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27 October 2022

Peru enacts regulations on temporary VAT reduction for specific hotels and restaurants

  • Regulations of Law 31556 provides detailed rules and guidelines for taxpayers engaged in activities related to hotels and restaurants to benefit from the reduced Value Added Tax (VAT) rate.

On 13 October 2022, Peru’s President enacted Regulations of Law 31556 (the regulations) for the temporary VAT reduction for specific hotels and restaurants, through Supreme Decree 237-2022.

Background

On 12 August 2022, Peru’s President enacted Law 31556 establishing a reduced VAT rate of 10% (8% VAT rate plus 2% promotion municipal tax) for restaurants and hotels, in comparison with the general VAT rate of 18%. The reduced VAT rate of 10% is effective from 1 September 2022 to 31 December 2024.

To apply for the reduced VAT rate, the taxpayer must meet the following conditions:

  • The taxpayer’s primary business is conducting hotel and restaurant activities.
  • The taxpayer is a part of the micro and small companies’ regime (annual sales of no more than approx. US$2,057,890).
  • At least 70% of the taxpayer’s total income comes from hotel and restaurant activities.
  • The taxpayer must not be part of an economic group.

Supreme Decree 237-2022

The regulations establish detailed rules and guidelines to be met by hotels and restaurants to qualify for the reduced VAT rate of 10%. The main measures are:

Annual sales must not exceed 1,700 Taxable Unit (approx. US$1,979,746) under the micro and small companies’ regime

The annual sales limit is equivalent to the total amount resulting from the sum of the net income registered in the last 12-month VAT returns. The regulations also provide specific rules for calculating the annual net income for taxpayers under reorganization structures or those starting their business activities.

At least 70% of the total income derives from hotel and restaurant activities

In order to calculate the 70% minimum limit, the income from the sale and rendering of services of the hotel and restaurant activities must be divided by the total income obtained by the taxpayer multiplied by 100. The taxpayer will benefit from the VAT reduced rate in the month following the one where the 70% minimum limit is met.

The taxpayer must not be part of an economic group

An economic group is defined as a group of companies, regardless of their business activities, under the control of the same entity or individual. Among others, two or more companies are considered to be economically related when:

  • An individual or legal entity owns more than 30% of the capital of another entity, directly or through a third party.
  • More than 30% of the capital of two or more legal entities belongs to the same individual or legal entity, directly or through a third party.
  • The capital of two or more legal entities belongs more than 30% to the same shareholders.
  • The legal entities have common directors and managers with decision-making power in the financial, operational or commercial agreements.

Supreme Decree 237-2022 is effective on 14 October 2022.

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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

Document ID: 2022-6033

 
 

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