Payroll taxation is a critical aspect of understanding the tax structure a country follows. In the case of Peru, the rules apply differently to domestic companies and foreign companies looking forward to expanding their business operations and the Peruvian market.
This article deals with the details concerning payroll taxes in Peru and what Global employers must know about it. If you are interested to know more about it, stay with us till the end of the discussion!
Fundamental taxation rules in Peru
Every country has its taxation system in place, and it belongs to every category, including individuals, corporations, and other applicable parties. For a foreign company looking forward to expanding its business in Peru, the same taxation rules apply to any other corporate entity. However, employers must contribute towards multiple contributions constituting up to 9% of their payroll to the National Health System. If they choose to offer additional health plans to their employees, they can also get credit for that part by showing that as an expense.
- Employers must also contribute up to 11.5% of their total gross salary towards these contributions. These operate as an alliance of private entities responsible for managing pension funds for retirement funeral costs and disability pensions.
- If any foreign company operates in an industry that deals in a business where the employees and workers are prone to such risks, the employers are required to provide supplementary insurance.
Peru follows a progressive text scale where the personal income tax rate changes from 8 % to 30% as per the latest amendments. However, the tax rates keep changing every year, which requires the companies to stay up to date with these changes. Non-residents in the company working as a workforce are liable to pay personal income tax at a rate of 30% while the category difference for individuals and corporations belonging to other classes.
Social security contributions
Security contributions are mandatory payments employers are obligated to pay to the respective government to receive a contingent future social benefit for their employees or organization. Most of the cases include unemployment insurance benefits, survivors’ pension fund, family allowance, reimbursements for medical aid, and additional hospital expenses in case of emergencies. The social security contributions may be levied on both employers and employees. These payments are usually to provide for financial social benefits.
Pension Fund contributions
Under the Pension Fund contribution, employers are expected to apply monthly withholdings for the Pension Fund up to 30% of the total compensation to be received by the employee. It is applicable only in the cases where the employees are affiliated with the national pension system. In addition to this, a rate of 12.5% applies if the employee is affiliated with the private pension system. In this case, the rate will stand at 10% corresponding to their pension account and up to 2.5 % of the insurance in commissions to manage the fund.
Employers in Peru are obligated to contribute towards monthly health contributions. Currently, the rate stands at payments equal to 9% of the gross compensation being paid to the employee. However, it is always advised that employees must go for affiliation with either the National Health System or Private Health system on a safer side. Employers can also use up to 25% of the total amount paid to the Private Health system to use as a credit against the National Health system.
Value-added taxes for corporate stands at a General rate of 18%, including 60% for the value-added tax itself and 2% for municipal promotion tax). These rules for value-added tax are applied to the following operational categories –
- Selling of goods within the country
- Providing Services within the country
- General construction contracts
- Constructors making the first sale of the real estate properties
- Import of goods
The vendor is subject to value-added tax for all transactions except for the Import of goods or services from abroad but using them within Peru’s domestic territory. In this case, the value-added tax is self-assessed by the importers and their users. The framework for value-added taxes uses the debit-credit system. In this case, the input value-added taxes can be offset and adjusted accordingly against the output, and any access can be adjusted accordingly.
Traders and business entities must also know that the export of movable goods is not subject to value-added taxes. It includes the sale of goods falling into the category of an international zone of sports and airports. Therefore, this tax is paid only for the acquisition of goods, rendering of services, construction agreements, and import of goods.
Real estate property tax
The real estate property tax in Peru applies to the total value of rural and urban real estate property. Both corporate entities and individuals owning a specific amount of real estate properties fall into the category of taxpayers for the real estate property tax. The taxable base for this category is calculated based on the value of all properties owned by an entity in a given local district depending on the corresponding internal records of the respective local authorities.
The tax rate stands at 0.2 % for Real estate values up to 15 tax units. For more than 15 tax units but less than 60 tax units, the rate stands at 0.6%. The third and last category covers more than 60 tax units where the real estate property tax rate stands at 1%.
While planning a Business expansion into a market like Peru, or any other country, it is necessary to know the basics of payroll taxes. It is not just necessary from an operational perspective, but also to look for better growth and a prosperous future for your business in a new market.
To make the expansion process hassle-free and easy, getting the right and timely assistance from Payroll and Employer of record in Peru can make your journey seamless. So, if you are considering a business expansion into Peru, we would highly suggest you go for it with the right guidance!