| Peru income tax Peru Income tax for 2009 on domiciled individuals is imposed on a scale of brackets on their income, as shown below:
Bracelet / Tax units (UIT) / Tax rate
1st Up to 7 UIT 0%
2nd 7 to 34 UIT 15%
3rd 34 to 61 UIT 21%
4th Over 61 UIT 30%
Income tax on non-domiciled employees is imposed at a flat rate of 30% on their gross Peruvian source income. No deductions or credits apply to non-domiciled individuals.
The Tax Unit (a reference unit for the computation of tax and penalties) for 2009 is S/. 3,550 (US$ 1,131).
(UIT: Unidad Impositiva Tributaria)
Individual Income Tax in Peru is determined by the domicile rather than by residence. Foreign individuals are deemed to be domiciled in Peru for tax purposes if they have resided or been in Peru for more 183 calendar days within a 12 month period. Temporary absences up to 183 days within a 12-month period do not interrupt the continuity of the residence.
The condition of being domiciled is determined at the beginning of the fiscal year. Changes regarding this condition during the fiscal year shall enter into force as of the next fiscal year. This means that non-domiciled individuals who obtain residency after June 30th must wait until the next year to apply the domiciled tax treatment, and the change will be effective in the following year.
Domiciled individuals are subject to Income Tax on their worldwide income, where as non-domiciled individuals are only taxed for their Peru source income. Non-domiciled individuals are entitled to a foreign tax credit for the taxes paid on foreign income taxable in Peru, determined by his / her average Peruvian tax rate applied on his / her foreign income, up to a limit of the amount of tax actually paid abroad.
Peru Corporate Tax RateCorporate tax rate in Peru is 30% plus an additional 4.1% on dividends and profit distribution.
The corporate income tax is calculated on the basis of a tax unit (UIT), which is recalculated annually to account for the effects of inflation. The Tax Unit (a reference unit for the computation of tax and penalties) for 2009 is S/. 3,550 (US$ 1,131).
Also, a special regime for small businesses and for some low-income companies imposes a monthly income of 2.5%. Dividend payments are not taxed, but capital gains are taxed at 30%. Branches of foreign companies are subject to the same taxes as Peruvian companies.
Companies incorporated in Peru are considered domiciled in Peru for tax purposes and are thus subject to Income Tax at a 30% rate on their worldwide net income. Branches, agencies and permanent establishment of non domiciled companies or entities incorporated in Peru are subject to Income Tax at a 30% rate on their Peruvian source income only.
In order to fulfill their annual Income Tax liability, the mentioned entities must make monthly advanced payments by applying a coefficient to their monthly net revenues. The coefficient is determined by dividing the previous year's income tax by total taxable income of that year. New companies or companies with tax losses meet their monthly advance obligations by paying 2% of monthly net revenues. It is possible to reduce the coefficient or even suspend the monthly advance payments under certain conditions.
Any unpaid balance or excess payment is paid or credited, respectively, upon the filing of the annual Income Tax return, which must be filed no later than 4 months into the tax year following that corresponding to the Income Tax liability (e.g., 2007 annual Income Tax return must be filed no later than April 2008). The Fiscal year corresponds to the calendar year.
For purposes of determining their taxable income, such entities are allowed to deduct expenses to the extent that they are necessary to produce taxable income or to maintain its source. Requirements, limits and/or caps may be applicable for the deduction of certain expenses, such as financial expenses (thin capitalization rules apply), bad debt provisions, salaries, travel expenses, gifts, etc.
Certain expenses are not tax deductible, however, such as those derived from transactions with (i) entities domiciled in tax havens on the list attached to the Peruvian Income Tax Law regulations, (ii) permanent establishments located in tax havens, or (iii) entities that obtain revenues or income through tax havens. Nonetheless, expenses derived from the following transactions are excluded from the above-mentioned limitations:
(i) interest on loans, (ii) insurance premiums, (iii) lease of aircraft and ships, (iv) maritime freight, and (v) fees for passing through the Panama channel.
Depreciation is applied using the straight line method. The depreciation allowed for tax purposes is the same as that registered for financial purposes. However, tax depreciation cannot exceed the following rates: Buildings 3%, Cattle 25%, Vehicles 20%, Machines and equipment 20%, Equipment for data processing 25%, Other fixed assets 10%.
For purposes of determining its taxable income, such entities are allowed to deduct expenses, to the extent that these are necessary to produce taxable income or to maintain its source. Requirements, limits and/or caps may be applicable for the deduction of certain expenses, such as financial expenses (thin capitalization rules apply), bad debts provisions, salaries, travel expenses, gifts, among others.
However, certain expenses are not tax deductible, such as those derived from transactions with (i) entities domiciled in tax havens included in the list attached to the Peruvian Income Tax Law's regulations, (ii) permanent establishments located in tax havens, or (iii) with entities that obtain revenues or income through tax havens. Not with standing, expenses derived from the following transactions are excluded from the above mentioned limitation:
(i) interests on loans, (ii) insurance premiums, (iii) lease of aircraft and ships, (iv) maritime freight, and (v) tariff for passing through the Panama Channel.
Withholding tax
Income paid to non-domiciled entities is subject to withholding tax at the following rates: Interest on non-related party loans, provided certain requirements are fulfilled 4.99%, Interest on related party loans 30%, Interest paid by Peruvian financial entities or banks to foreign beneficiaries, for credit lines used in Peru 1%, Royalties 30%, Digital services 30%, Technical assistance, provided that certain requirements are met (otherwise 30%) 15%, Lease of vessels or aircraft 10%, Other income 30%.
Note that domiciled taxpayers cannot deduct the withholding tax of a third party, except in the case of loans provided by non-domiciled creditors, to the extent that the debtor has contractually assumed the obligation of bearing the withholding tax.
In the case of the services mentioned below that entail the execution of activities both in Peru and abroad, it is deemed that non-domiciled entities obtain net income at the following rates: Insurance 7%, Lease of vessels 80%, Lease of aircraft 60%, Air transport 1%, Maritime transport 2%, Telecom services 5%, International news services 10%, Distribution of movies, records and similar products 20%, Supply of containers 15%, Rights for broadcasting live foreign TV shows within Peru 20%.
Transfer pricing rules
For tax purposes, the value assigned to goods and services for all transactions must be at market value. If the value given to a transaction differs from market value, either by overvaluation or sub-valuation, the Tax Administration may adjust it for both the buyer and the seller. Should one of the parties be a non-domiciled entity, such adjustment will be unilateral (only to the domiciled party).
In the case of transactions between related parties or transactions with tax havens, the value of the goods and services must be determined in accordance to transfer pricing rules. It is mandatory in most transactions to support the value with a transfer pricing study; otherwise, penalties may be imposed.
Peru Value Added Tax (VAT)Standard VAT rate in Peru is 19%.
The following transactions are subject to VAT at a 19% rate:
- Sales of moveable goods made within Peru.
- Services rendered within Peru.
- Services rendered abroad but economically used within Peru by a domiciled user.
- Importation of goods.
- Construction agreements.
The first sale of real estate made by construction firms. In all transactions the vendor is subject to VAT, except for the case of importation of goods and services rendered abroad but economically used within Peru, for which VAT is self-assessed by the importers and users, respectively.
The VAT Law follows a debit / credit system, and input VAT may be offset by output VAT. Should excess input VAT be obtained in a particular month, it shall be offset by output VAT obtained during the following months until it is exhausted. Cash refunds of excess input VAT may only be made if it is not possible to offset the excess input VAT related to the exportation of goods and services, as explained below, but not to domestic transactions.
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