sation is deductible to a maximum of 8% of salaries paid during the tax year. If the provision method is not used, actual severance payments are fully deductible.
Royalties. Royalties are deductible. The maximum deduction is 5% of the net sales. A withholding tax of 30% applies.
Income. Taxpayers must report their income on the accrual basis. Cash basis can be used in agricultural activities or upon request.
Asset Revaluation. Assets subject to depreciation can be revalued and depreciated for tax purposes. To benefit from this, an income tax must be paid.
Buildings 0% of revaluation
Others 10% of revaluation
Investment Deduction. Investment in new machinery or equipment
incorporated in the production process can be deducted from the taxable income. A 15% deduction from net profits is permitted if the company keeps the assets for more than four years; a lower rate applies otherwise. Also, 5% of net profits is allowed if the profits are reinvested in employee training.
Interest Received. A withholding tax of 10% applies as a definitive income tax on interest received from other entities.
RELATED CONSIDERATIONS
34. Incentives and Grants
Companies whose only activity is exporting goods out of the Central American Market (which excludes Panama and Belize) are exempt from income tax and from import duties on machinery and raw material for ten years. Companies that export but also have other activities are exempt only on import duties related to exports.
There is a free zone (ZOLIC) where industries and commercial operations can be performed fully tax-exempt for 12 years. Goods sold to the local market must pay duties.
35. Exchange ControlsExchange controls no longer exist, and money can be exchanged free of obligations and debts.
Bank Market. Foreign currency can be obtained freely on the bank market to pay for imports, loans, interest, tourist and business trips, medical care, and dividend remittances. The rate of exchange on the bank market changes every day according to supply and demand. Foreign currency must be sold to the Central Bank or any other authorized bank.
36. Investment Restrictions on Nonresidents
In general, there are no investment restrictions on nonresidents.
SELECTION OF BUSINESS ENTITY BY NONRESIDENTS
A foreign company can operate in Guatemala through a branch or agency, or as a local corporation. The foreign company may be a shareholder in the local corporation, but at least two individuals or companies, of any nationality, must also be shareholders.
SPECIMEN TAX COMPUTATION
Information:
q The corporation profits for the year of Q600,000 (local
currency) consist of:
Local net operating profit Q300,000
Dividend income from local corporations 100,000
Dividend income from foreign corporations 100,000
Bank interest 10,000
Capital gain from sale of assets 100,000
Q610,000
q During the following year, the corporation will invest Q200,000
in new industrial machinery, thus qualifying for investment incentives.
Computation:
For Financial For Income
Purposes Tax Purposes
Income
Local net operating profit Q300,000 Q300,000
Dividends from local corporations 100,000
Dividends from foreign corporations 100,000
Bank interest 10,000
Capital gain (1) 100,000 100,000
Total income Q610,000 Q400,000
Less:
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