Guatemala has an estimated workforce of over 7 million, spanning across the entire country. These employees work for both local and international companies, and their salaries are typically paid monthly, though contracts may specify otherwise. The country has a robust labor framework governed by the Labor Code, with collective agreements often negotiated through unions to set minimum wages and working conditions across sectors.

Tax residents in Guatemala are subject to the Income Tax (Impuesto sobre la Renta, ISR), a personal income tax of 5% and 7%, depending on income levels. Compliance with payroll and tax regulations is crucial for conducting business in Guatemala, as it helps avoid penalties and fosters trust with employees and authorities.

For local businesses, adhering to tax laws prevents fines and audits from the Superintendencia de Administración Tributaria (SAT), Guatemala’s tax authority. For international companies, compliance enhances credibility with the Guatemalan government and strengthens market reputation.

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What is Payroll Tax in Guatemala?

Definition and Purpose of Payroll Tax

In Guatemala, payroll tax primarily refers to social security contributions managed by the Guatemalan Social Security Institute (Instituto Guatemalteco de Seguridad Social, IGSS). These contributions fund social security programs, including healthcare, pensions, maternity leave, and workplace accident benefits, supporting millions of beneficiaries. Whereas, the personal income tax (ISR) funds government operations and public services.

Employer and Employee Responsibilities

Employers contribute 12.67% of an employee’s gross salary to the IGSS, covering benefits like healthcare, pensions, and workplace accident insurance. Employees contribute 4.83% of their gross salary. Employers are responsible for withholding these contributions, along with ISR, and remitting them to the SAT and IGSS. 

Employees must verify their payslips to confirm the correct deductions for ISR and social security. Non-compliance, such as late payments or underreporting, can result in fines or audits by the SAT. Employers with more than three workers must register with the IGSS, and those with over ten employees must maintain authorized salary books, as mandated by Article 102 of the Labor Code.

Contribution rates and regulations may be updated periodically. Stay informed through the official SAT website or IGSS announcements.

For businesses seeking to simplify compliance, partnering with a Guatemalan Employer of Record (EOR) or Professional Employer Organization (PEO) service can streamline payroll management, tax filings, and benefits administration.

Employer Payroll Tax Rates in Guatemala

Payroll taxes in Guatemala are calculated as a percentage of an employee’s gross salary, designed to balance business obligations while funding social welfare programs.

Breakdown of Employer Contributions

The following are the current payroll tax rates in Guatemala:

  • Social Security Contributions (IGSS): Administered by the Guatemalan Social Security Institute, these contributions fund retirement, healthcare, maternity, and workplace accident benefits. Employers contribute 12.67% of an employee’s gross salary, while employees contribute 4.83%. These are withheld and remitted monthly.
  • Other tax: Unlike some countries, Guatemala does not impose separate payroll taxes for training or apprenticeship purposes. However, employers must comply with other tax obligations, such as the Value Added Tax (VAT) at 12% on goods and services, and the Solidarity Tax (ISO) at 1% on net assets or gross income for certain businesses.

Industry-Specific Tax Rates

Guatemala applies specific tax considerations for certain industries:

  • Agriculture: A reduced VAT rate of 5% applies to small taxpayers with annual turnover below GTQ 150,000 and agricultural businesses with yearly sales below GTQ 3,000,000, as per Decree 27-92. This reduces costs for agribusinesses.
  • Mandatory Bonuses: Guatemalan law mandates a 14-month salary system, requiring employers to pay a mid-year bonus (Bono 14) in July and a Christmas bonus in December, each equivalent to one month’s salary. These bonuses are subject to ISR and social security contributions.

Employers must account for social security contributions and mandatory bonuses in budget planning. Other benefits, such as private health insurance or housing allowances, may be taxable unless they are exempt under Guatemalan labor law. Employers are advised to consult local tax experts or payroll service providers for clarity on exemptions and compliance.

Overview of Income Tax in Guatemala

Personal Income Tax Brackets and Rates

The ISR for individuals in Guatemala follows a system with two tax brackets based on annual taxable income after deductions:

Annual Income (GTQ)Tax Rate (%)
Up to 300,0005%
Over 300,0007%

These rates apply to salaried income after deducting mandatory social security contributions (4.83% for employees) and allowable deductions.

Taxpayers must file annual returns by March 31 of the following year via the SAT’s Agencia Virtual platform.

Non-residents are subject to a flat 7% withholding tax on Guatemalan-sourced income, such as salaries or professional fees, with no deductions. Capital gains from movable or immovable property are taxed at 10%, withheld at the source for both residents and non-residents.

Tax-Free Allowances and Deductions

Guatemala’s tax system offers several deductions to reduce taxable income, including:

  • Personal Deduction: An annual deduction of GTQ 48,000 is available to all taxpayers to cover basic living expenses.
  • Social Security Contributions: The mandatory 4.83% employee contribution to the Instituto Guatemalteco de Seguridad Social (IGSS) is deductible.
  • VAT Credit: Up to GTQ 12,000 annually can be deducted for documented expenses subject to the 12% Value Added Tax (IVA), provided invoices are registered with the SAT.
  • Medical and Educational Expenses: Expenses for medical care, education, and insurance premiums (life, health, or accident) are deductible up to GTQ 20,000 annually, provided proper documentation is submitted.
  • Charitable Donations: Donations to registered non-profits or government-approved entities are deductible up to 5% of net income or GTQ 500,000, whichever is lower.

Key Components of Payroll in Guatemala

Payroll Cycle and Pay Slips

Guatemala follows a monthly payroll cycle, with salaries typically paid by the last working day of the month. Some employers may offer performance-based bonuses. However, there’s the mandatory Bono 14 (mid-year bonus) and Christmas bonus, each equivalent to one month’s salary, paid in July and December, respectively.

Employers must provide monthly pay slips detailing:

  • Basic salary
  • Social security contributions (4.83% employee contribution)
  • Income tax withheld (ISR)
  • Mandatory bonuses (Bono 14 and Christmas bonus, when applicable)
  • Other deductions or benefits, such as private insurance or allowances

Pay slips must comply with SAT and IGSS regulations and are often submitted electronically via the Agencia Virtual platform.

Employer Responsibilities for Payroll Tax Compliance

Employers are responsible for:

  • Calculating and withholding ISR and employee social security contributions (4.83%) from salaries.
  • Contributing 12.67% of gross salaries to the IGSS, covering healthcare, pensions, maternity, and workplace accident benefits.
  • Filing monthly payroll declarations and remitting contributions to the SAT and IGSS by the 15th of the following month.
  • Maintaining authorized salary books for businesses with over ten employees, as required by Article 102 of the Labor Code.
  • Registering with the IGSS for businesses with three or more employees.

Common Payroll Errors and How to Avoid Them in Guatemala

  • Misclassifying Employees: Misclassifying employees as independent contractors can lead to penalties, as contractors are subject to different tax and social security rules. Verify classifications using Guatemala’s Labor Code.
  • Incorrect Tax Calculations: Errors in applying the progressive ISR or miscalculating social security contributions can result in fines. Use SAT-approved payroll software to ensure accuracy.
  • Non-Compliance with Bonuses: Failing to pay the mandatory Bono 14 or Christmas bonus, or incorrectly calculating their tax implications, can lead to labor disputes. Ensure these bonuses are included in payroll budgets and properly reported.
  • Poor Record-Keeping: Incomplete records can complicate SAT or IGSS audits. Adopt digital payroll systems to maintain organized, accessible records for at least five years, as required by law.

Tax Treaties and Withholding Taxes

Guatemala’s Double Taxation Treaties

Guatemala has no double taxation treaties with any country.

Totalization Agreements

Guatemala does not have formal social security totalization agreements with other countries. Expatriates and employers must contribute to the IGSS for employees working in Guatemala, with no exemptions for foreign social security systems. Employers should consult the IGSS for guidance on compliance.

Withholding Tax on Foreign Income

  • Dividends: Dividends paid to non-residents are subject to a 5% withholding tax, unless reduced by a DTT.
  • Royalties: Royalties paid to non-residents face a 15% withholding tax.
  • Services: Payments for services provided by non-residents are subject to a 15% withholding tax, covering ISR and other levies.

Employers must file withholding tax returns and payments by the 15th of the following month via the SAT’s Agencia Virtual platform.

Guatemala Payroll Tax Calculator

The Remote People Global Payroll Calculator is a handy tool that calculates payroll taxes for local and foreign employees in any country. 

How the Calculator Works

Step 1: Select the country, which is Guatemala in this case. Then, choose the employee type: local or expat.

Remote People Payroll Calculator, Step 1

Step 2: Select the calculation period, such as monthly or annually, and enter the gross salary. 

Remote People Payroll Calculator, Step 2

Step 3: Lastly, choose the currency and click calculate. The default currency for payroll calculation is set to the country’s national currency. You can also change the currency to USD, EUR, and other popular currencies for expats. It’s free to use.

Remote People Payroll Calculator, Step 3