Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

December 13, 2019
2019-6583

Peru issues regulations on indirect foreign tax credit

On 10 December 2019, Peru’s Minister of Economics issued Supreme Decree 369-2019-EF, which includes regulations on the indirect foreign tax credit. The Supreme Decree is effective 1 January 2020.

Background

On 1 January 2019, Peru amended its Income Tax Law to include an indirect foreign tax credit. Therefore, a Peruvian entity receiving foreign income as dividends or profits from nonresident entities may deduct:

  • The income tax withheld from the dividends or profits distributed (direct credit)
  • The income tax paid by the first-tier nonresident entity (i.e., the entity in which the Peruvian entity is a direct shareholder) and the second-tier nonresident entity (i.e., the entity directly owned by the first-tier entity) (indirect credit), provided certain conditions are met

To qualify for the indirect foreign tax credit, the Peruvian entity must directly or indirectly own 10% of the shares of the first-tier nonresident entity or second-tier nonresident entity for 12 months before the date in which the dividends are paid. The second-tier nonresident entity must be a resident of a country that has an exchange of information agreement with Peru or is a resident of the same country as the first-tier nonresident entity.

Supreme Decree 369-2019-EF

Dividends paid abroad

Supreme Decree 369-2019-EF establishes that dividends distributed by the first-tier nonresident entity may be in cash or in kind, including the distribution of reserves and advance dividend payments. Dividends are considered distributed when they have been paid or when they have been made available to the Peruvian entity.

How to determine ownership percentage

To determine the direct or indirect 10% ownership of the first-tier nonresident entity or the second-tier nonresident entity, the Peruvian entity must include the underlying shares of American Depositary Receipts and Global Depositary Receipts in its calculation.

To establish the Peruvian entity’s indirect ownership percentage in the second-tier nonresident entity, the Peruvian entity’s ownership percentage in the first-tier nonresident entity must be multiplied by the Peruvian entity’s ownership percentage in the second-tier nonresident entity.

Available information

The Peruvian entity must keep the following information in case it is requested by the Peruvian Tax Authority:

  • Evidence of its ownership in the first-tier nonresident entity and the second-tier nonresident entity and the percentage of ownership (documents issued in a foreign language must be translated into Spanish)
  • Evidence of the dividends or profits distribution made by the first-tier and second-tier nonresident entities, including the dividend distribution agreement and the payment either to the first-tier nonresident entity and/or the Peruvian entity through a bank, or other documents that show the distribution when the dividends are in kind

The Peruvian entity must report this information through a registry established by the Peruvian Tax Authority. The Peruvian entity should only include dividends or profits that it obtains from 1 January 2019 and thereafter.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Asesores S.C.R.L, Lima
Ernst & Young LLP (United States), Latin American Business Center, New York
Ernst & Young LLP (United Kingdom), Latin American Business Center, London
Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific

ATTACHMENT

 
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 2024, Ernst & Young LLP.

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

 

"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

 

Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.

 


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or ey.com. Please refer to the privacy notice/policy on these sites for more information.


Yes, I accept         Find out more