With the end of the 2025 fiscal year in Guatemala fast approaching, it is a good time to remember the importance of implementing certain controls and checks to avoid tax adjustments related to declared taxable income and Income Tax paid.
According to Article 14 of Decree 10-2012, Tax Update Law, there are two regimes for the payment of Income Tax. The Optional Simplified Regime on Income from Lucrative Activities and the Regime on Profits from Lucrative Activities. Today we will focus our recommendations on the latter.
Taxpayers registered under the Regime on Profits from Lucrative Activities apply a tax rate of 25% to the determined tax base for income tax purposes. The tax base is calculated as follows:
Taxable income = income subject to income tax (–) deductible costs and expenses
Due to the impact this may have on the tax payable by the taxpayer, it is important to contemplate certain limits and considerations established by law regarding deductible costs and expenses, to avoid subsequent claims by the tax authority.
It should be remembered that ,all costs and expenses that are useful, necessary, relevant, or indispensable for producing or maintaining the source of taxable income are considered deductible." In other words, the premises where a business operates will be a deductible expense. The shareholders beach house will not. The depreciation of employees' computers is deductible, but that of computers used by your children in school is not.
Below are some important considerations related to deductible costs and expenses:
- If you have paid a cost or expense on which you are required to withhold tax and have not done so, you will not be entitled to deduct the expense. In other words, if you are required to withhold tax, you must do so.
- Salaries paid must be reported on the Guatemalan Social Security Institute (IGSS) form to be deductible.
- The maximum deduction allowed as expenses for salaries paid to partners, advisors, spouses, or relatives is limited to a total annual amount of 10% of gross income.
- The payment of the Christmas bonus (Aguinaldo) and the Bono 14 are considered deductible expenses up to 100% of the worker's monthly salary, except in cases related to collective agreements.
- Reserves may be made to pay severance pay, but the maximum will be 8.33% of annual remuneration.
- Uncollectible accounts are allowed as deductible costs and expenses if they arise from normal business operations. You must provide evidence of having taken administrative or legal steps to demonstrate that the account is uncollectible.
- You may deduct a maximum of 5% of gross income from the payment of consulting services provided by companies domiciled abroad. If performed locally, there is no limit.
- The maximum deduction for royalty payments is 5% of gross income. The right to royalties must be proven by means of a contract establishing the amount and conditions of payment.
- In the case of loans contracted in Quetzales, the maximum limit on the interest rate payable as a deductible expense is the interest rate set by the Monetary Board in January and July of each year for tax purposes.
- The deductible expense for depreciation of real estate will be calculated considering the value recorded in the tax registry or municipal cadastre, and the maximum depreciation percentage is that established by law, according to the corresponding asset. Vehicles, buildings, and computer equipment have different rates.
- Depreciation and amortization of revalued fixed assets are allowed as deductible expenses, provided that the corresponding tax has been paid when revaluing the assets.
In general, it is important to note that costs and expenses paid must be supported by documents and evidence[1]. In addition, taxpayers are required to record the costs and expenses of taxable income and exempt income in separate accounts, to deduct only those costs and expenses that relate to taxable transactions.
We trust that the information shared will be useful in closing your accounting operations for the year 2025, and we wish you every success in the development of your business in the new year.
If you have any questions or concerns, please contact us.
[1] Section 4 of Article 22 of Decree 10-2012 details what is meant by supporting documents and media.
Published on November 24, 2025.