Israel – Peru Tax Treaty

Business Activity in Peru

Over the past two decades, Peru has achieved notable progress in economic growth and poverty reduction. The country’s success can be attributed to its maintenance of macroeconomic stability, commitment to trade openness, and the positive influence of a favorable international environment. Peru is considered to be one of the region’s fastest-growing economies, characterized by low inflation.

Peruvian law guarantees equal rights for both foreign and local investors under the principle of “national treatment.” Authorities cannot discriminate based on nationality, economic activity, or location regarding prices, exchange rates, tariffs, duties, or business information.

Peru is known for its rich sources of copper, gold, silver, zinc, gas, and petroleum, in addition to the mineral resources that altogether contribute significantly to the country’s industry sector. More importantly, Peru’s main exports, which remain strong, are mainly based on minerals, with an emphasis on copper.

Since 2016, a special deduction regime allows taxpayers to deduct 150% or 175% of expenses for projects related to scientific research, technological development, and innovation. Additionally, oil and gas companies can enter into stability agreements, which guarantee consistent tax rules, free use of foreign currency from exports, easy currency conversion, and unrestricted trading of products throughout the contract period.

It is important to highlight that the country’s primary focus, as outlined in the National Infrastructure Plan for Competitiveness, is on infrastructure projects related to transport, telecommunications, energy, and water. These areas are where investments are most encouraged and welcomed.

Applicability of the MLI

Peru and Israel have both signed the Multilateral Instrument (MLI). Peru signed the MLI on June 27, 2018, while Israel signed it on June 7, 2017. As of 2024, Peru has not yet ratified the MLI, whereas Israel ratified it on January 1, 2019.

Residency for Tax Purposes in Peru

Residence of an Individual

The tax residency of an individual in Peru is primarily determined based on their physical presence. A person is considered a resident for tax purposes if they have been resident in Peru for more than 183 days within 12 months. Furthermore, this status is lost after being absent from the country for at least 184 days (in total) during the previous year.

Domicile status is decided at the start of the fiscal year. Any changes during the year take effect from the next fiscal year’s beginning. So, if someone becomes a resident after June 30, they need to wait until the next year to get domiciled tax benefits, and the change starts in the following year.

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

According to the Peruvian law, the following categories are considered as resident legal entities in Peru:

• Legal entities incorporated in Peru.
• Branches, agencies, and Permanent Establishments (PE) of non-resident individuals or entities.
• Partnerships and limited liability companies.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Peru

Peru’s Tax Authority is called the National Superintendency of Customs and Tax Administration.

Income Taxation: 8% to 30%

Taxation of Companies and Branches: 29.5%

VAT: 18%

Capital Gains Tax: 5%

Withholding Tax

Inheritance Tax and Estate Tax in Peru

Peru does not apply an inheritance or estate tax.

Relocation to Peru

Although the Peruvian Jewish community in Peru is modest in size, it boasts a vibrant cultural and social life. The Hebraica sports and country club stands as evidence of this lively community spirit. Several present community leaders emerged from the thriving HaNoar HaTzion youth movement, which has been active for over fifty years. Lima hosts numerous Jewish organizations, many of which maintain connections with Israel, with Bnei Berith standing out as one of the more influential bodies.

Over recent years, Peru has made substantial economic growth, creating opportunities for both local and foreign investors, and presenting itself as an attractive destination for businesses seeking economic stability. Moreover, Peru offers various general benefits for relocation, these include, low taxes, inexpensive daily living expenses, amazing culture, friendly people, and great climate conditions. These factors present compelling reasons to explore and benefit from all the positive aspects that this country has to offer.

Real Estate Taxation in Peru

In Peru, real estate tax is based on the property’s value, depending on whether it is in an urban or rural area, and the rate is set according to the total value of all properties owned in a specific district. Using a progressive cumulative scale based on the real estate value, the tax on properties is levied in badges: 0.2% tax for up to 15 tax units; 0.6% tax for the excess of 15 tax units and up to 60 tax units; and 1% for over 60 tax units.

The transfer of real estate is subject to a 3% property transfer tax, which is calculated based on the purchase price or the municipality value. The first ten tax units, amounting to approximately USD 13,900 will be exempt upon the agreement between the parties.

Transfer of Funds from Israel to Peru

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met. Our firm handles withholding tax matters with the Israeli Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes, and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more.

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in Peru

The main types of business structures that operate in Peru include:

Limited Liability Company

A Limited Liability Company (LLC) must be formed with a minimum of two and a maximum of twenty individuals or legal entities. The incorporation is carried out through a public deed executed by a Notary Public and subsequently registered at the Peruvian Public Registry. The capital of the LLC is structured into equal, cumulative, and indivisible participations, distinct from traditional shares. No official title or document is issued to individual participants. Importantly, the partners in the LLC are not personally responsible for the company’s obligations.

Corporation

This form of legal entity requires incorporation by two or more individuals or legal entities through a public deed executed by a Notary Public and subsequent registration at the Peruvian Public Registry. The corporation’s bylaws may impose restrictions on the transfer of shares but cannot outright prohibit such transfers. There are three primary types of corporations:

1. Private Corporation: In this type of corporation, capital contributions are represented by shares, and liability is limited to the amount of the contribution. It is required to have both a Board of Directors and a General Manager.
2. Closed Corporation: This corporation is limited to a maximum of twenty shareholders, and its shares are not publicly listed. Transfers of shares are subject to restrictions. While having a Board of Directors is optional, the corporation must appoint a General Manager.
3. Public Corporation: This corporation has conducted an initial public offering of shares or convertible bonds. It typically has more than 750 shareholders, or more than 35% of the share capital is distributed among 175 or more shareholders. All of its shares are registered with the Stock Exchange. Both a Board of Directors and a General Manager are required in this type of corporation.

Branch of a Foreign Company

A branch lacks legal autonomy and shares the same legal status as its head office. However, for tax purposes, it is treated as an independent entity. To establish a branch in Peru, it must be officially registered through a public deed issued by a legal representative of the head office in Peru. If the document is in a foreign language, it must undergo translation into Spanish by a Peruvian official translator before submission to the Peruvian Public Registry.

Incentive Laws in Peru

Peru has established various incentive laws in the country to attract individuals and companies to relocate to Peru. Investors can benefit from several tax incentives, including:

• Deduction rates for Scientific Research, Technological Development, and Technological Innovation expenses;
• Companies in the preoperative stage with major projects can request VAT recovery before starting operations. To do this, they must sign an investment agreement with the relevant government Ministry;
• Investors can enter into stability agreements with the government, either under the general regime or specific regimes like mining and petroleum. These agreements ensure 10 years of income tax stability for dividends and profit distribution, equal treatment of foreign and local investors, and monetary policy stability. There are no exchange controls, allowing free buying and selling of foreign currency at market rates, and funds can be sent abroad without prior approval.
• Tax benefits for VAT and income tax are provided to businesses in the designated ‘Amazon’ area engaged in agriculture, aquaculture, fishing, tourism, and manufacturing activities related to the processing and commercialization of primary products from these sectors, as well as forest transformation within the region.

Peru Double Tax Treaties: