Guatemala payroll and tax overview.

Guatemala is a Central American republic bordered to the north by Mexico, to the northeast by Belize, and to the east and southeast by Honduras and El Salvador. Guatemala is the third largest country in Central America with a landmass that stretches from the Caribbean Sea on its east coast, to the southern Pacific Ocean on its west. Defined by mountainous regions, Guatemala is regarded as the birthplace of the Mayan civilisation and numerous historic and cultural sites are located throughout the country. The Guatemalan economy was historically based on crops such as coffee, sugar and bananas but since the late 20th century economic reforms have helped to diversify and develop a range of industries. Today, coffee production, pharmaceuticals, textiles, paper production and petroleum are important components of Guatemala’s economic profile along with a tourism industry that attracts visitors from across the world. Guatemala is the largest economy in Central America, with a 2019 GDP of around $81.3 billion and a growth rate of around 3.6%. Guatemala is a member of the UN, the WTO, and the Caribbean Basin Trade and Partnership Act, and was ranked 96 on the World Bank’s Ease of Doing Business Survey 2019.

Foreign Direct Investment in Guatemala

The Guatemalan legal structure promotes investment and includes provisions that recognize and protect private property rights, both for domestic and foreign investors. In addition, there are Guatemalan laws that favor foreign investment by virtue of providing attractive incentives for investment, such as the “Ley de Inversión Extranjera” (Decreto 9-98), “Ley de Libre Negociación de Divisas” (Decreto 94-2000), “Ley de Zonas Francas” (Decreto 65-89), “Ley de Alianzas para el Desarrollo de Infraestructura Económica” (Decreto 16-2010).

Registering a Company and Establishing an Entity in Guatemala

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 twenty 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. To open a bank account takes 1 day with a cost of QTZ 0.5 for each name
• 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 1 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 and the authorization to print invoices
• 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, the Social Security Number
• Register with the “Superintendencia de Administración Tributaria” to obtain the Company Tax Identification Number (NIT); authorization for accounting books and authorization to print invoices

Business Banking in Guatemala

It is not 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 and Working Hours in Guatemala

Some companies work from Monday to Friday and others to Saturday 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 8 am to 4 pm, Monday through Friday.

Basic Facts about Guatemala

General information

Full Name: Republic of Guatemala

Population: 16.91 million (World Bank, 2017)

Capital: Guatemala City

Major Languages: Spanish

Monetary Unit: Quetzal

Main Exports: Coffee, sugar, petroleum, apparel, bananas, fruits and vegetables, cardamom

GDP Growth: 304% approx

Internet Domain: .gt

International Dialing Code: +502

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
• Ministry of Labor

Income Tax in Guatemala

According to Guatemalan law, taxable income is all income generated by capital, property, services, and rights invested or used in the country as well as income derived from any type of activities taking place in Guatemala.

All individuals, corporations and businesses, domiciled or not in Guatemala, are subject to income tax.

The presentation of income tax ISR to profits must be presented 90 days after the end of the accounting year. For companies, the fiscal year ends in December or June. Individuals must file by June 30 of each year.

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 a 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.

The income tax is defined under 2 modalities, either on the basis of income or on profits obtained in a period;

• If it is defined that it will be on the income, the rate is of 5% from $ 1 to $ 4000 and if it is higher than this last amount the rate changes to 7%
• If it is defined that it is taxed on the utility, the rate is of 25% on the net gains

In the case of 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% fine and for social security there is an annual interest charge of 18%.

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

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

Social insurance system covers all employees, including agricultural workers. Public sector employees are covered by a separate program. The pensions for old age, survivorship, and disability are funded by a small contribution from employees and larger contribution from employers, while 25% is covered by the government.

Retirement is set at 62 years of age with at least 216 months (18 years) of contributions to social security.

Cash and medical benefits are provided for sickness and maternity for employees of firms with more than five workers. Free medical care is provided for those receiving pensions.

Social security contributions:

• Social security employer contribution 12.67%
• Social security employee withholding 4.83%

Employers must contribute to the social security system (IGGS) with an overall percentage of:

• 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.

Reporting Tax in Guatemala

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 should be presented to the Ministry of Labor with total salary and positions.
• Also 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 in Guatemala

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$250 a month has to apply on its own for a Tax ID number.

The deadline for new starters to be registered with the authorities is 30 days after the company is duly registered in the Mercantile Register and after two months in the Social Security Institute.

The following Information is required to register the new start -

• Company name
• Employee’s name
• Social security number of every employee
• Amount of salary
• Date of start for every employee
• Payments during the month (every 15 days, weekly or monthly)

Leavers in Guatemala

The company only provides the person with a certification indicating the income tax amounts withheld during the year (only when applicable since not all employees are subject to income tax).

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