PERU Law and Practice Contributed by: Percy Castle, Violeta Moncada, Angel Quispe and Dayana Evangelista, Casahierro Abogados
Peruvian Investment Funds and Trusts Peruvian investment funds and trusts are treated as tax-transparent entities for income tax purposes. The income is attributed to the settlors or beneficiaries. Foreign Foundations and Trusts Although foreign foundations, trusts and similar vehi - cles are not expressly recognised under Peruvian civil law, they are subject to the Peruvian Controlled Foreign Corporation (CFC) regime. Under this regime, resident individuals may be liable for income tax on specific types of passive income (eg, dividends, inter - est, royalties, capital gains and leases) earned by non- resident entities, regardless of whether actual profit distributions take place. This regime applies when the following conditions are met: • The resident individual holds a direct or indirect participation in more than 50% in the results of the non-domiciled entity. • The non-domiciled entity is incorporated in a low, zero-tax or non-cooperative jurisdiction or a coun - try where the passive income is subject to income tax at a rate equal to, or lower than, 75% of the applicable rate in Peru. • The non-domiciled entity constitutes a legal person or entity other than the taxpayer. Tax Treaties Peru has entered into double taxation treaties with Brazil, Canada, Chile, South Korea, Mexico, Portugal, Switzerland and Japan (OECD Model Tax Convention) which aim to eliminate double taxation or reduce with - holding rates on certain income (ie, dividends, inter - est, royalties and capital gains). Furthermore, Peru is signatory to the multilateral agreement with the Ande - an Community (Bolivia, Colombia, Ecuador and Peru). Pursuant to this agreement, the jurisdiction to tax is exclusively vested in the source country. Ultimate Beneficiary Affidavit Peruvian companies and other legal entities, such as Peruvian funds and trusts, foreign trusts or trusts with Peruvian trustees or protectors, are forced to identify and obtain updated information regarding their ulti - mate beneficiary owners (UBO) and inform the tax administration. An individual is deemed as UBO if:
• he/she holds, directly or indirectly, at a minimum, 10% of an entity’s equity; or • not being shareholders, he/she exercises control of financial, operational, or commercial decisions or has the power to appoint or remove most of the administrative, management or supervisory bodies. If no person qualifies as a UBO based on these two criteria, the person who occupies the highest admin - istrative position in the legal entity will be reported as the UBO (eg, a board member, CEO or general manager). 1.2 Exemptions There are no inheritance, gift or similar transfer taxes in Peru, but there are lifetime exemptions. 1.3 Income Tax Planning There are several tax planning opportunities available to individuals. For example, certain legal structures may be established to exempt specific foreign enti - ties from Controlled Foreign Corporation (CFC) rules, thereby deferring taxation until profits or gains are actually distributed. The effectiveness of such strate - gies depends on factors such as the beneficiaries’ cash flow requirements, the level of economic risk and cost they are prepared to assume, as well as broader estate planning objectives. These outcomes can be achieved through vehicles such as trusts, foundations, or other legal entities with discretionary or irrevocable components, as well as real insurance-based structures demonstrating a genuine economic and/or personal purpose – this purpose must be the primary driver of the transac - tion. However, tax risks arise from the tax administra - tion’s authority to apply the general anti-avoidance rule (Rule XVI of the Tax Code) and recharacterise the transaction if its economic substance cannot be sub - stantiated. 1.4 Pre-Immigration and Exit Planning Peru offers pre immigration and exit planning oppor - tunities. The key points are that Peru taxes residents on worldwide income at progressive rates ranging from 8% to 30% and the majority of Peruvian source income is subject to the 5% rate, while non-residents are taxed only on Peruvian-source income at flat rates,
513 CHAMBERS.COM
Powered by FlippingBook