Country report Guatemala

Economic overview

Guatemala can count on a strategic geographical position in the center of the American continent and with a direct border with the largest free trade area in the world, the North American Free Trade Agreement (NAFTA). The most important economy in Centroamérica and seat of the SIECA, a Central American entity that favors the economic integration of the countries of the Region. In December 2014, the Association Agreement (AdA) with the European Union entered into force for Guatemala, which contributed to a considerable increase in trade with EU countries.

Guatemala is the country with the largest economy in Central America and represent one third of the regional GDP. It’s economic stability is the result of prudent fiscal management, inflation control policies and a managed floating exchange rate. The Guatemalan economy has also had a solid performance, with moderate growth rates of 3.5% on average over the past five years.

The largest sector of the Guatemalan economy is traditionally agriculture: the country is the world’s largest exporter of cardamom, the second largest exporter of bananas, the fifth largest exporter of sugar and the seventh largest producer of coffee.

The tourism sector in Guatemala is the second largest generator of foreign currency for the country after remittances from emigrants, industry is an important branch of the Guatemalan economy and the service sector is becoming increasingly important.

Data from the International Monetary Fund confirm that Guatemala is the country least affected by the negative effects of the Covid-19 pandemic and for 2021 an economic growth of 3.5% is estimated, with an estimated tax collection of approximately 63,468 million. of Euro. 

The customs union between Guatemala, El Salvador and Honduras makes the country an excellent commercial hub for expanding operations to the same customs union and has the potential to enter the southern Mexican market through the free trade agreement with that country.

Main sectors of industry

More than half of the economic activity in Guatemala occurs in four sectors: manufacturing (20%), commerce (18%), private service (14%) and agriculture (12%). Additionally, Guatemala has the 80th largest export economy in the world. The value of its exported goods is estimated at around $ 11.8 billion. The country also imports about $ 17.4 billion worth of goods, giving Guatemala a negative trade balance. Most of Guatemala’s exports are received from the following countries: the United States ($ 4.28 billion), El Salvador ($ 1.09 billion), and Honduras ($ 903 million). The remainder of this article highlights some of Guatemala’s largest industries.

The sectors of industry, manufacturing and agriculture mainly focus on the production of the following products: textiles, furniture, petroleum, sugar, flowers, fruit and vegetables, processed foods and chemicals. Some of the most widely grown agricultural crops in Guatemala include: coffee, bananas, nutmeg, and brown sugar. The agricultural sector employs about 50% of the country’s workforce and produces some of Guatemala’s largest export products. For example, the country exports about $ 1.02 billion of bananas annually, which is about 8.6% of all exports. In addition, Guatemala exports $ 999 million of raw sugar (8.5% of exports) and $ 753 million of coffee (6.4% of exports). 

These three commodities represent the three major exports coming out of Guatemala. After fresh produce and other food products, textiles represent the third category of exports, with a total value of $ 1.68 billion. Within this category, knitted sweaters and shirts are the most widely manufactured products. Mineral products follow closely, with a total export value of $ 1.18 billion.

The private sector

The private sector is the driving force of the Guatemalan economy. In fact, private companies are responsible for the contribution of about 85% to the national GDP. Most of the private sector is involved in the following industries: manufacturing, agriculture and tourism. This sector is growing, however, and has even absorbed some traditionally public sector services in recent years. This increase in the private sector has resulted in a decrease in the size of the government, as some services such as airports, banking institutions and even public utilities are now operated by private companies.

Service sector

The service sector is made up of several specific sectors, including: tourism, healthcare, customer service, financial services, banking, hospitality, communications and retail. This sector alone is believed to account for just 60% of the Guatemalan economy. Tourism is one of the most influential industries in the service sector, generating $ 1.8 billion in 2008. Guatemala is a popular stop for cruise ships, and the country receives an average of two million tourists annually. Visitors enjoy exploring Guatemalan beaches and pre-Hispanic ruins.

Taxation for businesses

Similarly to the provisions for personal income tax, the territorial principle also applies to corporate income tax, whereby only income from national sources is taxed, regardless of the person’s residence. A legal person is resident if it is incorporated under Guatemalan laws or if it has its tax domicile or registered office in the country.

The taxpayer can choose between the ordinary tax regime based on profit (ie the difference between revenues and costs necessary for their production) and an optional one based on revenues. Passive income (dividends, interest, etc.) are subjected to separate taxation in the same way as for individuals.

The profit-based regime provides for a rate of 25%. The tax base is calculated starting from the gross revenues, to which the exempt income (net of the related costs) and the expenses necessary for the production of the taxable income are deducted, in accordance with the provisions of the law. Interest expense is deductible up to three times the interest rate applied to the total net assets. This limit does not apply to financial companies.

Depreciation must be carried out on a constant basis with different percentages by category of assets.

The possibility of deducting operating losses incurred in previous years as a deduction from income is not envisaged, while capital losses can only be offset with capital gains within the next two years. The taxpayer settles the tax due every three months and submits the tax return within three months of the end of the year providing for any balance. The tax year corresponds to the calendar year.

In the optional regime, on the other hand, gross revenues are considered (net of exempt ones) to which a rate of 5% is applied for the first 30,000 quetzals and 7% for surpluses. The tax settlement must be carried out monthly.

Payments to non-residents are subject to withholding tax of 5% for dividends, 10% for interest and 15% for royalties.

The taxpayer can enter into international ruling agreements with the administration for the prior definition of transfer prices. Group taxation is not possible.

Economic activities with revenues of less than 150 thousand quetzals can access a simplified tax regime for small taxpayers. This regime allows exemption from income tax, solidarity tax and VAT and the simplification of accounting obligations in exchange for a substitute tax equal to 5% of revenues.

Investing in Guatemala

Guatemala plays a leadership role in electricity generation within the Central American Region.

Despite having promoted in recent decades important policies for the development of renewable energy, aimed at environmental sustainability, however, especially in rural areas, the generalized use of wood remains, with negative consequences for the defense of the forest heritage.

However, 63% of national energy comes from renewable resources. This was possible thanks to the Energy Policy of Guatemala 2013-2027, which made it possible to make an important change to the sector.

In 2017, the demand for electricity was around 1,749.50MW with a percentage change of 2.8% (Ministerio de Energía y Minas, Oferta y Consumo de Energía Eléctrica 2011-2017, 2018) and, according to the studies of the Comisión Nacional de Electricidad, is expected to reach 3,000 MW in 2027.

Enel Green Power Guatemala (EGPG) generates 8% of Guatemala’s renewable energy thus becoming one of the most important private electricity companies. It operates in Guatemala with 5 hydroelectric power plants, concluding in 2012 the construction of the 5 power plant, located in San Juan Cotzal, in the Department of Quiche ‘.

Last January, the MEM (Ministerio de Energía y Minas) launched a sustainable and competitive strategic plan with the aim of strengthening the national electricity system for the next decade and consolidating the country as a regional leader in the electricity market.

The 2018-2032 Plan aims, for national consumption, the use of clean and environmentally friendly energy without losing sight of the security and supply of electricity.

The Plan is in line with the “Ley General de Electricidad” and with the related Regulation by which the electricity sector is regulated.

Accommodation and catering services

Guatemala has an enormous tourism potential which can be seen in the latest data from the Guatemalan Institute of Tourism (INGUAT), which photographed a 2017 growing both in terms of visitors and turnover.

INGUAT reports that in the years 2016/2017, through the project called “Plan Maestro de Turismo Sostenible de Guatemala” (2015-2025) “, the foundations were laid for the construction of a competitive strategy, through the offer of products differentiated, with specialized segments and markets and with the aim of positioning the country as a unique cultural destination with an enormous biodiversity.

The lines of action are aimed above all towards the growth of sustainable tourism, a tourist information system and a national safety program.