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Guatemala Tax reporting 05 Income and Value Added Tax Retentions
Notes:
- For the scope of these features and functionality our referral to Tax Retention = Tax Withholding
- This Wiki page applies only to Guatemalan Tax law compliance as of July 2020
As per our laws in Guatemala, our tax authority known as Superintendencia de Administración Tributaria (SAT) categorizes items, businesses and individuals in different tax regimes to execute its mandate. At first sight, these laws might provide for very simple rules with clear, neatly-diagrammed public notices. Learning about each of them is also a simple matter, but complying with them on a day-to-day basis can become a nightmare for accountants in terms of workload and precise interpretation. The features described here provide ease of compliance with SAT's Tax Retention requirements.
Businesses in Guatemala need to keep track of a supplier or customer's tax regime, with the specific conditions that determine the legal and correct manner of executing payments (received or made), generate and provide precise and correct declarations to SAT, and keep track of declarations made for tax auditing purposes.
For example, a business receiving an invoice from an individual; both in different SAT tax regimes, triggers the need to generate a proper calculation of the amounts to be withheld (retained), if any, and one simple mistake can create an improper Journal Entry, resulting in costly rectifications at the least, or tax authority audits at worst. This adds to the already crowded workload of any person or business going about their daily operations. In practice, these tasks are delegated to accountants, which do a fantastic job of keeping everything in order, but this data remains in paper files or excel documents in their computers and control remains with accountant for auditing events. More modern businesses and individuals already use local or cloud file-sharing services, and file versioning becomes an issue. My experience in Financial Manager or CEO roles is that whenever you ask for data from your accounting department or your single accountant, the answer is always the same: "I'll have it ready for you after I finish this task and that task". If this frequent statement is analyzed closer, each of these generic "tasks" are usually a backlog of tasks that was generated by another unusual or extraordinary compliance need. Many times, you need to provide data to your accounting department and your own backlog of tasks disrupts the flow of information, resulting in many frustrated accountants that cannot help you because you have not provided them the data they need. Pretty quickly, the company or individual run-business gets focused on these compliance tasks and distracted from its end goals. Walk into the offices of any Guatemalan business and you will soon be immersed into working meetings peppered with multiple back and forths, local tax jargon and discussion of tax laws word-by-word, article-per-article. I have witnessed the faces of many participants in this meeting and they all show concern over proper compliance and additional work coming their way. I'm not even going to describe what happens when you hire additional people to come help sort this out.
Thus, we can summarize that many additional needs and tasks that emerge as a consequence of these compliance requirements:
- Deadline sensitive data exchange tasks: All sales or purchase invoices must be provided to your accountant before x date on the month or single date of the year.
- Generating timely, precise, and correct tax declarations.
- Tax regime tracking for all stakeholders relative to your entity.
- Formatting, organization and safekeeping of tax declarations
The goal of these features, framed within our Electronic Invoice custom ERPNext application as an adequate repository, is to ease this workload. By adding these features in a software package that can change and adapt to SAT's potential future Law or Rule changes, we aim to provide peace of mind to any user which will come to rely on these features for their operations. By leaving it open, users can suggest modifications and changes tailored to situations we cannot foresee. Our scope aims to be wide reaching, but if we have left out anything, I invite you to fork this repository, develop it yourself, and propose a Pull Request with proper supporting material for consideration.
Income tax retentions must be made depending on the tax regime of your entity or company, and the amount of the invoice. A supplier or customer's registered country of operations has bearing on whether the retention is in effect or not. ERPNext already has Tax Categories, Tax Withholding and Income Tax Slabs, and despite their excellent functionality, the way retentions are managed in Guatemala, involves managing the Invoice as is, and creating a (Custom) Tax Retention doctype, linked to Journal entry for payment. A user can generate a sales invoice and if the values and customer regime require it, an Income Tax retention doctype will be generated. When processing payment, only a Journal Entry will be acceptable, as you are covering the invoice with a combination value of cash + retention value against the value of the invoice.