In accordance with a study carried out by the Inter-American Center of Tax Administrations (CIAT) between 2019 and 2020, certain countries in Latin America (Bolivia, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Peru, and the Dominican Republic) were not able to collect from 227 to 255.4 million US dollars on taxes derived from the lack of legal framework allowing to tax digital services provided by transnational companies.
In June 2021, Guatemalan Tax Superintendent was elected President of the CIAT’s Board of Directors for the 2021-2022 period, thereof the commitment to suppress the tax gap and become an example for the region has been reinforced.
Under this scenario, on February 23, 2022, Bill 6029 was filed to Guatemalan Congress in order to approve the “Promotion and Facilitation of Cross-Border Electronic Commerce Law”; which amends the following provisions:
a.Value Added Tax Law;
b.Income Tax Law (Ley de Actualizacin Tributaria); and;
c.Strengthening of the Tax Administration Office Legal Provisions (Decree 20-2006).
These amendments are intended to update the current legal framework with an efficient regulation that grants legal certainty on business carried out through the Internet and thus and prescribe taxable events addressed to cross-border electronic commerce in Guatemala.
The bill seeks to incorporate “all acts, legal transactions or contracts for profit that have their origin in Guatemalan territory and are carried out by electronic means abroad.” Additionally, definitions are included in the initiative that provide a better understanding of the tax provisions currently in force, such as: electronic commerce, electronic data interchange, cross-border electronic commerce, electronic intermediation service provider; among others.
Specific amendments proposed by Bill 6029 are as follows:
I.Value Added Tax Law:
Definitions that are pertinent for the understanding of electronic transactions are added within Article 2, such as: digital goods or products and the import and export of digital goods. Likewise, two new taxable events are created, which are the sale or exchange of digital products or goods and the import of digital products or goods; the taxable subject is the importers of record of digital products or goods. As a result of the implementation of these new provisions, the export of digital products or services is added to VAT general exemptions. Please note that taxpayers who are involved in the export of digital products, goods, or provision of services through electronic platforms or through an electronic intermediary are entitled to claim for a tax refund of one hundred percent (100%) of VAT credit.
Under the perspective of imports the tax base is established as the price of the operation minus the discounts granted in accordance with commercial practices. In terms of provision of services in Guatemala by nonresidents, VAT Law will not be amended, therefore, the provision of services remains as a taxable event in Guatemala and the obliged subject remains the local recipient of the services.
II.Income Tax Law:
As to Income Tax, the amortization of digital products or goods is recognized as a deductible expense once it is proven that the corresponding Value Added Tax was paid, either as a result of a local purchase or by virtue of an import. Additionally, a 3% withholding is established for non-residents without a permanent establishment with respect to: (i) electronic intermediation for the commercialization of goods or digital products and/or services through digital platforms, applications, internet sites or similar; and (ii) the transmission of images or videos and digital content on behalf of a third party through electronic means, platforms, internet sites or similar. In this sense it clarifies the tax rate to be applied to transactions such as contracting advertising on platforms or streaming services, among others. Additionally, the scenarios under which the services are considered to be provided in Guatemala, which include providing a local address and registration before SAT or making a payment through an intermediary located in Guatemala.
III.Strengthening of the Tax Administration Office Legal Provisions (Decree 20-2006):
Decree 20-2006, Article 3 is amended by adding an exception to obligation of the credit card operators to withhold a portion of the VAT. The exception applies to collection transactions linked to exports through an electronic brokerage service provider or in the case of collections on behalf of third parties. This exemption specifically is aimed to favor exporters of digital goods or services.
Although the potential amendment herein described clarifies the tax treatment that should be given to electronic commerce operations which source is located in Guatemala, it is necessary to regulate in practice the methods and tools for Guatemalan taxpayers to comply with the obligations arising from the bill.
The bill is premature within the legislative process, and there are still stages to be overcome until it becomes effective and binding, including possible modifications to its content.
This bill aims to adapt current legislation to international trends to: increase VAT and Income Tax collection in transactions with non-residents without a permanent establishment in both of their B2B and B2C operations. This, given that it recognizes the importation of digital goods and seeks to tax the digital services contracted by Guatemalans though the correspondent withholding of Income Tax.
In conclusion, the bill aims to provide legal certainty to the challenges that arise for a territorial tax system facing multiple advances in electronic commerce transactions. This, considering the lack of existing regulations regarding the contracting of services on electronic platforms and the acquisition of digital goods. This acknowledgment would allow the local taxpayers to identify tax operations and applicable withholding rates. In respect to Income Tax, it should be emphasized that the proposed rate is the lowest applicable in Guatemala and this reflects the intention to tax all the operations performed by any local taxpayer related to digital service providers and not only those transactions engaged by taxpayers registered under the general Income Tax intending to deduct such services as an operating cost or expense.