Corporate Income Tax
Companies incorporated in Peru are considered domiciled entities for income tax purposes and are subject to an income tax rate of 28% (2016), 27% (2017-18) and 26% (as of 2019) on net taxable income determined on a worldwide basis. Branches, agencies and permanent establishments incorporated in Peru of non-domiciled companies or entities are subject to income tax at a rate of 28% (2015-16), 27% ( 2017-18) and 26% (as of 2019) on their Peruvian-sourced income only. To comply with their annual income tax liability, these entities should make monthly advanced tax payments by submitting 1.5% of their net monthly income or the result of applying a coefficient to their net monthly income, whichever is higher. The coefficient is set by dividing the tax calculated for the previous fiscal year (or the year preceding the previous fiscal year in the case of January and February) by the total taxable income of the same year. If no tax is calculated in the prior fiscal year (or in the preceding year), the advance payments should be 1.5% of monthly net revenues.
Additional Payments
Any unpaid balance or excess payments are paid or credited, respectively, upon the filing of the annual income tax return, which should be filed no later than the first three months of the tax year following that to which the income tax liability relates. For taxable income determination purposes, such entities are allowed to deduct expenses, to the extent that these are necessary to produce taxable income or to maintain its source. Requirements, limits and/or caps may be applicable for the deduction of certain expenses, such as financial expenses (thin capitalisation regulations apply), bad debt provisions, salaries, travel expenses and gifts, among others. Certain expenses are not tax deductible, such as those derived from transactions with (i) entities domiciled in tax havens included in the list attached to the Peruvian income tax law; (ii) permanent establishments located in tax havens; or (iii) entities that obtain revenues or income through tax havens. Notwithstanding, expenses derived from the following transactions are excluded from this limitation: (i) interest on loans; (ii) insurance premiums; (iii) lease of aircraft and ships; (iv) maritime freight; and (v) tolls for the Panama Canal.
Depreciation Rules
Depreciation is applied under the straight-line method. The limit for the depreciation expense allowed for tax purposes is the one recorded for accounting purposes ( financial depreciation), but in no case may the tax depreciation exceed the following rates: for cattle (both labour and reproduction) and fishing nets, 25%; for vehicles (except railroads) and ovens, 20%; for machinery and equipment used for mining, petroleum and construction activities, except furniture, household and office goods, 20%; for equipment for data processing, 25%; for machines and equipment acquired after January 1, 1991, 10%; and for other fixed assets, 10%. Tax depreciation for buildings is 5%.On an exceptional and temporary basis, a special depreciation regime for buildings and construction has been established and will be applicable as of 2015. The annual depreciation rate will be 20% in a straight line, until its total depreciation, which will be applicable provided that the goods are intended exclusively for business development and that they meet the following conditions:
- Construction started after January 1, 2014.
- Construction concluded on December 31, 2016, or an advancement of at least 80% has been made. The regime can also be applied for taxpayers that during 2014, 2015 and 2016 acquire goods that meet the above conditions.
Withholding Taxes
Income paid to non-domiciled entities is subject to the following withholding tax rates for loan interest received from non-related parties, provided certain requirements are met, 4.99%; for interest paid in consideration of loans with related parties, 30%; for interest paid by Peruvian financial entities or banks to foreign beneficiaries for credit lines used in Peru, 4.99%; and for royalties, 30%.
In addition, as of 2015 the withholding tax rate on dividends and profit distributions was increased from 6.8% to 9.3% over a four-year period. The rate applicable is 6.8% (2015-16), 8% (2017-18) and 9.3% (2019). The rate for digital services is 30%; for technical assistance (certain requirements must be met), 15%; for the lease of vessels or aircraft, 10%; and for other income, 30%. It should be noted that domiciled taxpayers cannot deduct the withholding tax of a third party, except in the case of loans provided by non-domiciled creditors, to the extent that the debtor has contractually assumed the obligation of bearing the withholding tax.
Capital Gains Regulations
Capital gains derived from the sale of securities through the Lima Stock Exchange (Bolsa de Valores de Lima, BVL) are subject to income tax at a rate of 5%. If the security is not traded on the stock exchange, a 30% income tax rate is applicable. From 2016 until 2018, an exemption for securities traded through the BVL will come into force. This exemption will be applied as long as some requirements are met.
In the case of services in which activities are performed both in Peru and abroad, under the Peruvian tax laws and regulations, non-domiciled beneficiaries obtain Peruvian-sourced income at various rates depending on the activity in question (see table). Income obtained from the indirect sale of shares issued by entities incorporated in Peru is deemed as Peru-sourced. A taxable indirect transfer of Peruvian shares occurs when shares of a foreign entity – which in turn owns, directly or indirectly through other entities, shares of a Peruvian entity – are transferred and both of the following conditions are met:
- During the 12 months prior to the transfer, the market value of the Peruvian entity’s shares owned by the foreign entity equals 50% or more of the market value of the foreign entity’s shares; and
- During any given 12-month period, shares representing 10% or more of the foreign entity’s share capital are transferred.
Market Value & Transfer Pricing
For tax purposes, the price assigned to any transaction should meet market value standards (the “arm’s length” principle). If the price assigned to a transaction differs from its market ranges, be it either over- or under-estimated, the tax administration is entitled to adjust it on both the purchaser and the seller ends. In the case of transactions between related parties or transactions with tax havens, the transfer price of the goods and services should be determined in accordance with transfer pricing regulations, subject to the mandatory requirement to substantiate such price with a transfer pricing study when accrued income exceeds PEN6m ($1.9m) and the amount for the transactions exceeds PEN1m ($319,000). An annual statement is required if transactions exceed PEN200,000 ($63,800) per year.
Stability Agreements
Investors may enter into agreements with the government that guarantee them stability of the income tax regime with respect to the dividend and profit distribution in force at the time of the agreement; also local companies may enter into stability agreements that guarantee them stability of the overall tax regime.
Individual Income Tax
Foreign individuals are deemed to be domiciled in Peru for tax purposes if they have been physically present in Peru for more than 183 calendar days within a single 12-month period. Temporary absences of up to 183 days within a 12-month period do not interrupt the continuity of their legal presence for tax purposes. The tax status of the individual (whether domiciled or non-domiciled) is determined at the beginning of each fiscal year. Changes regarding this condition that may occur during the fiscal year become effective from the start of the next fiscal year. This means that any non-domiciled individuals who meet conditions to be considered Peruvian tax residents have to wait until the following year to effectively obtain the tax treatment of a domiciled individual. Domiciled individuals are subject to income tax on their worldwide income, whereas non-domiciled individuals are only taxed on their Peruvian-sourced income. In this case, however, the individual is entitled to a foreign tax credit for taxes paid on foreign income taxable in Peru, determined by his/her average Peruvian tax rate applied on his/her foreign income, with a limit of the tax actually paid abroad.
Income tax on labour income and foreign income generated by domiciled individuals is imposed through a series of progressive brackets. The progressive brackets are as follows:
- Up to 5 tax units: 8%;
- From 5 to 20 tax units: 14%;
- From 20 to 35 tax units: 17%;
- From 35 to 45 tax units: 20%; and
- From 45 tax units: 30% The first seven tax units are exempted. The tax unit for 2015 is PEN 3850 ($1220).
Income from leases and capital gains is subject to an effective 5% income tax rate. Losses can be offset against capital gains obtained in the same fiscal year. They cannot be carried forward. When there is no withholding obligation, income tax must be paid upon the filing of the annual income tax return. Income tax on non-domiciled individuals is imposed at a flat rate of 30% on their Peruvian-sourced income. No tax deductions or fiscal credits are allowed for non-domiciled individuals.
Capital gains derived from the sale of stock are levied at a 5% rate, as long as the shares are listed in the Stock Public Registry and are traded through the BVL. Otherwise, a 30% rate is applicable. If they meet the requirements set for the exemption, from 2016 until 2018, the trading of securities listed on the BVL will not be subject to tax.
Withholding Obligation
The acquirer has the obligation to withhold the corresponding income tax. This is not applicable when the sale transaction is carried out through the BVL. In this case, the Peruvian Clearing House has the obligation to withhold the corresponding income tax.
CFCS
As of January 1, 2013 regulations on controlled foreign corporations (CFCs) came into effect in order to avoid the deferral of Peruvian income tax liabilities derived from passive income received by foreign entities controlled by domiciled taxpayers. Passive income includes dividends, interest, royalties and capital gains, among others.
Pursuant to the CFC regulations, when a domiciled taxpayer owns (either directly or indirectly) more than a 50% interest in a foreign entity located in a jurisdiction with reduced tax rates (such as where the applicable tax rate on similar income is less than 75% of the rate in Peru), the passive income obtained by the foreign entity would be directly allocated to the domiciled taxpayer.
Tax Treaties
Tax treaties, based on the OECD Model Tax Convention on Income and on Capital, are in force with Canada, Chile, Brazil, Mexico, Switzerland, South Korea and Portugal. Additionally, Peru is a member of the Andean Community, along with Bolivia, Colombia and Ecuador. These countries have a tax treaty in force which taxes income only at the source while other countries grant exemptions.
Health Contributions
Employers shall make mandatory monthly payments equal to 9% of the remuneration paid to employees. Employees shall be affiliated either with the National Health System or the Private Health System. If the latter is chosen, 6.75% is distributed to the national system and 2.25% privately. The latter may be used as credit by the employer against the public contribution.
Pension Fund Contributions
Employers shall apply monthly withholdings for pension fund contributions equal to 13% of the remuneration received by the employee, if he/she is affiliated with the National Pension System, or 12.4% if he/ she is affiliated with the Private Pension System.
In this last case, 10% corresponds to the personal pension account and 2.4% to insurance and commissions for managing the fund. Should the foreign individual leave Peru upon termination of his/her labour contract, the respective pension funds credited to the Private Pension System may be wired to an account belonging to the employee at a foreign bank (the aforementioned 10%).
Means Of Payment & FTT
Obligations fulfilled through cash payments, the amount of which exceeds PEN3500 ($1120), must be carried out via a bank account or deposit, wire transfers, payment orders, credit cards, non-negotiable cheques and other means provided by the Peruvian financial system. Any obligation not honoured using such methods (such as payments in cash) cannot be deducted as an expense, recognised as a cost for tax purposes or recognised as a tax credit.
According to Law 28194, for transactions subject to the Financial Transactions Tax (FTT), such as credits or debits to bank accounts, the accountholder is the designated taxpayer, although the tax is withheld and paid by the financial institution. Credits, debits or transfers made between accounts of the same accountholder are not subject to the FTT, nor are purchases of certified cheques, bank certificates, traveller’s cheques or other financial instruments in which the bank accounts mentioned are not used.
The FTT rate is 0.005% and may be expensed for income tax purposes according to rules applicable to this tax. Among others, the following transactions are exempt from the FTT:
- Credits or debits to bank accounts opened at the employer’s request exclusively to credit salaries to employees; and
- Credits or debits in bank accounts of severance indemnities (employee compensation for time of service) and credit.
TNAT
Companies subject to corporate income tax must also pay the Temporary Net Assets Tax (TNAT), except for those that have begun operating on January 1 of the fiscal year for which the TNAT must be paid. The taxable basis is the value of the net assets set forth in the taxpayer’s balance sheet as of December 31 of the year prior to the one that corresponds to the tax payment, adjusted with the deductions and amortisations accepted under Peruvian income tax law. Thus, the amount of the TNAT is determined by the application of the following rates on taxable income: 0% for net assets up to PEN1m ($319,000) and 0.4% for net assets in excess of that amount. It should be noted that the TNAT amount is a credit to be offset against the taxpayer’s income tax obligations. If not totally offset, the remaining tax may be refunded.
VAT
The transactions subject to value-added tax (VAT) are sales of movable goods made in Peru; services rendered in Peru; import of services ( services economically used in Peru by domiciled entities); import of goods; construction agreements; and the first sale of real estate carried out by the developer. The VAT rate is 18% and VAT law is based on a debit/credit system in which input VAT (paid on purchases of goods and services) may be offset with output VAT (originated by taxable operations). VAT credit that is not offset in a certain month can be carried forward (at historical values) to be offset with future output VAT. VAT credit cash refunds are only available for exporters and some entities in a pre-operative stage under certain conditions.
SPOT Regulations
The Obligatory Tax Payment System (Sistema de Pago de Obligaciones Tributarias, SPOT) was created by Resolution 183-2004/SUNAT and is applicable to the sale of certain goods and the rendering of services subject to Peruvian VAT. The main purpose of the SPOT is to generate funds to enable the payment of tax obligations by the payer of VAT. According to the SPOT, all the sales of goods and services listed in the appendices of the resolution, on which VAT is levied, will be subject to withholding, applying the rates (4% or 10%) established for each kind of good and service. The buyer or service recipient must withhold a percentage of the transaction price and deposit said amount in the seller’s or service provider’s state bank account. It is important to note that the right of the buyer or user of the service to offset input VAT related to such goods and services may be exercised only after the deposit has been made. The amount deposited is applied towards the payment of the seller or service provider’s Peruvian tax obligations (not just VAT). If after four consecutive months this amount is not used, the seller or service provider may apply for a refund or use the amount to pay withholding applicable to purchasers or service recipients. Companies at the pre-operative stage with large projects that require at least two years for maturity may apply for the early recovery of VAT, which allows for a VAT credit refund prior to starting operations. An investment agreement with the government is required for this, as well as a minimum investment.
Recovery Of VAT
Holders of mining concessions are entitled to recover the VAT paid in connection with their activities during the exploration stage. To access this regime, mining companies must comply with certain conditions, such as being entirely at the pre-operative stage and performing mineral exploration activities within the country, and entering into an exploration investment contract with the government for an investment. Likewise, entities that enter into oil and gas agreements with the government have the right to recover any VAT that they have paid in connection with any of the firm’s activities during the exploration stage.
Positive VAT Balance
Export of goods ( including the sale of goods in international zones of ports and airports), as well as some services performed for foreign entities, are taxable at a rate of 0%. VAT paid on the acquisition of goods, services, construction contracts and import of goods related to exported goods or services, grants the exporter a positive balance that may be refunded by the tax administration. The positive balance may be offset with output VAT, income tax or other outstanding tax debt in favour of the central government.
Excise Tax
The sale of some specific goods, such as fuel and vehicles, among other things, is subject to excise tax. Tax rates are determined according to the type of goods. For example, in the case of fuel, the taxpayer must pay a determined amount per gallon ranging from as low as zero to PEN1.93 ($0.61), depending on the type of fuel. In the case of automobiles, the tax rate is 0%, 10% or 30%, depending on the type of vehicle.
FTA
Peru has entered into trade deals with the Andean Community (Colombia, Ecuador and Bolivia), the Southern Common Market ( Argentina, Bolivia, Brazil, Paraguay, Uruguay and Venezuela), the US, Chile, Canada, Singapore, China, the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland), South Korea, Thailand, Mexico, Japan, Panama, the EU, Costa Rica, Cuba and Venezuela, and has begun trade talks with other nations.
Customs Regulations
Customs duties are levied based on the Customs value of goods, in accordance with the World Trade Organisation’s (WTO) Customs Valuation Agreement, at rates of 0%, 6% and 11%. There are no restrictions on imports and exports, although there is a limited list of products that cannot be imported or exported. Exports are not subject to any taxes, and the import of most capital goods is subject to a 0% tax rate. Peru is a member of the WTO and various trade agreements that provide for most-favoured-nation treatment on a reciprocal basis. It is also a member of the Andean Community and the Latin American Integration Association. The government is able to grant duty exemptions under certain circumstances and also to temporarily suspend the assessment of duties on certain products. Customs duties are imposed on an ad-valorem basis – the cost, insurance and freight value of imported goods. Goods are classified for Customs duty purposes under the harmonised tariff.
Drawback Regime
Pursuant to the drawback regime, exporters may apply for a refund of Customs duties paid upon the following:
- Import of any goods that are contained in the exported goods; or
- Import of the goods that are consumed during the production of the exported goods.
The refund rate is currently 4% of the free on-board value of the exported goods, provided that the amount does not exceed 50% of the goods’ production cost. The refund will be applicable for each type of good exported and for the first $20m worth of goods exported per year (the excess will not be subject to refund). For this purpose, Supreme Decree 104-95-EF establishes that the beneficiaries of the drawback regime are the manufacturers – export companies whose cost of production has been increased by the Customs duties paid upon importation of raw materials, intermediate products, or parts incorporated or consumed in the production of the exported goods. However, fuel or any other energy source that is used to generate the energy required to produce the exported goods is not considered to be a raw material.
Formal Ruling Process
A new tax ruling procedure has been introduced where taxpayers with a direct and legitimate interest will be allowed to formulate specific tax inquiries to the tax administration in connection with the potential tax treatment of transactions that they may be considering implementing (i.e., the tax inquiry must be formulated prior to beginning any implementation).
FATCA
A Model 1 Intergovernmental Agreement (IGA) is treated as in effect by the US Treasury as of May 1, 2014. The US and Peruvian governments have reached an agreement in substance and Peru has consented to disclose this status.
In accordance with this status, financial institutions in Peru are allowed to register on the Foreign Account Tax Compliance Act website, which is consistent with having an IGA in effect, on the condition that Peru continues to demonstrate firm resolve to sign the IGA as soon as possible.
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