Whilst this shouldn’t be considered as official tax advice, it is right at the time of writing.
For any questions, or if you are looking to invest as an expat, you can contact me using this form, or use the WhatsApp function below.
First of all, let us discuss the important terminology before we can jump right into our topic for today, which is ‘Expat Taxes in Peru’.
Tax – Tax is a mandatory charge that is usually levied by a country’s government or state government or other financial authority on the individuals who live in that specific country.
By imposing taxes on an individual, the specific government offers them certain types of benefits, such as rights.
Taxes can be imposed on individuals as well as corporations. However, the tax rates will be different in the case of individuals when compared to corporations or business entities.
There are different types of taxes such as Income tax, Corporate tax, Wealth tax, Inheritance tax, Property tax, Real Estate tax, Value-added tax, etc.
Some countries might impose certain types of taxes on individuals, whereas some countries might not. Depending on the country, the application of taxes differs.
For example, countries such as the UAE or Qatar don’t impose income tax on their individuals, whereas countries like Portugal, Slovakia, Mexico, etc., don’t levy inheritance tax.
Expat – An Expat, or Expatriate, is a person who leaves their country of origin to move to another country.
For example, a person who is born in the United States but lives in the UK will be considered as an Expat.
Expats might be levied with taxes in their country of residence as well as in their country of origin.
However, if the expat’s current country of residence is having a tax treaty with their respective country of origin, then they can be able to avoid taxes in the country of residence.
A person would be considered as an expat until they return to their country of origin or acquire permanent residency in the country of residence by renouncing their citizenship in their country of origin.
Some of the main purposes that a person might want to move to another country as an expat are an employment, education, etc.
Peru – Peru is a country, which is officially called as ‘Republic of Peru’, and is located in the western part of South America.
The most commonly spoken language in Peru is Spanish, however, some of the co-official languages are Quechua, Aymara, and some other indigenous languages.
The currency used in Peru is Nuevo Sol or Peruvian Sol and is depicted using PEN, which is further subdivided into one hundred centimos. By the time of writing this article, 1 Sol is equal to somewhere around 0.28 USD.
Peru makes use of a taxing unit (UIT), which is a figure set by the tax authorities every year for determining applicable rates and deductions along with some other uses. The value of PEN in the current year, which is 2020, is PEN 4,300.
The tax authorities of Peru are SUNAT (National Superintendency of Tax Administration) and Tax Court (Tribunal Fiscal)
The tax rates for corporations or business entities in Peru are:
- The general Corporate Income Tax rate is 29.5%
- The general Branch Tax rate is 29.5% along with an additional 5% branch profits tax upon the distribution of deemed profits.
- The general Capital Gains Tax rate is 29.5%.
The corporate income tax rates might differ depending on the specific activities under special regimes such as farming.
The income tax rate for people who make an investment in the mining and hydrocarbon industries (excluding natural gas) will be imposed with an additional 2% tax on the general rate, making it 31.5%.
Residence – Any corporation, company, or business entity will be considered as a tax resident in Peru if it has been incorporated there.
Basis of taxation – Native corporations in Peru are taxed on their worldwide income.
On the other hand, non-resident companies or branches of foreign companies will be imposed with taxes on the income that has been derived from Peruvian sources.
Income that has been earned by resident companies on their foreign sources will have the same rates applied as the rates for income earned from sources in Peru. However, this type of income has to be calculated separately.
Branches will also be taxed as per the normal corporate tax rates. in addition to that, an annual branch profits tax is applicable to the deemed profit distributions. Subsidiaries will also be taxed as per the normal corporation tax rates.
Taxable income – Taxable income includes all the income that has been derived by a company, which includes capital gains. General business expenses can be deducted against the calculated taxable income.
Surtax – No.
Alternative minimum tax – No.
Taxation of dividends – dividend distributions made between resident entities are not imposed with taxes.
Foreign dividends acquired by an entity based in Peru are also considered taxable income and imposed with general tax rates, but with a tax credit for the tax paid on the foreign dividends.
Dividends along with other types of profit distributions are subject to a withholding tax when paid out to residents, non-residents, and non-resident entities.
Capital gains – Capital gains are considered taxable income and are imposed with a normal corporate income tax rate, which is 29.5%.
Losses – A taxpayer can carry forward any type of net operating losses (derived from Peruvian sources) for a period of up to 4 years. Or else, they can carry the losses forward only in order to offset an amount of up to 50% of the taxpayer’s taxable income for each year.
However, the carryback of losses is not permitted.
Foreign tax relief – A tax credit is made available for the income tax, which has been paid on the foreign-source income.
This tax credit is either equal to the actual foreign tax that has been paid or the Peruvian tax liability on the taxable income, whichever is less. Excess credits cannot be carried forward.
Peru makes use of a special method for calculating the foreign tax credit on the income tax that has been paid abroad as the income has arisen from the dividends distributed by non-resident entities.
Apart from the credit made available on the income tax paid or withheld overseas on the dividends and distribution of profits, an indirect credit is also made applicable to the corporate income tax paid by a non-resident company.
However, a non-resident company has to satisfy some of the required criteria in order to be eligible for this indirect credit.
Participation exemption – No.
Holding company regime – No.
Incentives – Investors involved in businesses related to the large mining, oil, or gas can conclude tax stability agreements with the respective government for a period ranging between 10 – 15 years.
Tax year – Tax year in Peru is a calendar year and there are no exceptions in this case.
Consolidated returns – Peruvian government won’t allow consolidated returns and each company would have to file a separate return.
Filing and tax payments – companies need to pay monthly advance payments for the taxes each month continuously for all 12 months.
Self-assessed tax returns must be filed annually, and the resulting tax must be paid on or before the first week of April in the following year (after the end of the tax year).
Penalties – There is a penalty for late filing as well as failure to file the returns.
Rulings – There is an availability of a private binding ruling regime.
Having discussed the corporate taxes, let us now have a look at the individual taxes imposed on residents as well as non-residents in Peru.
Given below is a table that depicts the general tax rates for individuals in Peru.
|Up to 5 UITs||8%|
|6 – 20 UITs||14%|
|21 – 35 UITs||17%|
|36 – 45 UITs||20%|
|More than 45 UITs||30%|
Progressive tax rates are applicable to the income derived from local sources as well as foreign sources as per the following schedule that has been given above.
However, non-residents are subject to different rates depending on the type of income.
If you are obtaining a payroll through a company in Peru, your income tax is deducted from the salary on a monthly basis.
Deductions and exemptions are applicable depending on the nature of the income. The employees are offered a 20% tax relief.
Tax residence – People who are living in Peru or foreign nationals who have been present in Peru for a period of 183 days (no need to be consecutive) in a respective year are considered as residents for tax purposes.
People who meet the above-mentioned criteria by 1 January are imposed with an income tax for the previous tax year.
Any changes made to an individual’s residence status after 1st January will come into effect in the next fiscal year.
Basis of taxation – Like most other countries, residents in Peru are taxed on their worldwide income and non-residents are subject to tax on the income derived from Peru.
Taxable income – Taxable income has been classified into the following specific categories.
- Income from employment
- Income from individual personal services
- Capital gains
- Income obtained from the leasing of assets
On the other hand, the business income of an individual is subject to tax as per the corporate tax rates.
Capital gains – Capital gains in Peru are imposed with a tax rate of 5%.
Non-residents who accrue capital gains with the help of the transfer of securities of a non-resident Peruvian entity are subject to a withholding tax of 30%.
This tax rate is 5% for the transfers that have been made in Peru if the transactions have been carried out with the help of the Lima stock exchange.
The tax rate for capital gains obtained by a non-resident via the transfer of a real estate property located in Peru is 30% (withholding tax). This can be calculated by the difference between the investment capital and the current market value of a property.
Deductions and Allowances – An individual might be able to deduct from the capital income or employment income.
Along with that, a maximum of 3 UITs can be deducted for the amount that has been paid for the following:
- Lease of real estate property
- Sub-lease of real estate property
- Interest on mortgage loans for a first property (house)
- Doctor fees
- Dentist fees
- Rendered services, which fall under the ‘fourth category’ income
- Contributions made for social security and health (ESSALUD), which are specifically made for domestic workers.
Foreign tax relief – A tax credit is made available for the individuals on the income tax that has been paid on the foreign-source income.
This credit is equal to either the foreign tax that has been paid or the Peruvian tax liability on income earned, whichever is less.
Excess credit couldn’t be carried forward by an individual for setting off in the following years.
Tax year – As discussed for Corporate taxation, the tax year is a calendar year without having any sort of exceptions.
Filing status – The spouse of a specific individual can opt for filing the taxes jointly, or else they would have to file their taxes individually.
In both cases, there is no specific advantage for an individual.
Filing and Payment – income tax returns must be filed by an individual within three months after the completion of a tax year.
Penalties – Penalties are applicable for making a late payment or not being able to file the taxes.
Rulings – There is no availability of a private binding ruling regime in the case of individuals.
Withholding tax – Given below are two tables that provide the information regarding withholding tax rates in case of residents as well as non-residents.
Withholding tax for residents:
|Dividends||0%||5% (for the distribution of profits earned in the year 2017 and the succeeding years)|
|Interest||0%||5% (6.25% rate is applicable to 80% of the overall income)|
|Royalties||0%||5% (6.25% rate is applicable to 80% of the overall income)|
|Fees for technical services||0%||8%|
Withholding tax for non-residents:
|Dividends||5% (for the distribution of profits earned in the year 2017 and the succeeding years)||5% (for the distribution of profits earned in the year 2017 and the succeeding years)|
|Interest||4.99% to 30%||4.99% to 30%|
|Fees for technical services||15%||15%|
Dividends – Dividends that have been paid out to a resident entity are not subject to a withholding tax. Dividends that are paid out to non-resident entities/individuals are subject to a 5% withholding tax.
This 5% withholding tax rate is only applicable to the dividend distribution of profits, which have been earned on or after 1st January 2017.
Dividend distribution of profits earned between the period of 1st January 2015 and 31st December 2016 used to have a withholding tax rate of 6.8%.
Dividend distribution of profits that have been earned before 1st January 2015 used to have a withholding tax rate of 4.1%.
Interest – Interest payments that have been made to a resident entity are not subject to a withholding tax.
Interest payments made to a non-resident individual are subject to a withholding tax rate of 5% on the gross income.
Actually, in the above-mentioned case, the withholding tax rate is 6.25%. But is only applicable to 80% of the overall income making the overall tax rate to be 5%.
Interest payments made to a non-resident non-related party while satisfying certain criteria are subject to a withholding tax of 4.99%, if not, the tax rate is set at 30%.
Royalties – Royalties paid out to a resident entity won’t incur any withholding tax.
On the other hand, royalty payments made to a non-resident person are subject to a withholding tax of 6.25%.
In the above-mentioned case, the withholding tax rate is 6.25%. But is only applicable to 80% of the overall income making the overall tax rate to be 5%.
Royalty payments made by a Peruvian resident to a non-resident fall under the category of income obtained from Peruvian sources. In such a case, the withholding tax is set at a rate of 30%.
Fees for technical services – Fees for technical services paid out to a resident entity do not incur a withholding tax. However, a withholding tax of 8% is imposed on the fees for technical services paid out to a resident individual.
Fees for technical services that are paid to non-residents are subject to 15% withholding tax in Peru (whatever the service might be).
Domestic taxpayers should keep a report with them, which has been issued by an audit form stating that the technical services were actually rendered by a non-resident.
Additionally, the total amount of services that have been rendered should exceed 140 UITs, which is equivalent to an amount of USD 178,000.
Branch remittance tax – As discussed before, Peruvian branches of non-resident entities are subject to a standard tax rate of 29.5% along with a 5% branch profits tax is applicable to the deemed profit distributions.
Other – any of the direct or indirect share transfers of a Peruvian entity made by a non-resident is imposed with a withholding tax rate of 30% or 5%.
A tax rate of 5% applies if the shares are listed on the Peruvian stock exchange and have been transferred through that means.
Value-added tax (VAT) – The standard value-added tax rate is 18% and the reduced rate for VAT is 0%.
In Peru, VAT is imposed on the list of things given below:
- Sale of goods
- Provision and usage of services
- Construction contracts
- Sale of first real estate property by a contractor
Companies that are at the preoperational stage can also be able to apply for an early recovery of VAT based on certain conditions.
Companies involved in the businesses related to oil, gas, and mining might be able to apply for a definitive recovery of VAT.
Taxpayers are required to maintain accounting books, such as purchase & sales books. It is mandatory for individuals to file the VAT returns in Peru every month.
Other taxes – Let us have a look at some other types of taxes imposed on individuals in Peru.
Social security contributions – Social Security Contributions in Peru are generally paid by an employer on behalf of their employees, and they pay an amount equivalent to 9% of the employee’s gross salary.
Payroll tax – No.
Capital duty – No.
Real property tax – Municipal authorities in Peru impose a real property tax on the basis of progressive taxation.
The usual rates are 0.2%, 0.6%, and 1% depending on the value of the real property. This real property tax can be deducted for income tax purposes.
Transfer tax – In Peru, the transfer of buildings (real estate property) is imposed with a transfer tax of 3%. However, for transfer tax, the 10UITs are exempt from taxation.
Stamp duty – No.
Net wealth tax – No.
Net worth tax – No.
Inheritance tax – No.
Estate tax – No.
Other – A temporary net assets tax is imposed on the overall value of a company’s total assets that amount to more than PEN 1 million, and the tax rate for this is 0.4%.
In addition to that, a financial transactions tax is levied, mainly on the debit and credit transactions made within a Peruvian bank account at a tax rate of 0.005%.
Foreign tax relief – Taxpayers are able to claim a tax credit for the income taxes that have been paid abroad, subject to certain limitations.
People who are residents of Peru are offered the benefit of using taxes (withholding tax or tax paid abroad) as a credit for the taxes on their worldwide income that is taxable in Peru.
Anyhow, it is determined by the average Peruvian tax applicable to a person’s foreign income, up to a certain limit of the amount of tax that is actually paid abroad.
Tax treaties – Peru has a tax treaty with the following countries, which are given below:
Peru has entered into tax treaties with the above-mentioned countries concerning the double taxation on income tax under the OECD (Organization for Co-operation and Development) model.
In addition to that, Peru has entered a DTT (Double Taxation Treaty) with Japan but is still waiting for ratification from the Peruvian Congress.
Peru, being a member of the Andean Community of Nations (CAN) and is subject to a double taxation standard. This is on the basis of source income and not based on the OECD model.
Anti-avoidance rules – Transactions carried out for the following parties should be done in individual prices, which are:
- Between a resident taxpayer and an entity located in a tax haven region.
- Entity located in a non-cooperative jurisdiction.
- Entity, whose income is subject to the preferential tax regime.
If the price agreed upon is carried out at an arm’s length price, the tax authorities might adjust the price for income tax purposes only.
Tax authorities have set forward a list that consists of jurisdictions, which have been deemed as tax havens or non-cooperative jurisdictions. Transfer pricing documentation is necessary.
Some taxpayers are required to submit a local file as well as a master file, along with a country-by-country report, which is in accordance with the BEPS action 13.
Additionally, a ‘benefit test’ is required to be fulfilled in order to deduct expenses arising from:
- Transactions between related parties.
- Transactions between a Peruvian taxpayer and an entity located in a tax haven jurisdiction.
- Entity located in non-cooperative jurisdiction.
- Entity, whose income is subject to a privileged tax regime.
Thin capitalization – Interest, which has been paid out to native taxpayers by economically related/associated enterprises can be deducted if exceeds a debt-to-equity ratio of 3:1.
Anyhow, the interest will not be reconsidered as a dividend.
Controlled foreign companies – No (for non-residents).
Disclosure requirements – No, except for the transfer pricing documentation.
Consolidated tax returns – Consolidated tax returns are not allowed, every company/entity should file an individual return.
Penalties – Penalties are applicable to late-filing and failure to file tax returns.
If you are moving to Peru as an expat, the information provided above is expected to come in handy while filing for your tax returns.
Not only that, it is highly recommended to have a better understanding of the taxation in Peru in order to avoid any penalties or extra charges.
That being said, if you are willing to move to Peru as an expat or want to become a permanent resident there, we can be able to help you out with your second passport and residency process.
Additionally, if you require the services of a financial advisor or a wealth manager (especially for financial instruments), you can avail of the expert financial services offered by us.
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