In the past years, Peru has made several economic developments placing it at the top of the list of countries with rapid growth on a global level.  The Peruvian economy is open to private investment, which is practiced in the context of a social market economy.  It also promotes competition and ensures foreign investment in all industries.

The principal taxes levied on economic activities include income tax, value-added tax (VAT), financial transactions tax, municipal taxes and the temporary tax on net assets (ITAN - Spanish acronym).

In this chapter

• Legal system
• Taxation authorities
• Financing a corporate subsidiary
• Income tax
• Cross-border payments
• Mining tax
• Temporary tax on net assets (ITAN)
• Financial transactional tax (ITF)
• Indirect taxes
• Payroll taxes
• Municipal taxes

Legal system

All territories within Peru operate under a common legal system. While the ability to enact laws pertains to the exclusive domain of Congress, the rules that determine their application lie within the scope of other authorities.

Taxation authorities

The national tax system is administered by the Peruvian National Superintendence of Customs and Tax Administration (SUNAT).

Business vehicles

A non-resident may either establish a Peruvian vehicle to carry on business in Peru or operate directly through a foreign entity. Peruvian business vehicles are corporations (limited liability or unlimited liability), branches and associative agreements.

Corporations

Peruvian corporations are governed by the General Law of Companies “LGS” (Spanish acronym).  Under the LGS, a corporation must have at least two shareholders, which may be individuals and/or legal entities, otherwise, it will not be in good standing.  Peruvian corporations must have a board of directors, except for corporations that are closely held, which may choose not to have one. The LGS requires a minimum of three directors who must be individuals. There are no nationality or residency requirements for directors. Under the Peruvian legislation, individual limited liability companies (EIRL) also exist. This type of corporation must be created by a single person (unipersonal will). The owner is the highest governing body of the company, oversees the company’s assets and determines the company’s activities.

Branches

A branch is considered part of its parent entity, without separate legal personhood. However, it is a separate taxpayer for tax purposes. Its parent entity shall grant permanent legal representation and management autonomy with respect to the scope of the branch’s activities (according to the powers granted to its representatives).

Associative agreements

Participation Account Agreement

A participation account agreement creates and regulates the participation and integration of specific businesses in the common interest of the intervening parties: there is a managing partner, who is solely responsible for carrying out the business and shares the results with the silent partners, in exchange for their contributions (in cash or kind).

This type of agreement does not create a separate legal entity from its members. It must be executed in writing and is not subject to recording with the Public Registry.

As from fiscal year 2023, Legislative Decree No. 1541 modified the Income Tax Law to establish the tax treatment applicable to Participation Account Agreements: (i) the consideration earned by the silent partner for its contribution is considered a dividend or other form of profit distribution, (ii) the silent partner's contributions are subject to income tax, (iii) the consideration paid to the silent partner is not a deductible cost or expense for the managing partner and (iv) the managing partner must withhold income tax when profits are distributed in favor of the silent partner (only applicable to individuals and foreign entities).

Consortium or joint venture

In a consortium or joint venture agreement two or more parties associate to actively participate in a business. Each party maintains its independence and own responsibilities.

For tax purposes, a consortium or joint venture is considered a separate taxable entity when independent accounting records are kept, which is optional when the agreement is for less than 3 years, and mandatory when the agreement exceeds such term.

Foreign corporation

A foreign corporation (and entity in general) that is deemed to carry on a business in Peru is subject to tax on its Peruvian source income. A foreign corporation that carries on business in Peru is subject to tax on its Peruvian source income.  Peruvian income tax law deems certain activities conducted by a non-resident as constituting the conduct of business in Peru, and therefore subject to income tax.

Where the foreign corporation is resident in a country with which Peru has a double-taxation treaty pursuant to which the corporation may claim treaty benefits, the corporation will generally be exempt from Peruvian taxation on its business profits, except to the extent that the profits were to be earned through a permanent establishment situated in Peru.

Financing a corporate subsidiary

Equity financing

Investments in subsidiaries incorporated in Peru are not afforded special treatment. That is, the contribution is added to the social capital or capital surplus, depending on whether more shares are issued or not.  The capital reduction up to this extent will not be subject to withholding taxes (unless the anti-avoidance rule that regulates the capital reduction as a distribution of dividends is applicable).

Debt financing

In general terms, interest on loans are deductible expenses, provided they are related to the acquisition of goods or services incurred to obtain or produce taxable income or to maintain its source.

Thin capitalization

If a Peruvian corporation is to be financed with debt, it is subject to the rules that restrict the deductibility of interest payments.  These rules limit the amount of net interest expense that a corporation may deduct in computing its taxable income to no more than 30% of its “tax EBITDA.” Tax EBITDA is the corporation’s taxable income after carrying forward tax losses, plus interest, depreciation and amortization.

Stamp tax

Peru does not impose stamp taxes.

Income tax

Corporate income tax (CIT)

Companies incorporated in Peru are considered residents for tax purposes and are subject to a CIT rate of 29.5% on their worldwide net income. Branches, agencies and other permanent establishments of non-resident companies are subject to income tax on their Peruvian-source income, while subsidiaries are subject to income tax on their global-source income.

To calculate the taxable basis, domiciled companies are entitled to deduct expenses, to the extent that they are necessary to produce income or to maintain its source. Additionally, there are certain limits and/or caps on the deduction of certain expenses, such as finance costs (see thin capitalization rules), provisions for bad debts, salaries and travel expenses, among others.

Dividends and any other type of profit distribution are subject to a 5% withholding tax.

Branch tax

The 5% tax on dividends also applies on annual after-tax profits earned by a branch of a non-resident corporation. The branch tax is roughly equivalent to the withholding tax that would apply on dividends to be paid by a Peruvian subsidiary to a foreign parent.

Stability agreements

Investors can sign stability agreements with the Peruvian government, whether under the special regime or under sectorial regimes (e.g., mining and oil), to guarantee the following rights for a 10-year period:

1. Stability of the current income tax regime at the time of signing the agreement, regarding dividends and profit-sharing.
2. Stability of the monetary policy of the Peruvian government, according to which there is an absence of exchange controls; foreign currency can be acquired or sold freely at any type of exchange rate offered by the market; and funds (remittances) can be sent abroad without requiring prior authorization.
3. Non-discrimination between foreign and local investors.

Cross-border payments

Transfer pricing

In general terms, the CIT establishes that, for tax purposes, all transactions must be carried out at market value.

Moreover, transactions entered between related parties and/or with residents in low-tax jurisdictions are subject to transfer pricing rules. If these rules are not observed, the Tax Authorities may adjust the prices agreed by the participating parties. It is important to mention that transfer pricing adjustments apply when the value agreed between related parties results in a lower tax determination.

In the case of intercompany services, the value of such services must fulfill the benefit test.  This test is considered fulfilled when the service in question provides economic or commercial value to the recipient (improving or maintaining its commercial position), which would occur if independent parties were to have satisfied the need for the service, executing it by themselves or through a third party.

Withholding income tax

Non-domiciled companies are subject to a withholding income tax on Peruvian-source income.

The tax rates are as follows:

*Interest paid to non-residents is generally subject to withholding taxes at a rate of 30%. However, interest paid to unrelated foreign lenders is subject to a reduced tax rate of 4.99% if (i) in case of cash loans the foreign currency must enter in Peru, (ii) the interest rate does not exceed SOFR (Secured Overnight Financing Rate) plus 7 points, and (iii) there is no economic relationship between lender and borrower.

It should be noted that the part of the interest that exceeds the limit of the SOFR rate + 7 points will be subject to Income Tax at the general rate of 30%.

Tax treaties

For avoiding double taxation on income tax, Peru has entered into treaties with Japan, Brazil, Canada, Chile, Korea, Mexico, Portugal and Switzerland under the OECD model.

Peru, as a member of the Andean Community, which includes Bolivia, Colombia and Ecuador, is subject to a double-taxation standard mainly based on source income and not on the OECD model.

Multilateral Instrument

In 2018, Peru signed the Multilateral Agreement (MLI).

International tax reform

On October 8, 2021, Peru, along with 135 other countries, committed to a two-pillar plan for international corporate tax reform that supports the OECD Inclusive Framework’s “Tax Challenges Arising from Digitalisation of the Economy” project.

Mining tax

As of October 1, 2011, the mining royalty was modified and two additional mining taxes came into effect: the Special Mining Tax (IEM) and Contribution (GEM).

The mining royalty includes metallic and non-metallic mineral resources, while the IEM and the GEM only include metallic mineral resources.  The GEM is only applicable to mining companies that have valid tax stability agreements. These companies will voluntarily sign contracts with the Peruvian government for the payment of said charge, which must be determined by each stability agreement that they maintain.

The payment obligation of the mining royalty, IEM and GEM falls due at the closing of each quarter (January–March, April–June, July–September and October–December).  The basis of calculation is the operating profit or sales revenue for the quarter.

Operating profit is obtained by taking the revenue generated from the sales of mineral resources each quarter, then deducting the sales cost and the operating expenses (including selling expenses and administrative expenses) incurred to be able to generate said revenue.  All these expenses and costs must be at market value.

Within the last 12 business days of the second month following the generation of the obligation, mining companies must present a quarterly declaration (January–March, April–June, July–September and October–December) and make payment of the corresponding mining royalty, IEM and GEM.  This declaration must determine the basis for calculating the mentioned contributions.

The amounts effectively paid for mining royalty, IEM and GEM will be considered as an expense for income tax purposes in the period in which they were to be paid.

They are calculated as follows:

Temporary tax on net assets (ITAN)

Companies that are subject to corporate income tax are subject to the temporary tax on net assets.

This tax is levied on the net asset value contained in the balance sheet as of December 31st of the previous period to which the payment corresponds, deducting the depreciations and amortizations permitted by law. A company is subject to the ITAN the year after it starts activities.

The ITAN paid is a credit to be offset against the advanced income tax payment or the annual income tax regularization payment. Any remaining balance can be reimbursed by the Tax Administration.

Financial transactional tax (ITF)

Obligations paid with cash of amounts greater than S/ 2,000 or USD 500 must be made through bank accounts or deposits, bank transfers, payment orders, credit cards or non-negotiable checks, among other means of payment provided by the entities of the Peruvian financial system.

Any obligation that is not carried out using these methods prevents the deduction of the expense or the recognition of  tax basis and credits.

Additionally, the ITF is applied to all debits and/or credits in bank accounts maintained by the taxpayers.  The applicable tax rate is 0.005%. Certain operations are exempt from ITF, such as the operations between accounts of the same accountholder; credits or debits in bank accounts opened at the request of the employer exclusively to be able to deposit the salaries of its employees; and credits or debits in bank accounts of severance payments.

The ITF is deductible as an expense for income tax purposes.

Indirect taxes

Valued-added tax (VAT)

1. Sale of goods within Peru
2. Render or use of services in Peru
3. Construction contracts
4. The first sale of a real property made by the constructor
5. Import of goods.

The VAT law follows a debit/credit system by which the VAT paid on the purchase of goods and services can be used as a credit (input) against the VAT originated by future taxed operations (output). Any VAT credit that is not used within a month can be indefinitely carried forward (at historical values) and used against the output VAT of future operations.  It must be considered that the refund of VAT credit is only available for exporters and some entities in the pre-operating stage, if certain conditions are met.

Early recovery of VAT

To promote investment in the mining industry, a VAT recovery regime has been established for the holders of mining concessions that have not begun operations and are in the exploration stage.  In addition to this regime exclusively applicable to the mining industry, there is a regime of early recovery of the VAT applicable to any industry (including the mining industry) for companies in the pre-operating stage (for example, in the construction stage).

Payroll taxes

Remuneration paid to employees is subject to statutory social contributions and payroll taxes. To determinate the payroll taxes, a first deduction of 7 tax units is made on the employee’s income; subsequently, the following annual progressive rate is applied to the balance:

1. 8% for the first 5 tax units of net income
2. 14% of net income for amounts from 5 tax units to 20 tax units
3. 17% of net income for amounts from 20 tax units to 35 tax units
4. 20% of net income for amounts from 35 tax units to 45 tax units
5. Any excess at 30% of net income.

Municipal taxes

1. Property tax: This tax is levied on the ownership of property by a natural or legal person in each district. The rate varies between 0.2% and 1% depending on the value of the property to be determined according to Government’s guidance. This is an annual tax.
2. Alcabala tax: This tax applies to the gratuitous or onerous transfer of real estate property. After deducting 10 Tax Units a rate of 3% is applied to the value of the property agreed by the parties or the value of the property to be determined according to Government’s guidance, whichever is greater. The tax must be paid by the buyer.
3. Automotive tax: This tax is generally applicable to vehicles owned by individuals and companies. An annual 1% of the original purchase price of automobiles no older than 3 years is applied.
4. Other municipal taxes: Includes public cleaning service fees, local public security services fees and local park maintenance services fees.