Guatemala and US Expat Taxes

Guatemala is widely known for being home to some of the most impressive Mayan ruins. It is also home to other spectacular sites such as Lake Atitlan and Antigua (a UNESCO World Heritage Site).

If you are planning to become a U.S. expat in Guatemala, or have been one for a while, it’s important to know the tax laws of the country and the potential impact on your U.S. tax return. Expat taxes can get complicated. Fortunately, we have outlined the key points below.

Photo by: Claire Rowland

Taxation in Guatemala

Let’s start by understanding who is required to pay taxes in Guatemala. Residents and non-resident foreigners who are in the country for 183 days or more in any given year are obligated to pay taxes. Individuals are taxed on income derived within Guatemala.

For 2013, the applicable income tax rates are:

• Employment Income of Residents: 5% – 7%
• Employment Income of Non-residents: 15%
• Taxation on Interests: Generally 10%
• Taxation on Dividends: Generally 5%
• Taxation on Capital Gains: Generally 10%

Note that Guatemala and the U.S. do not have a social security tax agreement in-place. This means that certain U.S. expats will be required to pay into both social security programs.

How Living in Guatemala Impacts US Taxes

As a U.S. citizen or permanent resident (Greencard), you are required to file U.S. taxes even if you live in Guatemala. Plus, if you have assets in foreign financial accounts (e.g., foreign banks), there are informational reports you may be required to file. For example, U.S. Expats Living in Guatemala with $10,000 or more in foreign banks must file the FBAR (now known as FinCen 114).

Fortunately, the U.S. government provides various forms of tax relief that can lower or eliminate U.S. tax obligations

• The Foreign Earned Income Exclusion – It allows you to exclude a certain amount of income earned outside the U.S.
• The Foreign Housing Exclusion/Deduction – This one relates to additional income that can be excluded for household-related expenses tied to living abroad.
• The Foreign Tax Credit – It allows you to offset foreign taxes paid against U.S. tax obligations.

In most cases, the foreign earned income exclusion is preferable to the foreign tax credit if you live in a country with a lower tax rate than the U.S. (assuming your income is not above the applicable threshold). However, it’s a good idea to speak with an expat tax specialist to discuss the best application of these tax reliefs.

FATCA and Guatemala

The U.S. government is increasingly interested in knowing about the foreign assets held by its citizens and residents. As a result, it has been busy inking deals with other countries whereby foreign financial institutions (FFIs) will be required to:

• Identify accounts of U.S. persons;
• Report certain information to the IRS regarding those accounts;
• Withhold a 30% tax on certain payments to non-participating FFIs and account holders unwilling to provide the required information

As of the publication of this article, roughly 80 countries have either signed intergovernmental agreements with the United States or are in discussions. Guatemala and the U.S. do not yet have a FATCA agreement in-place. However, you should be aware of the implications given that the IRS intends to expand FATCA’s reach in the upcoming years

If you have any questions regarding your U.S. expat taxes, contact us today. We are here to help.