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GUATEMALA |
BONILLA,
MONTANO & TORIELLO |
THE
GUATEMALAN INCOME TAX LAW REFORMS
Due
to the fiscal crisis in which the new Guatemalan Government encountered upon
entering into power and foreseeing the lack of resources needed in order to
comply with not only their commitments according to the Guatemalan Peace Treaty
signed in 1996, but also to maintain the government working and to
continue the basic and essentials services to the general public, it was
necessary for the new administration to request from the legislative branch the
reform and the creation of new laws regarding taxes. The Guatemala Congress
Decree 26-92 and its reforms, which establish and regulate the Guatemala Income
Tax Law, was consequently reformed again by Congress Decree 18-2004. From the
various amounts of reforms, there are two basic reforms of this law that stand
out: 1) the change in the taxable period; 2) the change of the general and
optional tax systems, for the domiciled people in Guatemala to file their tax
return. Only threw this reform of the Guatemalan Income Tax Law and the creation
of two other laws, will the Guatemalan Government be able to honor and comply
with their short and intermediate obligations towards the people and in a
continuing and periodic term.
Before
the reforms of the Guatemalan Income Tax Law, there were two possible taxable
periods, depending upon the tax payer: 1) the general tax period was from July 1
until June 30 of next year; and 2) from January 1 until December 31 of the same
year. This last taxable period was
only authorized for artificial persons whom submitted their applications for
this period upon the condition that their annual accounting period coincided
with the taxable period requested.
Under
the new reform of the Guatemalan Income Tax Law, now there is only one taxable
period which is from January 1 until December 31 of the same year.
The
other outstanding reform of the Guatemalan Income Tax Law is that of the two
possible tax collecting systems. Under the old law, the general tax system
consisted in the tax payers filing year tax returns, according to a determined
tax rate and tax table, which fluctuated from 15% to 31%, depending if the
income was self employment income or income from commercial and mercantile
activities performed by individuals or artificial mercantile persons.
Although the taxable period was yearly (tax year), the tax payers were
also obligated to file quarterly income tax returns and at the end of the tax
year a final tax return. The quarterly income tax returns would be credited to
the yearly and final income tax return filed by the tax payer, in order to
determine his final taxable income. The people in dependent working
relationships and that obtain their total income from this source, were
exonerated by law to comply with filing quarterly and yearly tax returns.
The optional tax system for the Income Tax Law consisted in the tax
payers filing monthly tax return and paying 5% of their gross income.
The tax return and taxable income, according to this optional (and
monthly) system was a definitive payment to the income tax.
Also, the people that opted for this optional or special tax system in
the Guatemalan Income Tax Law did not have to file quarterly income tax returns
and only yearly income tax returns in order to cross check the monthly tax
returns filed during the yearly period.
With
the new reforms to the Guatemalan Income Tax Law, these two taxing systems
changed places. Now the old
optional taxing system becomes the new general system and the old general system
becomes the new optional system.
Consequently,
the new general system imposes a tax rate of 5% on the monthly gross income of
the tax payer. Also, there are two
options to pay this tax to the Superintendencia
de Administración Tributaria (equivalent to the Internal Revenue Service):
1) by tax retention of the 5% on the invoice gross income; or 2) by filing the
monthly income tax return and paying directly to the Superintendencia de Administración Tributaria –SAT- 5% of the
total monthly gross income. The payment of the 5% of the total gross income, by
ways of either form the tax retention or the direct payment to the Guatemalan
Internal Revenue Service Office, is to be reported and paid within the first ten
working days on the following month.
The
old general system, which is now the new optional system, remains the same with
a few requirements that must be fulfilled in order to continue in this income
tax system. Additionally to filing quarterly and yearly tax returns under this
system with a tax rate of 31% on the taxable income, the tax payers must fulfill
the following requirements:
1.
must have the accounting books entitled and authorized by the Guatemalan
Internal Revenue Service Office (Superintendencia de Administración Tributaria
–SAT-) and the Guatemalan Commercial or Mercantile Registration Office;
2.
Must file quarterly income tax returns;
3.
Must file the yearly income tax return, calculating and paying the income
tax due; also, the tax payer must attach an audited financial statement;
4.
Submit a detailed statement regarding the gross income with the tax
deductions for the tax year period, along with the yearly income tax return;
5.
Adding to the invoices the phrase: “SUBJECTED TO QUARTERLY INCOME TAX
RETURN”.
To
adopt this income tax system, the tax payer must notify the Internal Revenue
Service (Superintendencia de Administración Tributaria –SAT-) within the
first month of enforcement of this law or when the tax payer registers as a new
entity.
However,
under this tax system the tax payers that remain or submit an application to
enter under this system, will also be obligated under the law to file the tax
return and payment of the new Extraordinary and Temporary Tax Supporting the
Guatemalan Peace Treaty signed in 1996, in accordance to its article 4
subsection f).
Finally,
since the reform of the Guatemalan Income Tax Law took place during the middle
of this year, and the yearly tax period is from January 1 to December 31,
article 25 of Guatemalan Congress Decree 18-2004, which reforms the Guatemalan
Income Tax Law, states that there will be an extraordinary tax period starting
July 1 until December 31, 2004; and that the normal or ordinary period will
start as of January 1 until December 31 of each consecutive and following year.
It
is believed that with the reform of the Guatemalan Income Tax Law, the fiscal
period or tax year is not really a yearly period but rather more as a monthly
period, and therefore the yearly income tax return would be unnecessary to be
filed. This of course would be for those tax payers which have
adopted the income tax system where the tax return is subject to 5% upon their
total monthly gross income. Also,
and under the assumption that the new general tax system basically falls upon
the gross income of the tax payer, it would now be incorrect to call it the
Guatemalan “Income Tax Law”; and perhaps it would be better named “Gross
Income Tax Law”.
For
further information on this topic please contact Larry Robles Guibert at Bonilla,
Montano & Toriello by phone (502-332 6062), or by fax (502-331 3317) or by
e-mail (lrobles@bonilla.com.gt).
