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Guatemala Tax Alert: New Tax Amendments in Construction

Article Summary:

Under Article 2000 of the Civil Code of Guatemala, contained in Decree Law 106 and its amendments, several taxes on construction exist. The law states that if a builder owns the property, after construction, taxable income is determined as follows: costs and expenses incurred in building greater value of the property, this amount should be divided by the number of square meters, the ratio of the division will be the cost of sales per square foot sold.

Original Article Text From Prensa Libre via Google Translate :

Tax and Legal Alert: The Construction and Taxation

Additionally, as defined in International Accounting Standard (IAS) 11, a construction contract is a contract specifically negotiated for the construction of an asset or group of assets that are closely interrelated or interdependent in terms of their design, technology and function or in their ultimate purpose or use.

In Article 5 of the Commercial Code, Decree No. 2-70 of the Congress and its amendments, the construction contract is governed by the provisions of the Commercial Code, when the legal transaction involving a trader and a non dealer, as defined and enumeration contained in Articles 2 and 3 of the Code.

In this line of ideas, the construction contract can be private or public, with public works contracts, those regulated under the Act to State Contracts, Decree No. 57-92 of the Congress, as amended.

As the practice works contracts may have different forms, the most recognized the following: a) Contract work at a fixed price or elevation b) contract work plus fees or variable c) Contract for construction estimates or unit price and, d) Contract mixed force. The current Law on Income Tax (ISR), Decree No. 26-92 of Congress, as amended, to Article 51 regulates the activity of construction companies and the like, recognizing four methods to determine the net income of which I will refer to only two of them being the following: (…) b) to allocate gross income of the period as the proportion corresponding to what is actually implemented and that accrued in their favor. As of that gross income must be deducted the amount of actual costs and expenses incurred in the period. (…) D) Allocate as total gross income amounts paid in the period.

For such income must be deducted the cost and expenses incurred in the same period. However, the new Law on Income Tax, Book I of the Tax Update Law, Decree No. 10-2012 of the Congress, Article 34 will only recognize one of the four methods lines transcribed above (paragraph d) to determine the taxable income and this: 2) Assign as the total gross income amounts paid in the period. At this income should be deducted the cost and expenses incurred in the same period effectively. The new Income Tax Law shall regulate a new method which reads: 1) Assign as gross income of the period, the proportion of the total work that corresponds to what is actually executed.

A gross income that must deducírsele the amount of actual costs and expenses incurred in the period. You notice that this method is apparently the same that regulates the literal b) of Article 51 of the current income tax law, but were removed the words: “(…) and that accrue in his favor.”

Although the words were removed in reference, it is interpreted that this approach recognizes the accrual method of accounting, while the method identified in paragraph 2) recognizes the accounting of what is perceived, both Article 34 of the new law ISR.

The system of construction activities and the like, is a special, distinguished by the following characteristics: a) The construction activity is carried out on property themselves or others; b) The building comprises more than one accounting period c) After the construction is to determine the true result of sales and costs, making the relevant adjustment; d) Elected one of the two methods should be applied to any private or public work, and can only be changed with permission of the Administration Tax.

It should be noted that when the builder owns the property, after construction, taxable income is determined as follows: Costs and expenses incurred in building greater value of the property, then this amount should be divided by the number of meters Square, the ratio of the division will be the cost of sales per square foot sold.

It is worth mentioning that when the work does not exceed twelve months and is run in two settlement periods, the result can be declared in the accounting period that ends the work. I send you the quote of the day: “We’ll find a way, and if not, we will create” Hannibal.

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From Prensa Libre

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