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Peru: Living There - Tax Issues

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Living There

INDIVIDUAL TAXATION

Peruvian citizens residing in Peru are taxed on their worldwide income. Married couples are taxed separately.

Foreign nationals are taxed only on their Peruvian-sourced income and they can elect resident status after living in Peru for six months. After residing in Peru for two years, foreign nationals are also taxed on a worldwide income basis.

INCOME TAX

Taxable income is classified into five categories, according to the nature of income. Rules in computing taxable income depend on the income classification.

• First category: income from letting property
• Second category: investment income (capital investments, dividends and royalties)
• Third category: business income from a sole proprietorship and other income not specifically included in another category
• Fourth category: income from independent professional services
• Fifth category: employment income

Income is taxed at progressive rates. An official established tax unit (Unidad Impositiva Tributaria or UIT) is used to determine the tax liability. The UIT is a benchmark figure established to maintain the taxes, deductions, etc. at constant proportions to income. The UIT value for 2008 is PEN3,500 (US$1,118).

A taxpayer earning income from independent professional services (fourth category income) and employment income (fifth category income) can deduct 7 UIT (PEN24,500 or US$7,828). No other deductions are allowed.

RENTAL INCOME
As of 2009, income from letting property (first category income) will be subject to income tax at the rate of 6.25%. The tax base is 80% of the gross income since a standard deduction of 20% is given to account for income-generating expenses.

CAPITAL GAINS
Capital gains from selling real property are generally considered as investment income (second category income). As of 2009, second category income will be subject to income tax at the rate of 6.25%. The tax base is 80% of the gross income since a standard deduction of 20% is given to account for notional expenses.

Capital gains derived from habitual transactions are considered as business income and will be taxed at the standard 30% corporate income tax rate. The taxable gain is computed by deducting the invested capital (acquisition and improvement costs) from the gross selling price or market value of the property. These costs can only be deducted upon approval of the tax authorities.

Capital gains derived from selling a resident individual’s primary residence are exempt from taxation.

VALUE ADDED TAX (Impuesto General a las Ventas)

Generally, leasing properties in Peru is liable to VAT at 17%. However, if the leasing of property is not effectively connected with a trade or business, the lease transaction is then not liable to this tax.

MUNICIPAL SALES TAX (Impuesto de Promoción Municipal)

The rules regarding transactions subject to VAT also apply to municipal sales tax which is levied at a flat 2% rate.

PROPERTY TAX

Real Estate Tax (Impuesto Predial)

Real estate tax is levied on the cadastral value of the real estate, as assessed by the government, at progressive rates. The property owner is liable to pay this tax annually.

An official established tax unit (Unidad Impositiva Tributaria or UIT) is used to determine the tax liability. The UIT is a benchmark figure established to maintain the taxes, deductions, etc. at constant proportions to income. The UIT value for 2008 is PEN3,500 (US$1,118).

Net Worth Tax

Net worth tax is levied at 0.4% on the net assets of entrepreneurs exceeding PEN1 million (US$319,489). This tax may be credited against business income tax liability.

Peru - more data and information

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