Corporate Tax Issues to be Considered by Multinationals When Investing in Peru

Excerpt from Practical Latin American Tax Strategies by John A. Salerno and Julian Vasquez (PricewaterhouseCoopers LLP)

As with most South American countries, Peru currently maintains a worldwide system of income taxation with respect to business income that is earned in corporate solution -- e.g., via a Peruvian subsidiary of a multinational company. However, Peruvian branches or other permanent establishments (“PE’s”) of foreign companies or investors are taxed only on their Peruvian source income.(i.e., a territorial approach).

Peruvian source income derived by Peruvian branches, and worldwide income derived by Peruvian companies/subsidiaries, are generally subject to Peruvian corporate income tax. Such business income, which is subject to the so-called “Third Category” income tax (hereinafter referred to as the “Third Category Tax” or “CIT”), is taxed at a 30% rate on a net basis (i.e., gross income less allowable deductions). The distribution of net after-tax income is subject to a 4.1% dividend withholding tax, thereby subjecting the income to a 32.87% effective tax rate in the hands of foreign investors.

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