization to print invoices

Banking

It is mandatory in Guatemala to have an in-country bank account to process payroll.

Banks typically open 9am to 5pm Monday to Friday and 9am to 1pm on Saturdays.

Working Week

Some companies work from Monday to Friday and others to Saturday noon to complete 44 working hours.

There are 3 types of working schedules in Guatemala:

Daytime Schedule

Daytime work is the one that runs between six and eighteen hours of the same day. It cannot be more than eight hours a day, nor exceed a total of forty-eight hours a week.

Night Schedule

Night work is the one that runs between eighteen hours of one day and six hours of the next day. The night time cannot be longer than six hours a day, nor exceed a total of thirty-six hours a week.

Mixed Schedule

This is the one that runs during a time that covers part of the day period and part of the night period. The effective work hours cannot be more than seven hours a day or exceed a total of forty-two hours a week. However, if the person works more than 4 hours in the night; it will be considered as a night schedule.

In 2019, Part-Time Work Convention (No. 175) (ILO) was issued, which establishes that full or part-time staff can be hired, respecting and complying with the provisions of the law.

Government offices generally open from 8am to 4pm, Monday through Friday.

Employment Law

Holiday Accrual/Calculations

Full time permanent employees are entitled to 15 working days of paid holiday a year.

Holiday payments are paid at the regular day rate.

Maternity Leave

Article 152 of the Guatemalan Labor Code grants working women the right to maternity leave, ensuring the health of both mother and newborn by providing paid rest before and after childbirth. Maternity leave consists of 84 days, distributed as 30 days before and 54 days after childbirth. If the full 30 days before childbirth are not taken, the remaining days are added to the post-birth leave. To qualify, a working mother must have worked for the same employer for at least 120 days in the past six months and provide a medical certificate confirming the pregnancy. During maternity leave, she has the right to refrain from working, receive her regular salary, and retain her job.

Paternity Leave

New parents are granted three days paid paternity leave.

Sickness

Article 67 states that in specific cases, workers are relieved from performing their tasks, and employers must pay the corresponding salary. If a worker is covered by the Guatemalan Social Security Institute for social risks, the employer only needs to pay the required fees. If the worker is not covered by the Institute's benefits, the employer must grant leave until the worker's full recovery, with payment obligations as follows: half a month's salary after two to six months of continuous work, half salary for two months after six to nine months, and half salary for three months after nine or more months of continuous work.

National Service

There is no compulsory national service in Guatemala.

Tax & Social Security

The tax year in Guatemala is January to December.

The key legislative authorities in Guatemala are:

• Tax Office (Superintendencia de Administracion Tributaria)
• Ministry of Labor
• IGSS – Social Security Institute

Income Tax

The new regime for employees is a simplified system in which reduced rates are applied to only two brackets of income subject to tax (5% and 7%), instead of 4 brackets, where the rates ranged from 15% to 31 %. If your income subject to the payment of ISR is less than Q300 thousand, you will pay a rate of 5% on said value. If it exceeds Q300,000 per year, you will pay a fixed amount of Q15,000 (equivalent to 5% over Q300,000) and 7% over the excess of Q300,000. People who earn less than Q48,000 per year (about Q4,000 per month) are exempt from paying ISR.

In the case of the 12% VAT (Value Added Tax), the pay is monthly and the maximum is paid at the end of the month, which corresponds to the previous month. The typical fine for late payment of taxes is a 50%.

Income tax contributions on monthly income will be paid to the tax authority on the 10th of each month and for those who choose income tax on income, the payments are quarterly.

For the mercantile companies, it is obliged to pay 1% of the ISO Solidarity Tax, and its payment is quarterly and it is defined according to the results of the previous year, either on the income or its assets, the value that is greater and this Tax can be creditable to income tax.

Income tax deduction applies whenever a person earns more than US$535.00 per month.

Each individual has the right to deduct from his/her income tax an annual maximum of $1,600.00 that may be credited for the Value Added Tax paid in personal expenses, for purchases of goods or acquisition of services, during the final annual liquidation period.

Employees are paid 14 salaries a year. You must also pay the labor benefits of law such as indemnification, vacations, bonus 14 and bonuses.

Social Security

In Guatemala, the social security system is funded by mandatory Employer and Labor Quotas, which are contributions based on each registered worker's salary. These quotas ensure workers' access to health, maternity, illness, disability, old age, and death services provided by the Guatemalan Social Security Institute (IGSS). The Employer Quota, paid by the employer, is 10.67% of the worker's salary, while the Labor Quota, paid by the worker, is 4.83% of their salary. The employer is responsible for paying both quotas to the IGSS, deducting the Labor Quota from the worker's salary, and submitting both payments together.

• Social security - 10.67%
• INTECAP - 1.00%, entity in charge of the Training and Training of Workers
• IRTRA - 1.00%, entity responsible for providing Recreation and Space to workers and their families

Monthly Social Security contributions are to be paid to the local authority on the 20th of each month, what corresponds to the previous month.

Payroll

It is legally acceptable in Guatemala to provide employees with online payslips.

Reports

For social security purposes, the reports are required to be held indefinitely.

Reporting

Yearly

In March of each year, the Ministry of Labor must submit an annual statistical report of the employed workers that contains a list of all employees. This should be presented to the Ministry of Labor with total salary and positions.

In March of each year, a liquidation of income tax for employees has to be presented before the tax office.

Monthly

Every month, the IGSS worksheet must be submitted, a list of all salaries paid subject to social security has to be presented. This list determines the amount to be paid to social security from employer and retained and employees.

New Employees

Every worker to be hired must sign an individual work contract, which defines the conditions of hiring and their salary, this must be submitted to the Ministry of Labor to be valid and is endorsed by the entity, the contracting of the employee.

For social security purposes, employees are simply added to the monthly report sent to the social security. New employees that have never been reported to social security have to apply for identification and a social security ID number and it will be the same as your Personal Identity Identification number DPI.

For income tax withholdings, the employee is subject to taxes whenever the person starts to earn above US$250 a month, in which case if applicable a withholding is made and sent to the tax office. Every employee earning above US$500 a month has to apply on its own for a tax ID number.

The following Information is required to register a new employee:

• Company name
• Employee name
• Social security number or Personal Identity Identification DPI of every employee
• Salary amount
• Start date
• Payments during the month (every 15 days, weekly or monthly)

Leavers

The social security is informed of any leaver by simply stating in the monthly list sent to them that the person has left the company.

Benefits for Employees in the Dependency Relationship

Expenses or services paid or incurred during the fiscal year that are necessary for their personal support, provided they are supported by legal documentation (Invoices authorized by SAT).

Individuals in a dependent relationship can deduct as a maximum of their net income, $1600.00 that they can credit for the Value Added Tax paid in personal expenses, for purchases of goods or acquisition of services, during the final annual liquidation period. For this purpose, the VAT return must be presented, containing the detail of the invoices and it must be filed with the Superintendency of Tax Administration, within the first 10 business days of the month of January, and obtain the accounting to be valid. and must present to his employer, to be considered in the settlement of the final tax.

Benefits for Companies

All expenses or services paid or incurred during the fiscal year that are necessary to produce the generation of income or for the Sale of Services or Products are deductible, are deductible from gross income, provided they are backed by legal documentation (Invoices authorized by SAT).

Banking as established in Decree 20-2006

Introduced the figure of Banking in Tax Matters to the Guatemalan fiscal framework. It must be complied with in that all transactions that are carried out and that give rise to deductible costs and expenses or tax credits, when they are for amounts greater than thirty thousand Quetzales, the respective payments must be made using the means made available by the banking system... cash payments are not accepted...

Travel expenses

Travel expenses within or outside the country are deductible, as long as the purpose of such travel is related with the production of taxable income. These expenses must be properly supported with invoices whether if paid locally or abroad. If included in the payroll, they are subject to income tax. In some cases, companies pay travel expenses by way of reimbursements to avoid paying taxes.

Visas & Work Permits

All individual who are not Guatemalan nationals and wish to work in Guatemala must obtain a Residence Visa and Work Permit. Both documents are valid for one year and are renewed in Guatemala. The Temporary Residence in the country must be managed first.

The work permit can only be obtained if the Guatemalan employer agrees to sponsor the employee, backing them up and being their guarantor before the Migration and Labor Ministry of Guatemala and paying the $400 fee.

The documents required from the employer to support the employee’s work permit are as follows:

• Sworn Declaration of Responsibility
• Sworn Guarantee
• Job offer letter
• Act from Board of Directors
• Accounting certification/tax return forms

An employee and their family must provide the following documents to make the Work Permit application:

• Complete copies of the passport and the passports of each dependent
• An up to date CV in Spanish
• Two passport style photographs
• Job title and description of duties in Guatemala
• Criminal and police records, extended from your country of origin
• Police record of good Conduct for the employee with legalization at the Consulate of Guatemala in the countries where he/she has resided for the last five years
• Certificado de Validez y Vigencia. This is a letter or certificate from the passport issuing authority, which verifies the passport's validity and certifies that it is a true document. The certificate must then be legalized at the Consulate of Guatemala.

Further Information

For more information, or assistance with Guatemala tax enquiries please contact: gi@activpayroll.com

About This Payroll and Tax Overview

Please note that this document gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country. You should always seek specific advice for each specific situation. This document should not be relied upon as professional advice and activpayroll accepts no liability for reliance on its contents.