May 26, 2021
Peruvian Tax Authority establishes guidelines for application of new thin capitalization rules
The new guidelines clarify when the deduction for interest expenses will be limited and how the new thin capitalization rules apply to recently incorporated companies and companies in the preoperative stages.
The Peruvian Tax Authority established guidelines (Ruling 015-2021-SUNAT/7T0000) for the application of the new thin capitalization rules for companies with interest expenses during their preoperative stage or companies that recently incorporated.
The new thin capitalization rules, effective since 1 January 2021, limit the “net interest” deduction for corporate income tax purposes to the extent the “net interest” exceeds 30% of EBITDA (i.e., net income after offsetting losses plus net interest, depreciation and amortization) of the previous year. “Net interest” is the difference between interest expense and interest income in a tax year.
The limitation does not apply to companies with net income equal to or less than 2500 Tax units (approx. US$3 million). Companies incorporated during the same tax year will consider the EBITDA for that year.
Additionally, Peruvian Income Tax Law allows expenses and interest accrued during the preoperative stage to be deducted in the first year of operation or amortized proportionally over a maximum period of 10 years, beginning with the first year of operation.
Peruvian tax authority Ruling 015-2021-SUNAT/7T0000
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 Abogados, Latin America Business Center, Madrid
Ernst & Young LLP (United Kingdom), Latin American Business Center, London
Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific