Libro I Título I. Disposiciones generales

A tax is established on all income obtained by natural persons, juridical persons, entities or patrimonies specified in this Book, whether domestic or foreign, resident or not in the country.

The tax is incurred each time taxable income is produced, and is determined in accordance with the provisions of this Book.

The following income is taxed according to its source:

1.Income from lucrative activities.

2.Income from work.

3.Capital income and capital gains.

Without prejudice to the general provisions, the regulations corresponding to each category of income are established and the tax is assessed separately, in accordance with each of the titles of this Book.

Income obtained by nonresident taxpayers is taxed in accordance with the categories indicated in this article and the provisions contained in Title V of this Book.

Income obtained throughout the national territory, the latter defined as established in the Political Constitution of the Republic of Guatemala, is subject to the tax.

The following are Guatemalan-source income, regardless of whether they are taxed or exempt, under any income category:

1.INCOME FROM LUCRATIVE ACTIVITIES

As a general rule, all income generated within the national territory, whether or not there is a permanent establishment from which all or part of such activity is carried out.

Including, among others, income derived from:

a)The production, sale and marketing of property in Guatemala.

b)The export of property produced, manufactured, processed or marketed, including the mere remittance thereof abroad, carried out through agencies, branches, representatives, purchasing agents and other intermediaries of natural persons, legal persons, entities or patrimonies.

c)The provision of services in Guatemala and the export of services from Guatemala.

d)The service of freight and passenger transportation, in both cases between Guatemala and other countries and regardless of the place where the freight charges or fares are issued or paid.

e)Communication services of any nature and by any means between Guatemala and other countries, including telecommunications.

f)Legal, technical, financial, administrative or other advisory services, used in the national territory, provided from abroad to any natural person or legal person, entity or patrimony resident in the country, as well as to permanent establishments of non-resident entities.

g)Public performances and acting in Guatemala by artists and athletes and any other activity related to such performance, even when received by a person other than the organizer of the performance, the artist or athlete, or derived indirectly from such performance.

h)The production, distribution, leasing, intermediation and any form of negotiation in the country of cinematographic films, video tapes, radio soap operas, phonographic records, musical and audio recordings, comic strips, photo-novels and any other similar means of projection, transmission or dissemination of images or sounds, including those derived from television transmissions by cable or satellite and multimedia.

i)Subsidies paid by public or private entities in favor of resident taxpayers.

j)Per diems, commissions, travel allowances not subject to settlement or which do not constitute reimbursement of expenses, representation expenses, bonuses or other remuneration obtained by members of boards of directors, administrative councils, municipal councils and other councils or executive or advisory bodies of public or private entities, paid or credited by persons or entities, with or without legal personality, resident in the country, regardless of where they act or meet.

k)Fees received for the exercise of professions, trades and arts without an employment relationship.

2.WORK INCOME:

As a general rule, income from any kind of consideration, compensation or earnings, whatever its denomination or nature, derived from personal work performed by a resident in an employment relationship, carried out within Guatemala or outside Guatemala.

Including, among others, as work income, income derived from:

a)Work performed within or outside Guatemala by a resident in Guatemala, which is remunerated by another resident in Guatemala or a permanent establishment or international organization operating in Guatemala.

*b) Pensions, retirement benefits and montepíos, by reason of employment performed within the country, paid or credited to any beneficiary by a resident in Guatemala.

c)Salaries, wages, bonuses or travel allowances not subject to settlement or which do not constitute reimbursement of expenses, and other remuneration which persons, entities or patrimonies, the State, autonomous entities, municipalities and other public or private entities pay to their representatives, public officials or employees in Guatemala or in other countries.

d)Salaries, wages, bonuses and other remuneration that do not involve reimbursement of expenses, of the members of the crew of air or sea vessels and of land vehicles, provided that such vessels or vehicles have their home base in Guatemala or are enrolled or registered in the country, regardless of the nationality or domicile of the beneficiaries of the income and of the countries between which the traffic is carried out.

e)Remuneration, salaries, commissions, travel allowances not subject to settlement or which do not constitute reimbursement of expenses, representation expenses, bonuses or compensation paid or credited by entities with or without legal personality resident in the country to members of their boards of directors, administrative councils and other councils or executive or advisory bodies, provided that such members are in an employment relationship.

3.CAPITAL INCOME AND CAPITAL GAINS:*

*As a general rule, Guatemalan-source income includes income derived from capital and from capital gains generated in Guatemala, received or accrued in money or in kind, by residents or non-residents in the country.

a)Dividends, profits, earnings and any other income derived from the participation or holding of shares in legal persons, entities or patrimonies resident in Guatemala or derived from participation in the profits of permanent establishments of non-resident entities.

b)Interest or yields paid by natural persons, legal persons, entities, patrimonies or resident entities or which have permanent establishments located in the country, derived from: i) money deposits; ii) the investment of money in financial instruments; iii) credit operations and contracts, such as the opening of credit, discount, documentary credit or money loans; iv) the holding of credit instruments such as promissory notes, bills of exchange, bonds or debentures or the holding of other securities, in any case issued physically or by means of book entries; v) price differentials in repurchase agreement operations, regardless of the denomination given to them by the parties, or other income obtained from the assignment of own capital; vi) financial leasing, factoring, asset securitization; vii) any type of credit, financing, capital investment or savings operations.

c)Royalties paid or used in Guatemala, by natural persons or legal persons, entities or patrimonies, residents or by permanent establishments operating in Guatemala. Payments for the use, or the granting of use, of the following shall be considered royalties:

I.Copyright and related rights in literary, artistic or scientific works, including cinematographic films, video tapes, radio soap operas, phonographic records, musical and audio recordings, comic strips, photo-novels and any other similar means of projection, transmission or dissemination of images or sounds, including those derived from television transmissions by cable or satellite and multimedia.

II.Trademarks, advertising expressions or signs, trade names, emblems, geographical indications and appellations of origin, patents, industrial designs, drawings or utility models, plans, supply of secret formulas or processes, privileges or franchises.

III.Rights or licenses over computer programs or updates thereof.

IV.Information concerning industrial, commercial or scientific knowledge or experience.

V.Personal rights susceptible to assignment, such as image rights, names, nicknames and artistic names.

VI.Rights over other intangible assets.

d)Income derived from movable property and immovable property located in Guatemala.

e)Capital gains, when derived from shares, titles or securities issued by resident persons or entities, from other movable property other than shares, titles or securities, or from rights that must be fulfilled or are exercised in Guatemala.

f)Capital income derived from rights, shares or participations in an entity, whether resident or not, whose assets consist of immovable property located in Guatemala.

g)Capital income derived from the transfer of rights, shares or participations in an entity, whether resident or not, which grant its holder the right of enjoyment over movable property or immovable property located in Guatemala.

h)Capital income derived from the transfer of movable property or immovable property located in the national territory or in rem rights over the same.

i)Prizes from lotteries, raffles, drawings, bingos and similar events held in Guatemala.

j)The incorporation into the patrimony of the resident taxpayer of property located in Guatemala or rights that must be fulfilled or are exercised in Guatemala, even when not derived from a prior transfer, such as gambling winnings and acquisitions for gratuitous title that are not taxed by another direct tax.

*Provisional suspension of subparagraph b), of numeral 2, by File Number 317-2013 on 19-02-2013

Assignments and disposals of property and rights, in their different modalities, the provision of services and any loan contract, whatever its nature and denomination, carried out by natural persons or legal entities and other entities or patrimonies that carry out commercial activities, are presumed onerous, save evidence to the contrary. Such transactions must be supported in accordance with the corresponding legal documentation.

In particular and without prejudice to the provisions of the preceding paragraph, in every loan contract, whatever its nature and denomination, the existence of minimum interest income is presumed, save evidence to the contrary, which shall be that resulting from applying to the total amount of the loan the maximum annual simple interest rate determined by the Monetary Board for tax purposes.

The regulations for the special valuation rules between related parties shall be established in accordance with Book I, Title II, Chapter VI, Sections I and II of this Law.

For tax purposes, a resident is considered to be:

1.The natural person when any of the following circumstances occurs:

a)That they remain in national territory for more than one hundred eighty-three (183) days during the calendar year, the latter understood as the period from January one (1) to December thirty-one (31), even when not continuously.

b)That their center of economic interest is located in Guatemala, unless the taxpayer proves their residence or tax domicile in another country, by means of the corresponding certificate issued by the tax authorities of said country.

2.The following are also considered residents:

a)Persons of Guatemalan nationality who have their habitual residence abroad, by virtue of being members of Guatemalan diplomatic missions or consular offices, holders of official position or employment of the Guatemalan State and active public officials who exercise abroad an official position or employment that has neither diplomatic nor consular character.

b)Persons of Guatemalan nationality who have their habitual residence abroad, by virtue of being officers or employees of private entities for less than one hundred eighty-three (183) days during the calendar year, the latter understood as the period from January one (1) to December thirty-one (31).

c)Persons of foreign nationality who have their residence in Guatemala, who perform their work under an employment relationship in diplomatic missions, consular offices or in official positions of foreign governments, when there is no reciprocity.

3.Legal persons, entities or patrimonies specified in this book that meet any of the following situations are considered residents in national territory:

a)That they have been constituted in accordance with the laws of Guatemala.

b)That they have their corporate or tax domicile in national territory.

c)That they have their place of effective management in national territory.

For these purposes, it is understood that a legal person, entity or patrimony specified in this book has its place of effective management in national territory when the direction and control of the whole of its activities is exercised therein.

It is understood that a natural person, legal person, international organization, entity or patrimony specified in this Book operates with a permanent establishment in Guatemala when:

1.Under any title, it has at its disposal in the country, on a continuous or habitual basis, a fixed place of business or facilities or workplaces of any kind, in which it carries out all or part of its activities.

The definition in the preceding paragraph includes, in particular:

a)Places of management.

b)Branches.

c)Offices.

d)Factories.

e)Workshops.

f)Warehouses, stores or other establishments.

g)Agricultural, forestry or livestock operations.

h)Mines, oil or gas wells, quarries or any other place of extraction or exploration of natural resources.

2.Included in this concept is any work, construction or installation project, or supervision activities in connection therewith, but only if the duration of such work, project or supervision activities exceeds six (6) months.

3.Notwithstanding the provisions of numerals 1 and 2 of this article, when a person or entity other than an independent agent acts in Guatemala on behalf of a nonresident, such nonresident is deemed to have a permanent establishment in Guatemala with respect to the activities that such person carries out for the nonresident, if such person:

a)Habitually holds and exercises in Guatemala powers empowering it to conclude contracts on behalf of the enterprise; or,

b)Does not hold such powers, but habitually maintains in Guatemala stocks of goods for delivery on behalf of the nonresident.

4.It is deemed that, except in relation to reinsurance and re-bonding, an insurance enterprise has a permanent establishment if it collects premiums in the national territory or insures risks situated therein through a person resident in Guatemala.

5.It is deemed that a permanent establishment exists where the activities of an agent are carried out exclusively, or more than fifty-one percent (51%) on behalf of the nonresident and the conditions accepted or imposed between the latter and the agent in their commercial and financial relations differ from those that would apply between independent enterprises.

6.A permanent establishment shall not be deemed to exist in the country merely because the activities of a nonresident are carried out in Guatemala through a broker, a general commission agent or any other independent agent, provided that such persons act within the ordinary framework of their activity.

The following are exempt from the tax:

1.State bodies and their decentralized, autonomous entities, the municipalities and their enterprises, except those originating from legal persons formed with mixed capital, without prejudice to the accounting, formal or withholding obligations that may correspond to them.

2.Universities legally authorized to operate in the country, without prejudice to the accounting, formal or withholding obligations that may correspond to them.

3.Private educational centers, as centers of culture, exclusively with respect to income derived from: enrollment registration, tuition and examination fees, for the courses authorized by the competent authority; lucrative activities of these establishments are excluded, such as bookstores, transportation service, shops, sale of footwear and uniforms, internet, printing shops and other lucrative activities. In all cases they must comply with the accounting, formal or withholding obligations that may correspond to these entities.

4.Inheritances, legacies and donations by reason of death, taxed under Decree Number 431 of the Congress of the Republic "Law on the Tax on Inheritances, Legacies and Donations".

5.Income obtained by churches, exclusively by reason of worship. Income from lucrative activities such as bookstore, parking services, transportation, shops, internet, dining halls, restaurants and other lucrative activities is not included within this exemption. In all cases they must comply with the accounting, formal or withholding obligations that may correspond to these entities.

Every valuation rule contained in the present book admits evidence to the contrary.