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Every country has their own tax system and code by which individuals and corporations must abide. The tax policy of individual countries is one of the main determining factors for whether it is considered viable for businesses and friendly to foreigners doing business in or relocating to that country. Let’s take a look at Peru’s tax overview in three main categories: Personal Taxes, Corporate Taxes, and VAT Taxes.
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Peru Personal Taxes
Here’s everything you need to know about personal taxes in Peru:
Employer of record benefits
Peru taxes both residents and non-residents, which they categorize as either domiciled or non-domiciled. A person is considered to be domiciled in Peru according to tax law if they have been in the country for more than 183 days in a period of 12 months. This countdown begins at the beginning of the country’s fiscal year, which begins July 1.
Employer of record, taxes and employees
Peru has a progressive tax rate for domiciled individuals. There are five brackets, ranging from 8% to 30%. Compared to the region, Peru has a fairly low personal tax rate. In 2021, the average individual tax rate in Latin America was 31.89%.
The country has a tax unit system, with the range of total units earned in a fiscal year determining an individual’s tax bracket. One tax unit is the same as 4,200 Peruvian soles. The first seven of these tax units are exempt from personal taxes.
Non-domiciled individuals are taxed at a 30% flat rate. This is applied to their gross income in Peru, and they can’t apply any credits or deductions to the income.
National trade vs International Income trade
Peru subjects domiciled individuals to tax on the income they generate worldwide. Non-domiciled individuals are taxed only for the income they generate in Peru. They also can get a tax credit for any foreign income tax.
Capital Gains, exemptions & other considerations
Peru applies a capital gains tax of 6.25% on an individual’s net income. Non-residents who get income from the transfer of foreign securities outside of Peru are taxed at a rate of 30%, and so too is the transfer of real property in the country.
Individuals are allowed to apply deductions to their labor income and capital income.
Peru Corporate Taxes
Here’s everything you need to know about corporate taxes in Peru:
Who is Taxed?
Both domiciled and non-domiciled corporations are taxed in Peru. A business is considered domiciled by tax law if it is incorporated within Peru.
What is the Tax Rate?
Peru has a flat corporate tax rate of 29.5%. This is slightly above the average for South America, which was 27.54% in 2020.
What is Taxable Income?
Peru defines taxable income as all profits the company derives, including any capital gains. Domiciled companies are taxed on the income they generate worldwide. Non-domiciled companies are taxed only on the income they generate in Peru.
Tax Incentives & Deductions
Corporations are allowed to deduct normal business expenses when they compute their taxable income. They can also carry losses forward for four years, or indefinitely—as long as it doesn’t exceed 50% of the taxpayer’s taxable income in each subsequent year.
There are tax incentives available to companies in the gas, oil and mining industries.
Peru VAT Taxes
Value-added taxes, better known as VAT taxes, are a common form of consumption tax. The value-added portion is the difference between a business’ sales and its cost of purchasing services or goods from another business. Here’s what you need to know about VAT taxes in Peru:
Who is Taxed?
Peru levies a VAT tax on the use and provision of services, the sale of any goods, the initial sale of any real estate a contractor conducts, and imports. There are certain exemptions, though, including:
- Live events
- International freight transport
- Public post
- Public transport
- Financial services
- Low-value residential buildings that are new
- Some foodstuffs
What is the Tax Rate?
Peru has a standard VAT tax rate of 18%. This is on the higher end when compared to other Latin American countries. However, the country has a system by which companies can offset VAT taxes they are charged by their output VAT.
Is Peru Right for Your Business?
SERVIAP is a leading Professional Employer Organization (PEO) ready to help your business expand operations throughout the Western Hemisphere. PEO is a model of co-employment, where we assume total responsibility for your talent, allowing you to focus on the strategic activities of your organization. Contact us today to learn more about how you can expand your business in Peru.