Decree No. 19-2016 makes a series of changes to the current tax incentive regimes and adds a couple of new regimes. The purpose of the law is to limit the access to benefits exclusively to taxpayers operating in the textile industry and technology services through call centers.

On February 25, 2016, the Guatemalan Congress approved Decree No. 19-2016 (the Decree) (formerly Bill No. 5007), modifying the tax benefits granted by Decrees No. 29-89 (Drawback Law) and No. 65-89 (Law on Free Trade Zones). The Decree first has to be approved by the Executive Branch before it gets published in the Official Gazette and is enacted.

Under the modifications to Decree 29-89, the current regimes would continue, but would be limited to a temporary suspension of customs duties on raw materials, materials, containers, packaging and labels used for exporting. Also, the Decree would add two new tax regimes:

— Producer under temporary admission: Related only to goods for the clothing and textile industry

— Service provider: Includes call centers or contact centers that provide services to non-residents

The modifications to Decree 65-89 would eliminate industrial and commercial users of Free Trade Zones. Notwithstanding, the entities could be qualified as producers of industrial goods or producers of services.

Additionally, the Decree does not contain modifications for qualified users of the Free Trade Zone for Industry and Commerce of Santo Tomás de Castilla.

Companies benefited by Decree 29-89 or 65-89 would continue to enjoy the tax benefits until they expire with the following effects:

— Companies qualified as draw-back entities under the temporary admission regime (not belonging to the apparel and textile industry or call centers) that had been granted an income tax exemption for 10 years or less would not be allowed to retain the exemption for the term granted beginning January 1, 2016.

— Companies that wish to qualify as producers under the temporary admission or service provider regimes (only apparel or textile industries and call centers) would be granted the current benefits under Decree 29-89, including the income tax exemption for a 10-year period. Local acquisitions of supplies and services would not be subject to VAT.

— The tax benefits for Free Trade Zones qualified as administrative entities would not change.

— Industrial users in a Free Trade Zone would continue to enjoy the tax benefits granted under current law, except they would not qualify for the income tax exemption and customs duties and import taxes exemption on machinery, equipment and tools. They could, however, apply to be qualified as "producers of industrial goods" users for the remaining period of the income tax exemption previously granted.

— Service users in a Free Trade Zone that had been granted a 10-year income tax exemption would be allowed to complete the 10-year term.

— Commercial users in a Free Trade Zone would continue to enjoy the tax benefits granted, except they would not qualify for the income tax exemption and the customs duties and import taxes exemption on machinery, equipment and tools. They could, however, apply to be qualified as a service user for the remaining period of the income tax exemption previously granted.

— Companies that wish to qualify as producers of industrial goods or services in a Free Trade Zone would be granted the current benefits established in Decree 65-89.

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