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July 13, 2023 Peru replaces LIBOR with SOFR for WHT purposes on interest paid to nonresidents
On 29 June 2023, Peruvian government enacted Supreme Decree 137-2023, establishing the use of the Secured Overnight Financing Rate (SOFR) in place of the London Interbank Offered Rate (LIBOR) for calculating the threshold to apply the reduced 4.99% withholding tax (WHT) rate on interest paid to nonresidents. Background According to Peruvian Income Tax Legislation (Law and Regulations), interest paid to nonresidents is generally subject to WHT at a rate of 30%; however, the rate is reduced to 4.99% if the following conditions are met:
With the pending "retirement" of LIBOR, it was unclear which rate should apply for determining the threshold for utilizing the reduced 4.99% WHT rate. Supreme Decree 173-2023 On 29 June 2023, Supreme Decree 173-2023 was enacted, amending the Peruvian Income Tax Regulations and replacing LIBOR with the SOFR 30-day average. Therefore, for purposes of applying the reduced WHT rate of 4.99% for interest, the interest rate may not exceed the SOFR 30-day average rate plus seven points. Supreme Decree 173-2023 is in force as of 30 June 2023. ——————————————— For additional information with respect to this Alert, please contact the following: Ernst & Young Asesores Empresariales 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
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor | |||