If you want to reap the rewards of Peru’s remarkable business potential, it’s important to understand the local fiscal, accounting, and legal requirements.
In this article, we explain everything you need to know about key corporate tax obligations in Peru.
Peruvian Tax Regimes
The corporate fiscal system is a challenging topic for many companies operating in Peru. The National Superintendency of Customs and Tax Administration (SUNAT) deals with all fiscal activities related to income tax, Value Added Tax, etc. Resident companies must therefore first register with the tax administration (Taxpayer’s Registry). Before gathering specific tax information, it is important to understand the tax regimes that exist in Peru to understand their differences.
Important: There are different tax applications in Peru for natural and legal persons.
It is mandatory to obtain the taxpayer identification document known as a Registro Único de Contribuyentes or ‘RUC’ number. For natural persons (individuals), the RUC number starts with a ‘10’ and for legal persons (companies) with a ‘20’. For both, the RUC number consists of 11 digits. This code identifies the obligations of taxpayers and their economic or commercial activities within Peru.
The taxable year is determined annually from 1 January through to 31 December. Although income tax is paid annually, monthly payments or tax withholding may apply depending on the income category.
Corporate Income Tax
This annual tax, with a rate of 29.5%, applies to income from production and consumption, or another source of worldwide net profit. Incorporated companies and branches of foreign companies must fill in the income tax affidavits within the first 3 months of the following year.
Tax on Dividends
The Peruvian government applies a tax on dividend incomes and other profit distributions. They are subject to a withholding tax when paid to domiciled and non-domiciled individuals, as well to non-domiciled legal entities. From 2019 onwards, the rate is 9.3%.
In other situations, such as dividend distribution between domiciled companies, there is no taxation involved. Nevertheless, foreign dividends from abroad received by a Peruvian legal entity are treated as taxable income and are also subject to corporate income tax. If the taxpayer falls within a ‘’special zone’’ (see below), the rate will be 4.1%.
Tax on Royalties
Tax on royalties applies to Peruvian-sourced income for goods and rights that are economically in use in Peru, or royalties paid by a domiciled individual or entity. If the royalty is received by legal entities (domiciled or non-domiciled), it is considered a third category income.
For individuals, royalties fall into the second category income with a rate of 6.25% (domiciled individual), or 30% (non-domiciled individual).
Subsidiaries vs Branches
In general, Peruvian-source income from any entity, branch, organization, and non-resident company is subject to the income tax rate of 29.5%. Subsidiaries and branches are subject to this income tax and additional taxes. However, branch offices are only subject to income tax for their Peruvian-sourced profits. On the contrary, subsidiaries are subject to income tax on their globally-sourced profits.
Value Added Tax (VAT)
Peru applies VAT, called Impuesto General a las Ventas (IGV). This general tax has a rate of 18%, which includes a 16% VAT, plus 2% of Municipal Promotion Tax.
VAT applies to the following activities:
- Sales of goods within Peru
- The supply of services within Peru
- Construction contracts
- Importation of goods
- The initial sale of real estate made by constructors.
Certain goods and services are exempt from the VAT. The main goods and services in Peru where VAT is not applicable include:
- Import of goods donated to religious institutions
- Transference of goods to educational institutions
- Leasing of movable goods and real estate property
- Transference of goods with respect to companies’ reorganization
Customs duties apply to imports that are determined by the Nomenclatura Arancelaria Común de la Comunidad Andina (NANDINA) subheading of the imported good/service. Since Peru has numerous Free Trade Agreements, many goods and services are free from Ad Valorem customs duty. The following taxes therefore apply:
- Ad Valorem customs duties (ranges from 0%, 6%, and 11% in general).
- VAT (16%).
- Municipal Promotion Tax (2%).
As an international trader, keep in mind that other taxes may apply in Peru, depending on the activity. This includes:
- Specific duties
- Antidumping and compensatory
- Selective consumption tax
This tax applies to products that may have a negative effect on health and the environment. The application of the Excise Tax varies among types of goods and services. Products that are subject to the Excise Tax include:
- sugary drinks
- gambling and betting
Real Estate Property Tax
Individuals and legal entities owning real estate property pay tax on the value of urban and rural real estate property.
In Peru, the Peruvian Ministry of Economy and Finance apply ‘tax unitis’ (UIT), which are determined each year. The UIT tax rate is applied to identify deductions and applicable rates.
For 2019, one UIT tax unit amounts to 4,200 Peruvian Soles. The classifications for the Real Estate Property Tax are:
- Up to 15 UIT tax units: 0.2%
- 15 to 60 UIT tax units: 0.6%
- Over 60 UIT tax units: 1.0%
Real Estate Transfer Tax
This tax applies to the transfer of urban and rural real estate property. In this sense, the purchaser is the taxpayer. The classifications for this are:
- Up to 10 tax units: 0%
- Over 10 tax units: 3%
Financial Transactions Tax (FTT)
The Financial Transactions Tax has a rate of 0.005% and applies to all debits and/or credits on bank accounts held by the taxpayer. However, exemptions exist for certain activities such as transactions between accounts of the same holder, and credits intended to pay salaries.
The FTT payments are deductible as expenses for income tax purposes.
Temporary Net Assets Tax (TNAT)
The Temporary Net Assets Tax applies to the value of a company’s net assets. However, it can be used as a credit against income tax payments. Net assets valued at less than 1,000,000 Peruvian Soles are free from TNAT. The rate of the net value of assets that exceeds this amount is 0.4%.
Special Mining Taxation
In addition to corporate income taxes and other taxes, other specific taxes apply to companies involved in the Peruvian mining sector. For this reason, mining companies should be aware of the Peruvian Fiscal System for Mining Companies that imposes taxes such as the Modified Mining Royalty (MMR), Special Mining Tax (SMT) and Special Mining Burden (SMB).
Double Taxation Treaties
A double taxation treaty is a bilateral or multilateral agreement made by two or more countries to resolve issues involving double taxation of passive and active income. Under this treaty, countries agree that when a taxpayer has income from two or more countries, only one of them is subject to the tax. Or, countries can agree on shared taxation, and each collects a percentage of the tax.
Peru has double taxation treaties with Brazil, South Korea, Chile, Canada, Portugal, Mexico, and Switzerland. Peru has also entered into double taxation treaties with countries in the Andean Community of Nations (ACN). This includes Ecuador, Colombia, and Bolivia. In addition, double taxation treaties with Spain and Thailand are pending before the Peruvian Congress.
In order to use this mechanism, the legal entity has to accredit its residency through a certificate issued by the competent Tax Administration. However, in the case of the Andean Community countries, the legal entity is not obligated to formally accredit its residency, but the location of the income’s productive source is relevant.
In Peru, certain zones provide companies with specific tax benefits, in particular VAT and income tax. For example, the ‘Amazon Law’ – created to promote investments in the Amazon region – offers such tax benefits. This covers activities such as:
- Specific manufacturing activities.
Additionally, there are special zones called Centres of Export, Transformation, Industry, Commercialisation and Service (CETICOS). These are located in Paita, Ilo, and Matarani cities. For these areas, companies engaged in industrial, maquila, or assembling activities are exempt from VAT, excise tax, municipal promotion tax, and income tax, among others.
Does Your Company Need Local Tax Support?
While Peru remains an outstanding location for foreign investors, the expansion stage can be complex. It is vital to have a complete understanding of the corporate tax framework when undertaking commercial activities in Peru.
Biz Latin Hub supports foreign companies expanding their operations to Latin America through providing tailored accounting, taxation and legal services. Contact us today at [email protected] to find out how we can assist you.
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