Company Tax and income tax

[irish84]

Hi guys,

If i set up a new company, and lets say there are 5 of us as joint partners...does anybody know the best way we should set up in terms of minimising our tax liability? I have heard that the best way may be that the 5 of us go as employees in the company, pay ourselves a minimal salary and pay normal payroll taxes on that, but then at the end of the year, say we make 100k net profit, to then share that out as a type of dividend to each person, as the taxes on this are smaller than on the net profit?? I am only going off conversations I have with people here, have yet to take any legal advice, but just curious.

Peruvians have also told me that say at end of yeat we make 100k, that 100k needs to be shared amongst ALL employees in some percentage based way (they call it utilities??)...anybody know more about this??

Thanks in advance

[sbaustin]

You really should consult an accountant for all these questions but I'll give you my two cents which may or may not be accurate:

1. Foreigners are taxed at 30% (if you don't live here). Nothing you can do around that.
2. I believe you have to pay utilidades after you have 20 employees although I'm not sure how those would be calculated.
3. I believe the tax on dividends would be the same on profits at 30% but to be honest I'm not sure. I know corporate profits are taxed at 30% so that's the number you are using to make the decision on how to do it.
4. For a regular business (not a pyme) the cost to have an employee is about 145% their salary. So if you put yourselves on salary, that is your cost although as owners you'd be getting a large portion of that money back however you'd be losing an automatic 9% to eSalud.

[irish84]

Thanks for the reply and yes I definitely need to consult an accountant at some point. I am an accountant myself but obviously the law here is a bit different!

I am a foreigner, but I will be a resident for tax purposes...i.e. I will have stayed here for 183 days within any 12 month period

The 20 employees is useful information, it is good to know, but yeah like you said I will need to get more legal advice

Anybody else feel free to throw in their 2 cents, cheers

[sbaustin]

Thanks for the reply and yes I definitely need to consult an accountant at some point. I am an accountant myself but obviously the law here is a bit different!

I am a foreigner, but I will be a resident for tax purposes...i.e. I will have stayed here for 183 days within any 12 month period

The 20 employees is useful information, it is good to know, but yeah like you said I will need to get more legal advice

Anybody else feel free to throw in their 2 cents, cheers

If you don't have a CE you aren't a resident.

[fanning]

If you want to pay as few taxes as possible, some advice.
-The first 7 UIT ( S/. 25900) which is around S/. 1850 is taxfree. So you could pay that salary to the socios in planilla. Your tax will be almost zero ( you pay 9% to EsSalud, if you get into an EPS, you pay only 6.75 %, and your health insurance is partly paid by your company, they rest of your health insurance also can be paid by your company taxfree. ). Also you pay around 13% to your pension plan ( AFP ) which in the end is your own money.
then up to S/. 125800 the tax is 15%, which is still lower than 30%+4.1%, and up to S/. 225700 is 21%, which still is lower than 30%+4.1%.

-Then if you own the property where your company is located, you can rent out that property to your company at only 5% ( instead of 30% profit tax + 4.1% divident tax )
the rent you can charge cannot be higher than a reasonable market conform rent. ( if it is lower than 6% of the autovalúo, which is very unlikely, then you must pay 5% of that autovalúo ) If you are a nonresident, the tax is not 5% but 6.25%, still a lot lower than the 30% + 4.1%

If you don't use any of those tricks, you pay 30% profit tax, and 4.1% divident tax.

I don't know of more tax 'tricks', I would be glad to hear some of them, to see if we can implement them in our company.

Concluding, pay as much rent as possible to yourself, and then increase your salary to the max, to pay as few taxes as possible.
There are some limitations to the height of your salary compared to lower paid employees in your company. Check out the details about that.

The government put some limitations on some more advanced tax tricks, like putting a property in a company, and sell the company with a profit without paying taxes. That is now an official not recognized tax trick. ( Normally if you sell a property with a profit, you pay 30% taxes on the profit, but if you sell a company ( who is owner of a property) with a profit, you don't pay taxes. But if the presume that you only sold the company to avoid that profit tax on the property you anyway have to pay the tax, + the multa and interest, and maybe a criminal fraud charge.

[Philipc4u59]

Fanning & others,

I am appauled that my wife pays at least 30% tax & our daughter worked over the holidays & paid 25%!
The wages are so low to begin with; a person needs to be "tax smart"!

When I was making the "big bucks" in the USA in the 70's-80's; I never paid more than 16% income taxes; we also had personal deductions for mortgage interest, child-care credit, solar, oil & gas exploration, etc.

I don't see any of these deductions here in Peru?
I am all for paying my "fair share"; but just as in the USA - where is the money going???
Why does a prominent attorney/business-person take a $100,000 gov.position; when they earned $500,000?

I am all for "giving back" to your country with ambition & expertise; but could never quite "fit-in" with bribes & money "under-the-table" for special favors. Is there such a thing as being "to honest"???

Philip

[stuart]

I am all for "giving back" to your country with ambition & expertise; but could never quite "fit-in" with bribes & money "under-the-table" for special favors. Is there such a thing as being "to honest"???

Honesty is generally considered a weakness in Peru, and honest people are considered "stupid" and "slow" for not "playing the game". It's one of the more repugnant aspects of Peruvian/Latin culture that clashes with Anglo and Northern European culture. Taking advantage of an honest person... cheating them... isn't thought of as wrong, it's considered fair game and the person who got cheated deserves it for not being "vivo" enough.

Doing what the government or law says plays into this. People will do everything possible to avoid playing by the rules - this includes the politicians themselves and the people involved. That's why you'll notice the first 25% of a law is ignored, and you have to really do something quite bad for there to be a consequence and for law enforcers to take notice. How much of the law you can work around depends on how wealthy and powerful you are and who you know.

This is something that you either need to get used to in order to not go mad.

As for tax, in a country like Peru, most of what you pay doesn't benefit you in the slightest. While in a high-tax country like Sweden there is a moral obligation to pay your fair share of tax because of the extensive and valuable public services these buy you, in Peru there is, in my opinion, far less of a moral obligation to pay your dues. In Peru there is no free healthcare, no police force, no emergency services at all. There is no military capable of protecting you. There are no politicians looking to pass laws to benefit your particular group. The best you can hope for in Peru is for your local parks to have nice flowers and for potholes to be filled no more than 2 years after they appear - but even that depends on where you live.

[Philipc4u59]

Stuart,

I was getting that impression with only being in Peru since May 2012; I was hoping I was mis-guided.
Thanks for your info...

Philip

[chi chi]

in Peru there is, in my opinion, far less of a moral obligation to pay your dues. In Peru there is no free healthcare, no police force, no emergency services at all. There is no military capable of protecting you. There are no politicians looking to pass laws to benefit your particular group. The best you can hope for in Peru is for your local parks to have nice flowers and for potholes to be filled no more than 2 years after they appear - but even that depends on where you live.

Things aren't that bad in Peru. Peru has a lot of police officers and they are on the street. Where they should be. In Europe they sit in an office.
There's healthcare. The hospitales de solaridad get sponsered by the goverment and offer first class healthcare.
The techo proprio and miVivienda programs help people on a low income to buy their own home. Up to 40% of the new home got paid for by the government.
Streets get cleaned a lot. Have a walk around at nighttime and you see many cleaners, cleaning the streets.

A lot of roadworks are done. A lot of roads in the provinces have been upgraded and in many cities the roads are now made of concrete.

[sbaustin]

Some company owners will also place their family members as contractors which up to that s/1850 (more or less), there are not taxes to be paid and the money stays within the family.

The more unscrupulous (ie Congressmen) place their maid's as contractors in the company, but only pay them a small part of the declared salary. There was a scandal about this a few years ago as the maid finally realized what happened and filed a complaint (if I recall correctly).