Peru's upcoming health reforms expected to increase formalisation

Peru has had several so-called tax reforms over recent years. One could argue, however, that this has not been the case. During the Ollanta Humala administration, the progressive reduction of the income tax for businesses was enacted from the 30% rate that was in force until 2014, to 26% in 2019, going through 28% and 27% in between. Simultaneously, a progressive increase of taxes on dividends was established, from 4.1% in 2014 to 6.8%, then 8% and finally 9.3% in 2019. The changes aimed to maintain a combined tax of 33%, but with an increase to the tax on dividends designed to enhance reinvestments of gains. The reform was interrupted in 2017, when the current taxes came into force: 29.5% for the income tax for businesses, and 5% for the tax on dividends. This amendment was implemented under the tax reform ordered by former President Pedro Pablo Kuczynski, the main aim of which was to increase the economy’s formalisation levels. For this purpose, new special regimes for small and medium-sized enterprises (SMEs) were created, and the use of payment receipts was enhanced by giving legal persons the possibility of reducing their taxes through deductions of business expenses justified with invoices.


The two reforms had the expected result. In 2017 Peru’s tax burden dropped to 12.9% of GDP, the lowest level in the last 15 years. Several factors can explain this fall: a decrease of public investments, low growth of internal demand, natural disasters during the first half of 2017, corruption and public works scandals, greater tax refunds, and rising tax avoidance and evasion. The administration led by President Martín Vizcarra Cornejo has announced that it will carry out a new tax reform, for which it will request legislative prerogatives from Congress. Expected changes include improving the applicable tax regimes for SMEs by simplifying the framework, reducing compliance costs and promoting mass use of payment receipts. The goal is to fight tax evasion, thus expanding the tax base. In regard to this last point, there are additional measures needed that go beyond taxation. Informality is not an issue affecting taxes alone; it is also an issue that has to do with labour formality, permits and licences to operate. Hence, the task is more complex than it may appear.

OECD Membership

Furthermore, it is advisable to continue incorporating standards and policies of OECD countries for large corporations into the national legislation, considering that Peru aims to become a member by the early 2020s. Among the changes announced in this context, it is worth highlighting the application of indirect credit for income taxes paid abroad by subsidiaries of Peruvian companies; special income tax rates for transactions among contractual parties; new criteria for incomes of Peruvian source; limitations for the deduction of interest expenses; rationalisation of tax exemptions; and amendments to transfer price norms.

In this context, Peru has recently adhered to the Agreement on Mutual Administrative Assistance in Tax Matters, allowing access to the exchange of information between the tax administrations of more than 100 countries that are signatories.

It is also advisable to implement again the anti-elusive norm, which allows the tax authorities to reclassify operations that, through the use of improper legal forms, are undertaken with the purpose of eluding tax payments. This norm, which was enacted in 2012, has been suspended since 2013 awaiting implementing regulations, which are likely to be introduced under the Vizcarra administration. If implemented, these measures will help the government reach its fiscal goals in the coming years, and would bring Peru closer to OECD standards in terms of its tax burden and the fight against tax evasion.

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The Report: Peru 2018

Tax chapter from The Report: Peru 2018

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