Businesses generally adopt one of the forms included in local Company Law, which are taxed on worldwide income. The main corporate forms included in the Peruvian Corporate Law are the following.

• Publicly traded companies – with a minimum of 750 shareholders and supervised by the Peruvian Security Exchange Authority, among other features.
• Stock corporations – with a minimum of two shareholders and a mandatory board of directors.
• Closely held stock corporations – with a minimum of two shareholders and a maximum of 20, and an optional board of directors. In this kind of corporation there are some restrictions related to the transfer of shares.
• Limited liability companies – with a minimum of two shareholders and maximum of 20, and no board of directors. As in the case of closely held stock corporations, there are some restrictions related to the transfer of equity stakes (the capital is not represented with stocks as such).

Also, generally some businesses carry out their activities using the form of a branch, which is a vehicle that is only subject to tax for its Peruvian income source. The use of a branch is mainly prioritised in the infrastructure sector since there is a need to prove (vis-à-vis the government or other private parties) experience in the construction contracts.

There are also activities that are carried out under joint venture contracts that, mainly, are also taxed as separated entities as well as the branch and the incorporated vehicles. However, there are certain circumstances under which joint ventures are not considered as an independent tax entity.

There are transparent entities that are commonly used when doing business in Peru. That is the case of investment funds and trusts. These vehicles do not have any tax liability; therefore, they are not considered as taxpayers themselves. Conversely, income generated by investment funds and trusts is attributed to their participants or beneficiaries respectively. Consequently, those that are obliged to determine and pay taxes (by way of withholding procedure) are the fund administrator company or the trust administrator.

In order to determine and calculate taxes, the fund or trust administrator should take into consideration the nature of the income obtained and the beneficiary of such income (domiciled individual/legal entity or a non-domiciled individual/legal entity). The tax-payment should be as follows:

• domiciled individuals – at the time the investment certificate in the fund or trust is redeemed or rescued (partially or totally) or at the time the income is effectively paid;
• domiciled corporate entities and individuals obtaining business income – at the time the investment certificate in the fund or trust is redeemed or rescued (partially or totally) or at the end of the year; and
• non-domiciled persons – at the time the investment certificate in the fund or trust is redeemed or rescued (partially or totally) or at the time the income is effectively paid.

It should be pointed out that there is a special tax regulation with regards to Real Estate Investment Funds (FIRBIS – Fondo de Inversión en Bienes Inmuebles) and Real Estate Trusts (FIBRA - Fideicomiso de Titulización para Renta en Bienes Raíces). Under this regulation, the law grants some benefits with regards to the tax treatment applicable to income attributable to individuals derived from immovable property leasing (subject to 5% instead of 30%), the deferral of capital gains related to immovable property contributions – which also applies to Real Estate Transfer Tax (Impuesto de Alcabala) in case of FIRBI – as well as the exemption of capital gains derived from the transfer of certificates in the stock exchange under certain conditions.

As a general rule, when determining the residency of an incorporated business, it is important to take a look at the place of incorporation. This is because businesses incorporated in Peru are subject to tax on worldwide income. However, branches and permanent establishments are only subject to taxes in Peru on their Peruvian income source.

Transparent entities are not taxable persons themselves and therefore not considered residents under domestic law. On the other hand, Peru has signed Double Tax Treaties (DTT) with several countries, such as Brazil, Chile, Canada, Mexico, Portugal, South Korea, Switzerland, Portugal and Japan which follow the OECD Model in general terms. Under such international law, the principal rule is that the foreign person would be considered as a resident for treaty purposes if (by means of its place of incorporation, place of management, among others) it is subject to tax for its worldwide income source and not only for its source income in a certain contracting state.

Also, there are other treaties signed with Colombia, Ecuador and Bolivia under the Decision of the Andean Community No 578 which establishes as a place of residence the place of incorporation and the place of usual residence in case of corporations and individuals respectively.

However, there are some specific cases, such as the DTT signed with Chile, where a transparent entity such as a Chilean Private Fund Equity is considered as a resident person for treaty purposes. Therefore, in such case, Peruvian Tax Administration is obliged to apply the rules contained in the mentioned treaty.

In Peru, business income is taxed at a 29.5% tax rate, which is applied to net income. The same rate and tax basis apply to businesses that are carried out directly by individuals.

This tax treatment also applies in the case of businesses which are carried out through a transparent entity. However, in this case the manager of such transparent entity (eg, fund, trust) is liable for the tax payment.

It should be pointed out that there are special tax regimes (mainly for small businesses) where the business tax rate or business tax burden could be reduced if certain conditions are met.

When calculating the business tax basis, the starting point would be the accounting profits. It should be mentioned that profits are taxed on a yearly and an accrual basis, meaning, at the time the business is entitled to receive a certain income. However, according to Peruvian Income Tax Law, such amount of profits could vary by means of:

• the existence of exempted income that should not be considered in the tax base; and
• the existence of expenses that are subject to quantitative limitations or legal requirements and also the existence of expenses that are expressly forbidden for income tax purposes.

Some of the most principal adjustments (meaning non-deductible expenses for tax purposes) could be the deduction of expenses with persons/entities residing in a tax havens, deduction of expenses that are not necessary to produce income or to maintain its source, interests subject to thin capitalisation rules, government fines and depreciation not considering the maximum rates, among others.

Peru does not have a tax regime such as the patent box. However, regarding the general income tax regime, expenses related to research and development (R&D) such as scientific research, technology development and technology innovation projects are deductible for corporate income tax purposes. It must be noted that these expenses may or may not be related to the core business.

Besides that, there is a special regime, for Peruvian companies that incur R&D expenses, until 31 December 2025, depending on the entity’s income.

Entities whose income is under USD2.8 million may deduct:

• 240% of the R&D expense if the project is developed by the taxpayer himself or through a Peruvian resident scientific research/technology development/technology innovation centre; or
• 190% of the R&D expense if the project is developed by a non-resident scientific research/technology development/technology innovation centre.

Entities whose income is over USD2.8 million may deduct:

• 190% of the R&D expense if the project is developed by the taxpayer himself or through a Peruvian resident scientific research/technology development/technology innovation centre; or
• 160% of the R&D expense if the project is developed by a non-resident scientific research/technology development/technology innovation centre.

There are some other requirements that should be met in order to get the additional deduction.

Over time, Peru has implemented some incentives in order to promote certain activities and/or business in certain regions. Some of the main ones are the following.

Tax Rate Applicable to Agricultural Businesses

Individuals and corporations developing agriculture business, as well as individuals and corporations carrying out agroindustry business outside Lima and Callao, are subject to a corporate income tax rate of 15% until 2030; or 20% until 2024 and 25% from 2025 until 2027, depending on the entities’ income (under or over USD 2 million).

Amazon Regime

Taxpayers with domicile in the Amazon and carrying out certain activities (agroindustry, tourism, aquiculture, fishing, forestall, among others) in such territory would be subject to a corporate income tax rate of 0%, 5% or 10% depending on the specific activity and territory involved. In any case, all corporations domiciled in the Amazon are not subject to VAT in terms of the supply of goods and services carried out within the Amazon.

Tax Stability Agreements

According to this regime, foreign investors and also the local companies incorporated by them are able to sign Tax Stability Agreements with the government that would freeze the current tax regime that applied at the time the agreement was signed.

It must be said that the tax regime that could be frozen is the one related only to income tax. That would include the income tax from the investor’s income (meaning their income tax on the distribution of dividends) and the income tax from companies incorporated in Peru (meaning the income of the business income itself). Conversely, the Tax Stability Agreement excludes consumption taxes such as VAT and excise duties, among others.

Advanced Recovery of VAT

Peru has implemented a special VAT regime that allows some taxpayers to recover (in advance) the input VAT that was charged in all its acquisitions. Under this regime, companies that exceed certain threshold of investments and that are involved in investment projects of more than two years at the preparatory stage (among other requirements) could get an advance payment of the VAT that was charged at the time of the acquisition of goods and services related to such projects. Therefore, under this special regime, companies should not wait for the operating stage in order to offset their input VAT.

Higher Depreciation Rate in Financial Leasing Contracts

With regards to the acquisitions of fixed assets in the context of a financial leasing contract, the tax law provides the chance to apply a higher depreciation rate in relation to the regular regime if certain conditions are met.

Preferential Depreciation Rates for Buildings, Construction and Hybrid and Electric Vehicles

From 1 January 2023, Peru has implemented special depreciation regimes for taxpayers under the general income tax regime, and MYPE regime (regime for individual small and medium companies).

In this regard, taxpayers are entitled to apply a maximum depreciation rate of 33.33% if (i) the construction has started as of 1 January 2023 and (ii) at least 80% of the construction is completed by 31 December 2024.

On the other hand, taxpayers are entitled to apply a maximum annual rate of 50%, for hybrid and electric vehicles acquired in 2023 and 2024.

Peruvian tax law provides that the losses generated by a Peruvian-based company may be compensated with the taxed income of the following fiscal year(s). In this sense, there are two systems that can be chosen by taxpayers in order to undergo such compensation.

• System A – the losses that have been generated in a certain fiscal year can be offset against the total net income until the amount is exhausted. However, such losses could not be offset in the next four years; they would expire.
• System B– the losses generated in a certain fiscal year can be compensated against the 50% of the following periods until the amount is exhausted, without any time restriction.

Once an option is selected, it can only be changed after all the losses are used or terminated. Peruvian tax law does not allow carry-back losses. According to Peruvian Income Tax Law, there is no difference between ordinary and capital losses.

The general rule regarding the deduction of interest by local corporations is that they will be deductible as an expense for tax purposes as long as the loan related to them was used to acquire goods or services that are necessary to produce or obtain taxed income or to keep up the source of such income.

As of 1 January 2021, the thin capitalisation rules are replaced with a general restriction on the deduction of net interest expense exceeding 30% of EBITDA from the previous fiscal year, with excess interest expense carried forward up to four years.

For this purpose, EBITDA is considered to be as the subject to CIT plus losses, net interest expenses, amortisation and depreciation. This applies for loans with both related and non-related companies.

Peruvian tax legislation does not allow consolidated tax grouping and there is not any opportunity to use separate company losses.

As a general rule, the capital gains of a Peruvian company will be included as a corporate income that is subjected to a 29.5% tax rate.

There were some transactions that were exempted until 2022 such as the ones made through the Lima Stock Exchange (LSE) if some requirements were met. However, for FY 2023, this exemption is only applicable to income attributable to individuals.

Financial Transaction Tax (ITF – Impuesto a las Transacciones Financieras) is applied to debits or credits done within accounts in the financial system, and has a rate of 0.005% of the transaction amount.

“Alcabala”, or the Real Estate Transfer Tax, applies to any transfer of immovable property, even if there is no compensation. The tax rate would be 3% of the transfer value with a deduction of ten tax units (USD13,000).

Finally, VAT has a flat rate of 18% if incurred in the following transactions:

• operations of movable assets in the country;
• rendering and utilisation of services in Peru;
• construction contracts;
• first sale of real state property made by the constructors; and
• importation of goods.

Incorporated businesses are subject to Temporal Net Asset Tax (TNAT). In this regard, companies subject to corporation income tax are obligated to pay a temporary net asset’s tax, which is imposed on the value of the total of all assets on the balance sheet as of December 31st of the prior fiscal year with a deduction of PEN1 million (USD260,000).

The tax rate is 0.4% and the amount paid for such a tax may be credited against the taxpayer’s income tax. The remaining ITAN after such compensation could be refunded.

Closely held local business is usually carried out through a closely held stock corporation in order to benefit from the limited liability. Conversely, some small businesses are carried out as a business individual person who is taxable as a business, meaning as a corporation.

The corporate income tax rate (29.5%) is, in principle, higher than the rate applicable to individual professionals. Income produced by independent professionals is subject to a progressive tax rate:

• for the first 7 tax units (UIT): 0;
• up to 5 UIT: 8%;
• greater than 5 UIT and up to 20 UIT: 14%;
• greater than 20 UIT and up to 35 UIT: 17%;
• greater than 35 UIT and up to 45 UIT: 20%; and
• greater than 45 UIT: 30%

It must be noted that only the individual rate applied to the high end of the income scale is higher than the corporate rate (29.5%).

1 UIT (2023) = PEN4,950 = USD1,300.

Peruvian Income Tax Law does not have a provision to prevent corporations from accumulating earnings for investment purposes.

The tax rate applicable to individuals with regards to the distribution of dividends is, in both cases, 5%. The mentioned rate applies to dividends corresponding to profits obtained from 2017 onwards. However, the dividends corresponding to the years prior to 2014 and 2015-16 are taxed at a rate of 4.1% and 6.8%, respectively.

In the case of capital gains deriving from the transfer of shares, the tax rate applicable would be 5% and the tax base would be the difference between the transfer value (at market value standards) and the cost of acquisition. Such treatment would be applicable to domiciled taxpayers.

Non-domiciled taxpayers are subject to a withholding tax rate of 30% and the tax base would be the difference between the transfer value (at market value standards) and the cost of acquisition. The mentioned cost in this case should be previously certified by the Tax Administration in order to be deducted.

There is not a special tax regime for the distributions of dividends by publicly traded corporations in favour of individuals. In this regard, individuals (residents and non-residents) are subject to income tax at the rate of 5%.

It must be noted that the publicly traded corporation must withhold income tax when the distribution agreement is approved by the shareholders’ general meeting, or when the dividends are effectively paid, whichever occurs first.

In the case of the sale of shares, there was a tax exemption from1 January 2016 until 31 December 2022. This exemption applied if the sale was performed through the LSE, if the seller and its related parties did not transfer 10% or more of shares issued by the Peruvian company within a 12-month period and if the shares had market liquidity. However, for FY 2023, the exemption will only apply to income attributable to individuals.

Where the above-mentioned conditions are not met, resident individuals will be taxed at a rate of 5% over the difference between the transfer value and the shares cost basis.

In case of non-resident individuals, they will be taxed at the rate of 5% unless the sale is executed outside the country, in which case the rate will be 30%. The sale will be considered executed outside the country if the shares are not listed in the Public Registry of the Stock Market.

The Peruvian Income Tax Law has subjected non-domiciled entities to withholding taxes. For interests from loans, this is at a rate of 4,99%. However, this tax rate would apply only if the borrower proves the effective entrance of the funds in the country and also as long as the interest rate is not higher that LIBOR plus 7 points. In such a case, the excess would be taxed at a 30% tax rate.

On the other hand, in all cases of loans between related parties, the tax rate would be 30%. This includes back-to-back structures as well.

For royalties, the tax rate is 30% and for dividends, the tax rate is 5%.

Peru has DTTs signed with Canada, Brazil, Chile, Andean Community countries (Ecuador, Colombia and Bolivia), Mexico, South Korea, Portugal and Switzerland. On 18 November 2019, Peru signed a DTT with Japan. This treaty came into effect on 1 January 2022, with the exception of Article 26, which was applicable from 29 January 2021.

The DTT’s primary countries used by foreign investors are Brazil, Chile and Canada.

It is not usual for the tax authority to challenge the use of tax treaties. However, since Peru has implemented the rules to identify ultimate beneficial owners (UBOs), it is likely that this scenario will change in the coming years.

One of the biggest transfer pricing issues that foreign investors have to deal with is related to intragroup services. Specifically, in the case of management and/or back-office services:

• comply with the beneficial test – taxpayers should be able to prove that the services bring economic value to the user; and
• gather the corresponding documentation to prove that the services were effectively provided.

If taxpayers do not comply with the aforementioned requirements, the deduction could be denied for tax purposes.

In the case of low added-value services, such as back-office services, the market value for tax purposes would be the amount of costs and expenses incurred by the supplier plus a mark-up of 5%. The excess will not be deductible for tax purposes.

Despite the fact that Peru has no special provisions for these kinds of arrangements, it has become very frequent that the tax authorities challenge limited risk distribution agreements in transfer pricing audits.

Peruvian transfer pricing rules are directly based on the OECD standards. Considering this, the law provides that OECD transfer pricing guidelines should be used as an interpretation source of the law to understand local rules regarding transfer pricing in specific cases.

There are no specific changes on the aggressiveness of the Tax Authority within Peru regarding transfer pricing audits. Note that the Peruvian Tax Code provides an effective statute of limitation up to five years for the Tax Authority to carry out any audit procedure, thus regardless of the use of “new” information, they are authorised to require any documentation “necessary” in the specific case to determine whether or not transfer pricing rules where correctly applied.

It is not usual for the tax authorities to make compensating adjustments when a transfer pricing claim is settled. However, MAPs have not operated since it is just a faculty of the Peruvian government.

While a branch of a non-local corporation is subject to tax on its Peruvian source income, a subsidiary of a non-local corporation is subject to tax on its worldwide income. Both vehicles are subject to a tax rate of 29.5% on their business net income and 5% on the distribution of dividends/profits.

However, with regards to the tax applicable to the distribution of dividends/profits, subsidiaries are obliged to withhold taxes at the time at which the distribution agreement takes place or at the time at which the effective distribution is made, whatever occurs first. In the case of branches, the distribution of profits is deemed to happen at the deadline date of the annual income tax return submission.

Additionally, the tax base of the distribution of dividends/profits would be the effective distribution amount. Conversely, the tax base of the distribution of profits made by the branches would be the corporate income tax basis, plus exempted income.

The tax treatment applicable to capital gains derived from the direct and indirect sale of shares issued by Peruvian corporations is as follows.

Direct Sale/Transfer

A direct sale of shares occurs when a shareholder transfers its shares to another individual or entity directly and there is no intermediate entity involved in the operation.

The first step will be to determine the cost that was generated at the time of acquiring the shares, through a procedure of Certificación de Capital Invertido. This will determine the cost of acquisition of the shares and the deduction with the sales price.

It is important to do this procedure first because otherwise this deduction will not take effect for tax purposes. Also, it must be noted that this procedure is not applicable when the sale is produced through the LSE.

In this case, the tax rate will be 5% if the sale is made by non-resident companies using the LSE; otherwise, the tax rate will be 30%. There are certain cases in which the income could be exempted, as explained in 3.5 Sales of Shares by Individuals in Publicly Traded Corporations.

Indirect Sale/Transfer

An indirect sale of shares in a Peruvian legal entity will occur when shares are transferred in a non-domiciled entity (with legal personality), which, in turn, holds – directly or through other legal entities – shares or participations in a domiciled legal person.

Additionally, an indirect transfer of shares would take place if the following requirements are met.

• Within a period of 12 months before the transfer is made, the fair market value of the Peruvian shares represents more than 50% of the fair market value of the non-Peruvian corporation; and 10% or more of the shares of the non-Peruvian corporation are transferred within a 12-month period.
• Also, it would be presumed that a non-domiciled entity indirectly sells shares of a domiciled entity in the country of which it is the owner, either directly or through another person or persons, when it issues new shares or participations as a consequence of a capital increase, as a result of new contributions, capitalisation of credits or reorganisation, and places them for a value below market value.
• Finally, an indirect sale of shares is also configured when the total amount of the shares or participations of the entities domiciled in the country whose indirect sale is carried out in any 12-month period, is equal to or greater than 40,000 UIT.

There are some cases in which taxes on capital gains over the sale of shares are eliminated or suppressed by DTTs currently signed by Peru.

Under Peruvian tax legislation, there are no “change of control provisions”, as such. Hence, only change of ownership is considered to trigger tax consequences. However, as explained in 5.3 Capital Gains of Non-residents, there is a special case, which is the indirect transfer or disposal of shares regime.

Note that in case of a direct or indirect transfer of Peruvian corporation’s shares, such corporation is obliged to report the transfer to the Tax Authority.

Additionally, if the transaction involves non-domiciled parties and the vendor qualifies as a related party at any time in the 12-month period before the transfer, the Peruvian corporation has joint tax liability with regards to the capital gains derived from the transaction.

There are no formulas to determine the income of foreign-owned local affiliates selling goods or providing services. However, the transactions must be set at market value. It must be noted that in case of transactions between related parties, the market value will be the price that would have been set with independent parties in similar transactions in equal or similar conditions, according to transfer pricing rules.

Regarding management services, all the expenses must be related to the generation of income. Also, regarding management fees, it is necessary to gather documentation proving that there has been a service provided to the company and that this represents a gain. Further, in correspondence with the latest legislation regarding transfer pricing, low added-value services (eg, management services), the deduction of expenses that a company can take is equal to the difference between the cost and the expense plus a margin of 5%.

As mentioned previously, interest paid to related parties is subject to (i) withholding taxes under a 30% tax rate (unless a DTT is applicable, in which case the rate would be reduced), (ii) transfer pricing rules to establish the fair market value, as well as (iii) thin capitalisation rules. The latter establishes a limit to deduct such expenses: for tax purposes net interests exceeding 30% of the EBITDA (which is calculated by adding to the operating income, the amortisations and depreciations) is not deductible.

Local corporations are subject to income tax on their worldwide income (Peruvian source income and foreign source income).

In this regard, local corporations may sum and offset every foreign income and foreign loss accrued in a fiscal year. If there is a net income determined, it should be added to the Peruvian source corporate net income and taxed at a rate of 29.5%. The amount that is not used in the corresponding fiscal year cannot be set off (or compensated) in other fiscal years, nor can it be refunded. It must be noted that in any case, losses obtained in countries classified as tax havens, cannot be deducted for tax purposes.

Taxpayers may deduct the amount of foreign income taxes paid due to the foreign-source income levied by the Peruvian Income Tax Law, provided that it does not exceed the amount which results from applying the average rate of the taxpayer to the income obtained abroad, or to the tax paid abroad.

Foreign income is not exempt in Peru.

Local corporations are taxed on their worldwide income. To this end, dividends from their foreign subsidiaries are considered as foreign source income, therefore, those dividends will be taxed according to the tax treatment mentioned in 6.1 Foreign Income of Local Corporations.

An intangible developed by local corporations used by non-local subsidiaries will always incur local corporate tax, and the payment would be adjusted to market value or transfer price, in case of related parties. The payment made by the subsidiary will be considered as a royalty.

As long as the intangible will be used outside the country, the payment will be a foreign income for the local company. It will be added to the Peruvian source corporate net income and be taxed at a rate of 29.5%.

CFC rules apply to a Peruvian resident who controls a non-domiciled entity (non-local subsidiaries) that, according to the law, qualifies as a CFC regarding their passive income. Note that this resident has to be an individual.

A non-local subsidiary will be considered as a CFC if it has a legal personality independent from its partners, associates, members or owners, if it is 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 and if a Peruvian resident taxpayer participates, directly or indirectly (solely or together with any related party), in more than 50% of the equity, benefits or voting rights of the non-domiciled subsidiary.

In case a non-local subsidiary qualifies as a CFC, the CFC rules will be applied to the Peruvian company which controls it. In this regard, the passive income generated by the non-domiciled subsidiary will be allocated to its local company owner at the end of the given fiscal year, even if it has not been actually distributed. Therefore, the local company may recognise the foreign source income and determine and pay the corresponding income tax.

This situation is different from non-domiciled branches because these entities does not have an independent legal personality. Indeed, a branch is one of the offices or groups that form part of a large business organisation.

In this regard, the CFC regime will apply to income generated by non-domiciled subsidiaries but not by non-domiciled branches as such.

There are no rules related to the substance of non-local affiliates for Peruvian income tax purposes.

Capital gains derived from the sale of shares in non-local affiliates qualify as foreign source income. Therefore, it should be added to the Peruvian source corporate net income (if a net foreign income is determined) and be taxed at a rate of 29.5%.

However, there may be exceptions as long as they are registered in the LAE and are sold through the Central Registry of Securities and Settlements (Cavali) or are sold through a foreign trading mechanism, as long as there is an integration agreement between these entities. Peru currently has agreements with Chile, Mexico and Colombia, which are part of the Latin American Integrated Market (MILA).

The general anti-avoidance rule was issued in July 2012, however, it was suspended until September 2018, when the suspension was lifted.

Under its provisions, such rule allows the tax administration to re-qualify certain legal structures implemented by taxpayers and collect taxes by considering the structure that was intended to be implemented by the parties involved. Therefore, the general anti-avoidance rule tackles corporate structure and/or transactions with the aim or principle aim to defer revenue or to obtain a tax advantage.

In 2019, the government issued the guidelines in order to establish when a certain structure or transaction would fall under the scope of the general anti-avoidance rule. Under such regulation it also established the specific procedure that the tax administration would be obliged to follow when applying such a rule.

It is worth mentioning that, despite the fact that the general anti-avoidance rule was reactivated in September 2018, it could be applied to previous situations under the assumption that the anti-avoidance rule was only suspended.

It should also be mentioned that there are specific anti-avoidance rules such as CFC rules, indirect transfer of shares, transfer of shares issued in the context of a corporate reorganisation (spin off/simple reorganisation), among others.

Likewise, the tax administration points out the existence of high tax-risk structures, which will be observed more closely. There is currently a catalogue of 13 structures indicated by the tax administration.

There is no regular routine audit cycle in Peru. The tax administration is able to start an audit (determining the tax debt and imposing fines) during the next four years (if the taxpayer submitted its tax return) and six years (if the taxpayer did not submit its tax return). 

However, these periods would start effectively on January 1st of the next year from which the relevant tax return would have been submitted.

As it was contained in the statement of reasons of some the most important tax laws issued in the last three years, Peru is focused on implementing some of the BEPS recommendations and so far, it has achieved the following.

• Action 3 – Peru has implemented CFC rules, which came into force in 2013. Basically, the CFC regime tackles revenue deferral derived from passive income obtained by foreign-controlled entities of Peruvian tax residents.
• Action 4 – until 2018, thin capitalisation rules were applicable only to the interests derived from loans derived from related parties. Under thin capitalisation rules, taxpayers could not deduct interests from loans that exceed three times its patrimony. Since 2019 these thin capitalisation rules are also applicable to loans derived from non-related parties. However, there are some exceptions where thin capitalisation rules may not be applied. From 2021 onwards, the limitation of interests for tax purposes would be subject to the limit of 30% of the EBITDA.
• Action 7 – there are some Permanent Establishment cases that were incorporated in the domestic law in order to be aligned with BEPS and also to the OECD Tax Model Convention.
• Action 8, 9 and 10 – Peru has incorporated, in its domestic regulations, some of the OECD transfer pricing guidelines, such as the conditions under which services of low value should be deducted and the need to practice the benefit test, among others.
• Action 15 – in 2018 Peru became part of the Anti-Bribery Convention as well as the Convention on Mutual Administrative Assistance in Tax Matters.

The Peruvian government is focused on implementing not only BEPS tasks, but OECD recommendations, since it would like to be part of the latter. Under such implementations, the country is seeking to tackle aggressive tax evasion but also tax avoidance in order to get a high level of neutralisation and equality in the field of taxation.

In this context, it is worth noting that the tax pressure reached a record 16.8% of GDP in 2022, the highest since 1980.

In the past 30 years, the Peruvian economy has increased significantly as a consequence of different factors. One of them being the development of industries such as mining and the globalisation process.

In this regard, international tax law plays a very important role when establishing clear and mandatory rules in the context of cross-border transactions, which are becoming more and more frequent. In that sense, in the past eight years, Peru has been making a big effort to increase its treaty network with key countries, achieving Double Tax Conventions with South Korea, Mexico, Switzerland, Portugal and Japan.

When designing a competitive tax policy, it is important to take into consideration the implementation of BEPS actions in order to tackle tax evasion as well as tax avoidance and that is something that Peru has been trying to achieve over the past three years, by setting up some relevant tax legislation. 

In that context, as a third-world country, such BEPS pressure is balanced with some other benefits or guarantees given to attract foreign investors such as the Tax Stability Agreements, which consist of agreements between taxpayers and governments in order to guarantee that the income tax regime would not be modified in a ten-year period.

As part of the implementation of BEPS, the granting of tax benefits and exemptions are being limited. However, there are some special regimes and exemptions that still remain and that will be in force in the middle term.

Peru has not implemented legislation for hybrid instruments yet.

Peru does not have a territorial tax regime.

With regards to the investment made under debt structures, investments would be diminished, since thin capitalisation rules are applicable from 2019 onwards in transactions between non-related parties. Therefore, interest deduction for tax purposes would be limited in more cases.

Peru does not have a territorial tax regime. As mentioned, CFC rules have been in force since 2013.

Proposed DTC limitation of benefits, as well as anti-avoidance rules, would have a significant impact when involving inbound and outbound investors.       

Despite the fact that Peru has a small treaty network, most of its treaties follow the OECD model (the ones signed with Brazil, Chile, South Korea, Switzerland, Canada, Mexico, Portugal and Japan). In these treaties, there are references to the beneficial owner that, in the future, could limit the benefits of some DTC when the tax administrators challenge taxpayers to this extent. It should be pointed out that the anti-avoidance standards are taken into consideration in the DTC limitations under negotiation. 

In this regard, it must be added that Peru has implemented the beneficial owner report that resident taxpayers are obliged to submit. Consequently, it would be easier for the tax authorities to verify the correct use of treaty provisions.

It must be noted that the DTC signed with Mexico and South Korea expressly contains a limitation of benefit clause.

There are several transfer pricing liabilities that have been imposed on taxpayers in the last years, such as the submission of the local report, the master file and the CbC report (CbC submission has been regulated in the last months).

However, before such liabilities can exist, taxpayers are obliged to submit a transfer pricing report and exhibit their technical transfer pricing study and therefore all the transactions with related parties. Consequently, there are no radical changes to this extent.

Finally, with regards to the taxation of intellectual property, there are no changes.

In order to achieve a fair taxation and to avoid base erosion and profit shifting, the authors are in favour of proposals for transparency and information disclosure, such as CbC reporting.

However, despite the fact that CbC reporting (among other measures) aims to achieve OECD standards regarding information disclosure, in most of the cases those procedures and their requirements are not well understood/received by taxpayers, which at the same time do not find a proper way of orientation by the tax administration.

So far, Peru has implemented some regulation with regards to digital services, but only around transactions involving B2B structures. Such regulation basically imposes high withholding taxes if some requirements are met. Business to Consumer (B2C) are out of the scope of the Peruvian Digital Services Tax.

However, nowadays there are some discussions regarding tax digital services and B2C transactions. Under this new scenario, the tax administration is seeking to impose and claim indirect taxes on digital service suppliers that operate outside Peru.

So far, Peru has not implemented BEPS proposals for digital taxation.

Peru has not introduced provisions dealing with the taxation of offshore intellectual property being deployed within the country.

As mentioned before, royalties related to the deploying of intellectual property is subject to a 30% withholding tax rate in absence of a tax treaty, which in the main establish a withholding tax rate of 15% in the case of OECD model treaties. In case of Decision No 578, the withholding tax rate applicable would still be 30%, but the income should not be taxed in the place of resident taxation under the provisions of such double tax convention.