Employment, Immigration And Income Taxes. PwC Peru

Transcription

1 Employment, Immigration And Income Taxes PwC Peru February 2017

2 This document was prepared by PwC Peru to provide information for hiring foreign individuals in Peru, which comprises a general background of Peruvian employment, tax and immigration law and other relevant issues. It reflects regulations and practice as of January This document is not intended to be a comprehensive and exhaustive study of Peruvian regulations, but should be used as a guide for hiring foreign workers, and for foreign individuals to prepare for their assignment in Peru. We should advise you against making any decisions without first seeking professional advice, as laws and interpretations in Peru are still, to some extent, subject to relatively frequent changes without much prior notice. Employment Matters 1. Overview The legal framework applicable for hiring foreign workers comprises the following regulations: Legislative Decree No. 689 Foreign Worker Hiring Act (hereinafter LCPE) Supreme Decree No TR Regulation on contracting Foreign Workers Legislative Decree No Legislative Decree approving several administrative simplification measures (DLSA) Supreme Decree No TR Approves compilation of Legislative Decree No. 728 Labor Productivity and Competitiveness Law (hereinafter LCPL) and subsequent modifications. Legislative Decree No Immigration Law As a general rule, hiring foreign workers is subject to limitations regarding the number of workers and the total amount of their compensation, as compared to domestic workers: General Rule limitative percentages number of workers amount of their compensation The total number of foreign workers cannot exceed 20% of the total number of personnel. The salary of foreign individuals cannot exceed 30% of the total payroll amount.

3 Nevertheless, an employer is entitled to request for an exemption of the limitative percentages under the following scenarios: Exemption for not applying the limitative percentages If the foreign worker is a qualified professional or technical staff. If the foreign worker is to be hired in managing position. If the foreign worker is to provide services as teacher in a foreign college or school, or at a language-teaching institution. If the foreign worker s employer is awarded with a contract with the peruvian government. Other cases determined by a supreme decree. Employment agreements with foreign workers can be signed for a period not exceeding of 3 years, subject to renewal. The labor agreement shall be approved by the Peruvian Labor Ministry. It should be noted that the approval of the labor agreement does not entitle a foreign individual to provide services for Peruvian if the applicable migratory status has not been previously obtained.

4 2. Exemptions Personnel included in the table below are not considered in the limitations for hiring foreign workers, and their labor agreements are not subject to prior approval by the Peruvian Labor Ministry. However, their labor agreement should be informed to the Peruvian Labor Authorities, for information purposes:

5 Foreign Worker Conditions a. Foreigners with Peruvian relatives (spouse, ascendants, descendants and/or siblings). b. Foreigners holding an Immigrant Visa. c. Foreigners whose home country has a reciprocal or double nationality agreement with Peru. d. Personnel of foreign land, air or sea transportation entities, with foreign flag and registration. Exempted e. Foreign personnel working for multinational service organizations or multinational banks, which would be subject to special rules. f. Foreign personnel working in Peru under the provisions of bilateral or multilateral agreements signed with the Peruvian Government. 1 g. Foreign investors, provided it has a permanent investments of no less than 5 Tax Units. h. Artists, athletes and performers acting in a public show, for a maximum period of 3 months per year. As part of section c in the table above, the following cases are included: Exemption Countries Treaty Spain Double Nationality Agreement signed between Peru and Spain A worker whose origin country has a reciprocity or double nationality agreement Bolivia, Ecuador, Colombia Brazil, Chile, Paraguay, Uruguay Andean Community Decision No. 545: Andean Immigration Act ( Instrumento Andino de Migración Laboral ) Mercosur Treaty Argentina Peru Argentina Treaty 1 Tax Unit: a referential amount used for tax purposes (for fiscal year 2017, each tax unit is equivalent to PEN 4,050)

6 Foreigners under the said conditions would be considered as Peruvian workers for labor purposes, and therefore, not subject to the limitations of the LCPE. However, they are not exempted of obtaining the relevant immigration status to reside in Peru. Please find below a summary of foreign worker hiring options and conditions: Countries Regulation Period Type Of Labor Agreement Paperwork Requirements Spain LCPL -Indefinite -Fixed term - Indefinite term agreement - Fixed term agreement In writing, and subject to registration at the Labor Ministry. Bolivia, Ecuador, Colombia Decision 545, R.M. N TR, LPCL -Indefinite -Fixed term - Indefinite term agreement - Fixed term agreement In writing, and subject to registration at the Labor Ministry s systems ( SIVITMA, in Spanish). Argentina, Brazil, Chile, Paraguay, Uruguay LPCL -Indefinite -Fixed term - Indefinite term agreement - Fixed term agreement In writing, and subject to registration at the Labor Ministry. Other Countries LCPE Fixed term, for up to 3 years, renewable - Fixed term agreement In writing, and subject to approval by the Labor Ministry.

7 Immigration Matters The Peruvian Immigration Superintendence (hereinafter, the Immigration Office ), is the authority responsible for enforcing the domestic immigration policies within the scope of its legal competence and under the local regulatory framework and international treaties, stimulating full integration of foreign immigrants into Peruvian society. In other specific cases, the authority in charge to grant certain immigration statuses is the Peruvian Ministry of Foreign Affairs. The newly issued immigration regulations, pursuant to Legislative Decree No Immigration Act, to be effective from March 01, 2017, rules two types of applicable immigration statuses: Temporary and Resident. Immigration Status Status Description Temporary Entitles a foreigner to enter and stay in the country for a period of time not exceeding 1 year. Resident Entitles a foreigner to enter the country and remain as resident in Peru for a period of 1 year, subject to renewal.

8 A. Type of visas Resident visas are granted for a 1 year period, subject to renewal. Once granted, the foreigner will receive a Resident Card, which will be his/her legal ID in Peru. 1. Temporary visas The visa types described in the new Immigration Act that entitle foreign workers to carry out subordinated and/or independent activities, are the following:

9 Denomination Visa Term Directed To Entity Artistic or Sports 90 days Not renewable A foreigner who will carry out paid or profit-making activities relating to artistic, cultural, sports or other similar shows. Immigration Office Special Up until 183 days Entitles a foreigner for one single entry and renewable for one time for the same period of time. 1. International Lecturers in official events. 2. Official delegates in non-profit sports competition. 3. Non-profit or philanthropic artists, athletes and celebrities. 4. Foreigners staying in Peru for the interest of the Peruvian Government. 5. Oher situations not ruled in other immigration statuses. Foreign Affairs Ministry (Cases 1 to 4). Immigration Office (Case 5) Temporary Training / Research 90 days Entitles a foreigner for one single entry and renewable for one time for the same period of time. Training: 1. Foreigners seeking to carry out activities relating to elementary, middle or high education, or other occupations for Institutions recognized by the Peruvian Government. 2. Foreigners that are part of foreign student exchange programs. 3. Pre-professional or Professional internships; and 4. Other training programs recognized in Peru. Immigration Office It does not entitle a foreigner to carry out paid or profitmaking activities, except for those with special permits granted by the Immigration Office. Research: A foreigner with qualified knowledge and expertise in science, technology or innovation affairs, as well as in highly specialized education projects, executed by the Peruvian Science and Technology Authority. It authorizes a foreigner to carry out any income-earning activity, either independently or on a subordinated basis within the public or private sector. Business 183 days in a 365 days period Allows a foreigner to carry out business, legal, commercial or specialized technical assistance activities, among others. Foreign Affairs Ministry Not renewable Immigration Office (at the immigration gates at the airport) Worker/ Assigned Worker 183 days Renewable for the same period of time. Worker: 1. Foreigner who carry out income-earning activities independently or on a subordinated basis for a Peruvian public or private entity. 2. For cross-border workers, benefits applicable will be those stipulated in the relevant international treaties. 3. Employees of a transnational or international corporation deployed to Peru to work for an entity of the same economic group or holding to fulfill management or other related duties or as an expert or a specialist. Immigration Office This visa is granted by prior approval of a labor or service agreement, by the Peruvian Labor Ministry. Assigned worker Allows a foreigner to carry out specific activities on behalf of a foreign entity in Peru, within the frame of a service agreement with a Peruvian entity.

10 2. Resident Visas Resident visas are granted for a 1 year period, subject to renewal. Once granted, the foreigner will receive a Resident Card, which will be his/her legal ID in Peru.

11 Denomination Visa Term Directed To Entity International Cooperation Determined by the Peruvian Government. 1. A foreigner who is recognized as such under the provisions of international agreements and treaties. 2. A foreigner who is recognized as such under governmental and nongovernmental cooperation agreements, as experts or volunteers. 3. Members of International technical cooperation entities registered at the Peruvian International Cooperation Agency ( APCI, in Spanish). 4. A foreigner that enters Peru to carry out social or humanitarian assistance in the event of natural disasters, provided that such status is requested by a foreign government or international organization or by an entity of the Peruvian Disaster Management System. Foreign Affairs Ministry Training 365 days, renewable. 1. Foreigners seeking to carry out activities relating to elementary, middle or high education, or other occupations for Institutions recognized by the Peruvian Government. 2. Foreigners that are part of foreign student exchange programs. 3. Pre-professional or Professional internships; and 4. Other training programs recognized in Peru. Immigration Office It does not entitle a foreigner to carry out paid or profit-making activities, unless prior special work permit is granted by the Immigration Office. Investor 365 days, renewable. A foreigner making or maintaining one or more investments in Peru. The investment amount and conditions will be set in the Immigration Act Rules. Immigration Office Research 365 days, renewable A foreigner with qualified knowledge and expertise in science, technology or innovation affairs, as well as in highly specialized education projects, executed by the Peruvian Science and Technology Authority. Immigration Office It authorizes a foreigner to carry out any income-earning activity, either independently or on a subordinated basis within the public or private sector. Worker / Assigned Worker 365 days, renewable Worker: 1. Foreigner who carry out income-earning activities independently or on a subordinated basis for a Peruvian public or private entity. 2. For cross-border workers, benefits applicable will be those stipulated in the relevant international treaties. 3. Employees of a transnational or international corporation deployed to Peru to work for an entity of the same economic group or holding to fulfill management or other related duties or as an expert or a specialist. Immigration Office This visa is granted by prior approval of a labor or service agreement, by the Peruvian Labor Ministry. Assigned worker Allows a foreigner to carry out specific activities on behalf of a foreign entity in Peru, within the frame of a service agreement with a Peruvian entity. Family Member Up to 2 years. Relatives to a Peruvian citizen or resident foreigner. This status allows a foreigner to carry out profit-making activities on a subordinated or independent basis. Immigration Office International Agreements Under the provisions of international agreements and treaties. 1. Peru Argentina treaty. 2. Mercosur treaty. 3. Other international treaties. Immigration Office. Foreign Affairs Ministry Permanent Residence Visa Does not expire. Allows a resident foreigner to permanently reside in Peru, after 3 years as a legal resident. Immigration Office

12 B. Immigration Process Under laws and regulations currently in force, and provided they are not amended by the Regulations of the new Immigration Act, the immigration process can be executed by one of two ways: (i) to apply for a visa while the foreigner is outside Peru, or (ii) to apply for a visa status change, after entering the country. Foreign Worker Conditions Procedure Condition Visa Application When foreign citizen is outside the country. Visa Status Change When foreign citizen has already entered the country.

13 C. Special Immigration Process Following international treaties currently in force, citizens of Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay and Uruguay can apply for a resident visa in Peru for the Mercosur Treaty, or the Peru Argentina Treaty, accordingly. Under the said Treaties, the Immigration Office shall grant a foreigner a Resident Card for 2 years; additionally, there is the possibility for those foreigners to obtain a Permanent Residence Visa, provided that the application is filed within a 90-day period before the expiration date of the 2 years period. Agreement Requirements First term Second term Peru - Argentina No criminal background in Argentina nor in Peru. 2 years Permanent residence. Legal income source shall be demonstrated. Mercosur No criminal background in its home country nor in Peru. 2 years Permanent residence. Legal income source shall be demonstrated. D. Additional Immigration Obligations Once the relevant migration status is obtained, foreign citizens have the following obligations: 1. For Temporary visas: Apply for extension of migratory status before the visa expiration date. 2. For Resident visas: Pay Annual Foreigner s Tax ( Tasa Anual de Extranjería ), during the first 3 months of each year. Apply for the visa renewal before the expiration date. Resident visas are subject to cancellation in case the foreigner stays abroad for more than 183 consecutive days, in a 365 days period. Permanent residence visas are subject to cancellation if the foreigner stays abroad for more than 365 consecutive days. Special authorizations can be obtained by the Immigration Office to remain abroad for longer periods without affecting the residence status, for specific and documented cases.

14 Income Tax Matters General remarks Foreign individuals will be subject to taxation depending on their status as domiciled or nondomiciled. Such condition affects the rates and the basis on which income tax is calculated. Non-domiciled individuals are subject to taxation on their Peru source income only, while domiciled individuals are taxed on their worldwide source income, however foreign tax credits are allowed for domiciled individuals, provided that some conditions are met and subject to a limit. Domiciled status In order to obtain the domiciled status for tax purposes, a foreign individual should remain in Peru for a period longer than 183 days within any given 12 month period. This change becomes effective only as from January 1st of the following year. Employment income categories, filing and tax rates According to the Peruvian income tax law, (hereinafter, PITL), income derived from: (i) self-employment or fourth category income (independent professional services, including fees paid to members of a local board of directors) and, (ii) income earned from dependent work or fifth category income, are considered as workderived income. The following chart includes the tax treatment for each category income, whether the employee qualifies as domiciled or non-domiciled:

15 Work-derived income Taxpayer status Filing and tax rates Non domiciled Monthly tax withholdings made by the employer at a 30% rate over 80% of Peru source income (effective tax rate: 24%). No filing obligation arises for the employee. Forth category income (independent income) Domiciled Withholdings made by the user at a 10% tax rate will be considered as a payment in advance. The total income should be reported on an annual tax return by the taxpayer, and is subject after deductions, to progressive rates (8%, 14%, 17%, 20% and 30%, see scales below). A 20% deduction could be applied over the total income, however it must not exceed 24 tax units (this deduction is not applicable for members of a board of directors). In addition, our PITL allows a 7 tax units deduction for both fourth and fifth category income. Fifth category income (dependent income) Non domiciled Domiciled Monthly tax withholdings made by the employer at a 30% flat rate over the Peru source income. No filing obligation arises for the employee. Monthly tax withholdings made by the employer considering a compensation on an annual basis and applying a general deduction of 7 tax units, and the following progressive scale tax rates: Up to 5 tax units: 8% Between 5 tax units and 20 tax units: 14% Between 20 tax units and 35 tax units: a17% Between 35 tax units and 45 tax units: 20% Over 45 tax units: 30% A year-end tax return can be filed with the employer for any discrepancies between amounts withheld and actual tax liability. The employer will either collect additional tax or pay back amounts withheld in excess. As from January 1st 2017 employee may deduct 3 additional tax units regarding personal expenses (mortgage interests, rental expenses, professional fees, among others). Professional advice should be sought before deduct actual expenses since various conditions must be met to ensure deductibility and the reimbursement from the Tax Authority.

16 Compensation paid through payroll Employees included on a local payroll (whether they qualify as domiciled or non-domiciled) are granted with determined labour benefits such as the right to receive two legal bonuses per year (National Holidays and Christmas), severance payment ( Compensación por Tiempo de Servicios ), profit sharing, and thirty days of paid vacations, among others. In order to calculate such benefits, all the earnings deemed as compensation must be taken into account. Regarding social contributions, employers shall make monthly payments equal to 9% of the retribution paid to employees for the Public Health System (ESSALUD). Additionally, employers shall apply monthly withholdings for pension funds contributions around 13% of the retribution received by the employer for the mandatoray pension fund. It could be partially recovered (including the generated profit) at the end of the assignment. Fringe benefits The following benefits are exempt from income tax for non-domiciled employees, provided that their employment agreement indicates that those amounts will be covered by the employer: Airfares to/from Peru at the beginning and at the end of the employment agreement; Food and accommodation expenses during the first three months of the assignment; Transportation of households expenses at the beginning and at the end of the employment agreement; Airfares to their home country for vacations.

17 Compensation paid by a foreign employer would be subject to taxation in Peru proportionally to the days spent in Peru. If effective work is carried out within Peruvian territory, a taxable obligation will arise regardless the migratory status obtained to enter the country: tourist, business visa, among others.

18 Business visa trips Home country compensation obtained by a non-domiciled individual who enters Peru temporarily, will not be subject to taxation in Peru, as long as the individual performs the following activities: Preliminary arrangements for foreign investments or any kind of business. Supervision or control of investments or business, such us: data collection, meeting with members of the private or public sector. Hiring local personnel. Acts related to the signing of agreements or any other similar event.

19 Tax treaties to avoid double taxation There are circumstances in which a non-domiciled individual could be entitle to the benefits of a tax treaty to avoid double taxation. This will depend on his/her tax residency in a country with whom Peru has a tax treaty signed. Currently, Peru has in force the following tax treaties: 1. Canada 2. Chile 3. Brazil 4. Switzerland 5. Mexico 6. South Korea 7. Portugal 8. Andean Community Nations: Ecuador, Colombia y Bolivia

20 Contacts Rudolf Röder Partner (511) Anexo 8048 Percy Alache Director, Labor Relations (511) Anexo 8051 Carlos Fernandez Senior Manager, Immigration and Corporate Legal (511) Anexo 8036 Mariana Altamirano Manager, Global Mobility Services (511) Anexo 8055 PricewaterhouseCoopers Santo Toribio 143, Piso 8 San Isidro, Lima, Peru (511) PwC Perú 2017 PwC. All rights reserved.