How to do business in Peru

Can a local company be 100% held by foreign resident shareholders?

Yes, a Peruvian company is allowed to be wholly owned by foreign resident shareholders. 

What are the main legal forms of companies in your country?

The main legal forms in Peru are regulated and classified by the Peruvian General Corporation, according with the following detail:  

• Sociedad Anónima Ordinaria (Public Limited Corporation): capital is represented by nominal shares and comprises the contributions made by shareholders who do not respond personally for the corporate debt. The contribution of services is not accepted. 
• Sociedad Anónima Cerrada (Closed Held Limited Corporation): available for small- and medium-sized companies with no more than 20 shareholders. It has particular characteristics such as an optional board of directors and preferential acquisition rights. In addition, it is not possible to apply for registration of shares in the Public Registry of the Securities Market.  
• Sociedad Anónima Abierta (Public Traded Corporation): an ideal legal form for big companies with activities in the stock market. Registration of shares in the Public Registry of the Securities Market is mandatory and requires a minimum of 751 shareholders. Additionally, the Public Traded Corporation is supervised by the Securities Markets Regulators. 
• Sociedad Comercial de Responsabilidad Limitada (Limited Liability Company): capital is divided into equal, accumulative and indivisible participations, which cannot: (i) be incorporated into negotiable instruments, (ii) be denominated as “shares. Additionally, the partners cannot exceed 20 and bear no personal liability for corporate obligations. The transference of holdings must be registered in the Public Register. 

Must the managing director of the company be a resident and/or a national of your country?

No, managing directors or general managers can be foreign citizens or foreign residents.   

Are there any foreign exchange rules applicable to foreign investment in your country? If yes, please explain briefly?

No, the Peruvian Constitution establishes equal treatment for domestic and foreign investments and expressly mentions that foreign investments have the same rights and obligations as Peruvian investments.  

Moreover, there are no controls or limits on the exchange of foreign currency.   

Are there any Central Bank rules applicable to foreign investment in your country?

No, the Central Reserve Bank of Peru has not established any special rules applicable to foreign investment. 

How long does it take to incorporate a company?

The duration of the process of incorporation is approximately 2-3 weeks considering the signature of notarised documents (Bylaws, Public Deed of Incorporation) and registration of the company on the Peruvian Public Registry and in the Taxpayer Register.  

What are the main taxes applicable to all businesses in your country?

The main taxes applicable in Peru are the following: 

• Corporate income tax (“IT”) which levies net taxable income at a rate of 29.5% 
• Value-added tax (“VAT”) which levies determined transactions at a rate of 18% 
• Financial transactions tax (“FTT”) which levies the credit or debit operations performed in any kind of accounts opened in financial entities with a tax rate of 0.005% 
• Temporary net assets tax (“TNAT”) which levies the historical value of the net assets of a company that exceeds PEN 1 million with a tax rate of 0.4% 
• Custom duties which apply on the import of goods to Peruvian territory (exports are not subject to taxes) 
• Import transactions are usually subject to Ad Valorem (with tax rates of 0%, 4%, 6% and 11%, depending on the goods to be imported) and VAT at a rate of 18% 
• Excise tax which applies over the sale of determined goods (such as liquor, cigarettes and fuel) and certain services (gambling, bets and slot machines among others). The tax rate depends on the good or service to be consumed.   

What is considered a permanent establishment in your internal law? Is it different from the classical OECD definition of article 5?

As of 2019, a new domestic tax law definition of Permanente Establishment (“PE”) entered into force which included the following PE assumptions:  

• Fixed Place of Business PE 
• When a person acts on behalf of a sole proprietorship, partnership, or entity of any nature incorporated abroad, provided that such person holds and regularly exercises powers in the country to enter into contracts on behalf of said entities. 
• When the person acting on behalf of a sole proprietorship, partnership, or entity of any nature incorporated abroad, keeps within the country inventory and/or goods to be negotiated (transferred) in Peru.  
• Construction PE: works or construction projects, installation or assembly, as well as supervision activities related to them, with a duration exceeding 183 days within any given 12-month period  
• Service PE: services when performed in the country for the same project or service or for a related one, for a duration that in total exceeds 183 days within any given 12-month period. 

As may be seen, our definition is similar to the OECD definition. 

Are there any thin capitalisation rules?

Yes, Peruvian IT law establishes that net interest which exceeds 30% of the Tax EBITDA of the previous year will not be deductible for the debtor for IT purposes. Excess interest can be carried forward for 4 years. (“Tax EBITDA” is understood as net income after compensation of losses plus net interests, depreciation and amortisation.)   

Are there any stamp/registration duties payable upon injection of equity? Same question on intra-group loans.

There are no stamp/registration duties applicable in Peru for the injection of equity nor intra-group loans. In this last case, transfer pricing rules will apply. 

Is there a withholding tax on dividends?

Yes, the distribution of dividends in favour of non-domiciled entities and individuals is subject to withholding tax at a rate of 5%. The distribution of dividends between Peruvian entities is not subject to dividends tax.

Is there a withholding tax on interests?

Yes, the applicable withholding tax rate for non-domiciled entities and individuals is 30%. If certain requirements are met, the applicable tax rate may be reduced to 4.99%

Is there a withholding tax on services paid to foreign suppliers?

Yes, services are usually subject to a withholding tax rate of 30%. However, the applicable tax rate will depend on the services rendered and the place where they are provided. 

How many tax treaties does your country have to date? Please list the main countries (notably EU) with which your country has a tax treaty in force.

Peru has signed double taxation treaties under the OECD model with: 

• (EU) Portugal 
• (non-EU) Brazil, Canada, Chile, Japan, Mexico, South Korea and Switzerland. 

As members of the Andean Community of Nations, Peru has also signed a multilateral tax convention (Decision 578) to avoid double taxation with Bolivia, Colombia and Ecuador. 

What is the applicable rate of VAT/GST?

The applicable rate for VAT purposes is 18%.  

Under your internal law, is a capital gain realised by a non-resident shareholder taxable in your country? If there is a minimum shareholding, please indicate the rate applicable.

Yes, if a shareholder sells its Peruvian shares and a capital gain is determined, it will be subject to Peruvian IT at a rate of 30% regardless of its shareholding percentage. The capital gain will be determined by the difference between the fair market value of the shares and the tax cost of the shares.

In case of change of control, is there a rule providing for the loss of tax carried forward losses?

No, there are no limits on carried forward losses for change of control.  

In general terms, Peruvian taxpayers are allowed to offset tax losses according to the systems A and B set forth in Peruvian IT law: 

• System A: the total corporate net loss from Peruvian source can be compensated against income obtained in the 4 immediately subsequent years. The remaining loss cannot be used after that period. 
• System B: the total corporate net loss from Peruvian source registered in a fiscal year can be compensated against 50% of the corporate net income obtained  in the subsequent years until it has been totally compensated. There is no time limit for its compensation under this system. 

The choice of system is made in the corporate income tax return corresponding to the year in which the loss is generated. Taxpayers are prevented from changing the system once the option is exercised. It will only be possible to change the loss compensation system in the year in which there are no losses from previous years, whether they have been fully used or the maximum period for compensation has expired, accordingly. 

Also, it is worth mentioning that there are limitations to the carry forward losses in the case of corporate reorganisations. 

Are there indirect sale rules incorporated into the tax legislation of your country? Please explain briefly. 

According to Peruvian IT law, an indirect transfer of shares is deemed to exist when the shares of a non-domiciled entity (“the target entity”), which in turn owns – directly or indirectly through other entities – shares issued by a domiciled entity, are transferred, provided that the following two Conditions are jointly met: 

1. In any of the 12 months prior to the transfer, the Fair Market Value (“FMV”) of the shares of the Peruvian entity owned  – directly or indirectly – by the foreign entity represent 50% or more of the FMV of all the shares of the foreign entity (“50% test”); and, 
2. During any given 12-month period, shares representing 10% or more of the foreign entity’s shares capital are transferred. 

In addition, as from 1 January 2019, a new scenario of indirect transfer is in force. In this scenario, an indirect transfer would be triggered provided that the total amount of shares of the domiciled company, whose indirect disposal is performed, is equal to or greater than 40,000 Tax Units 1 In 2023, one Tax Unit is equal to PEN 4,950. The Tax Unit value changes every year.  (PEN 198,000,000 in 2023 or approximately USD  55,696,203) 2 Using a reference Exchange rate of PEN 3.555 published on 17.07.2023 in the official website of the Peruvian Superintendency of Banking, Insurance and Private Pensions Funds. . Such value will be established by applying the percentage determined in Condition 1 to the value of the shares of the target entity which are transferred by the seller or its related parties in a 12-month period. 

The taxable income will be determined by applying the percentage obtained in the 50% test over the FMV of the shares of the non-domiciled entity which are being transferred. In any case, such value cannot be lower than the FMV of the Peruvian shares indirectly disposed.  

Are international reorganisation processes considered a taxable event in your country when, directly or indirectly, the ownership of entities located in your country is modified but remains as part of the Group Company? Are there any exceptions?  

There is no neutral tax regime for international reorganisations that involves Peruvian entities, whether they remain in the same Group Company or not. Therefore, any change of ownership of Peruvian entities through an international reorganisation will be treated as a taxable event.