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GUATEMALA |
BONILLA,
MONTANO & TORIELLO |
CREATION
OF AN EXTRAORDINARY AND TEMPORARY TAX TO SUPPORT THE PEACE ACCORDS
Congress
decree 19-2004 establishes an extraordinary and temporary tax to support the
peace accords signed in 1996. This tax, IETAAP for its Spanish abbreviation (Impuesto
Extraordinario y Temporal de Apoyo a los Acuerdos de Paz) and which creation
was considered of national urgency, is supposed to be in force from July 2004 to
December 2007.
Taxable
Activities and Obliged Persons
The
tax is generated by the performance of any commercial and/or farming activity
within Guatemalan borders carried out by individuals or corporations obtaining a
gross margin superior to 4% of their gross income. Such activities are
considered taxable whether they are performed through the means of running a
business or by the creation of any of the following figures: trusts, the facto
business associations, irregular business associations or associations which has
not been formed in accordance with the formal legal requirements, the
establishment of branches by foreign corporations whether on a temporal or
regular basis, joint ownerships, undivided inheritances, the so called
“participation contracts”, as well as any other legal form of business
organization.
Tax
Basis and Taxable Period
The
tax base is formed by whatever is superior between:
a)
One fourth the value of the net worth.
b)
One fourth the amount of the gross income.
In
case the net worth’s value of the taxpayer is superior four times vis-`a-vis
his gross income, then it is permitted for him to use the base described in
letter b) above as the tax base to make the payment.
The
payment of this tax is quarterly due, being this period computed by calendar
quarters. The actual payment of the tax must be made within the next month to
that when the quarter terminates.
Tax
Rate and Determination of the Tax Due
The
tax rate to determine the tax due is:
a)
During the taxable periods comprised from July the 1st to December 31 of
2004, the tax rate will be of 2.5 %.
b)
During the taxable periods comprised from January the 1st 2005 to June
30th 2006, the tax rate will be of 1.25%.
c)
During the taxable periods comprised from July the 1st 2006 to December
31 2007, the tax rate will be of 1%.
The
tax due is determined by multiplying the corresponding tax rate –depending on
the period when the determination is made and according to letters a), b) and c)
described above- with the applicable tax base. In case the applicable tax base
is that formed with the net worth’s value, then it is possible for the
taxpayer, in order to determine the tax to be paid, to deduct from such
multiplication the amount of the Tax on Immovable Assets actually and
effectively paid by him for the same period (the Tax on Immovable Assets is a
quarterly due tax as well).
In
those instances where the taxable period is of less than a quarter, the tax
should be determined in proportion to the number of days actually elapsed within
the quarter.
Crediting
of the Tax
The
payment of this tax can be credited to the payment of the Income Tax and viceversa
by any of the following ways:
a)
The full amount of this tax paid over the year –in four quarters and
within the legal period- can be credited to the Income Tax during the immediate
next three year period, whether the Income Tax is quarterly paid or determined
for its payment in an annual definitive liquidation at the end of the year, as
applicable in accordance with the Guatemalan Income Tax Law.
b)
The quarterly payment of the Income Tax applicable to the July-September
2004 period is creditable from this period on to the Extraordinary and Temporary
Tax to support the Peace Accords during the same calendar year. Those taxpayers
who adopt this form of crediting can only change it with the prior approval from
the Guatemalan fiscal authorities.
The
remainder of this tax not credited to the Income Tax will be considered as a
deduction to determine the due Income Tax in the annual definitive liquidation
to be practiced at the end of the three year period mentioned in letter a) above.
Exemptions
a)
The branches of the State and its autonomous and decentralized agencies,
including the municipalities;
b)
The universities and educational institutions;
c)
Persons initiating business activities during the first year of operation;
d)
Persons already exempted from payment of the Income Tax by virtue of a
special legislation and only for the period of such benefit;
e)
The non-profitable associations or entities legally formed;
f)
The persons who pay the Income Tax in accordance with the new general
system: applying a fixed tax rate of 5% on the taxable income.
g)
Those taxpayers who report losses or negative balances during two
consecutive years. This benefit is limited exclusively to the four taxable
periods next to the years where the losses took place.
Relevant
Implications of the Extraordinary and Temporary Tax to support the Peace Accords
The
fiscal crisis that the new government found in the first quarter of its mandate
constituted the main reason that moved the authorities to seek a fiscal reform
on an urgent basis. This reform embraced the creation of new taxes as well as
significant amendments to the Income Tax Law.
The
creation of this new tax has not been welcome by the local business community,
particularly because of the unfavorable conditions it clearly poses for both
local and foreign investments in Guatemala. This assertion is mainly supported
by the fact that this new tax has a broad scope for it is addressed to any
person –an individual or a corporation, local or foreigner- engaged in any
commercial or farming activity through any sort of business organization.
Due
to the similarity of this tax in relation to the already disappeared Tax on the
Commercial and Farming Enterprises –IEMA for its abbreviation in Spanish (Impuesto
sobre las Empresas Mercantiles y Agropecuarias), which was a tax declared
unconstitutional early this year-, it cannot be disregarded a further action of
unconstitutionality to be exercised against this new tax on the same legal
grounds as those used to declare the unconstitutionality of IEMA (mainly a
violation of the constitutional principles of double taxation and taxpaying
capacity).
For
further information on this topic please contact José Guillermo Bonilla at
Bonilla, Montano & Toriello by telephone (502-332 6062) or by fax (502-332
2361) or by e-mail (jgbonilla@bonilla.com.gt).
