Peru: Some tax considerations when investing in companies in Peru

by | May 16, 2022 | News

by Jorge Luis Otoya Cabrera, Principal Partner, Estudio Muñiz, Olaya, Meléndez, Castro, Ono & Herrera

Peru became, years ago, one of the first places to think about when seeking to invest in Latin America. A sound legal system, modeled around the 1993 Constitution, alongside some mechanisms aimed at guaranteeing legal stability to investors (e.g., the so-called legal stability agreements) and a simplified tax system built around four nationwide taxes, made Peru to stand out among the rest of the countries of the region.

However, the last decade brought about changes on these policies which, although implemented with the goal of bringing on equality, have performed otherwise: they have affected the simplicity which one day characterized our tax system, and have made harder to have certainty on the tax effects of transactions relating to investments in Peru, specially, when investing in companies, and to divestments.

This article is aimed at describing, in a nutshell, certain aspects that a foreign counsel needs to look into when advising a non-Peruvian client in connection with its investment into a Peruvian company and with a later disposal of that investment.

What needs be taken care of when investing in a Peruvian company?

Whether the investment is made by means of a contribution or by the acquisition of shares, the first thing to take care of is that Peruvian law requires that all payments for assets the future transfer of which may generate a taxable capital gain must be channeled through the Peruvian financial system.

While this can be seen to be logical when we speak of, say, a contribution into a Peruvian company, the same condition is required in cases of acquisition of shares, where it might well happen that neither seller nor buyer has a bank account opened in Peru. To deal with this obstacle, it is usual for legal advisors to this type of transactions to recommend that any payments be channeled through the account of any Peruvian entity, as per special instructions drafted for the occasion, or that of an escrow agent (usually, a local bank), hired to allow parties to fulfill this requirement.

Note that if the investment is not channeled through the Peruvian financial system, the investor will not be entitled to a tax basis in a future disposal of the participation acquired in the Peruvian company. This rules completely out the possibility of making good of the price agreed upon for the acquisition of shares of Peruvian entities by means of schemes that prescind from the use of Peruvian banks, such as, for instance, paying into a foreign account, etc.

And what needs be paid attention to when a foreign investor disposes of an investment in Peru?


  • Capital gains tax on direct transfer:

Any gain resulting from the direct transfer of shares of Peruvian entities is deemed to be sourced in Peru and levied with the income tax. For foreign investors, the applicable rate is 30%, unless the transfer is effected through the Lima Stock Exchange, in which case it is 5% (or 0%, in certain cases).

For these purposes, the taxable gain is equal to the difference of (i) the higher of the price agreed upon by the parties, and the fair market value, and (ii) the tax basis recognized by the Peruvian Tax Administration.

To this end, “fair market value” means, in a transaction between unrelated parties, the equity value of the disposed participation, which is the amount resulting from dividing the equity (net worth) value as per the last annual statement of financial situation, by the number of shares issued by the company. In turn, in a transaction between related parties or where one of the parties domiciles in a country regarded as non-cooperative or of null or low taxation, the fair market value is that determined pursuant to the local transfer pricing rules, per which, most of times, that value needs be determined based upon a future cash flow methodology.

On the other hand, the tax basis is, plainly speaking, the price paid by the shares subject matter of the transfer, as recognized by the Peruvian Tax Authority following a proceeding, named as “recuperación de capital invertido”, in which evidence of the composition of the tax basis needs be submitted before that entity for the issuance of a certification stating a basis in Peruvian currency. Getting that certificate implies to go through a somehow formalistic proceeding, which may take up to 30 business days for completion.

  • Capital gains tax on indirect transfer

Starting 2012, Peru taxes the gains resulting from certain transfer of shares of foreign entities which meet some criteria to qualify as “indirect transfer of shares of Peruvian companies”.

While the rules are somewhat complex, we must highlight the following situations as being the most representative (and common) ones of an indirect transfer subject to tax in Peru:

  1. The transfer of 10% or more of the shares issued by a foreign entity, carried out by a person or its affiliates in a 12-month period (either the preceding or the subsequent ones), if more than 50% of the value of those shares derived from that of the shares of underlying Peruvian entities.
  2. The transfer of shares of a foreign entity implying that of the shares of an underlying Peruvian entity or entities whose fair market value (on a standalone or combined basis) is equal or higher to 40,000 tax units. The value of a Tax Unit is set on a yearly basis by the government, and is currently set in PEN 4,600 (USD 1,240 approx.)

In order to determine the portion of the price of the shares of the foreign entity levied with capital gains tax in Peru, our law contains a set of different rules which deal with the calculation of the fair market value of both the foreign entity and the Peruvian one, and with how the basis of the foreign shares can be allocated to the determination of the Peruvian capital gains tax.

Interestingly, like in the case of direct transfers, Peruvian law requires sellers to get recognition from the local Tax Authority on the basis of the shares subject matter of the transfer (i.e., those of the foreign entity which are directly disposed of), prior to the payment of the price to the seller. What is quite unreasonable is that, recently, the Tax Authority issued a ruling extending to this type of transactions the application of the requirement that any payment must be channeled through the Peruvian financial system to entitle to a tax basis. Per that ruling, no basis will be recognized to the shares of the foreign entity directly disposed of if the payment for those shares was not channeled through the Peruvian financial system.

Putting this in plain words and with an example, the reasoning of the Tax Authority implies that if someone is selling the shares of a foreign company, even a multinational one, which has a remote subsidiary in Peru worth more than 40,000 Tax Units, that person will need to evidence that when it acquired the shares of the foreign entity, all of the purchase price went through the Peruvian financial system. Illogical, to say the least. While on March 3 a law has been passed to deal with payments for acquisition of shares occurring since April 2022, this does not solve the problem originated by the issuance of the ruling in respect of shares acquired through the end of March 2022.

Though there are currently objections to this ruling, as, in our opinion, it goes beyond the scope of the law, the current request of the fulfillment of this condition by the Tax Authority is sometimes hindering and other times notably affecting the carrying out of this type of transactions in respect of Peruvian entities. In essence, the request imposed by this ruling of the Tax Authority equates as if Peru has jurisdiction over all of the countries of the globe, which is, to say the least, unrealistic, not to say illegal from any viewpoint.

Are transfers occurring due to an internal restructuring levied with tax in Peru?

Oftentimes, we are called at the latest hour to be talked about the case of a client in the middle of a regional restructuring implying the reallocation of the shares of a Peruvian subsidiary to a different vehicle inside the group. That reallocation may happen due to a merger, a spin-off, a simple sale and purchase agreement, etc. In most of the in-counsel minds, any corporate restructuring should not lead to the payment of taxes, as it does not seek for the obtainment of a profit.

It happens, nevertheless, that Peruvian law subjects any transfer to the rules of the Peruvian income tax law, and per section 32 of that law, any transfer is deemed to have been carried out at the fair market value, no matter what the purpose or interest of the parties was, or even that, in essence, we may be facing a transaction with no economic value at all, as it is usually the case with corporate reorganizations. And as happens with any transfer, the tax basis of the shares being transferred needs be obtained from the Peruvian Tax Authority prior to, in this case, consummating the transfer.

Other aspect that we have been frequently witnesses of in these situations is that the Peruvian Tax Authority has been “picky” when reviewing the fair market value considered for the calculation of the capital gains tax arising out of this type of transfers. Even when they are aware that there is no purpose of getting a profit behind the carrying out of transfers on this kind of situations, the Peruvian Tax Authority has oftentimes challenged the fair marked value ascribed by the parties, and the situation has ended up on appeal before the administrative courts.

Photo by Hunters Race on Unsplash


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