IMF Staff Country Reports

This paper focuses on the technical assistance report on international taxation challenges and options in Guatemala. The topic of treaties has garnered special attention in Guatemala as of late, requiring a strategy to be devised. Treaties foster a better business climate and can encourage foreign direct index (FDI) in sectors other than those already benefiting from special regimes. This would be welcome in Guatemala because its FDI quota is low, even for the Central American region. Treaties can also promote the expansion of certain businesses operating from Guatemala; especially export services, which can currently be subject to double taxation. Nevertheless, the many empirical studies that have been conducted offer no conclusive results. The economic literature could not confirm a meaningful causal relationship between signed treaties and FDI, particularly for developing countries. The same applies to studies on Latin America. At present, to enter into treaties, Guatemala requires the development of an own model that protects the right to tax income at source and to sign treaties with countries where a potential double-taxation problem might inhibit a likely flow of investment. The increase in special regimes in Guatemala might eventually risk running into this international trend.