Doing Business in Peru - When a company considers moving into a new market, one key factor to be considered in the decision making process is the country’s tax system. Factors such as corporation tax rate, value added tax (VAT) rates, double taxation relief must be taken into account. Additionally it is important to understand the countries 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. Drafted by the Biz Latin Hub Group (www.bizlatinhub.com), Latin America´s leading provider of Market Entry and Back Office Services

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PERUVIAN TAX & ACCOUNTING REQUIREMENTS
When a company considers moving into a new market, one key factor to be
considered in the decision making process is the country’s tax system. Factors such
as corporation tax rate, value added tax (VAT) rates, double taxation relief must be
taken into account. Additionally it is important to understand the countries 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.
BASIC FACTS FOR INVESTEMENT
Generally speaking 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
disclusre 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.

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DIFFERENT COMPANY CLASSIFICATIONS FOR TAX PURPOSES
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.
CORPORATION TAX
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 calculated as 1.5% of their monthly revenue. This tax is based on the
company’s net income, the taxable income which is comprised of all income derived
by 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.
Regarding the distribution of dividends between resident companies, these 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 at 29.5% after
considering a tax credit for foreign tax paid on the dividends.

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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).
OTHER
Temporal Net Asset Tax (ITAN): companies subject to corporation tax are obligated
to pay a temporary net assets tax is imposed on the value of total 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 on Peruvian bank accounts held by the taxpayers.
Payments of FTT are deductible as expenses for income tax purposes.
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.

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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 final tax has to be paid
within the first three months following 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 a Peruvian or an expat that 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 (forth
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.
HEALTH 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.

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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 those 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 of employees 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:
PAID BY
TYPE OF
INSURANCE
EMPLOYER
PERCENTAGE
EMPLOYEES
PERCENTAGE
TOTAL
PERCENTAGE
Health System 9 0 9
Pension Fund 0 13 13
Total Percentage 9 13 22
If you want more information on the Peruvian tax system, the Peruvian Economy or
find out about the ways of doing business in Peru, please reach out to Karl Matson at
peru@bizlatinhub.com

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