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Peru reduces corporate income tax but raises dividends taxation

Peru
21 Jan 2015

On 31 December 2014, Law No. 30296 was published in the official gazette, approving a tax reform bill proposed by the Executive with the purpose of promoting and reactivating Peruvian economic growth. Taxand Peru discusses the key amendments covered by the reform.

From 1 January 2015, the corporate income tax (IT) rate will be reduced gradually from 30% to 26%, applicable from fiscal year 2014, as follows:

Fiscal year

Corporate IT rate

2015 - 2016

28%

2017 - 2018

27%

2019 onwards

26%

However, the income tax (IT) rate applicable to Peruvian source dividends derived from profits generated as of 2015 will be gradually increased from 4.1% to 9.3% applicable from fiscal year 2014, as follows:

 Fiscal year             

   WHT rate             

2015 - 2016

6.8%

2017 - 2018

8.0%

2019 onwards

9.3%

The rate increase will not apply in the case of dividend distributions made by entities subject to promotional IT regimes. Likewise, dividend distributions made in favour of entities resident in Peru will not be subject to taxation.

Moreover, as of 2015 any loan granted by resident entities that do not qualify as financial institutions to their shareholders, stockholders, partners etc will be deemed a dividend distribution subject to taxation. This could be up to the amount of the earned profits of the lender plus any other available reserves.

Despite the amendments to the IT rates on corporate income and dividends, the effective IT rate between 2015 and 2019 will be approximately the same as that in 2014, demonstrated below:

Fiscal year

Corporate IT rate

Dividend rate

Effective rate

2014

30%

4.1%

32.87%

2015 & 2016

28%

6.8%

32.89%

2017 & 2018

27%

8%

32.84%

From 2019

26%

9.3%

32.88%

In this regard, it is important to note that pursuant to applicable regulations, dividend payments made from 2015 from earnings generated until 2014 will still be levied with the dividend WHT rate of 4.1%. However, the regulations do not provide the same treatment to earnings obtained from 2015 that are distributed as dividend of a later year. This situation will mean that the effective tax rate increases to more than 34%, as shown below:

Corporate IT rate applicable to earnings generated in 2015

IT rate applicable to dividends from earnings generated in 2015 paid during 2019

    Effective IT rate                        

28%

9.3%

34.69%

Therefore, resident Peruvian entities must be aware of this negative effect when distributing dividends, in order to avoid an excessive effective tax rate.  


Your Taxand contacts for further queries are:
Rocio Liu
T. +51 1 610 4747
E. rliu@mafirma.com.pe

Pablo Sotomayor
T. +51 1 610 4747
E. psotomayor@mafirma.com.pe

Taxand's Take

This reform, in force since 1 January 2015, includes several amendments to the Income Tax (IT) Law, as well as to other regulations, such as the Tax Code, General Mining Law and Customs Law and the Value Added Tax (VAT) early recovery regime. The most significant changes, however, are related to the tax rates applicable on corporate income obtained by resident entities, as well as on Peruvian source dividends distributed to individuals and non-resident entities. Multinationals with operations in Peru should keep abreast of all developments in order to remain compliant with the national tax legislation. 

Taxand's Take Author

Rocio Liu
Peru

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