Peru

5 Chapter Tax Laws

    • Overview of tax law

       1.1. Law related to tax

      1.1.1.     Direct tax

      Direct taxes are taxes levied on the possession of  property or  income such as Income tax.

       

      1.1.2.     Indirect tax

      Indirect taxes are taxes levied based on consumption economic capacity, expenditures and the transmission of goods and services. An example of indirect tax is the Value Added Tax (VAT) known in Peru as the General Sales Tax (IGV) This tax is being  imposed on sales of goods and services, construction contracts, sale of real estate property by a contractor, import of goods, etc.  

      Other indirect tax is the excise tax, imposed on fuels, alcoholic beverages, cigarettes and tobacco, vehicles, gassed drinks, gambling, lottery games, raffles and other related activities.

    • Corporate Income Tax

       1.1.1.     Who is subject to Corporate Income Tax?

      Local companies established in Peru are subject to income tax on their worldwide income with a rate of 29.5%. While, foreign branches and permanent establishments are only taxed on income generated in Peru. All companies registered in Peru have to pay taxes to the national tax authority, SUNAT after obtaining their taxpayers identification number (RUC).

       

      1.1.2.     Non-taxable Income

      -Prizes (Unless the tax is related to employment rewards).

      -Maintenance, repairs, fuel and lubricant for a company vehicle for the use of the executive only.

      -Board and lodging expenses for the expatriates when they live in Peru, (the employer must include this in the contract to be considered deductible).

      -Airline tickets during the time the executive worked in the company. (The employer must include this in the contract to be considered deductible).

      -Traveling expenses to Peru (the employer must include this in the contract to be considered deductible).

      -Other deductible expenses

       

       

      1.1.3.     Non-Deductible Expenses

      Non-deductible expenses are the following:

      -Transactions with entities who are resident in tax haven, transactions with Permanent Establishments located in tax havens, or transactions with entities that generate revenues or income through tax havens

      − Personal expenses

      − Income Taxes

      − Fines and any other tax sanctions

      − Some donations − Amounts invested in the acquisition of goods

      − Provisions or reserves (whose deduction is not permitted by Law)

      − Amortization of intellectual property (except ones with limited lifetime).

      − Commissions originated abroad for the purchase or sale of goods (if the part exceeds the amount normally paid in the country it came from)

      − General Sales and Excise Taxes from the transfer of property

      − Expenses  proved by invoices that do not fulfil the criteria established by law

       

      1.2. Deductible Expenses

      1.2.1.     Organization Expenses

      Expenses and interest incurred from the pre-operating period may be deductible or amortized with the straight-line method over a maximum of 10 years. Once the company has chosen the second method the only way to revoke it is by approval from tax authorities.

       

      1.2.2.     Bad Debt Loss

      For bad debt provisions, it is necessary for the taxpayer to present evidence of the financial difficulties of the debtor that could foresee the risk in the collection of the debt. It is necessary as well that the provision is registered separately in the inventory and balance book at the end of the fiscal year. A simple or generic debt won’t be considered deductible for the next net taxable income or other current bad debts whose terms have not yet due. Debts between related parties are not considered to be bad debts, as well with debts that have been subject to renewal or express extension to be renewed, or debts guaranteed by banks or financial companies by rights over real property, money deposits, or purchase-sale agreements.

       

      1.2.3.     Travel Expenses

      Travel expenses (Cost of luggage and household goods, etc.) to Peru incurred at the beginning and termination of the work contract are tax exempt.

       

      1.3. Real Estate

      1.3.1.     Tangible real estate

      [Depreciation cost]

      The method that can be used for depreciation, without exceeding the accounting depreciation, is the straight-line method, with the following rates:

       

      Assets

      Rate

      Buildings and construction (Construction or improvement that will produce trade income)  

      Straight line method 5%

      New commercial buildings (For buildings since 1 January 2009)

      Straight line method 20%

      Vehicles

      Maximum 20%

      Machines and equipment (used only for mining, oil and construction activities)

      Maximum 20%

      Equipment for data processing (Pc´s, etc.)

      Maximum 25%

      Other fixed assets or those acquired as of Jan 1st of 1991

      Maximum 10%

       

       

      1.3.2.     Intangible assets

      [Depreciation cost]

      Intangible properties such as software, copyrights, patents, etc. must be amortized over one taxable year  by a system known as straight line for a term of ten years.

       

      1.4. Calculation of Income Tax

      Resident taxpayers are being taxed on their worldwide income while non-residents on their Peruvian source income. To calculate for corporate tax liability, the taxable base is determined by getting the total revenue and deducting all expenses. These expenses must be directly related to the company’s operation. Companies, as well, are required to make monthly advanced payments on account, calculated as 1.5% of their monthly revenue. At the end of the year, the company has to deduct these payments from their total corporate tax liability to determine the balance payable.

       

      1.5. Filing of Return, Payment and Refund

      Companies are required file an annual self-assessed tax return and  make a 12 monthly advance payments of income tax based on monthly taxable income. Taxes must be paid by the first week of April  following the tax year. Penalties for late filing or failure to file may apply.

    • Personal Income Tax

       1.1. Definition of Resident and Non-Resident Individual

      Residents:  Peruvian citizen or foreign nationals who have resided or stayed in Peru for more than a 183 days continuously during a year. They are required to pay income tax on income earned inside and outside Peru.

      Non-residents: A residual definition of residents individual may be applied. They arere required to pay income tax based only on income earned within Peru, with a tax rate of 30%.

       

      1.2. Taxable Income

      Taxable income is considered to be income from compensation, income from self-employment, trade or business partnership, dividends, interest and income from rent.

       

      1.3. Non-taxable Income

      As explained before, prizes, maintenance, repairs and fuel of the car used in the company, board and lodging, airline tickets and traveling expenses are non-taxable income provided that they are paid by the company upon employment and at the start and end of the contract.  

       

      1.4. Non-deductible Expenses

      Some examples of non-deductible expenses are:

      − Personal expenses

      − Income Taxes

      − Fines and any other tax sanctions

      − Some donations

       

      1.5. Calculation

      Income tax

      According to the Law, Income Tax is classified in five categories:

       

      Categories

      		  

      1st

      Those produced by lease, sublease and assignment of movable or immovable property

      2nd

      Those produced by the other capital income such as interest on loans, royalties, patents, dividends and capital gains

      3rd

      Rents from commerce and income from operation of the business activity and others expressly considered by the income tax law

      4rd

      Income from independent work

      5th

      Income from dependent work

       

       

      Income tax table (Tax Unit is set annually by tax authorities, to determine rates and deductions. The tax unit in 2018 is 4,150 PEN)[1]

       

       

      Taxable Income Bracket

      		 

      Total tax on income below bracket

      Tax rate on income below brackets  

      From PES

      To PES

      		   

      0

      5 tax units

      20,750

      8%

      5 tax units

      20 tax units

      62,250

      14%

      20 tax units

      35 tax units

      62,250

      17%

      35 tax units

      45 tax units

      41,500

      20%

      45

      Over

      		  

      30%

       

       

      1.6. Filing of Return, Payment and Refund

      Annual income tax must be filed and pay every April after the last taxable year. Penalties will be imposed for late filing or failure to file taxes.

    • Value Added Tax

       1.1.Who is subject to VAT?

      VAT is known in Peru as General Sales Tax, IVG (Impuesto General a las Ventas). It is an indirect tax imposed on purchase and sales of goods and services as well as imports of the same. The tax rate is 18% in which 2% goes for municipal Promotion Tax. VAT is being declared monthly basis and operates under the system of debit and credit where input VAT from purchases is offset from output VAT from sales.

       

      1.2. Goods and services which are not subject to VAT

      Transactions that are not subject to VAT are public transport, interest payable on publicly offered bonds and securities, basic foods, low-value construction work.

       

      1.3. Filing of Return, Payment and Refund

      Vat returns must be filed monthly. When the amount of VAT from purchases or Input VAT is more than the amount of VAT on sales or Output VAT, it can be recovered through these two systems:

      Early Recovery: Companies in  initial stage or pre- operation stage, with no longer than two years, are allowed to obtain VAT credit refund prior to starts of operations.   

       

      Definitive Recovery: This is mainly applicable for mining, oil and gas industries. Mining  companies are allowed for input VAT recovery for transactions under exploration stages. 

    • Other tax

       Financial Transactions Tax (ITF)

      The rate of 0.005% for ITF will be applied to deposits and withdrawals to and from accounts of financial institutions in Peru.

       

      Temporary Tax on Net Assets (ITAN)

      Temporary tax on net assets with rate 0.4% shall be paid for  the total value of net assets that exceed $296,000 determined as of December 31 of the previous year.

       

      Real Estate Property Tax.

      Real Estate Property Tax is  tax levied on real estate property in the city or rural areas. The tax base is calculated by taking into account the value of all properties ownein a specific local district. Based on the tax base derived, tax will be computed will be then calculated and paid on an annual basis using the following scale:

       

      Value

      Tax Rate

      Up to 15 tax units

      0.2%

      15 tax units and up to 60 tax units

      0.6%

      Over 60 tax units

      1.0%

       

      Contributions to health care and pensions

      In Peru there is a National Pension System and affiliates must pay a contribution of 13%.

      The contribution to the Private Pension System depends on the Private Pension Entity.

      Employers shall make monthly health contribution payments equal to 9% of the compensation paid to employees.

    • Custom Tax

       1.1. Overview of custom tax

      There are some restrictions under the list of products that cannot enter or leave the country. The import of goods is subject to payment of various customs duties while the export is not subject to duties or taxes of any kind.

       

      1.2. Export tax

      Exports sales are considered zero-rated and very few exemptions exist.

      Drawback Regime: This Regime states that  a refund is allowed for  customs duties of exporters. This can be applied towards the importation of goods that will be a part of goods to be imported and will be consumed in the production of such goods. The refund rate is currently 4% of the freight on board value of the exported good.

       

      1.3. Import tax

      Imports have a classification under the customs tariff by NANDINA. The percentage of tax to be applied will depends on the said classification. The importer needs to present invoices and other information for inspection by the customs officer to determine the tax rate to be used. Taxes required to be paid are Ad Valorem customs duty that can be 0%, 6%, an 11% depending on the case, VAT of 16%, Municipal promotion tax of 2%, and other taxes that may be necessary such asselective consumption tax, antidumping and compensatory, VAT perceptions and other specific duties. Most imports of capital goods have a rate of 0%.

    • Tax related to PE

       1.1. Overview of tax related to PE
      PE is a foreign entity that has a fixed place of business and a legal representative. It is obliged to comply with all tax obligations the same as any resident company. Some examples of those compliance are that the PE has to be registered at the tax administration and get a tax ID, issue and receive invoices, have accounting books and file tax returns monthly and annually, etc.

    • Withholding Tax

       1.1. Overview of Withholding Tax

      Ø  Dividends: The withholding tax on dividends paid to non-residents or residents is 5%. It is applicable only to profits earned on or after January 1st of 2017. While profits earned before January 1st of 2015 are subject to 4.1% withholding tax and profits earned from January 2015 to December 2016 have a 6.8% withholding tax.  

       

      Ø  Interest: Interest rate is 30% for residents and for non-residents, upon complying with some requirements, are subject to 4.99% tax rate.

       

      Ø  Royalties: Payment of such is subject to 30% withholding tax.

       

      Ø  Technical Service Fees: In general, technical service fees are subject to 15% withholding tax, it doesn't matter if the service was provided in Peru or not. If the retribution exceeds 150 tax units, a report by an audit firm needs to be issued stating that the technical assistance was rendered at a 15% withholding tax rate, i or else the rate will be 30%.

       

      Branch Remittance tax: The withholding tax for remittance of net profits abroad is 5% except to branches which are subject to 29.5%.

    • Transfer Pricing tax

       1.1. Overview of Transfer Pricing Tax.
      A report that includes the transfer pricing return is the documentation required for tax filing on transfer pricing. The rules for transfer pricing are based on arm's length principle from the OECD. These rules apply to transactions between related parties and transaction with offshore entities located on tax havens. If the price is not on the list of arm's length values provided by OECD, tax authorities may adjust the price for income purposes.  There is a list for companies under tax haven jurisdictions. The methods provided by Law are, the comparable uncontrolled price method, the resale price method, the increased cost method, the utility partition method, the residual method of utility partition and transactional net margin method.