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Capital Gains Tax Regulations: Since 1 January 2010
Capital gains derived by foreign or domestic investors from the sale or exchange of stock issued by a corporation incorporated in Peru (Peruvian stock) qualify as taxable Peruvian source income. Taxand Peru describes the new tax regulations applicable to capital gains as from 1 January 2010 and how this affects investors.
Until 31 December 2009, capital gains derived from such transactions were tax exempt as long as they were obtained:
(i) by individuals not-habitual in the sale of stock (ie individuals who are not in the business of trading stock)
(ii) due to transactions through the Lima Stock Exchange (LSE).
Capital gains from the sale of Peruvian stock by non-domiciled individuals and legal entities will be taxed at the rate of 5% if the stock is alienated through the LSE. Otherwise, a rate of 30% will apply. Taxable gains will be determined by the difference between the transfer value of the stock and its tax cost basis.
Capital gains obtained by both foreign and domestic investors are tax exempt up to five tax units (US$6,400 approx.) in each fiscal year.
New regulations provide that if the Peruvian stock is transferred through the LSE, foreign transferors will not be required to obtain a "Certificate of tax cost" issued by the Peruvian Tax Administration (SUNAT) in order to determine the tax cost basis and, therefore, their taxable capital gains.
Likewise, the acquirer of stock through the LSE is not obliged to withhold the corresponding capital gains tax. Foreign investors selling Peruvian stock through the LSE must pay their capital gains tax liabilities (5%) directly to the SUNAT.
In the case of transfers made over the counter, the domestic acquirer, if any, must withhold the capital gains tax (30%) corresponding to the foreign transferor. If the acquirer is a non- domiciled individual or legal entity, no withholding tax obligation arises. In any of these cases, the foreign transferor must obtain the referred "Certificate of tax cost" issued by the SUNAT in order to determine its capital gains tax.
With respect to domestic transferors, legal entities apply a tax rate of 30% on their annual taxable income including any capital gains, while for domestic individuals the effective tax rate on capital gains is 5%.
Annual capital gains are tax exempt up to five tax units (US$6,400 approx).
Unlike foreign individual transferors, domestic ones are able to offset capital losses against their capital gains obtained from the transfer of Peruvian stock. Capital losses cannot be carried forward to the next fiscal years.
Likewise, domestic legal entities may offset their capital losses against their annual taxable income and carry forward the balance of losses to the following years.
Domestic investors selling Peruvian stock must file an annual tax return and pay their capital gains tax liabilities determined therein directly to the SUNAT.
Tax cost basis for stock acquired until 31 December 2009
According to the new regulations, the tax cost basis of stock acquired before 1 January 2010 and transferred thereafter will be its acquisition cost or its value calculated on 31 December 2009, whichever is higher, provided that the stock is transferred by a non-habitual individual or that the transferred stock was listed on the LSE on 31 December 2009.
Due to the new regulations on capital gains taxation and the expiration of the exemption to capital gains obtained through the LSE, foreign investors must pay special attention to the Peruvian tax consequences of the transfer of Peruvian stock in order to structure their transactions in the most tax efficient manner.
Moreover, it should be noted that there is an amendment proposal intended to consider as Peruvian source income the capital gains derived from the indirect transfer of Peruvian stock, that is, from the transfer of stock issued by a foreign corporation that owns a significant amount of Peruvian stock. However, this amendment is still being discussed by the Peruvian Congress.
Your Taxand contact for further queries is:
T. +511 610 4747