Crucial Tax Considerations When Establishing a Legal Entity in Peru

Expanding your business to Peru can be a lucrative endeavor, given the country's dynamic economy and strategic location. However, understanding the tax landscape is essential to ensure compliance and optimize your operations. This blog will explore the crucial tax considerations when establishing a legal entity in Peru.

Types of Legal Entities in Peru

Before delving into tax considerations, it's essential to choose the right type of legal entity. The most common forms include:

• Sociedad Anónima (SA): Similar to a corporation, suitable for larger businesses.
• Sociedad Anónima Cerrada (SAC): A closed corporation with fewer shareholders.
• Sociedad Comercial de Responsabilidad Limitada (SRL): Equivalent to a limited liability company (LLC).
• Branch Office: An extension of a foreign parent company.

Each entity type has distinct tax implications, so selecting the appropriate one is crucial.

Corporate Income Tax (CIT)

Corporate Income Tax is a fundamental consideration. In Peru, resident companies are taxed on their worldwide income, while non-residents are taxed only on their Peruvian-source income. As of 2023, the CIT rate is 29.5%.

• Tax Base: CIT is levied on the net taxable income, calculated by deducting allowable expenses from gross income.
• Deductions: Common deductions include operational expenses, salaries, and depreciation.

Value Added Tax (VAT)

Value Added Tax, known as IGV (Impuesto General a las Ventas), is applied to the sale of goods and services in Peru. The standard VAT rate is 18%.

• VAT Registration: Legal entities must register for VAT and issue invoices with the appropriate tax included.
• Input VAT: Businesses can credit VAT paid on purchases against VAT collected on sales, reducing the net tax liability.

Withholding Tax

Peru imposes withholding taxes on various payments to non-residents, such as dividends, interest, royalties, and technical services. The rates vary depending on the type of payment:

• Dividends: 5%
• Interest: 4.99% to 30%, depending on the circumstances.
• Royalties: 30%
• Technical Services: 15%

Understanding these rates is vital for structuring cross-border transactions efficiently.

Transfer Pricing Regulations

Transfer pricing rules ensure that transactions between related parties are conducted at arm's length prices. Peruvian regulations require documentation to demonstrate compliance with these rules.

• Documentation: Companies must maintain detailed records of related-party transactions.
• Penalties: Non-compliance can result in significant penalties and adjustments to taxable income.

Tax Treaties

Peru has signed tax treaties with several countries to avoid double taxation and prevent tax evasion. These treaties can provide relief from double taxation and reduce withholding tax rates on certain types of income.

• Benefits: Utilize tax treaty provisions to minimize tax liabilities on cross-border income.
• Compliance: Ensure proper documentation and adherence to treaty terms.

Local Taxes

In addition to national taxes, businesses in Peru may be subject to local taxes, such as:

• Municipal Taxes: Levied by local governments on property and certain business activities.
• Excise Taxes: Applied to specific goods, such as fuel, alcohol, and tobacco.

Tax Incentives

Peru offers various tax incentives to attract foreign investment, including:

• Special Economic Zones (SEZs): Reduced tax rates and customs benefits for businesses operating in designated areas.
• Sector-Specific Incentives: Tax benefits for industries such as mining, agriculture, and technology.

Conclusion

Establishing a legal entity in Peru involves navigating a complex tax landscape. By understanding the key tax considerations, businesses can make informed decisions, ensure compliance, and optimize their tax liabilities. Partnering with a knowledgeable advisory firm like Ongresso can provide the expertise and support needed to successfully establish and grow your business in Peru.

With its internationally networked team with recognized expertise in tax and compliance issues, Ongresso offers comprehensive in corporate services based on your company's needs. By paying attention to the tax implications and ensuring compliance, businesses can set a strong foundation for success in the local market. For personalized assistance and expert guidance on tax matters in Peru, contact Ongresso today!