Before setting up a company in Peru, it is advisable to enquire about corporate tax. The type of corporate tax that applies to businesses established in Peru is called “third category income tax” (impuesto a la renta de tercera categoría).
Companies established in Peru are taxed not only on their Peruvian income, but also on income generated abroad. However, taxes paid abroad by a company could be used as a tax credit. Branches of foreign companies established in Peru are only taxed on their Peruvian income.
In order to calculate the net income of a business, it is necessary to deduct the expenses incurred in generating taxed income – and in maintaining the source of that income – from the gross company revenue. Some expenses are limited by law, such as those incurred in representing the company, staff recreational expenses, interest paid to shareholders for financial operations, and payments to the Board of Directors.
Individual entrepreneurs, companies and company branches that are established in Peru fall within the scope of the third category income tax. Said Peruvian corporate tax constitutes 29.50% of a company’s net annual income (from January 1st to December 31st). Nevertheless, Peruvian tax legislation contemplates other tax regimes. In addition, dividends are taxed at 5%.
Alternatively, there is a system for small and medium companies, whose net annual income does not exceed 1700 UIT* (around USD 2,160,000). They pay a progressive tax rate of 10% on their net annual income for the first 15 UIT (USD 19,000), and a tax rate of 29.50% for the excess. *UIT stands for Unidad Impositiva Tributaria which is a unite of measure to determine tax base and fines in Peru. One UIT is the equivalent of 4,200 soles for the year 2019 (around US 1,200).
There is another tax regimen called the Special Income Tax System, which applies to companies with a net annual income under PEN 525,000 (USD 159,000). It allows certain companies dedicated to commerce, service and industry to pay a monthly tax rate of 1.5% on their net revenue and there is no deduction of expenses and no VTA tax credit. Note that many companies are excluded from this tax regime. Click here for more information.
Companies that are not tax-resident of Peru will be taxed for activities which are considered as generating income from Peruvian source, unless there is a double taxation treaty. The following rates apply:
- Royalties: 30%.
- Interests: 4.99% if the interests are paid to an independent party, or, 30% if they are paid to a party of the same group.
- Technical assistance: 15%.
- Digital services: 30%
- Live shows: 15%
- Rental of ships and aircraft: 10%
- Shares registered with the National Securities Registry: 5%
- Other income: 30%
Finally, in addition to the monthly payments, taxpayers who are tax resident in Peru must make the annual tax payment. They need to fulfill several formal duties such as: (i) filing a monthly and annual tax return, (ii) keeping accounts, (iii) keeping documentation related to their activities, (iv) issuing invoices and (v) providing the information required by the Tax Authority.
This only an outline of corporate tax in Peru. Indeed, there are many other aspects related to this topic that will be dealt with in future articles.
By the Corporate Department of RGB Avocats © – Peruvian Attorneys-at-Law
Disclaimer: The information on this page is provided for general informational purposes only, and may not reflect the current law in Peru. It is not intended to be a substitute for legal counsel on any subject matter.