The Congress of Guatemala approved Decree 13-2026, an amendment to the Tax Update Law that modifies the regime applicable to Income Tax (ISR) on employment income.
While public attention has largely focused on the increase in deductions available to employees, the reform also represents a challenge for companies to review and update their internal payroll, human resources, accounting, and tax compliance processes.
The reform not only changes deductible amounts, but also introduces new calculation rules, automatic adjustment mechanisms, and obligations that will require immediate updates to payroll administration and withholding processes.
Main changes
The decree amends several provisions of Decree 10-2012, the Tax Update Law, introducing changes for both employees and employers. The main amendments include:
- The expansion of the personal expense deduction up to the equivalent of twelve monthly non-agricultural minimum wages, including the Q250 incentive bonus.
- The continuation of the VAT credit of up to Q12,000 for personal expenses, subject to supporting documentation and filing of the corresponding schedule before the SAT.
- The creation of an annual automatic adjustment mechanism for the deduction, linked to the minimum wage.
- Amendments to the monthly withholding calculation system for employment income tax.
- The introduction of an extraordinary temporary deduction of Q3,024 applicable to fiscal year 2026.
Different effective dates
The extraordinary deduction will enter into force eight days after the official publication of the decree. On the other hand, the structural reforms will become effective on January 1, 2027.
Accordingly, the most immediate operational obligation arises from the temporary extraordinary deduction of Q3,024.00. This means employers will need to:
- Recalculate each employee’s annual ISR projections.
- Adjust the remaining monthly withholdings for fiscal year 2026.
- Review the current parameters of their systems.
- Properly document the new calculations and reconciliations.
For this reason, the proper implementation of these changes will be essential to maintain adequate tax and administrative control.
Incorrect withholdings, inaccurate refunds, or inconsistencies in the annual reconciliation process may result in internal claims, audit observations, and contingencies before the Superintendence of Tax Administration (SAT).
Second phase: structural reform beginning in 2027
Starting January 1, 2027, the following changes will apply:
- The new base equivalent to twelve minimum wages.
- The automatic annual adjustment system.
- The new withholding calculation methodology.
Although it may appear that there is sufficient time to prepare, the operational reality is different. The SAT will have only five business days after the minimum wage update to publish the new applicable values.
This means companies should begin system parameterization and internal testing in advance to avoid errors in January 2027.
Key areas companies should review now
The reform introduces changes that go beyond the calculation of employee income tax. For companies, the main challenge will be adapting internal processes with sufficient anticipation to avoid errors and potential contingencies.
In this context, we recommend that employers begin taking the following steps now:
- Review withholding projections applicable to fiscal year 2026.
- Assess potential financial impacts arising from employee adjustments or refunds.
- Verify whether current payroll and ERP systems support the new calculation rules and automatic adjustment mechanisms.
- Strengthen coordination between human resources, accounting, and tax teams.
- Prepare internal guidelines to address employee inquiries regarding deductions and withholdings.
Taking proactive measures will allow companies to manage the transition in a more organized and secure manner, avoiding last-minute adjustments that could lead to inconsistencies, additional administrative burdens, or contingencies before the SAT.
