Doing business in Peru


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Doing business in Peru

  1. 1. Doing business in Peru We help keep you on the right track
  2. 2. Content Foreword Geography and population Economic development plans Investment opportunity General aspects of foreign trade Business entities Employement contracts External audit requirements Main taxes Contact details Page 2 3 5 6 8 9 13 17 18 23 “Business decisions are rarely black and white. Dynamic organizations know that they need to apply both reason and instinct to decision making. Since 1979, prestige, quality and experience of our Firm merge with our values, with which we live and work, seeking to make a difference every day and help our clients unlock their potential for growth.” Andrés Ropert, managing partner, Grant Thornton Perú
  3. 3. Foreword About Grant Thornton Grant Thornton Perú, a member firm of Grant Thornton International Ltd (GTIL) offers tangible solutions to its clients through a wide variety of specific services aimed at optimising their business’s yield. The firm has a staff of 100 professionals who have the right mix of skills and experience to help its clients to achieve success promptly and efficiently. Grant Thornton’s service is based on personalized assistance, commitment to clients, knowledge of their business and awareness of their needs, hence providing its clients with concrete solutions implemented with modern technology. In addition to these advantages, resources provided by GTIL include international-level specialists. Said specialists will give their clients tangible benefits and a profitable investment for the company’s growth. Among services provided are accounting and auditing, business and government advisory, tax compliance and advisory, and business processes outsourcing. GTIL is one of the world’s leading organisations of independently owned and managed accounting and consulting firms. These firms provide assurance, tax and specialist advisory services to privately held businesses and public interest entities. Clients of member and correspondent firms can access them in more than 100 countries and consistently receive from its 35,000 personnel a distinctive, high quality and personalised service wherever they choose to do business. GTIL strives to speak out on issues that matter to business and which are in the wider public interest and to be a bold and positive leader in its chosen markets and within the global accounting profession. The strength of each local firm is reflected in the quality of the international organisation. All GTIL member firms share a commitment to providing the same high quality service to their clients wherever they choose to do business. If you require any further information, please do not hesitate to contact your nearest Grant Thornton member firm. This guide has been prepared for the assistance of those interested in doing business in Peru. It does not cover the subject exhaustively but is intended to answer some of the important, broad questions that may arise. When specific problems occur in practice, it will often be necessary to refer to the laws and regulations of Peru and to obtain appropriate accounting and legal advice. This guide contains only brief notes and includes legislation in force as of July 2013. Doing Business in Peru 2
  4. 4. Doing Business in Peru Geography and population Peru is located in the central - western of South America, bordered to the north by Ecuador and Colombia, east by Brazil and Bolivia, to the west by the Pacific Ocean and Chile to the south. The Peruvian coast has a length of 3,080 km and its area is about 1, 285.215 square kilometers. It is divided into three geographical areas: coast, made up of large deserts and a series of rivers, the mountains range with high plateaus, deep valleys and surrounded by the snowcapped peaks of the Andes and the Amazon, made of a large expanse of greenery tropical that has been partially explored. Peru has a population of approximately 30 million. Lima, the capital city and its surroundings have a population of approximately 9 million. The main cities are Trujillo, Chiclayo, Piura, Arequipa, Cusco and Tacna. Political system Peru, since 1980, has been governed by democratically elected governments. The city of Lima is home to the national government. The country is divided into 24 departments and 1 constitutional province, which are grouped into regions, represented by their own regional government. Language and religion The official language is Spanish. However, the business sector, a large number of professionals and executives speak English. Most Peruvians are Catholics, being the public exercise of all denominations free, as long as it does not offend the moral or alter public order. Currency and exchange control The Peruvian currency is the Nuevo Sol. There is no exchange control. The exchange rate is set according to free market rules (supply and demand) although occasionally the price is stabilized by the Central Bank to prevent its fall. The current (Agust 2013) exchange rate fluctuates between S /. 2.79 and S/. 2.80 Nuevos Soles per USD 1. Clock The time is uniform across the country and coincides with the time of the eastern United States, with 5 hours behind the Greenwich Mean Time. 3
  5. 5. Business Hours In the summer months (January to March), the working hours in Lima for both the public and private sectors is generally 8:30 am to 5:00 pm with a break for a snack 1 hour. The staff worker normally starts and ends his day’s work 1 hour before the trainees. In winter, the Lima office hours begin and end in half an hour, and in some cases, 1 hour later than the summer, including the public sector. Banks are open from 9:00 am 6:00 pm; the trade is open from 10:30 am to 9:30 p.m. in all months of the year. The other cities of Peru have their own working hours, but the private sector offices are generally open from 8:00 or 9:00 am until 5:00 or 6:00 p.m. Not normally attend on Saturdays. Holidays act Peru´s public holidays are: New Year January 1st Maundy Thursday March/April (not fixed dates) Good Friday March/April (not fixed dates) Labor Day May 1st Peter and Paul June 29th Independence Day July 28th - 29th Santa Rosa de Lima August 30th Combate de Angamos October 8th All Saints Day November 1st Immaculate Conception December 8th Christmas December 25th Standard life In an international context, the standard of living and cost of living for Peruvian workers are comparatively low, as well as their profits. Cultural and social life Social and cultural activities including concerts, films, fairs, exhibitions, bullfights, trips to the beaches outside of Lima and the interior, among other activities. Doing Business in Peru 4
  6. 6. Economic development plans The main government objective is to strengthen economic and trade outlook, based on tax collection and the participation of foreign investment through privatization initiatives. In that sense, the most striking features is the policy of privatization of state enterprises, reintegration into the international financial system, the elimination of state monopolies and reforming public administration and the tax system, among others. Natural resources Natural resources is the biggest economic sector, nevertheless, there is still much to be exploited. Its main resources are: • oil and gas: Peru’s international position regarding the production of oil has been unfavorable due to the lack of development in the past. For gas, there are large reserves that are beginning to be exploited • mining: Peru is the first largest silver producer in the world, the seventh in copper and in zinc • agriculture: the main products are currently exported are asparagus, broccoli, mangoes and other products. Major industries The most attractive industries in Peru are those related to the transformation of the country’s natural resources, such as textiles, canned fish, gold and silver jewelry, refined minerals, etc. In sectors such as chemical and pharmaceutical, food and beverages, among others, are also important industrial companies. Also, banking and insurance sectors are modern and capable of any future growth in the market. Doing Business in Peru 5
  7. 7. Invesment opportunity In Peru, the legal framework for both domestic and foreign investors has a similar treatment. In that sense, it is possible that all shares of a company are owned by foreigners, except restrictions under sectoral rules. There are investment opportunities through participation of public enterprises, the granting of concessions for the realization of infrastructure projects and public services, in addition to the traditional activities of mining and export of textiles. Foreign investment does not require prior approval by the central government, except for banking and finance. Foreign investment is approved automatically upon registration in the respective government entities. Economic and fiscal policy The development of commercial activities is not restricted by any taxes, and prices are subject to supply and demand. Fiscal policy aims to develop an efficient tax system, in order to establish adequate tax letter and increase the tax base. Repatriation of capital and profits In Peru there are not restrictions on the repatriation of capital. Forms of foreign investment The law recognizes as forms of investment: capital contributions which are made to new or existing companies, investments in national currency resulting from legally remitted resources, capitalization of private foreign obligations, reinvestment of profits, intangible technological contributions, capital expenditures, investments from joint venture contracts or any type of investment that contributes to development. There are investment opportunities through participation of public enterprises, the granting of concessions for the realization of infrastructure projects and public services, as well as the traditional activities of mining and export of textiles. Doing Business in Peru 6
  8. 8. Rights guaranteed As the investor has registered with the respective government entity, is empowered to transfer abroad the proceeds of the sale of shares or rights in the capital or its reduction, as well as dividends, royalties, interest, among others, prior for payment of taxes, if applicable. Also, foreign investors will also have access to favorable exchange rates for remittances. Stability agreement Foreign investors may enter into legal stability agreements with the State, which will guarantee for a period of 10 years, among other things: • stability of the Income Tax effect at the signing of the agreement, which includes the current rate • stability of freely available foreign currency and the right to transfer of capital, dividends, royalties and profits abroad • stability of the right to non discrimination against domestic investors. The current tax treatment at the time of the investment can be stabilized through signed legal stability agreements with the state. Doing Business in Peru 7
  9. 9. Overview of trade • the government guarantees the free movement of good • the government, in some cases, exempts customs tariffs on certain products • available regimes temporary import of goods with suspension of the collection of customs duties and taxes under certain conditions • there are limited restrictions on imports. Imports and exports The State guarantees freedom of trade. Imported goods are subject to payment of customs duties, the Value Addes Tax and, in some cases, the Excise Tax. Customs duties on imports are applied on CIF and exports are not burdened with taxes. Peru is a member of the WTO, the Andean Community and LAIA Restrictions In general, there are no significant restrictions on the import and export of goods, but there are some exceptions provided by law. So, is restricted the importation of arms and ammunition, communications equipment, specialized products and byproducts of plant and animal agricultural pesticides and the like, ammonium nitrate, nuclear material, among others. Import duties Goods are classified under the nomenclature NANDINA and duties are applicable on the CIF value of imported goods, with variable rates ranging from 4%, 7%, 12% and 20%, and even some items have been expanded with tariff rates of 0%. It has also established additional customs duty applicable to certain products equivalent to 5% ad valorem CIF. Check the price of goods According to the provisions of the Customs Valuation Agreement of WTO, the check is intended to determine the correct basis for customs clearance required by the intervention of a supervisory body authorized. The verification should be mandatory depending on the type of property and the FOB value of the same. Customs Warehouse There are bonded warehouses for the temporary placement of goods. These stores are responsible for damage and loss of goods entered the premises at your expense. Customs Agent The customs agent may be a natural or legal person duly authorized to serve others, as usual manager in all kinds of customs procedures. Also, before the customs procedures can be performed by the importer, consignee or owner of the goods or the customs agent. Doing Business in Peru 8
  10. 10. To conduct business in Peru, foreign investors usually choose the corporate form of the corporation or opt for the establishment of branches. Branches are taxed as a corporation, except with respect to their income from foreign sources, which are not taxable in Peru. There is no minimum percentage of equity on the part of persons or peruvian entities, there are no provisions requiring that the positions are filled by residents of Peru or peruvian. There are the following types of companies: Sociedad Anónima (S.A.) Corporate form more common, it is sustained other variants of the same: the public company and closed corporation. Contributions to the capital represented by shares. Liability is limited to the value of the contribution. Sociedad Anónima Cerrada (S.A.C.) When society has no more than 20 partners and has no shares listed on the Public Registry of Securities and Markets. The transfer of shares is limited. Sociedad Anónima Abierta (S.A.A.) When you meet one or more of the following conditions: • has made public offering of shares or convertible bonds; • has more than 750 shareholders; • when more than 35% of its capital belongs to 175 or more shareholders • when all the voting shareholders unanimously approved the adjustment to the scheme • the S.A.A. must register its shares in the Public Registry of Securities and Markets, and therefore is subject to supervision by government entities Sociedad Comercial de Responsabilidad Limitada (S.R.L.) Similar to the corporation, where all partners have limited liability. Its capital is divided into shares for which no documents of title are issued. Sociedad Colectiva (S.C.) Society in which the partners are liable jointly and severally and unlimited. Business entities Doing Business in Peru 9
  11. 11. Sociedad en Comandita The limited partnership can be simple or shares: • simple (S. en C.).- Some partners have unlimited liability (collective) and other partners have limited liability to the value of their contributions (limited partners). • by shares (S. en C. por A).- Like S. in C., the general partners have unlimited liability and limited partners have limited liability to the value of their contributions, but in this case the entire capital is divided into shares, belong to the general partners or limited partners. Societies, whatever form they have taken should be recorded in public records. Individual Limited Liability Company (EIRL) The EIRL is a form of business organization that is an entirely different legal entity from its owner, who must necessarily be a natural person. The holder’s liability is limited to their contribution, and must also enroll in public records. This form of organization is governed by special legislation. Societies, whatever form they have taken, and the EIRL, must be registered in public records. Branch Secondary establishment of a local or foreign company outside the scope of his home, where they conduct certain activities within its corporate purpose. It has no legal status or legal independence. However, for tax purposes, it is independent from its parent establishment. Branches in foreign companies The law defines the branch as all secondary establishment through which a society develops in a place other than their home certain activities within its corporate purpose. To register a branch of a foreign company, the legal representative of the company in Peru must provide the public deed before a public notary. The documentation must be attached to the deed as follows: • copy of Articles of Incorporation of the main articles of association or equivalent instruments in the country of origin • copy of Agreement establishing the branch taken by the competent body of the parent company. The agreement must specify: – amount of capital allocated to their activities – statement that such activities are within its corporate purpose – the domicile of the branch – name of the person or persons designated as representatives in the country and the powers granted and their subjection to the laws of Peru to meet the obligations of the branch in the country. • certificate of Good Standing from mainstream society in their country of origin, stating further that its articles of incorporation or its statute does not prevent the establishment of branches abroad. Doing Business in Peru 10
  12. 12. The documents listed should be legalized or apostilled by the Peruvian Consul of the place. In addition, the signing of Peruvian Consul should be authenticated by the Ministry of Foreign Affairs. Any foreign language document must be translated by an official translator in Peru. The business of the branch is headed by the legal representative be duly recorded. The scopes of the representative’s powers vary according to the policy of each parent, but must be large enough to allow adequate representation in Peru. It is recommended to allow delegation of certain powers such as signing checks. There is no regulation that requires the parent company financial statements to record in Peru. Joint Venture or Consortium Each member of the Consortium is linked individually with third parties in carrying out the activities it deserves and is accountable to them individually. The contract should establish a system of profit sharing Consortium, otherwise shall be deemed to equal parts. For tax purposes are considered independent when they have independent accounts. State Supervision Overall, government oversight of companies is limited to the following: • review of books and records that relate taxation by the corresponding government entity • supervision of banking, finance and insurance, as well as review of financial statements of companies under the supervision of state entities with separate legal personality • supervision and inspection of facilities where chemicals are produced • supervision and inspection work in the workplace. Distribution of dividends The distribution of profits by companies must be by agreement of the shareholders or members. For the distribution of profits shall observe the following rules: • dividends can be paid only on the basis of gained profits or free reserves, provided that the net worth not less than the paid-in capital. • all shares of the company, even if they are not fully paid, have the same right to the dividend, regardless of the opportunity they have been issued or paid, unless otherwise provided in the Annual General Meeting (AGM). • applies the distribution of interim dividends, except those companies for which there is express statutory prohibition. • if it declares dividends on account, without the favorable opinion of the board, joint and several liability for payment rests exclusively with the shareholders who voted for the agreement. • the delegation is valid in the directory of the power to approve the distribution of dividends. Doing Business in Peru 11
  13. 13. Dissolution and liquidation The solution should be agreed at the AGM)or Board of Partners and be published in the national official journal for three consecutive times, within ten days of the agreement adopted. It should also be applied for registration in the Public Registry within ten days made the last publication. The clearance procedure is in charge of the liquidators appointed by the shareholders. They will be responsible for the realization of the assets of the company and must pay the corresponding duties and then distribute to shareholders equity resulting from the bottom. Doing Business in Peru 12
  14. 14. Employment contracts can take either written or verbal form. Employment contracts are subject to special conditions stated in writing and must necessarily be made known to the labor authority. Once started the employment relationship, workers play a trial period of three months, during which they can be fired without being entitled to compensation for unfair dismissal. This period may be extended to 6 months or 1 year in case of skilled workers, management or trust. It should be noted that there are additional rights for women and child workers. Intermediation The job placement is allowed when it involves staff providing services in the workplace or business operations, provided that there is a seasonality assumption, complementarily or specialization. Staff seconded to a client company cannot provide services involving the continued implementation of the main business of the company. Also, this service can only be performed by companies incorporated as legal entities or cooperatives whose sole purpose is the provision of intermediation services. Registration of employers and their workers All employees are required to register with the Ministry of Labor, Health System (EsSalud) Pension Scheme (whether public or private) as well as to the National Superintendence of Tax Administration (SUNAT). Requirements for payrolls The following rules are mandatory for employers: • employers must maintain control of their payrolls electronically, which should record the payment of workers’ wages and other labor concepts The spreadsheet should contain the following information: • full details of each worker (name, sex, birth date, ID, date of entry or reentry into the company) office or occupation, educational level, the registration number of insured pension systems corresponding pay, number of days and hours worked, overtime, deductions for contributions and tax payments, among other • the start date, end date and the date they begin and end each worker’s annual vacation. • employees must sign the payment voucher delivered them as proof of payment contained in the spreadsheet. These payslips should contain the main items that are contained in the Book of lists and kept by the employer for a period of 5 years • by 2007 and 2010 in some cases, employers were required to bring the book returns in physical form, in single sheets or microfilmas, which must also be preserved for a period of 5 years Employement contracts Doing Business in Peru 13
  15. 15. Doing Business in Peru 14 • before, employers could provide authorization to hold books or records of payroll by workplace location, hierarchical level employees, among others considered, however now will be consolidated into the spreadsheet. • employers of domestic workers are not required to have book of lists, either physically or electronically. • sheets for construction workers and others are governed by special rules. Employee participation in the profits of the company In Peru is contemplated regime worker participation in company profits. Participate in profit workers in companies that develop income-generating activities of third category provided that they are subject to the labor of the private sector and that have more than 20 workers. The workers included in this part of the labor system of the company profits through the distribution, by the latter, a percentage of their annual income before taxes. This percentage varies according to the activity of the company. The maximum contribution each employee can receive is the equivalent of 18 monthly salaries in effect at year end. Legal week The normal working day is 8 hours per day or 48 hours per week maximum, with some additional limitations with regard to minors. They are subject to these limitations, managers, administrators and other executive staff members. The average hours worked in the corresponding period cannot exceed 8 hours per day or 48 hours per week on average. You can only exceed 48 hours per week on a voluntary basis and with the corresponding compensation. Termination of employment According to labor law, the grounds for terminating the employment relationship are: • death of the worker or the employer, if this is an individual • voluntary resignation or retirement of the worker • completion of the work or service, the fulfillment of conditions precedent and the expiration of contracts legally entered into under mode • dismissal. In this case, the causes for dismissal are related to functional ability or misconduct of the worker • termination of employment for objective reasons in the cases and manner permitted by law. The employer may not dismiss on grounds relating to the conduct or capacity of the worker, before the grant deadline for written employee can rebut the charges made. If the dismissal is arbitrary, indefinite-term contract worker is entitled to compensation equivalent to one and a half pay for each completed year of service with a maximum of 12 salaries.
  16. 16. Compensation for time of service (CTS) Employees are entitled to compensation for time served, free of taxes. This compensation is awarded on the basis of a monthly pay 1 / 6 of the same for each year of service. The right to compensation earned after the first month of service. For this purpose it is understood that compensation is computable the full what the worker receives for his services, either in cash or in kind, in whatever form or name that is given, provided they are freely available. However, the law provides some remunerative concepts not account for the CTS, such as special bonuses, Christmas basket, among others. Social Health Insurance (EsSalud) The health delivery system in the country is run by EsSalud. The fee for this contribution is 9% of pay. Social security legislation covers all workers enrolled dependents on the return. The employment relationship is the only condition that determines the worker’s compulsory, regardless of duration or time of work, day, week or month. Payment of contributions must be made by the worker, all workers, whether foreigners or Peruvians who are registered on the form. The basis for calculating the contribution to EsSalud monthly total compensation is regularly received by the worker in any form, including payments in kind. For purposes of this contribution, there are some elements of remuneration are excluded, such as profit sharing, bonuses, overtime is not regular. The workers, employees and workers are entitled to benefits EsSalud comprising mainly benefits of prevention, promotion, recovery and subsidies for health care and social welfare, and occupational diseases. Social health insurance is run by EsSalud and can be complemented with alternative plans and programs provided by Health Benefits Entities (EPS) duly accredited by the benefits fund contributions and other payments to him according to law. National Pension System (NPS) The NPS is administered by the Office (ONP) and covers the pensions of employees and retired workers, provided they have contributed a minimum contribution of 20 years. The employee discount for this item is 13%. The amount of pension is determined by the remuneration received by the worker and the number of contributions paid by the system. Private Pension System (PPS) The Administration of Pension Funds (AFP) manages a pension alternative. Through this system, AFP guaranteed retirement pensions, invalidity and survivors’ pensions and funeral expenses. Doing Business in Peru 15
  17. 17. The contributions are an individual capitalization fund. Pensions are financed exclusively by the workers through their contributions, to accumulate their respective interests. To this end, workers must contribute 10% of your monthly salary plus commissions insurable for the AFP and insurance premiums to cover disability, survivors and funeral, making a total of approximately 13%. Working Supplemental Security Risk (SCTR) The SCTR is designed to provide coverage to members play regular high-risk activities. This insurance is mandatory and is assumed by the employer and covers the risks of health benefits, pensions for temporary or permanent disability and survivors and funeral expenses resulting from accidents or illnesses. Foreign Personnel Foreign personnel must enter into a contract of employment which must be approved by the employment authority. The employment contracts with foreigners are given time and for a period not exceeding 3 years, renewable for like periods successively. It is also necessary after the conclusion of employment contract, a visa abroad at work or residence visa, for which the employer must obtain a letter of guarantee to the immigration authorities. The duration of the visa can be renewed annually and during the period in which the employment contract is in effect. After obtaining the visa, the employment contract shall take legal effect. The tourist visa is granted for a period of three to six months and may be extended under certain circumstances up to 90 additional days. It is possible to hire foreign workers to the limit of 20% of all workers on the payroll and registered for an amount equal to 30% of the total remuneration paid. Are not considered in the limitations mentioned, among others, the following: • foreigners married to people of Peruvian nationality • foreigners who have children born in Peru • immigrant visa foreigners • foreigners whose country of origin has a reciprocal agreement to work or dual nationality. • staff of foreign enterprises for the international road, air or maritime flag and foreign- registered • expatriates who work in multinational companies or multinational banks services • the foreign investor who has resigned or not the repatriation of invested capital or profits, provided you keep a constant amount during the term of the contract not less than the 5 ITU • artists, athletes, and generally those who act in public performances in the territory of the Republic for a maximum period of three months a year. Doing Business in Peru 16
  18. 18. An annual external audit by independent public accountants is mandatory in the following cases: • when the status of the company so provides • when it is expressly requested by shareholders representing not less than 10% of the outstanding shares entitled to vote • in a sac. when requested by shareholders representing at least 50% of the outstanding shares entitled to vote • when the company has been formed by S.A.A. • when special legislation for the establishment of this obligation • when any company has revenues of more than 3000 tax units (approximately USD 4´055,556 for the year 2012). Books and records Legal persons are obliged to keep full accounts. The books must be legalized by a Public Notary. Failure to do so is a violation punishable by a fine, which would even determine the income tax on grounds alleged. The fiscal year for all purposes in Peru is the calendar year. In that sense, the books must be closed on 31 December of each calendar year. The assets and liabilities should be detailed in the book of inventories and balances on the date of commencement of operations and the end of each fiscal year. The detail of inventories at year end should be kept in a separate book as part of major inventory book. It allows the use of special journals in sheets, computer systems, other records necessary ancillary and subsidiary ledgers. In some cases, the pages must be pre-numbered, authenticated and bound at the close of each fiscal year. The summary of the totals in the subsidiary ledgers should be entered in official books bound monthly. However, the official books can replace each of the legal records. The minutes of the meetings of shareholders and boards of directors must also register book numbered and authenticated by Notary Public. The minute books may also be taken through the loose-leaf, requiring that the pages are numbered and authenticated. External audit requirements Doing Business in Peru 17
  19. 19. Income tax Overview The Income Tax Act distinguishes five categories of different types of income, which are grouped into capital income, business income and earned income. The taxable income of each income group is declared and determined separately, no compensation occurring between them. For purposes of the Income Tax are taxpayers, individual, undivided estates, associations and similar general fact and legal persons. Joint ventures and other business cooperation contracts are also considered as contributors if they have independent accounts. Otherwise, the results are attributed to each part, which will be eventually responsible to the tax authority. Going by the companies is defined by the 30% rate on taxable income. Contributors Taxpayers domiciled in Peru, whether natural or juridical persons are subject to the Income Tax for its world-Income Tax and can deduct the tax paid abroad on foreign source income taxed by the Peruvian Income Tax. Non-domiciled taxpayers are taxed on their Peruvian source income. Foreign entities that receive Peruvian source income are subject to withholding tax under the rates approved for that purpose. Companies are taxed on their capital gains. The taxable income of legal persons domiciled in the country, gained in the development of commercial activitie, is defined as gross income minus total necessary expenses incurred in trade or business. Incomes such as rents, royalties, interest, fees for services, among others, are considered third- category income for businesses. In general, for individuals on capital gains are subject to Income Tax, except those arising from savings in financial entities and certain windfall. Main taxes Doing Business in Peru 18
  20. 20. Accounting The accounting records must be brought in Spanish and translated into soles. As an exception, foreign investors that contract with the State may keep their accounts in foreign currency, provided they have proper authorization from the government sector. Income derived by companies should be allocated according to the accrual method. Also, this rule applies to the allocation of expense. Temporary or permanent differences arising from the application of tax regulations require the adjustment of accounting records as a result, in the Tax return. Business income Gross revenue consists of the difference between net income and computable cost of goods sold. Net income for these purposes is obtained by deducting from the gross income, rebates and discounts. Deductions As a rule, business expenses are deductible if they are necessary to obtain the Income Tax or to maintain the source of production. Meanwhile, the Income Tax Act establishes a limitation of certain expenses that are subject to limit on deductibility. Royalty payments, patents and equipment leasing are deductible without limit. On the other hand, are deductible wages and salaries of employees and workers, whether Peruvian or foreign. The costs of establishing businesses, including taxes, can be fully deductedin the first year or amortized for a longer period, up to a maximum of 10 years. The same treatment applies to pre- operating expenses. Depreciation of fixed assets The depreciation method usually allowed for tax purposes is the straight line. The maximum rates accepted by the tax admnistration are those listed in the Income Tax legislation itself. Intangible assets Intangible assets are considered of limited duration to those whose life is limited by law or nature. Amortization is permitted when the price is paid. In these cases, the price paid can be deducted in one year or proportionally amortized within 10 years. Trademarks and patents transferred to society as a capital contribution cannot be depreciated. Brands and goodwill are not considered intangible assets of limited duration, so their prices cannot be amortized for purposes of Income Tax. Workers compensation The employer is required to make monthly deductions from the salaries of their workers and pay them to the entity collecting taxes. Doing Business in Peru 19
  21. 21. Control The Peruvian tax system operates on a self-assessment basis, subject to verification by the tax administration, which has the right to inspect any given year within the limitation period. The period of limitations is four years from the year following the filing of the tax return, six years for those who have not filed affidavit, or 10 years when the withholding or collection agent has not paid the tax withheld. Foreign personnel Foreign individuals who have carried out work in Peru must submit to the immigration authority at the time of leaving the country, where communication of the contracting state whether or not perceived Peruvian source income, withholding taxes applicable, and a statement of assurance regarding the payment of taxes withheld. The contractor is responsible to the Treasury the taxes withheld. Consolidation of Financial Statements Are not recognized for tax purposes to the consolidation of financial statements. Each company is considered a separate taxpayer and losses of a company cannot be offset against profits in another way, even in the case of business groups. Income from liquidation of companies The Income Tax does not tax income from the liquidation of companies to the extent that constitutes a reimbursement of capital. Tax conventions Peru has signed agreements with members of the Andean Community of Nations (ACN*) to avoid double taxation. There are also agreements to avoid double taxation with the governments of Canada, Brasil and Chile. Value Added Tax (VAT) This tax applies to the following activities: • the sale of property in the country • provision or use of services in the country • import of goods • construction contracts • first sale of property made by the constructor. *The member countries of the Andean Community are Bolivia, Colombia, Ecuador and Peru. Doing Business in Peru 20
  22. 22. The monthly tax that is determined eligible as tax credit is the VAT paid on purchase of goods and services procurement. The difference between this and the tax debit, determines the VAT to be paid each month. If the tax credit exceeds the VAT other period, the excess can be applied in the following periods. Sale of assets A sale is considered completed when the goods are delivered to the buyer or when the invoice is issued, whichever comes first. This is the time when tax liability arises. The tax must be added to the selling price of the product sold, must be transferred to the buyer of the property. Services All services provided within the Peruvian territory or those who are economically used in the country are taxed with VAT. The main services that are exempt are as follows: • credit services: services provided by banks and financial institutions and lenders • public service of passenger transport within the country, except for air transport • cargo transport service from the country to the outside and vice versa, as complementary services to carry out such transportation the primary customs area • construction, alteration, repair and hull vessels carrying on the high board companies in the country to foreign flag vessels • nominal interest on bonds issued by companies domiciled • life insurance policies, provided that the voucher is issued for individuals residing in Peru and insurance policies of credit insurance program for small business • commercial service fee paid to persons not domiciled in connection with the sale of products in the country from abroad, provided that the commission act as an intermediary between a domiciled in the country and a non-resident and the commission is paid from abroad. Nor are considered taxable exports of services, among others: • consulting services and technical assistance • leasing of property • advertising services, market research and public opinion polls • data processing services, implementation of software and the like • placement and supply staff • service fees for credit placements, financing operations • insurance and reinsurance • telecommunications services for telecommunications service completion originated abroad, solely with respect to the compensation provided by foreign operators, according to the rules of the Convention of International Telecommunication Union • mediation and / or organization of tourist services provided by tourist operators domiciled in the country on behalf of agencies or tour operators located abroad • temporary assignment of rights of use or enjoyment of national audiovisual works and all other national works that are expressed by process analogous to cinematography • the power supply for individuals domiciled abroad provided it is used outside the country • freight services that are made from the country to the outside and are made from abroad to the country, as well as complementary services necessary to carry out such transport, made in the primary zone and provided by Customs international cargo carriers domiciled in the country Doing Business in Peru 21
  23. 23. • telephone support and any other nature that provides call centers and networking for companies or users, not domiciled in the country, whose clients or potential clients domiciled abroad, and provided it is used outside the country. In the case of services, the tax liability arises when the invoice is issued or when payment is received, whichever comes first. Imports of goods The tax liability in the case of import of goods originating from the date of the request for release for consumption of the property (nationalization). The tax base is the CIF value of goods plus the ad valorem duty on the CIF value. Excise tax This tax is affecting the sale of some specific goods, such as gasoline and its derivatives, cigarettes, beer, liquor, vehicles, etc. SENATI This contribution is taxed at 0.75% of total payroll, industrial companies, being paid only by industrial companies. Doing Business in Peru 22
  24. 24. Peru´s International Business Centre Av. República de Panama 3030 - 8th Floor San Isidro Lima 27 - Peru T +51 (1) 615 6868 F +51 (1) 615 6888 W Jose Luis Sarrio Partner & IBC director T +51 998 231 108 E Contact details Doing Business in Peru 23
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