Accounting tax in Peru: When a company considers moving into a new market, one key factor to be considered in the decision making process is Peru’s accounting tax. Factors such as corporation tax rate, value added tax (VAT) rates, double taxation relief must all be taken into account. Additionally, it is important to understand the country’s financial reporting framework, is it a local accounting standard being applied or are International Financial Reporting (IFRS) permitted?
This article provides an overview on the taxation and accounting regulations in Peru. The type of company created in Peru may give rise to different tax treatments, frequency of tax declarations, pension and health contributions required.
Accounting & Taxation in Peru
Generally speaking, Peru has a stable tax and financial reporting framework, which is favorable for investment since foreign companies can plan with a higher level certainty than other countries which are continuously modifying such regulations. From a tax perspective, all companies that are registered in Peru are considered to be resident in Peru and therefore have to pay taxes to the national tax authority, SUNAT. They are subject to a corporation tax rate of 29.5% (2017-2018) and in order to meet their annual corporation tax liability, entities 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 simply deducts these advance payments on account from their total corporation tax liability to determine the balance payable.
Companies which are listed on the local stock exchange (SMV – Superintendencia de Mercado de Valores) must apply full IFRS whilst all other companies must follow the General Business Accounting Plan which is based on IFRS albeit less rigorous in its discloser requirements.
Peru uses the so-called “tax unit” (UIT) , the amount is determined each year by the Peruvian Ministry of Economy and Finance. The applicable tax unit for 2017 is equal to PEN 4,050.
Different Company Classifications
In Peru both the type of company and level of sales revenue have to be taken into account to determine the exact tax statues of the company. Smaller companies pay a lower tax rate than bigger companies. The government classifies companies based on their annual sales revenues in UIT (Tax Unit) per annum.
The following table illustrates the different classifications:
|COMPANY SIZE||UNIDADES IMPOSITIVAS TRIBUTARIAS (UIT)|
|Micro Company||Until 150|
|Small Company||More than 150 until 1700|
|Medium Company||More than 1700 until 2300|
|Big company||More than 2300|
Tax System: Corporate Tax, Value Added Tax Rate (Igv) & Other
Annually companies must pay their corporation tax and VAT, as well as other taxes relevant to their business to the Peruvian tax authority, the SUNAT.
In Peru the standard corporate income tax rate is 29.5% and in order for companies to meet their annual income tax liability, monthly advanced payments on account should be paid as 1.5% of their monthly revenue. This tax is based on the company’s net income, the taxable income which is composed of all income derived form a company, including capital gains. When calculating the corporation tax liability, normal business expenses may be deducted from revenue. It is important to note that these expenses must be directly related to the company’s business objective.
Furthermore, it should be noted that resident corporations are taxed on their worldwide income and nonresident corporations and branches of foreign entities are taxed solely on their Peruvian profits
The distribution of dividends between resident companies are not taxed. However foreign dividends received by a Peruvian company have to be included in taxable income and are therefore subject to corporation tax which is set at 29.5% after taking into account a tax credit for foreign tax paid on the dividends.
Value Added Tax (IGV)
The general rate of VAT is 18% (2% of the municipal promotion tax and 16% of VAT itself). The IGV is the Peruvian VAT and is payable on the sale of goods, the rendering of services, construction contracts and the sale of real estate carried out by a developer. IGV credit cash refunds are only available for exporters and some entities in a pre-operative stage under certain conditions.
All taxpayers (companies and individuals) must register with the Peruvian Tax Authorities (SUNAT) in order to obtain their taxpayers identification number (RUC).
Temporal Net Asset Tax (ITAN): companies subject to corporation tax are obligated to pay a temporary net assets tax which is imposed on the value of the total of all assets exceeding PEN 1 million, at a rate of 0.4%. The amount paid for ITAN may be credited against the taxpayer’s income tax. If not totally used, the remaining ITAN may be refunded by the tax administration.
Financial Transaction Tax (FTT TAX): the FTT is applied at a rate of 0.005% on all debit and credit transactions coming from Peruvian bank accounts held by taxpayers. Payments of the FTT can be categorised as expenses in order to be deduced from income tax. The following operations, among others, are exempted from the FTT:
- Operations made between accounts of the same holder
- Credits to bank accounts for payment of salaries
- Credits and debits to bank accounts of diplomatic representations and international organizations recognized in Peru.
Penalties & Fines
Fines must be paid if tax declarations are not filed on time. Additionally, interests must be paid for late submissions of tax returns. The amounts vary depending on the total revenue of the company and whether fines are paid voluntarily or involuntarily. Furthermore, fines have to be paid when submitting incorrect information or when not paying the contribution to the ONP within the established deadlines.
Frequency Of Tax Declarations
When doing business in Peru all companies have to declare their income and their expenses on a monthly and yearly basis. The tax year for a company is its accounting year, which ends on December 31st. Therefore, companies have to make 12 monthly advanced payments of income tax based on their monthly taxable income. Additionally, an annual tax return must be filed and the final tax has to be paid within the first three months which follow the end of the tax year by using the PDT program (Programa de Declaración Telemática). In addition, mining companies have to pay a royalty, ranging from 1% to 12%, which is calculated on the gross sale relating to the transfer of mineral resources. If taxes are not paid on time or not paid at all, the company has to pay penalties to the national tax authority, SUNAT.
Tax On Employment Income For Individuals
Taxation on individuals considered as domiciled taxpayers is imposed on their worldwide income, however non-residents are only taxed on income earned in Peru. In Peru for the purpose of taxation a resident is taxed whether he is Peruvian or expat if he has lived in Peru for more than 183 days within a 12-month period.
Personal Income Tax
Income taxes are calculated using a scale expressed in tax units, UIT equivalent to PEN 4,050. The tax on an annual income for up to 5 UIT is 8%; from 5 to 20 UIT the rate is 14%; from 20 to 35 UIT the rate is 17%; from 35 to 45 UIT the rate is 20% and for an income over 45 UIT the rate is 30%. Such statement is applicable for labor income of fifth category, as well as for income arising for independent work (fourth category). Income tax on non-resident employees is imposed at a flat rate of 30% on their Peruvian income.
Other Employee Contributions – Pension & Health
In Peru payroll taxes are only those characterized as social security contributions, such as health and pension fund contributions.
The Peruvian health system is divided into two sectors: the public and the private sector. All employers have to make mandatory monthly payments to health contribution equal to 9% of remuneration paid to employees. Employees can either be affiliated to the National Health System (6.75% – EsSalud) or the Private Health System (EPS – 9%), depending what option they choose.
EsSalud is the public insurance and it is obligatory for workers both in the public and in the private sector. It provides coverage in case of dental care, general and specialized health care and other. EPS is for the employees who are not affiliated with EsSalud. Employees who perform high-risk activities, such as mineral extractions and iron and steel melting, among others, must have a complementary insurance for high-risk industries. This insurance is compulsory and of high importance and must be paid for by the employer.
Pension Fund Contributions
Employers shall deduct 13% from the gross salaries for pension contributions. If the employee is affiliated with the Private Pension System different rates are applied, so the 13% listed above is an average. In case of affiliation to the Private Pension System a percentage corresponds to the personal pension account and a percentage is paid to insurance and commissions managing the fund. Should the foreigner leave the country upon termination of his/her working 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 employee can decide whether he/she wants the Public Pension System (ONP) or the Private Pension System.
Liability To Social Security On A Monthly Basis:
|TYPE OF INSURANCE||EMPLOYER PERCENTAGE||EMPLOYEES PERCENTAGE||TOTAL PERCENTAGE|
If you want more information about the Peruvian tax system, the Peruvian Economy or you want to find out about the ways of doing business in Peru, please reach out to Karl Matson at [email protected].