Peru Business Environment V
Release Date:2024-08-23

China is Peru's main trading partner, the largest destination of exports and the main source of imports for Peru. Peru is China's second largest investment destination in South America. The two countries have established a comprehensive strategic partnership and signed a free trade agreement. In the next five to 10 years, Peru will become another destination for Chinese enterprises going global. More Chinese companies will enter Peru and expand into the broader South American market through Peru. AllBright Law is actively exploring the legal service market in South America, providing reliable host country legal service resources and doing legal research on various host countries for Chinese enterprises going to South America, so as to provide legal protection for serving China's high-level opening-up and the "the Belt and Road" strategy. To this end, AllBright Law, together with Rodrigo, El í as &Medrano Law firms in Peru, launched this Series of Articles on Peru Business Environment, including Peru's going global, Peru's corporate structures, Peru's promotion of investment and legal stability, operational legal environment, business winding up and restructuring a business.

I. Taxation and Cross-Border Transactions

The Customs and Tax Administration National Superintendence (“SUNAT”), the Peruvian tax authority, collects and administrates internal taxes, custom duties and other foreign trade borne charges which constitute Peruvian treasury revenue (exceptionally, SUNAT collects other taxes and contributions established by law). SUNAT also enforces the Tax Code and is involved in issuing rulings regarding matters of revenue.

1. Taxpayer Identification – RUC

Every individual, corporation, undivided estate, partnership or any entity, whether Peruvian or foreign, regardless of its tax domicile, must be registered in the taxpayer identification record (RUC” for its Spanish acronym) upon acquiring taxpayer status or becoming responsible for taxes administrated or collected by SUNAT. The same requirement applies to tax withholding agents.

The taxpayer and the tax withholding agent are identified by the 11-digit number assigned by SUNAT (the RUC), which is used to comply with both its formal and substantive tax obligations.

Workers who only obtain fifth category income, among others, are not required to register in the RUC. In principle, non-domiciled taxpayers would not have to register in the RUC either; however, there are some cases in which the tax authorities demanded compliance with such requirement as a condition for processing their requests for refund of undue and/or excess payments.

2. Peruvian Tax System

The following is an overview of the taxes generally applied in Peru, at the time this report was issued. This report also includes a description of certain tax issues relevant to mining activities.

  • Income Tax

- Scope of Application

Income tax is levied on income obtained from capital, work, the joint application of both factors, capital gains, revenues resulting from operations with third parties as expressly stated in the Income Tax Law (“LIR“ for its Spanish acronym), and imputed income as expressly stated in the LIR.

-  Tax Jurisdiction

Peruvian residents are subject to income tax on their worldwide income. Non-residents or permanent establishments in Peru of foreign corporations are taxed only on their Peruvian source income.

- Peruvian Residents

For tax purposes, the following are considered residents in Peru, among others: (i) Peruvian individuals who reside in Peru; (ii) foreign individuals who have resided or remained in the country more than 183 calendar days within a 12-month period; (iii) legal entities incorporated in the country; (iv) branches, agencies or other permanent establishments in Peru of non-resident corporations, in which case the status of resident applies to the branch, agency or other permanent establishment as to its Peruvian source income.

-  Peruvian Source Income

The term “Peruvian source income” includes, among others, income originated or produced by: (i) properties located in Peru: (ii) loans and investments when the capital is placed or economically used in Peru, or the payer is domiciled in Peru; (iii) digital and technical assistance services, when they are economically used within the national territory; (iv) royalties, when they are paid by a subject domiciled in Peru, or when the goods or rights for which they are paid are economically used in Peru; (v) personal work performed in the national territory; (vi) civil, commercial, business or any other kind of activities performed in the national territory; (vii) among others.

  • Individual Income Tax Rules

For domiciled individuals, capital income (first and second category) is taxed at an “effective rate” of income tax of 5%. On the other hand, the income tax applicable to the sum of net labor income derived from the rendering of dependent services (fifth category income) and independent services (fourth category income) plus foreign source income, is determined by applying a progressive, cumulative scale.

In greater detail, the net earned income is determined by applying, in the first place, the legal deductions provided for in the LIR. In the case of income derived from the individual and independent exercise of a profession, art, science or trade, the Income Tax Law recognizes a legal deduction of 20% (this deduction does not apply to income derived from the performance of the functions of a company director, trustee, agent, business manager, executor and similar). The legal deduction of 7 UIT (=US$ 9,118.00 approx.) is applied to the sum of labor income (fourth and fifth category income).

Additionally, from fourth and fifth category income, taxpayers may deduct up to a maximum of 3 UIT (=US$ 3,908.00 approx.) for the following personal expenses: lease and/or sublease of real estate located in the country that is not exclusively destined to the development of business activities; doctors’ and dentists’ fees for services rendered in the country; fees for services rendered related to any profession, art, science or trade (with the exception of amounts paid for the functions of company directors, agents, receivers, business managers, executors and similar); EsSalud contributions in favor of household workers; among others. It should be noted that, in some cases, only a percentage of the expenses are deductible for tax purposes.

The net earned income is added to foreign source income. The result derived from such addition is subject to income tax as follows: (i) to the first 5 UIT the rate of 8% is applied; (ii) to the bracket between 5 UIT and 20 UIT the rate of 14% is applied; (iii) to the bracket between 20 UIT and 35 UIT the rate of 17% is applied; (iv) to the bracket between 35 UIT and 45 UIT the rate of 20% is applied; and, (v) to any amount exceeding 45 UIT the rate of 30% is applied. The Income Tax will be equivalent to the sum of the amounts obtained as a result of applying the rates according to the progressive cumulative scale.

The earned income received by non-domiciled individuals is taxed at a fixed rate of 30% of net income, without considering the legal deduction of the aforementioned 7 UIT or the additional deduction of up to 3 UIT (referred to in the preceding paragraphs).

  • Taxation of Mining Activities

-  Special Deduction Rules

In accordance with the provisions of the General Mining Law (LGM), the acquisition value of mining concessions shall be amortized from the year in which, in accordance with the LGM, the minimum production obligation must be met (regardless of the start of actual production) within a term to be determined by the holder of the mining activity at that time. Such term is determined based on the probable life of the deposit, calculated taking into account the proven and probable reserves and the minimum production obligation according to law.

The acquisition value of each mining concession includes the price paid or filing fees (as the case may be), as well as prospecting and exploration expenses incurred up to the date on which, according to law, the minimum production is required to be met.

Prospecting and exploration expenses may be amortized as part of the acquisition value of the mining concession or fully deducted in the year in which they are incurred, at the taxpayer’s option.

If the mining concession is abandoned or declared outdated before complying with the minimum production levels established by the applicable law, the acquisition value may be totally amortized in the fiscal period in which any of said events occur.

Development and preparation expenses allowing the exploitation of the mining concession for more than one year may be wholly deducted in the fiscal period in which said expenses are incurred, or amortized within said term and over two additional years (i.e. an overall three-year amortization period).

- Mining company tax benefits for public infrastructure investments

According to the Mining Law, investments by mining companies on public infrastructure may be deductible expenses for Income Tax purposes. In order to enjoy this benefit, the investments must be made in roads; seaports; airports; environmental sanitation works; energy, telecommunication, education and health infrastructure; and in public facilities for recreation and other public infrastructure projects.

Investments must be approved by the competent authority (i.e., in the case of roads, the Ministry of Transport and Communication). The amount of the investment deductible from taxable income under this benefit will be only that which corresponds to the portion of the work qualified as a public service, according to the percentage indicated in the approval resolution.

- Special Mining Tax

Mining companies are subject to Special Mining Taxes in the exploitation and production stages.

The Special Mining Tax is levied on the quarterly operating income of mining companies that originate from the sale of metallic mineral resources in the state in which they are located. The marginal rates of the Special Mining Tax range from 2% to 8.40%. There is no minimum tax. The tax actually paid is a deductible expense for income tax purposes in the year in which it is paid.

- Mining Royalties

Mining Royalties are a royalty charge to be paid by subjects of mining activity mainly in favor of the Regional and Local Governments where mining resources are exploited.

Mining Royalties are currently a percentage of the quarterly operating profits, with effective rates ranging from 1 to 12%, which can be a deductible expense for purposes of annual Income Taxes for the year in which it is paid. Should the resulting Mining Royalty be lower than 1% of the respective quarterly sales revenue.

  • Transfer Pricing

In the event of sales, contributions of goods and other property transfers, as well as in the provision of services, notwithstanding the consideration agreed upon between the parties, for tax purposes the relevant transaction will always be deemed as made at its corresponding “fair market” value. If the value determined by the parties differs from the “fair market” value, tax authorities will make the necessary adjustments to the involved parties.

In the case of transactions entered into between related parties or carried out from, to or through non-cooperative or low or no taxation countries or territories (known as “tax havens”), or with subjects whose income, revenues or profits from such operations are subject to a preferential tax regime, the market value will be considered equivalent to the consideration that would have been agreed with or between independent parties in similar transactions, under identical or similar conditions, following the local rules on transfer pricing.

The value of the operations will only be adjusted if the payable tax in the country is less (a fiscal damage). The Peruvian Tax Authority may make said adjustment, even if the previous assumption is not met, in case the adjustment involves the determination of a higher tax to transactions between the taxpayer and its related parties.

In the case of services rendered by related parties, the user must prove compliance with the benefit test and provide the documentation and information requested by the Peruvian tax authority, as necessary conditions for the deduction of the respective cost or expense.

For the interpretation of Peruvian transfer pricing rules, it is applying the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, approved by OECD Council, as long as they do not oppose the mentioned Peruvian legislation with character of law. Taxpayers subject to the scope of application of the regime and who meet certain conditions must submit to the Peruvian tax authority the following informative declarations:

(i) Local Report;

(ii) Master Report; and

(iii) Country-by-Country Report is applicable for fiscal years 2016 onwards, while the Master Report and the Country-by-Country Report are applicable for fiscal year 2017 and subsequent fiscal years.

Failure to comply with these obligations generates tax penalties.

  • International Tax Transparency Regime (RFTI)

Under the RFTI, taxpayers domiciled in Peru who are owners of Non-Domiciled Controlled Entities must recognize foreign source passive income from such entities in the same year in which such income is accrued, paying the corresponding tax for such concepts.

Those entities of any nature, not domiciled in Peru, that comply with the following three conditions qualify as “Non-Domiciled Controlled Entities”:

(i) they have a different legal status from that of the persons that compose them (by regulatory provision, entities such as corporations, investment funds, trusts, partnerships, associations and foundations meet this criterion);

(ii) they are established or domiciled in tax havens or in territories in which their passive income is not subject to income tax or, being so, it is equal to or less than 75% of the income tax that would correspond in Peru to the income of the same nature; and,

(iii) are owned by taxpayers domiciled in Peru (which is understood to be fulfilled when the taxpayer, alone or with its related parties in Peru, has an interest of more than 50% of the capital, results or voting rights of the entity).

Examples of “passive income” are, among others: dividends, interest, royalties, rental income, capital gains from the alienation of rights, real estate and securities. Passive income from Peruvian sources (e.g., dividends derived from companies incorporated in Peru) is not subject to the RTFI.

  • General Sales Tax (IGV) 

- Scope of Application

VAT applies to the following transactions:

(i) sale of movable goods within Peru;

(ii) services provided or used within Peru;

(iii) construction contracts;

(iv) first sale of real estate by constructors; and

(v) import of goods.

- VAT Payers

All Individuals, legal entities, foreign company’s branches, irregular partnerships, associations, trusts, and mutual and investment funds that carry out any of the transactions subject to VAT. Likewise, they are taxpayers of the VAT, joint ventures, consortiums and other forms of business cooperation contracts that keep independent accounting from that of the investors or ventures joint ventures, consortia and other forms of business collaboration contracts, which carry independent accounting of that of their investors or participants.

Individuals and any type of entity that does not carry out business activities may be subject to VAT rules if they regularly import goods or carry out activities subject to VAT.

- VAT Calculation

The payable tax is determined monthly by deducting the fiscal credit from the gross tax payable each month. The gross tax for each taxable transaction is the amount resulting from applying the tax rate to the taxable base. The VAT tax rate is 16%. A 2% rate is added for the Municipal Promotion Tax, which is governed by the provisions applicable to VAT, resulting in a total tax rate of 18%.

- Fiscal Credit

Consists of the VAT that appears separately in receipts/invoices. Only purchases of goods, provision or use of services, construction contracts or imports that are allowed as expenses or costs for income tax purposes and are related to transactions subject to VAT may be used for fiscal credit.

- VAT Definitive Recovery Regime for Mining Activities - Act No. 27623

This regime allows the holders of mining concessions that carry out mining exploration activities, which are still in a pre-productive stage and that sign an Exploration Investment Contract with the Peruvian State, to recover the VAT paid on imports or local purchases of certain goods and on the acquisition of certain services and construction contracts related to the referred activities, provided that the requirements and formalities provided in the legislation on the matter are complied with. This regime will be in force until December 31, 2027.

  • Tax on Net Assets (ITAN)

This tax levies companies’ net asset value as reflected on their balance sheets as of December 31 of the year prior to the date of payment, after deducting the depreciation and amortization permitted by the LIR.

ITAN must be paid only by companies subject to the general income tax regime. ITAN is determined by applying a 0.4% rate to net asset values over S/1,000,000. Net assets with a lower value are not subject to ITAN. In principle, taxpayers have the option of considering ITAN payments: as a deductible expense; or as a credit to offset the corresponding monthly Income Tax prepayments and their annual Income Tax. If the ITAN paid exceeds the annual Income Tax due at the end of a fiscal year, taxpayers may request the refund of said excess.

  • Financial Transaction Tax (ITF)

The ITF applies, among others, to the following transactions: (i) credit or debit made to bank accounts of the Peruvian financial system (except for the movement of accounts of the same account holder); (ii) payments to a Peruvian financial system company; (iii) the acquisition of cashier’s checks, bank certificates, traveler’s checks, or other financial instruments; (iv) money transfers or remittances made through a financial system company or a funds transfer company.

The tax rate is 0.005%, and it must be withheld by the financial institution or fund transfer corporation, as appropriate.

  • Selective Consumption Tax (ISC)

The ISC (Impuesto selectivo al consumo) levies the import and local sale of goods, such as certain cars, cigars and similar, alcoholic and non-alcoholic beverages and fuel.

Depending on the respective good’s nature, the tax is determined based on systems to the specific value and to the value according to the price of sale to the public.

  • Tax Incentives

- Tax benefits for public investment projects – Act No. 29230 公共投资项目的税收优惠-第29230号法案

Companies in general may enter into agreements with Regional and Local Governments to finance or carry out public investment projects listed on ProInversion’s portfolio. Once finalized, the works must be transferred to the Regional and Local Governments. Investors are paid by the Peruvian Government with Regional and Local Public Investment Certificates (CIPRL). These certificates may be used by the company to offset its monthly and annual Income Tax payments for the respective year, up to an amount equal to 50% of the Income Tax for the previous fiscal year. If the certificates are not used in the respective fiscal year due to the 50% limitation, Peruvian Government will issue new certificates, adding a 2% annual credit to the amount stated on the previous certificates. If the certificates are not used within a period of ten years, the company may request a reimbursement from SUNAT.

In order to enter into such agreements, the companies must be selected by the Regional and Local Governments in accordance with certain legal norms. Moreover, the companies must be registered in the National Registry of Suppliers of the Supervisory Body of State Contracting - OSCE.

Legislative Order No. 1238 has extended this tax benefit to companies entering into this type of agreement with the Peruvian Government for public investment projects related to health, education, tourism, agriculture and irrigation, public order and security, culture, sanitation, rural electrification, fishing, sports, environment, urban development, social protection and development, transportation, communications and justice, including its maintenance, provided they are registered on the list of priority projects issued by the competent Public Institution. Thus, Peruvian Government will issue “Peruvian Government – Public Treasury Public Investment Certificates” (CIPGN” for its Spanish acronym) to pay the private company the amount it invested. CIPGN Certificates are subject to the same rules as CIPRL Certificates.

- Stability Agreements

See section regarding Foreign Investment Protection (Section IV, item B).

- Special Depreciation Regime - Law No. 31652

As from fiscal year 2023, for income tax purposes, buildings and constructions may be depreciated with a maximum of 33. 33% per year (under the general regime, the annual depreciation rate is 5%) provided that such assets are used exclusively for business development and the following conditions are met:

(i) the construction has been started as from January 1, 2023 (the start of construction is understood as the moment when the building license or other document established by the Regulations is obtained); and,

(ii) until December 31, 2024, the construction has a work progress of at least 80%. This regime will also be applicable to taxpayers that during 2023 and 2024 acquire in property constructions that comply with these conditions.

As of fiscal year 2023, hybrid or electric land transportation vehicles (except railroads), acquired in fiscal years 2023 and 2024, may be depreciated with a maximum of 50% per year.

These regimes will not apply to investments included in the legal stability agreements subscribed under Legislative Decrees No. 662 and 757, and in other contracts subscribed with tax stability clauses.

- Exceptional application of the Special Regime for Advance Recovery of VAT - Law No. 31661

Individuals or legal entities that carry out an investment project in any sector of the economic activity and whose execution involves a total investment commitment of not less than US$ 2’000,000.00 may exceptionally apply for this regime until December 31, 2024.

Source: AllBright Law Offices

Contributor:Peru Rodrigo, Elías & Medrano Law Office

Chinese Translation: WANG Liang, E-mail: wangliang@allbrightlaw.com

Disclaimer: The content of this article is produced by the author/AllBright Law Offices for informational purposes only and should not be construed as advertising, solicitation or legal advice. Reading and disseminating the content of this article is not intended to establish an attorney-client relationship, and subscribing to our articles does not constitute an attorney-client relationship. The information contained in this article is provided as general information only. The author/AllBright Law Offices does not regularly maintain, modify or update this article, so it may not reflect the latest legal developments. Readers should not rely on the information in this article for any purpose before obtaining legal advice on their own case from an attorney practicing in the relevant jurisdiction. The author/AllBright Law Offices expressly disclaims all liability, loss or damage arising from any form of use of this article (including actions or omissions).

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