Expats and Income Tax in Peru

By Ricardo Guevara Bringas

It is not an uncommon surprise that foreigners leaving Peru are informed that they should have paid income tax in Peru, so, forewarned is forearmed. Let´s look at some of the "how´s and why´s" of tax legislation in Peru that foreign residents need to be aware of.

Expatriates - like any other local people - must pay income tax for revenues they earn in Peru which is called "renta de fuente peruana". The notion of "renta de fuente peruana" or income from Peruvian source is very broad. Indeed, such notion includes a large amount of type of revenues ranging from incomes generated by real estate located in Peru, commercial or civil activities developed in Peru, to Internet services provided abroad to clients who use such services in Peru.

In addition, in the event that the Expatriate is domiciled in Peru, he or she must not only pay for incomes from Peruvian source, but also for income created anywhere in the world. For instance, an American citizen considered by the Peruvian Tax Authority (SUNAT) to be domiciled in Peru, will have to pay income tax even for incomes produced by real estate properties located in the US. Furthermore, note that when an expatriate carries out work in Peru for a company registered off-shore, he or she is obliged to pay income tax in Peru.

According to Peruvian legislation, revenues are divided into the following categories:

1st category revenues: e.g. income produced by rental lease agreements.

2nd category revenues:  e.g. capital gains such as interest from loans and royalties.

3rd category revenues: e.g. income produced by commercial and industrial activities.

4th category: e.g. income produced by independent professionals.

5th category: e.g. income produced by employees.

Generally speaking, 1st, 2nd, 4th and 5th of the above mentioned categories refer to income produced by individuals which do not act as entrepreneurs. The 3rd category refers to income produced by companies and individuals acting as entrepreneurs. 

In the 3rd category, a 30% income tax is applied to net revenues. For the other categories of revenues, there will be different rates that are progressively applied in proportion to the amount of the global net revenue during a calendar year:

Net revenue to 27 UIT (about USD 27,000): 15%

More than 27 UIT but less than 54 UIT (about USD 54,000): 21%

More than 54 UIT: 30%

("UIT". stands for "Unidad Impositiva Tributaria". This is a subjective amount fixed by the government in order to handle payments for taxation purposes, fines, and other payments made to the government.)

But note that the above mentioned rates only apply to taxpayers domiciled in Peru. If the taxpayer is a natural person not domiciled in Peru, one single rate of 30% will apply! According to Peruvian regulation, expatriates are considered to be domiciled in Peru if they comply with one of the following requirements:

1. (i)  Expatriates who have lived in Peru for 2 years without being abroad during each calendar year for a total period of more than 90 days.
   
2. (ii)  Expatriates who have lived in Peru for 6 month and are registered in the Registry of Taxpayers (RUC).
   
3. (iii)   Expatriates who have lived in Peru for 6 months and have asked their employer in Peru to be considered as being domiciled in Peru.

Note that the effects of "domiciliation" begin to apply the year after the above mentioned requirements have been fulfilled. Consequently, the sooner in a calendar year a foreign employee arrives in Peru, the better chances he or she has to be considered as being domiciled in Peru from a tax viewpoint.