Lima

Taxation in Lima, Peru

What are the tax rates in Lima, Peru? How are corporations taxed? Here’s Teleports overview of personal, corporate and other taxation topics in Lima, Peru.

Personal taxation in Lima

Effective personal income tax rate

Annual income$25,000$40,000$80,000$125,000$200,000
Rate15%16%21%24%26%

Teleport city rankings for personal income tax

Personal taxation puts Lima in position 40 of all Teleport Cities.
WORSTBEST

Residence

Peruvian individuals living in the country and foreign individuals who are in Peru for more than 183 calendar days in a 12- month period are deemed to be resident for tax purposes. All individuals who qualify as resident on 1 January are subject to income tax for that fiscal year; any changes in residence status after that date will take effect for the next fiscal year.

Filing status

Spouses generally must file their tax returns individually, but can elect to file jointly (although there is no benefit in doing so).

Rates

Progressive rates apply to employment income and foreign- source income, according to the following schedule: 8% up to the first 5 tax units; 14% for 6-20 tax units; 17% for 21-35 tax units; 20% for 36-45 tax units; and 30% on the excess.

Taxable income

Taxable income is divided into specific categories: income from employment, income from independent personal services and capital income (interest, royalties, capital gains and income from the leasing of assets). Business income earned by an individual is subject to the corporate tax regime.

Basis

Resident individuals are taxed on worldwide income and nonresidents are taxed only on Peruvian-source income.

Other taxes on individuals

Real property tax

Tax is imposed on the total value of real property owned by a person.

Social security

Only the employer is required to contribute; it pays 9% of gross salary on behalf of the employee.

Compliance for individuals

Penalties

Penalties apply for late filling or failure to file.

Corporate taxation in Lima

Teleport city rankings for corporate income tax

Corporate taxation puts Lima in position 73 of all Teleport Cities.
WORSTBEST

Basis

Resident corporations are taxed on worldwide income. Nonresident corporations and branches of foreign entities are taxed only on Peruvian-source income. Foreign-source income derived by residents is subject to corporation tax in the same way as Peruvian- source income, but it is calculated separately. Branches are taxed at the corporation tax rate, plus a remittance tax. Subsidiaries are taxed at the normal corporation tax rate.

Taxation of dividends

Dividend distributions between resident entities are not taxed. Foreign dividends received by a Peruvian entity are included in taxable income and are subject to the normal corporate tax rate, but with a tax credit for foreign tax paid on the dividends. (See also “Withholding tax,” “Dividends,” below).

Residence

An entity is considered resident for tax purposes if it is incorporated in Peru.

Losses

A taxpayer has the option to carry forward all (Peruvian- source) net operating losses for four years, or to carry the losses forward indefinitely, but to offset only up to 50% of its taxable income for each subsequent year. The carryback of losses is not permitted.

Incentives

Investors in large mining, oil or gas operations may conclude tax law stability agreements with the government for periods of 10 to 15 years.

Rate

The standard corporate income tax rate is 28%. Different corporate income tax rates may apply to certain activities under special regimes (e.g. farming).

Foreign tax credit

A tax credit is available for income tax paid on foreign-source income equal to the actual foreign tax paid or the Peruvian tax liability on the income, whichever is less. Excess credits may not be carried forward.

Taxable income

Taxable income is comprised of all income derived by a company, including capital gains. Normal business expenses may be deducted in computing taxable income.

Capital gains

Capital gains generally are included as income and taxed at the normal corporate rate.

Other taxes on corporations

Real property tax

The municipal authorities levy real property tax at progressive tax rates of 0.2%, 0.6% and 1%, depending on the

Social security

An employer pays a 9% social security contribution for its employees.

Other

A temporary net assets tax is imposed on the value of total assets exceeding PEN 1 million, at a rate of 0.4%.

Compliance for corporations

Penalties

Penalties apply for late filing or failure to file.

Filing requirements

Companies are required to make 12 monthly advance payments of income tax based on monthly taxable income. An annual self-assessment tax return must be filed and final tax must be paid by the first week in April following the end of the tax year.

Other taxation in Lima

Value added tax

Filing and payment

VAT returns must be filed on a monthly basis. Source of tax law: Income Tax Law, VAT Law and the Tax Code Tax treaties: Peru has seven tax treaties

Taxable transactions

VAT is levied on the sale of goods, the provision and use of services, construction contracts, the first sale of real estate by a contractor and imports. Companies at the preoperational stage may apply for an early recovery of VAT and, under certain conditions, oil, gas and mining companies may apply for a definitive recovery of VAT.

Anti-avoidance rules

Controlled foreign companies

Resident taxpayers that own nonresident entities established in tax havens or in countries where the income tax rate is equal to or less than 75% of the income tax rate in Peru are taxed on the passive income (dividends, interest, royalties, etc.) obtained by the CFC. A resident taxpayer holds a CFC when, individually or jointly with a related party, it owns more than the 50% of the capital of the CFC and certain other conditions are satisfied.

Transfer pricing

Transactions between related parties or between a Peruvian person and an entity in a tax haven jurisdiction must be carried out on arm's length terms. If the price agreed upon is not arm's length, the tax authorities may adjust the price for income tax purposes. Jurisdictions that are deemed to be tax havens are included on a list issued by the tax authorities. Transfer pricing documentation is required. A transfer pricing report must be submitted along with the transfer pricing return.

Thin capitalization

Interest paid by resident taxpayers to economically related or associated enterprises may not be deducted if a debt-to-equity ratio of 3:1 is exceeded. However, the interest is not recharacterized as a dividend.

Other

A deemed dividend rule applies for credits granted to shareholders to prevent the remittance of profits to shareholders in the form of a credit without paying the applicable tax in Peru.

Withholding tax

Dividends

Dividends paid to a nonresident entity or to an individual (whether or not resident) are subject to a 6.8% withholding tax (increased from 4.1% for years 2015-2016). The 6.8% rate is applicable to dividend distributions of profits earned on or after 1 January 2015; distributions of profits earned before that date are subject to a 4.1% withholding tax.

Branch remittance tax

The remittance of net profits abroad is subject to a 6.8% withholding tax.

Technical service fees

Fees that qualify as fees for technical assistance are subject to a 15% withholding tax, regardless of whether the services are provided in Peru. Domestic taxpayers must keep a report issued by an audit firm certifying that the technical assistance actually was rendered by the nonresident entity if the total amount of the services provided exceeds 140 tax units.

Interest

Interest payments made to a nonresident unrelated party that satisfies certain requirements are subject to a 4.99% withholding tax; otherwise, the rate is 30%.

Royalties

Royalties paid by a Peruvian resident are considered Peruvian-source income and are subject to a 30% withholding tax.