Before establishing a business in Peru, many businessmen and women have doubts about how the Peruvian tax and accounting systems function, and what must be considered in order to comply with the national tax authority in Peru – Superintendencia Nacional de Aduanas y de Administración Tributaria (SUNAT). It is essential to not only understand the Peruvian company formation process, but also the tax and accounting requirements of an incorporated Peruvian business.
To assist you in this, our accounting, tax and finance team in Lima, Peru, have created an extensive piece which examines the most important tax and accounting matters that emerge for companies operating in Peru.
Foreign Investment: Natural vs Legal Person
An investor can establish a business in Peru, with the company shareholders (i.e the owners) being either a natural person or a legal person. A natural person is an individual and a legal person is a company/legal entity. A Peruvian company can be owned by individual/s and/or company/s.
For both types of persons, registration with the unique taxpayer register (RUC) is obligatory and both types have, in many cases, the same tax requirements. For this reason, we will describe the Peruvian tax system in detail, starting with the corporate tax considerations. At the end of the article, we will illustrate the different tax regimes and provide the example of one essential difference between a natural and a legal person with regards to paying taxes.
The Peruvian Corporate Tax System
Foreign investors that are interested in engaging with the Peruvian market for the first time must have a sound understanding of the tax and accounting requirements. See below some basic information regarding the national tax system:
- The official currency is the Peruvian Sol (PEN).
- To identify deductions and applicable rates, a UIT tax unit is used. One UIT equals S/4,150 PEN.
- Peru is part of the International Financial Reporting Standards (IFRS) and the International Accreditation Service (IAS).
- Financial statements are to be prepared annually.
- The are no foreign exchange restrictions nor controls.
Generally, companies that are incorporated in Peru need to be registered as a unique tax contributor with SUNAT and are subject to the corporate income tax of 29.5% on the global-sourced income, including capital gains, and either 1% or 1.5% tax on the monthly net income, depending on the amount of the yearly net income. Corporate taxes need to be paid by legal entities incorporated in Peru (i.e limited liability companies – LLCs) as well as agencies and permanent establishments of individuals that are non-resident. A foreign company needs to pay the corporate income tax if:
- It has a fixed domicile in Peru, which is used to conduct business activities.
- It possesses a power of attorney to be able to sign contracts legally.
- It executes business within Peru.
Subsidiaries and local companies have to pay the corporate income tax on their income made in Peru, whereas branches have to pay an additional remittance tax of 5% on the net profits made abroad.
For the determination of the net taxable income, the corporate taxpayer can deduct income, expenses, and costs, including the following:
- Social benefit provision
- Pre-operating expenses
- Retirement pensions, etc.
In addition, capital gains obtained through the sale of investment shares, common stocks, and convertible bonds are in most cases released from the income tax if it has been traded on the Lima Stock Exchange (BVL) and does not make up more than 10% of the company’s securities. Personal expenses, tax fines or expenses without proof of payment, for example, are not permitted to be deducted.
In general, a withholding tax is a predetermined amount that employers retain from the salary of an employee to pay directly to the government.
Suppose that an employee has an annual wage of S/21,000 PEN (S/1,500 PEN/month) including 2 bonus payments of S/1,500 PEN paid in July and in December. The employer withholds 10% of the employee’s monthly salary and the bonus payments and pays it to the Peruvian retirement and pension fund (AFP). This means that the employee brings home S/1,350 PEN instead of the entire S/1,500 PEN per month and, thus, has an annual salary of S/18,900 PEN instead of S/21,000 PEN.
On the other hand, local entities that pay taxable income to non-resident entities have to withhold an income tax that depends on the type of income. We will summarize the most important ones:
- Profit distributions, including dividends, paid to a non-resident entity or a resident/non-resident individual are subject to a 5% withholding tax on income made from 2017 onwards. Dividend distributions of income made in 2015 and 2016 are subject to a 6.8% withholding tax.
- Interest payments to an unrelated non-resident party are subject to a 4.99% withholding tax if certain requisites are met. In all other cases, it is 30%.
- Royalties are subject to a 30% withholding tax.
Value-Added Tax (VAT)
The general Value-Added Tax (Impuesto General a las Ventas – IGV in Peru) is 18% and comprises a 16% VAT plus a 2% Municipal Promotion Tax (IPM). Generally, the VAT is applied to the following:
- Sales of goods in Peru
- Supply and use of services
- Construction contracts
- A constructor’s initial sale of real estate
Taxpayers in Peru must keep accounting books of purchases and sales, among others, and returns on the VAT must be filed monthly.
1. Let’s suppose that you as a company sell a good or service priced at S/100 PEN. The invoice will be issued and made available in the SUNAT system. Therefore, your invoice amount will look as follows:
Selling value: S/100 PEN
VAT (IGV): S/18 PEN (100 x 18%)
Net Value: S/118 PEN
The customer buying the good or service has to pay the net value (Selling value + VAT)
2. Let’s suppose you buy a good/service priced at S/50 PEN. The invoice issued by the seller will look as follows:
Buying value: S/50 PEN
VAT (IGV): S/9 PEN
Net value: S/59 PEN
You will cover the net value of S/59 PEN.
3. The monthly tax declaration would look as follows taking into account the sale and purchase:
VAT incomes – VAT Purchases: 18 – 9 = S/9 PEN (VAT)
Monthly Income Tax: 100 x 1% = S/1 PEN (Income Tax)
TOTAL calculated Taxes: S/10 PEN
Excise Tax (ISC)
If a company sells goods, such as alcohol, vehicles, cigarettes or fuel, an excise tax needs to be paid depending on the type of good.
Real Property Tax
Legal entities and individuals that own real estate need to pay taxes depending on the entire value of all real estate owned. For real estate with a value up to 15 UIT the tax is 0.2%, between 15 and 60 UIT it is 0.6% and over 60 UIT it is 1%.
Net asset Tax (ITAN)
A 0.4% tax is levied on an asset value that exceeds S/1 Million PEN.
Financial Transaction Tax (ITF)
A 0.005% tax is imposed on debit and credit transactions executed with Peruvian bank accounts.
Thanks to the Andean community agreement, Peru avoids double taxation with Bolivia, Colombia, Ecuador. In addition, bilateral tax treaties are in force with the following countries with regards to double taxation on income tax as established by the OECD:
Peruvian Tax Regimes
In the last parts, we have portrayed the Peruvian corporate tax system and provided information that applies to most types of legal entities or natural persons. Nevertheless, we want to arrange the information into the 4 tax regimes that exist in Peru and explain their differences.
The New Simplified Single Regime (NRUS)
The NRUS regime represents the only difference between a natural and legal person with regards to the taxes to be paid. The reason is that in order to have a business in the NRUS regime, you must be a natural person (i.e individuals only). Legal persons (companies) cannot enter the regime and, thus, cannot receive the same tax benefits. In the following, we will outline the most important concepts:
- The natural person must have a gross income of S/96,000 PEN per year or S/8,000 PEN per month.
- No annual declaration has to be prepared and, thus, no annual corporate income tax (CIT) has to be paid.
- Sales receipts can be issued.
- If the natural person has an income of a value up to S/5,000 PEN, he/she needs to pay a monthly tax of S/20 PEN.
- If the natural person has an income and/or purchases of a value up to S/8,000 PEN, he/she needs to pay a monthly tax of S/50 PEN.
- The value of fixed assets cannot exceed S/70,000 PEN.
The Special Regime (RER)
Natural persons, as well as legal persons, can be in the RER, as long as both the net annual income and purchases are not higher than S/525,000 PEN. The characteristics of the RER regime are:
- No annual declaration is needed and no annual CIT has to be paid.
- Monthly taxes to be paid comprise a 1.5% tax on the monthly net income and the VAT of 18%.
- The issuance of invoices, sales receipts, and any other legal receipts are allowed.
- Purchases and sales need to be registered.
- The limit of the fixed asset value is S/126,000 PEN.
- A maximum of 10 workers is allowed per shift.
The MYPE Tax Regime
Legal and natural persons in the MYPE regime cannot have a net income higher than 1,700 UIT (S/7,055,000 PEN) but can perform purchases without any limit. Further characteristics are:
- You have to pay an annual corporate income tax (CIT) of 10% if your net income is lower 15 UIT, and an annual CIT of 29.5% if your net income is higher than 15 UIT.
- If you have a net income of less than 300 UIT, you have to pay a 1% tax on the monthly net income. If your net income is higher than 300 UIT, you have to pay a 1.5% tax on the monthly income.
- If you have a net income of less than 300 UIT you have to register purchases and sales and have simplified daily books.
- If you have a net income of more than 300 UIT, additional books need to be filed.
- The issuance of invoices, sales receipts, and any other legal receipts are allowed.
- There are no limits on neither the number of assets nor workers.
The General Regime (RG)
As the name indicates, the general tax regime can be assumed by any business, no matter if they are a natural person or a legal person. It doesn’t have any income nor purchase limits and the annual CIT is 29.5% and the income tax on monthly net income is 1.5%.
DON’T FORGET: Natural persons can find themselves in any of the 4 tax regimes, whereas a legal person can only be classified in the RER, MYPE and RG.
In Need of Accounting and Tax Support in Peru?
Even though we have provided you with an extensive overview of the Peruvian corporate tax system, there are special cases that need to be taken into account while dealing with a company’s tax and accounting matters.
We at Biz Latin Hub Peru have a team of professionals that are able to support you with all your accounting and tax requirements. If you are in need of accounting and taxation services, don’t hesitate to contact our country manager, Leo at [email protected].
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