Tax Guide for US Expats Living and Working in Guatemala
Who Is Liable For Income Taxes In Guatemala
Domiciled and non-domiciled individuals are taxed on Guatemalan-source income only.
For tax purposes, domiciled individuals are Guatemalan citizens and foreign individuals registered with the tax authorities as domiciled individuals. If a foreign individual does not register with the tax authorities, the individual is deemed to be domiciled in Guatemala if he or she lives in Guatemala for more than 12 consecutive months and if he or she is legally authorized to work in Guatemala.
Income subject to tax. The taxation of various types of income is described below. For a table outlining the taxability of income items.
Employment income. All employment income, including benefits in kind, is taxable.
Self-employment and business income. Both domiciled and non-domiciled individuals are subject to tax on Guatemalan-source self-employment and business income.
Self-employed individuals may elect to be subject to a 5% withholding tax on their gross income (General Tax Regime) or to a 31% tax on their net taxable income, which equals total earnings less deductible expenses (Optional Tax Regime).
Investment income. Dividends paid to domiciled or non-domiciled individuals are exempt from income tax if the distributing entity has paid the corresponding income tax at the corporate level.
Interest paid to domiciled and non-domiciled individuals is subject to a final 10% withholding tax and is considered to be a nondeductible expense to the payer. However, interest income is not taxable if all of the following three conditions are met:
- Payments are made to a first-order financial or banking institution registered as such in the country of origin.
- Proceeds of the loan are used to generate taxable income.
- The loan is negotiated by a bank or financial institution that is legally authorized to operate in Guatemala under the existing exchange regulations.
For royalties received by non-domiciled individuals, the withholding tax rate is 31%.
Directors’ fees. Directors’ fees paid to non-domiciled individuals are subject to a final withholding tax at a rate of 31%. Domiciled individuals must include directors’ fees in their taxable income.
Capital gains and losses. Capital gains are taxed at a rate of 10% for individuals operating under the General Tax Regime. For individuals operating under the Optional Tax Regime, capital gains are taxed at a 31% rate. Capital losses may be carried forward for five years to offset future capital gains.
Deductions. Deductible personal expenses consist of the following items:
- Personal deduction of GTQ 36,000
- Life insurance premiums
- Social security contributions
- Retirement plan payments
- Alimony expenses
- Charitable contributions (maximum annual deduction of GTQ 500,000 [approximately US$64,500] or 5% of net income, whichever is less)
- Medical expenses (expenses incurred on medications do not qualify as medical expenses)
- Fees paid to local professional associations
Credits. An employee may credit the VAT paid during the year against the income tax liability. The credit is limited to 12% of the employee’s gross income. Employees are required to file a VAT Payroll Return with the tax authorities within 10 business days after the year-end.
Relief for losses. Self-employed individuals may not carry forward losses to offset future income from self-employment.
B. Inheritance and gift taxes
A separate tax law governs inherited property and gifts resulting from death. The tax rates range from 0% to 6% for bequests or gifts resulting from death to spouses or children. Rates up to 14% apply to other relatives. For unrelated parties, rates range from 12% to 25%. VAT at a rate of 12% applies to inter vivos gifts.
C. Social security
Social security contributions are levied on salaries. The contribution rates are 12.67% for employer contributions and 4.83% for employee contributions. No limits are imposed on the amount of earnings subject to social security contributions.
To learn more about the history, culture, economy and other information about Guatemala
We have been preparing US income tax returns for US Citizens and permanent residents living in Guatemala for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Guatemala and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Guatemala.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email