Mr. Fernando Nuñez
I.1.1. Active Income
I.1.1.1. Business Profits
Profits obtained by legal entities resident in Peru are subject to Corporate Income Tax on a worldwide basis at a rate of 29.5%. This tax is calculated on an annual basis.
I.188.8.131.52. Taxable Event
According to the Peruvian Income Tax Law (hereinafter, the “PITL”), the following income is subject to taxation in Peru: income arising from capital, labor and the joint application of both factors; capital gains; income derived from operations with third parties; and, also presumptive income.
I.184.108.40.206. Taxable Basis
Since Peruvian legal entities are taxed on their net income, they are allowed to deduct expenses to the extent that they are necessary to produce taxable income or to maintain its source.
Some deductibility requirements and limitations may be applicable for the deduction of certain expenses, such as financial expenses (thin-capitalization rule), bad debt provisions, salaries, travel expenses, donations, among others.
For Corporate Income Tax purposes, the taxable year starts on January 1st of each year and ends on December 31st.
The Corporate Income Tax is due by legal persons which are defined as: (i) legal entities residents in Peru (either corporations, partnerships, etc.); and (ii) branches, agencies and representative offices of non-resident entities. The definition of corporate residency is provided on the PITL, which states that the company is resident in the state in which it is incorporated. Furthermore, the PITL determines that partnerships, consortiums, joint ventures with independent accounting from its contracting parties shall be treated in the same manner as legal persons. Thus, under the Peruvian legislation unincorporated entities are also subject to Corporate Income Tax.
I.220.127.116.11. Tax rates
Effective from 1 January 2017, the Corporate Income Tax rate is 29.5% and it is applicable over the annual net income.
I.1.2. Passive Income
Dividends distributed from Peruvian companies are not subject to Corporate Income Taxation, (full domestic participation exemption is applicable).
Interest income will be levied at the rate mentioned on section I.18.104.22.168.
Royalties income will be levied at the rates mentioned on section I.22.214.171.124.
I.1.3. Special Features of the CIT system
I.1.3.1. Existence of Group Regime
There is no Group Regime or Tax Consolidation System.
I.1.3.2. Treatment of Losses
Resident entities must make a distinction between Peruvian-source losses and foreign-source losses.
Peruvian-source losses incurred in a fiscal year may be either (i) set off against Peruvian-source income or foreign-source income of the same year or (ii) carry forward in the subsequent years under the rules detailed below.
Losses incurred may be carried forward under the following systems:
- Losses incurred in a year may be carried forward and set off against profits obtained in the following 4 years counted as form the following year to which the losses are reported; or
- Losses incurred in a year may be carried forward and set off against 50% of future profits without limitation of time.
The option should be exercised when filing the Annual Corporate Income Tax Return.
There is no carry-back of losses.
Foreign-source losses may not be set off against Peruvian-source income. Foreign-source losses may only be offset against foreign-source income, i.e. all foreign-source income and losses from different activities or countries are pooled together in order to determine the foreign source net result.
In this section we will focus on taxation of income in inbound and outbound situations. “Inbound transactions” refers to non-residents entities in Peru with Peruvian source income. A typical inbound circumstance exists where a foreign corporation has income and/or activities in Peru.
On the other hand, the “outbound transactions” refers to resident entities in Peru with foreign source income. A typical outbound circumstance exists where a Peruvian entity has income and/or activities in other countries.
I.2.1. Inbound Transactions
As a general rule, non-resident entities in Peru are subject to Income Tax only over their Peruvian source income.
I.2.1.1 Taxation on the sale of goods
Income derived by a non-resident by the sale of goods or rights situated or economically used in Peru are subject to the income tax. The applicable rate would be 30%.
If the income is earned through a branch or other permanent establishment situated in Peru, this PE will bear the same tax burden as a tax resident, i.e. 29.5%.
I.2.1.2 Taxation of the provision of services
Income resulting from services provided within the Peruvian territory by a non-resident entities is considered to be from a Peruvian source and hence, subject to the general 30% withholding tax (hereinafter, “WHT”) rate.
If the services qualify as technical assistance services or digital services, the income would be taxed in Peru, regardless the place of rendering, provided the services are economically used therein.
Technical assistance services are subject to a 15% tax rate provided some requirements are fulfilled. Digital services are subject to the general 30% tax rate.
I.2.1.3 Dividend Income
The Dividend Tax applies to profits distributed to non-residents and individuals. Hence, dividends distribution performed by Peruvian entities in favor of its non-resident shareholders would be subject to the dividend WHT.
Effective as from 1 January 2017, the dividends withholding tax rate is 5%. This rate applies to dividends related to profits generated as from such date. Profits generated up to 31 December 2014 are subject to a withholding tax rate of 4.1%, and profits generated between 1 January 2015 and 31 December 2016 are subject to a withholding tax rate at a rate of 6.8%, even if the relevant profits are distributed in 2017 and beyond.
The Income Tax Law specifies several transactions that are considered profits distributions by resident entities for purposes of the Dividends Tax. These transactions include the distribution of assets, other than shares of the distributing company, and, under certain circumstances, a capital reduction, a loan to a shareholder or the liquidation of the company.
For permanent establishments, branches, and agencies of foreign companies, a distribution of profits is deemed to occur on the deadline for filing their annual corporate income tax return (usually at the end of March or the beginning of April of the following tax year).
Interest sourced in Peru and paid to a foreign entity is subject to the 4.99% WHT rate provided the following requirements are met:
- For loans in cash, the proceeds of the loan are brought into Peru through local banks.
- The proceeds of the loan are used for business purposes in Peru.
- The loan is granted by a non-related party.
- The interest rate does not exceed Libor rate plus a spread of 7% (which includes expenses, commissions and any other amounts in addition to the interest paid).
If the conditions (a), (b) or (c) above are not satisfied, the interest is subject to the regular WHT of 30%. On the other hand, if condition (d) is not satisfied, only the excess interest over the Libor + 7% will be subject to a 30% WHT.
Royalties paid to a foreign entity are also subject to 30% WHT.
I.2.1.6 Payments to low tax jurisdictions or fiscal privileged regimes
Expenses resulting from transactions carry out with residents in low tax jurisdictions or tax havens are not deductible for tax purposes, except for the following transactions: (i) toll payment for the right to use the Panama Channel; (ii) expenses related to loan operations, (iii) insurance or reinsurance payments, (iv) leasing of ships or aircraft and freight services to and from Peru.
The Peruvian Tax Law have included several jurisdictions in a low-tax jurisdictions “black list”.
In addition to the jurisdictions included in the “black list”, other jurisdictions may be considered low-tax jurisdictions if its effective corporate Income Tax rate is 14.5% or lower and to the extent the one of the following additional conditions is met:
- The jurisdiction does not provide information regarding the taxation of resident companies.
- A tax benefit regime applies exclusively to non-resident entities which carried out activities in that jurisdiction.
- Only offshore activities are accepted as a condition to apply a tax benefit regime.
- The jurisdiction promotes itself as a jurisdiction that can assist companies to reduce the tax liabilities in its countries of origin.
I.2.2. Outbound Transactions
Entities resident in Peru are subject to the Corporate Income Tax on a worldwide basis. Thus both Peruvian source income and foreign income of any type are subject to the 29.5% Corporate Income Tax rate.
I.2.2.1 Taxation on the sale of goods
See answer I.2.1.1.
I.2.2.1 Taxation of the provision of services
See answer I.2.1.1.
I.2.2.3 Dividend Income
See answer I.2.1.1.
See answer I.2.1.1.
See answer I.2.1.1.
I.3.1. General Anti-Avoidance rule
Pursuant to Peruvian General Anti-Avoidance Rule, the Peruvian Tax Authority is legally entitled to challenge so-called sham transactions and tax avoidance cases.
Sham transactions consist in “presenting some fact or event that is apparent (illusory) and not real or disguising any fact or act and exposing other instead“. To this respect, doctrine distinguishes between “absolute sham”, in which there is no real legal business; and, “relative sham” in which there is indeed a real legal business but it differs from the business that is exposed to third parties.
Sham transactions are challenged by means of Rule XVI of the Preliminary Tittle of the Peruvian Tax Code (hereinafter, “Rule XVI”), according to the amendments introduced by the Legislative Decree No. 1121 (in force since July 19th, 2012). SUNAT was also entitled to challenge the sham transactions under the previous Rule VIII of the Peruvian Tax Code that was in force until it was amended by Rule XVI.
On the other hand, tax fraud (tax avoidance) is defined as a legal structure carried out on the framework of a civil rule, corporate rule, commercial rule or any combination of the above (this is called the “coverage rule”), which allows the parties to achieve the desired commercial objective, without fitting in the taxable event of a tax rule.
As of July 19th, 2012, under Rule XVI, SUNAT is also entitled to challenge transactions that configure a tax fraud. Rule XVI establishes that in order to determine the true nature of a taxable event, SUNAT will take into account the acts, situations and economic relations that the taxpayers effectively perform or pursue.
For this purpose, tax fraud will be configured when the realization of the taxable event is totally or partially avoided, when the tax base or tax debt is reduced, or credits or tax losses are obtained by carrying out acts where the following circumstances, which must be proved by SUNAT, occur concurrently:
- The acts, individually or jointly carried out by the parties are artificial or improper to achieve the obtained result.
- The acts celebrated by the parties, because of their use, generate legal or economic effects, different from tax saving or tax advantages; effects that could be equal or similar to those obtained with the usual or proper acts.
If both conditions are verified, SUNAT shall be allowed to re-qualify the adopted business form and to apply the tax consequences that would have corresponded to usual or proper acts, as appropriate.
However, it is worth noting that the application of Rule XVI to tax fraud cases is suspended until the Government sets out the parameters of form and base that are within the scope of the Rule XVI.
There is uncertainty on whether these parameters will be issued soon or issued at all.
I.3.2. Thin Capitalization Rules
Interest paid by resident entities to related parties (either resident or not) will not be deductible in the portion that exceeds the result of applying a coefficient (debt/equity ratio) equivalent to three times the taxpayer’s net equity at the end of the preceding year (3:1). In the case of newly incorporated entities, the coefficient would be equivalent to 3 times their net equity at the time of their incorporation.
Therefore, interest paid or payable to related parties that does not exceed in 3 times the taxpayer’s net equity at the end of the preceding year -or at the time of its incorporation- would be deductible for the entity for Peruvian Income Tax purposes. However, if at any moment of the fiscal year such interest exceeds the limit; it would only be proportionally deductible.
I.3.3. CFC Legislation
Peru’s “Controlled Foreign Company Rules” (CFC Rules) have been in force since January 1, 2013. This new regime is applicable to any Peruvian resident, who controls a non-resident entity that, according to the law, qualifies as a Controlled Foreign Company (CFC) regarding their passive income. Thus, CFC Rules shall be applicable to passive income received (not necessarily distributed) by a company directly or indirectly controlled by a Peruvian resident.
A non-resident company shall be deemed controlled by a Peruvian resident when, at the end of the fiscal year (December 31), directly or indirectly (solely or together with any related party) holds more than 50% of the equity, benefits or voting rights of the non-resident entity (hereinafter, 50%Test).
A controlled foreign company is defined as any entity of any nature, non-resident in the country, which meets the following requirements:
- It has a legal personality independent from its partners, associates, members or owners. Companies, investment funds, trusts, partnerships, associations and foundations are considered as legal separate entities for purposes of the CFC Rules;
- It is incorporated, established or considered as resident in countries or territories with no or low taxation, or in countries or territories where the passive income is not subject to Income Tax, or where the applicable tax rate on similar income is equal or less than 75% of the tax rate which would apply in Peru; and,
- It is owned by a Peruvian resident taxpayer (individual or entity).
I.4.1. Adherence to UN or OECD MC
Almost all the Treaties signed by Peru follows the OECD Model Tax Convention and also includes some features from the UN Model Tax Convention.
By way of exception, the Andean Treaty (Decision 578) follows mostly exclusive taxation at the country of source.
I.4.2. Special Features commonly present on Tax Treaties
Some of the Peru Tax Treaties includes some features of the UN Model Convention such as a broad definition of PE (including the services PE), taxation at source in the case of royalties and interest, a broad definition of royalties, among others.
I.4.3. Treaties Currently in Force
Peru has signed treaties with Chile, Canada, Brazil, Switzerland, South Korea, Mexico and Portugal.
In addition, Peru has signed the Andean Pact (Decision 578) with Colombia, Ecuador and Bolivia.
I.5.1. Participation in a Community/Union
Peru is part of the Andean Community. The Andean Community is a customs union comprising the South American countries of Bolivia, Colombia, Ecuador, and Peru
I.5.2. Rules regarding Corporate Income Taxation within the Community/Union
I.5.3. Jurisprudence regarding Corporate Income Taxation within the Community/Union
I.6.1. Adoption of rules in line with BEPS Reports
Within the last tax reform enacted in the year 2016, Peru has adopted Action 13 regarding Transfer Pricing Documentation and CbC Reporting.
The new standards will enter into force on year 2017 provided the Regulations are enacted. Up to date, Regulations about this matter are still pending.
I.6.2. Participation in Multilateral Instrument
Peru has not yet signed the Multilateral Instrument.
However, the Government has unofficially announced its intention to sign it shortly.
I.7.1. Inbound Transactions
I.7.2. Outbound Transactions