Economic Overview
Over the past couple of years, Guatemala has benefited from the recovery of the U.S. economy (given that the U.S. is the destination for 40% of the country’s exports). The country’s growth reached 3.2% in 2017 after a 3.1% GDP growth in 2016; total 2017 GDP was estimated at USD 70 billions. The economy was mostly driven by external trade, household consumption, booming U.S. demand and the mining sector, although the second political crisis in two years – this time surrounding President Jimmy Morales, potentially illegal campaign funding, and his attempt to declare a UN top prosecutor as persona non grata – could set back the economy in 2018 (Bloomberg).
Domestic demand remains the main driver of the economy, supported by changing preferences of consumers, strong bank lending to the private sector, and above all by remittances from the U.S. which increased 14% compared to 2016 and reached USD 8.192 billion (Central America Data). Guatemala’s macroeconomic indicators are stable: the country has maintained a level of growth, the public debt is under control (25% of the GDP), and the budget deficit is under 1.5% of GDP.
GDP is expected to increase to 3.5% in 2019 due to higher public investment and stronger remittances (BN Americas). Exports have benefited from strong demand in the U.S., El Salvador and Honduras. Inflation was at 4.4% during 2017 (CIA). Official unemployment stands at 2.3%, but the informal sector employs over 60% of the population (El Economista). The implementation of the tax reform passed in 2012 that aimed to increase government revenue has been slowed by judicial obstacles.
Key sectors in Guatemala
- The agricultural sector accounted for 13.2% of GDP in 2017 and employed 30.5% of the active population in 2016. It also accounted for over 70% of the country’s exports. The country produces and exports mainly coffee, sugar, bananas, cotton, rubber, cardamom and a variety of precious woods and exotic fruits. The country, which has a small mining industry extracts copper, zinc, iron and nickel, and has a strong potential in the geothermic and hydroelectric sectors.
- The industry sector accounted for 23.6% of GDP in 2017 and 13.7% of employment in 2016. It is mainly based on textiles, paper industries, pharmaceutical products, as well as rubber processing.
- The service sector represented the largest share of GDP (63.2% in 2017) and employed 55.8% of the population in 2016. The tourism industry is very dynamic and continues to grow.
Taxes in Guatemala
BASIS
Resident individuals are subject to income tax on Guatemala-source income. Nonresident individuals are taxed via withholding on their Guatemala-source income.
RESIDENCE
An individual is considered a resident of Guatemala if he/she remains in the country for more than 183 days during the calendar year or if his/her center of economic interests is located in Guatemala.
FILING STATUS
Joint filing is not permitted. Each individual must file a return, except for those under an employment contract where employer has withheld tax on behalf of the individual.
RATES
Individuals engaged in a trade or business are taxed the same as corporations. Personal income from employment is taxed at progressive rates ranging from 5% to 7%. Nonresident individuals are taxed via withholding at a flat rate of 15% on Guatemala-source employment or professional services income.
DEDUCTIONS AND ALLOWANCES
In addition to a personal allowance of GTQ 48,000, individuals earning income from employment may deduct a several items categorized as personal deductions in the law.
TAXABLE INCOME
Individuals involved in trade or business are taxed the same as corporations. Income from employment is taxed via withholding by the employer.
CAPITAL GAINS
Capital gains are taxed at a rate of 10%.
Investing in Guatemala
The Guatemalan market is very competitive. The country benefits of a very advantageous position due to its proximity to Mexico and the United States on one side and to the rest of Central America on the other side. The customs union established among the Central American countries and North America facilitates the passage and trade of goods. Currently, FDI accounts for 17.4% of GDP.
The latest executive laws that came into force have accelerated the progress of privatization and instigated the end of monopolies. In this regard, a number of private investments will be able to get established in the next following years. The preferential sectors are the food industry, telecommunications, tourism and consumer goods.
Guatemala has the usual problems of the so-called “developing” countries. Corruption and the weakness of the intellectual property protection system are the two most significant loopholes. Additionally, the slowness and complexity of the administrative and bureaucratic procedures are sometimes discouraging. The lack of security and the social inequalities can be a hindrance to the development of a company as well as the decaying condition of roads and the communication networks in certain geographical areas.
Since 2004, the country has been making substantial efforts to promote foreign investment, facilitating the administrative procedures and establishing central information networks required for all foreign investors. Corruption and violence are denounced and handled by the state. The application and the success of these objectives are taking their time but Guatemala is clearly beginning a process of opening up economically and commercially. A proof of this is the number of trade treaties and agreements that have taken place in the past recent years.
It is also important to remark that Guatemala is part of the MIGA: Multilateral Investment Guarantee Agency, a branch of the World Bank in charge of promoting and protecting foreign investment. It has also been ratified by the OPIC: Overseas Private Investment Corporation. Guatemala’s membership to these types of organizations shows its determination to create a safe and attractive environment to foreign investors.