Personal Income Taxation in Peru
As opposed to residency status, the basis of personal income tax in Peru is mainly contingent on the domicile status of the given individual. Domiciled individuals are mostly subject to income tax on their aggregated income. This implies that both, income sourced from within Peru, as well as income sourced outside Peru is used in order to compute Personal Income Tax.
On the other hand, individuals that are not domiciled in Peru are mostly taxed on income that has been sourced from within Peru only.
Personal Income Tax Rates in Peru
As far as income tax on labor income, as well as foreign income is concerned, it is mostly generated by domiciled individuals in the form of scale of brackets. The applicable personal income tax rates are given below:
- For the first tax bracket: Corresponding reference in tax units are up to 5. The applicable tax rate for this particular slab is levied at a rate of 8%.
- For the second tax bracket: Corresponding reference in tax units range from 5 to 20. The applicable tax rate for this particular slab is levied at a rate of 14%.
- For the third tax bracket: Corresponding reference in tax units range from 20 to 35. The applicable tax rate for this particular slab is levied at a rate of 17%.
- For the fourth tax bracket: Corresponding reference in tax units range from 35 to 45. The applicable tax rate for this particular slab is levied at a rate of 20%.
- For the fifth tax bracket: Corresponding reference in tax units are higher than 45. The applicable tax rate for this particular slab is levied at a rate of 30%.
The aforementioned tax rates are for individuals that are domiciled in Peru. For non-domiciled individuals, personal income tax is levied at a flat rate of 30%. This is levied on the gross Peruvian-source income. In this regard, it is also important to highlight that no deductions or credits are applicable to non-domiciled individuals.
Capital Gains that arise from sale of physical or immovable property are levied income tax at a rate of 5%.
Corporate Income Tax in Peru
All business entities that are registered (and incorporated) within Peru are considered to be residents of Peru. They are supposed to pay Corporate Income Tax on their aggregate income, which includes both, income sourced from within Peru, as well as income sourced outside Peru.
Corporate Income Tax Rate in Peru
Corporate Income Tax is levied in Peru at a rate of 29.5%. In order to determine the tax liability on corporate income, there are certain deductible expenses that are can be duly adjusted in the net income for the given year.
Other Taxation in Peru
- Value Added Tax (VAT): VAT is levied in Peru as a consumption tax at a rate of 16%. Additionally, it also includes a 2% levy in the form of municipal promotion tax. Therefore, the total effective VAT rate comes up to 18%. This is applicable across most operations, including sale of goods within the country, construction contracts, real estate dealings, as well as import of goods and services within Peru.
There is a Tax Obligatory Payment System (SPOT) in place, according to which it is imperative for companies to incorporate VAT as withheld payments at source.
- Custom Duties: Custom Duties are levied on almost all imported goods and services brought in Peru. It includes the following taxes, that are levied in the following manner:
- At an Ad Valorem rate – levied at rates varying from 0% to 11%.
- VAT – levied at 16%
- Municipal Promotion Tax – levied at 2%.
In addition to the taxes mentioned above, there are a couple of other taxes that are levied, including Selective Consumption Tax, Specific Duties, VAT perception, as well as antidumping and compensatory.
- Excise Tax: Excise tax is levied on sale of specific goods and services, which mostly include tobacco, and alcohol. These rates vary across different product categories. For example, for alcohol related products, the levy is 40%, whereas for carbonated drinks with sugar, excise tax is levied at a rate of 25%.
- Real Estate Property Tax: Real Estate Property Tax is imposed in Peru at the following rates:
- For real estate value up to 15 tax units: Real Estate Property Tax is levied at a rate of 0.2%.
- For real estate value between 15 tax units and 60 tax units: Real Estate Property Tax is levied at a rate of 0.6%.
- For real estate value higher than 60 tax units: Real Estate Property Tax is levied at a rate of 1%.
- Real Estate Transfer Tax: Real Estate Transfer tax is levied in Peru at a rate of 3%.
- Health Contributions: Under the social security system implemented in Peru, health contributions are equivalent to 9% of the compensation that is paid by the employees. There is an insurance policy in place for high-risk work. Additionally, pension fund contributions are also in place, which are equivalent to 13% of the employee’s remuneration.