Properties for Sale in Peru

Tax and Offshore Investment in Peru

Tax regimes vary greatly throughout Latin America. While some countries are investor friendly, others are not so open. There are several benefits (i.e. retirement programmes, tax discounts) but also some tax obligations. In this section we provide an analysis of the different tax structure in each country where January First Real Estate lists properties. This information may be very important for you to choose you retirement destination or where to invest. Keep in mind that there are related visa and residence issues which are discussed in Visa/Residence Requirements. In case you need more information or have doubts on any of these issues, the specialised staff in January First Real Estate will be glad to answer all your questions, click here.

Real estate assets are, without doubts, one of the most secure and profitable ways of investment. There are two main reasons for this:

1. Properties always tend to increase their value in the long term.
2. They generate an income for their exploitation (rental/yields).

Taxes and Costs in Peru

Rental Income Tax (Impuesto a la Renta)
Rental income earned by nonresidents is subject to a 30% flat rate. The taxable income is 80% of the gross rent. Nonresidents are not entitled to any other deductions.

Real Estate Equity Tax or Land Tax (Impuesto Predial)
Levied on the cadastral value of the real estate, as assessed by the government. Payable annually in February or in four separate installments.
An official established tax unit (Unidad Impositiva Tributaria or UIT) is used to determine the tax liability. The UIT is a benchmark figure established to maintain the taxes, deductions, etc. at constant proportions to income. The UIT value for 2006 is 3,400 Peruvian nuevo sol (PEN) (approximately US$1,025).
Real Estate Equity Tax or Land Tax is calculated by applying the following progressive cumulative scale:

Real Estate Equity Tax
Tax base, UIT (US$) / Rate
Up to 15 UIT (approx US$15,375) / 0.20%
15 UIT - 60 UIT (approx. US$61,500) / 0.60%
Over 60 UIT (approx. US$61,500) / 1.00%

VAT (Impuesto General a las Ventas)
VAT is imposed when legal entities (individuals and corporations), resident or not, rent out Peruvian properties. The standard VAT rate is 17%.
Taxable transactions such as leasing properties may be exempted from VAT if the taxpayer pays income tax.

Municipal Sales Tax (Impuesto de promoción municipal - IPM)
The rules regarding transactions subject to VAT also apply to IPM which is levied at a flat 2% rate.

Corporate Route
Corporate entities earning rental income are taxed at the standard corporate rate of 30%. The taxable income is computed by deducting income-generating expenses from the gross income. Other allowable deductions are: amortization of intangibles, bad debts, entertainment expenses, gifts, goodwill, interest expenses, royalties, insurance, salaries and wages of employees, board member fees, start-up expenses, social security contributions, travel expenses, promotional costs, and premiums for health insurance, and taxes levied on income-generating assets and activities.

Capital Gains Tax
Capital gains earned by nonresidents from selling Peruvian property are taxed at a flat rate of 30%. The taxable gain is computed by deducting the invested capital (acquisition and improvement costs) from the gross selling price. These costs can only be deducted upon approval of the tax authorities.

Corporate Route
Corporate entities earning capital gains are liable to pay taxes at the standard corporate rate of 30%.

Living There
Peruvian citizens residing in Peru are taxed on a worldwide basis. Foreign nationals are taxed only on their Peruvian-sourced income. However, after residing in Peru for two years, foreign nationals are also taxed on a worldwide income basis. They can elect resident status after living in Peru for six months.
The taxable income is calculated under five separate categories, according to the nature of the income. The income categories are as follows:

• First-category income is derived from lease or sublease of real property or movable goods
  
• Second-category income is derived from capital investments, dividends and royalties;
  
• Third-category income is business income from a sole proprietorship;
  
• Fourth-category income is for professional services rendered;
  
• Fifth-category income arises from dependent employment.
  

For the first and fourth categories of income, 20% of the relevant gross income can be deducted as notional expenses. Consequently, only 80% of the gross income is taxable under these categories. For second-category income, 10% of the gross income can be deducted (effectively, the taxable income is 90% of the gross income).
A taxpayer earning fourth and fifth categories of income can deduct an amount equal to 7 UIT or approximately US$7,175. No other deductions are allowed.
Tax rates for domiciled individuals are determined using a three-bracket progressive scale, as shown below:

Income tax
Taxable Income UIT (US$) / Marginal Tax Rate
Up to 27 UIT (approx. US$27,800) / 15%
27 UIT - 54 UIT (approx. US$55,600) / 21% on band over US$27,800
Over 54 UIT (approx. US$55,600) / 30% on all income over US$55,600

Rental Income
Rental income obtained from the lease or sublease of real property or movable goods is considered first-category income. For rental income, residents are entitled to a total deduction of 20% of the gross rent. Consequently, only 80% of the gross rent is taxable. The income of residents is taxed at progressive rates.
Taxpayers earning rental income, or more generally first-category income, are required to make an advance payment at a flat 15% rate. The tax base is the net income, which is 80% of the gross rent.

Peru, make your dream investment come true.