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Hiring in Peru

Peru, officially known as the Republic of Peru, is a country in South America. Lima is the capital and the largest city of Peru. Spanish is the official language and Sol (PEN) is the official currency. Peru has an upper middle income economy. Services are the largest sector of the economy, whereby they make up more than 50% of Peru’s GDP. Peru’s main trading partners are China, US Canada, and South Korea. Global PEO or Employer of Record (EOR) play a pivotal role in providing companies with services related to hiring employees, and ensuring compliance with Peru’s legal and tax regulations. Labor Code stipulates that employees are entitled to 30 days of annual leave. Residents are taxed on their worldwide income. Nonresidents are taxed on their Peruvian source income only. Global PEO’s or Employer of Record (EOR) facilitate companies by ensuring compliance with Peru’s Labor Code and tax laws.

statutory labor requirements

Probation Period

  • According to law, the standard probationary period is three months. 
  • However, if the duties require a special period of training or the employee has a trustworthy position, the parties could agree to extend the probationary period up to six months, or up to one year if the employee has a managerial position.

Annual Leave

  • Employees in the private sector are entitled to receive 30 paid time-off days per year (calendar days rather than working days).

Public Holidays

  1. New Year's Day (1st January)
  2. Maundy Thursday (9th April)
  3. Good Friday (10th April)
  4. Easter Sunday (12th April)
  5. Labor Day (1st May)
  6. Feast of Saints Peter and Paul (29th June)
  7. Peru Independence Day (28th July)
  8. Great Military Parade of Peru (29th July)
  9. Feast of Saint Rose of Lima (30th August)
  10. Angamos Battle Celebration (8th October)
  11. Reformation Day (31st October)
  12. All Saints' Day (1st November)
  13. Feast of the Immaculate Conception (8th December)
  14. Christmas Day (25th December)

Maternity Leave

  • Female employees are generally entitled to 14 weeks of paid maternity leave, seven to be taken before the birth and seven after.

Paternity Leave

  • Fathers are entitled to 10 consecutive days of paid paternity leave.

Sick Leave

  • Employees are generally entitled to at least five days of paid sick leave annually.

Work Hours

  • The standard workweek is eight hours per day with a maximum of 48 hours per week.

Overtime

  • The first two hours of overtime must be at least 25% of the employee’s total remuneration. For every hour afterward, the surcharge cannot be less than 35% an hour.
  • The amount of overtime hours an employee can work is unlimited

Notice Period

  • In general, employees should get at least six calendar days of written notice so that the employee can respond in writing with a defense, or 30 calendar days to prove his/her capability.

Severance

  • An employee terminated with cause is not entitled to severance pay.
  • Employees dismissed without cause are generally entitled to severance pay for up to 12 months.

13th / 14th Month Pay

  • Yes (Mandatory)
  • There is a statutory requirement to pay the 13th and 14th month.
  • The 13th month is paid in December and the 14th month in June.

income tax

  • Individuals resident in Peru are taxed on their worldwide income. Nonresidents are taxed on their Peruvian source income only.
  • In general, remaining more than 183 days in Peru results in residency and remaining 183 days abroad loses it.
  • Tax is imposed on all remuneration received by an employee in the form of salaries, bonuses, living and housing allowances, tax reimbursements, benefits in kind and any other fringe benefits.
  • Salaries and remuneration received by nonresidents for services provided in Peru are taxed at a flat rate of 30%.
  • For resident employees, the tax rates are applied on a progressive scale expressed in ATUs, as set forth in the table below. 
  • ATUs are established by the government at the beginning of each year. 
  • For 2019, one ATU equals PEN4,200 (approximately USD1,272). 
  • The following are the tax rates.

Taxable income

Rate on Excess

Exceeding (ATU)

Not Exceeding (ATU)

0

5

8

5

20

14

20

35

17

35

40

20

45

-

30

deductible expenses

  • Individuals receiving business income may deduct expenses incurred to earn the income or maintain the source of income.
  • Individuals earning employment and self-employment income may deduct from taxable income the first PEN29,400 of income earned, which is equivalent to 7 ATUs without proof of expenses.
  • It is possible to deduct up to 3 additional ATUs, based on actual expenses related to housing rental, health care, professional services, social security of housemaids and amounts paid for accommodation in hotels and consumption in restaurants, subject to specific requirements and limits for each type of expense. 
  • In addition, individuals earning employment or self-employment income may deduct donations to public agencies and nonprofit organizations that are certified by the Ministry of Economy and that are dedicated to educational, social welfare and other similar activities. 
  • Donations made by taxpayers as sports sponsors to sports beneficiaries, such as athletes, are deductible if the activity sponsored is authorized by the Peruvian Institute of Sport. 
  • If a location is declared to be in a state of emergency as a result of a natural disaster, donations made to help the population of such location during the state of emergency can also be deducted. 
  • The total donation deduction may not exceed 10% of net employment income or net self-employment income.

Deductible Expenses

Personal Allowance

  • Individuals earning employment and self-employment income may deduct from taxable income the first PEN29,400 of income earned, which is equivalent to 7 ATUs without proof of expenses

Personal Deductions

  • It is possible to deduct up to 3 additional ATUs, based on actual expenses related to housing rental, health care, professional services, social security of housemaids and amounts paid for accommodation in hotels and consumption in restaurants, subject to specific requirements and limits for each type of expense. 

Donations (Personal Deduction)

  • In addition, individuals earning employment or self-employment income may deduct donations to public agencies and nonprofit organizations that are certified by the Ministry of Economy and that are dedicated to educational, social welfare and other similar activities. 
  • Donations made by taxpayers as sports sponsors to sports beneficiaries, such as athletes, are deductible if the activity sponsored is authorized by the Peruvian Institute of Sport. 
  • If a location is declared to be in a state of emergency as a result of a natural disaster, donations made to help the population of such location during the state of emergency can also be deducted. 
  • The total donation deduction may not exceed 10% of net employment income or net self-employment income.

immigration

  • Domestic and foreign companies established in Peru may employ foreign nationals up to a maximum of 20% of the total personnel of a company. 
  • Salaries paid to foreign nationals may not exceed 30% of the total payroll.
  • Specialists or management personnel of a new industry may be exempt from these limits, among others.
  • The following individuals are not considered foreign nationals for purposes of hiring foreign personnel: 
    • Foreigners with Peruvian spouses, ascendants, descendants or siblings
    • Foreigners who have immigrant visas 
    • Foreigners whose country of origin has a treaty of labor reciprocity or a treaty of double nationality with Peru 
    • Personnel from foreign transport enterprises that operate under a foreign flag 
    • Personnel from foreign enterprises or multinational banks that have a special regulation 
    • Foreign personnel under bilateral or multilateral agreements honored by the Peruvian government who render services in the country 
    • Foreign investors, regardless of whether they have waived the right to repatriate capital investments or profits, if an investment of no less than PEN500,000 (approximately USD156,000) is maintained throughout the term of their contracts 
    • Artists, athletes and, in general, those who work in public events in the country for a maximum of three months during a calendar year
  • Documents that must be submitted to obtain a work visa include the following: 
    • An application addressed to the Ministry of Labor 
    • Affidavit of limiting percentages subscribed by the employer, attesting that the employment agreement complies with the limits set under the law for hiring foreign personnel (other documents may apply with respect to employees exempt from these limits)
    • Employment agreement with all of the mandatory clauses for a term of one year or more (limit of three years)
    • Affidavit stating that the expatriate is qualified to perform the service; a copy of his or her professional degree, technical study or work certificates must be in his or her personal file 
    • Copy of the passport or the foreign card (the passport must have a minimum validity of six months at the moment of the visa application) 
    • Copy of the company’s tax registration 
    • Receipt for payment 
    • Document issued by the Peruvian Public Registry proving that the Peruvian legal representative of the company is authorized to submit work contracts
  • This visa can be granted as a temporary or resident visa, depending on the term of the work contract with the Peruvian company.
  • The Peruvian immigration office approves resident work visas in approximately 60 working days. 
  • This visa can be granted temporary or resident and can be renewed. 
  • Temporary visas have a maximum duration of one year, while resident visas can be renewed annually with no limit.
  • Foreign nationals holding the following visa status may receive residence visas: 
    • Employees who have a work contract with a Peruvian entity for a term of one to three years and foreign nationals who enter Peru to carry out activities related to their own profession may obtain a work visa. 
      • This visa can be granted for one year and is renewable annually for up to one year. 
    • Foreign nationals who are sent to work in Peru by their foreign company employers to perform agreed services may obtain an assignment work visa. 
      • The service agreement and assignment letter must be for one year. 
      • This visa can be granted for one year and is renewable for up to one year. 
  • Diplomatic, consular and official visa holders may obtain residence visas valid for a specific period established by the Ministry of Foreign Affairs. 
  • Religious, student and work visa holders may obtain residence visas valid for up to one year, which are renewable. 
    • In these cases, a document that supports the residence must exist. 
    • For example, for work visas, a work contract for a period of one year is required for an employee. 
    • If the term of the contract is less than one year, a temporary visa applies. 
  • Immigrants (now called permanent residents) may obtain residence visas with an undetermined time period.

Type of Visa/ Permit

Documentation

Validity

Eligibility

Temporary Worker Visa

  • Application form
  • Affidavit of limiting percentages subscribed by the employer, attesting that the employment agreement complies with the limits set under the law for hiring foreign personnel 
  • Employment agreement
  • Affidavit stating that the expatriate is qualified to perform the service; a copy of his or her professional degree, technical study or work certificates must be in his or her personal file 
  • Copy of the passport or the foreign card 
  • Copy of the company’s tax registration
  • Receipt for payment 
  • Document issued by the Peruvian Public Registry proving that the Peruvian legal representative of the company is authorized to submit work contracts

1 year maximum

For short-term assignments (1 or 2 months), for example, "technical activities," it is mandatory to obtain a temporary worker visa or temporary appointed worker visa, depending on the type of activities that the foreign citizen will perform in Peru

Resident Visa

  • Application form
  • Affidavit of limiting percentages subscribed by the employer, attesting that the employment agreement complies with the limits set under the law for hiring foreign personnel 
  • Employment agreement
  • Affidavit stating that the expatriate is qualified to perform the service; a copy of his or her professional degree, technical study or work certificates must be in his or her personal file 
  • Copy of the passport or the foreign card 
  • Copy of the company’s tax registration
  • Receipt for payment 
  • Document issued by the Peruvian Public Registry proving that the Peruvian legal representative of the company is authorized to submit work contracts

1 year (can be renewed annually)

Employees who have a work contract with a Peruvian entity for a term of one to three years and foreign nationals who enter Peru to carry out activities related to their own profession may obtain a work visa.

 value added tax

  • The standard VAT rate for Peru is 18%, which is made up of 16% VAT plus a municipal tax (Impuesto de Promoción Municipal) of 2%. Exports are subject to a nil VAT rate.
  • Exempt supplies include: agriculture; education; basic foodstuffs; low-value new residential buildings; financial services; public transport; public post; international freight transport; livestock; gambling; and live events.
  • Certain supplies are liable to withholding VAT, ‘SPOT’, of 4%, 10% or 12%.

VAT

Standard Rate

18%

Exempt Rate

0%

 

withholding tax

Dividends

  • Dividends paid to a nonresident entity or to an individual (whether or not resident) are subject to a 5% withholding tax. 
  • The 5% rate is applicable only to dividend distributions of profits earned on or after 1st January 2017. 
  • Dividend distributions of profits earned before 1st January 2015 are subject to a 4.1% withholding tax, and dividend distributions of profits earned from 1st January 2015 until 31st December 2016 are subject to a 6.8% withholding tax

Interest

  • Interest payments made to a nonresident unrelated party that satisfies certain requirement are subject to a 4.99% withholding tax. Otherwise the rate is 30%.

Royalties

  • Royalties paid by a Peruvian resident are considered Peruvian source income and are subject to a 30% withholding tax

Technical Service Fees

  • Fees that qualify as fees for technical assistance are subject to a 15% withholding tax, regardless of whether the services are provided in Peru. 

Branch Remittance Tax

  • The remittance of net profits abroad is subject to a 5% withholding tax.

WHT

Dividends

5% (profits earned on or after 1st January 2017);
4.1% (profits earned before 1st January 2015);
6.8% (profits earned after 1st January 2015);

Interest

4.99% (Interest payments made to a nonresident unrelated party)
30% (otherwise)

Royalties

30%

Technical Service Fees

15%

Branch Remittance Tax

5%

termination

Peru's labor laws provide several reasons for which an employer may terminate an employment contract on objective grounds, including:  

    • the employee's resignation with thirty days' notice
    • the completion of the task or service
    • the satisfaction of a condition leading to the termination of the contract
    • the expiration of the contract's termination
    • mutual agreement; a worker's permanent total disability
    • the termination of employment on objective grounds, such as an unforeseen event (ex: a natural disaster or an employer's bankruptcy). 
  • A worker whose employment is terminated for objective grounds is entitled to:  1) compensation based upon his or her length of service; and 2) preference for reinstatement.

statutory benefits

  • These are mandatory benefits as postulated by law
  • These include probationary period, annual leave, public holidays, maternity leave, paternity leave, sick leave, overtime pay, notice period, severance pay, 13th month pay
  • Statutory benefits also include social security benefits

Statutory Benefits

Probationary Period

Annual Leave

Public Holidays

Maternity Leave

Paternity Leave

Sick Leave

Overtime Pay

Notice Period

Severance Pay

13th Month Pay

Social Security Contributions

 

 payments and invoicing

  • Employers must withhold income tax monthly from salaries of employees. 
  • An 8% tax must also be withheld on fees paid for independent professional services that are provided to legal entities as payment toward the professional’s annual income tax. 
  • Such professionals may avoid withholding up to PEN36,750 if they foresee that their incomes will not be higher than this amount. 
  • The tax year is the calendar year. 
  • Individual tax returns must be filed with the tax office usually in late March or by early April, and any balance due must be paid at that time. 
  • Only tax residents are subject to tax return filing obligations. 
  • Married persons are taxed separately. 
  • However, for income derived from properties held in common, they may elect to be taxed jointly.
  •  Individuals earning only employment income are not required to file tax returns, unless they want to apply the additional deduction of expenses up to 3 ATUs.

ease of doing business

  • The ease of doing business index is an index created by Simeon Djankov, an economist at the Central and Eastern Europe sector of the World Bank Group.
  • Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
  • According to the World Bank Peru ranked 76th in the World in 2019 in terms of ease of doing business

 employee accruals

   
Christmas Bonus%

Based on one month bonus (paid in December)
8.33%

Christmas Bonus Over Vacations %

For employees with children under 18 or children over 18 in higher ed, are entitled to 10% of monthly pay.
10%

Severance per Year %

Employees are entitled to severance pay that equals one and a half months pay after one year of service (12.5% of annual salary)

Vacations % Employees are entitled to an annual holiday of 30 days (8.24% of annual salary)
Notice %

Employees are entitled to 30 days of notice period for one year of service or more (8.24%)

Christmas Bonus Over Notifications% Note: companies with more than 20 employees have to share their profits, ranging from 5-10% depending on the sector
Vacations Plus% Based on one month bonus (paid on 1st July for Independence Day)
8.33%
Total percentage of Salary (yearly) The total employment accruals as a percentage of salary per anum are equal to 55.64%

employer accruals

Additional information (Country Accruals)

   
Health contributions 9.00%
Pension Funds 13.00%
Maternity leave 90 days
Christmas Bonus 8.33%
Vacations 11.51%
Description Health contributions Employers are obligated to make monthly health contribution payments equal to 9% of the total compensation paid to the employee. Employees must choose affiliation with either the National Health System (EsSalud) or the Private Health System (Entidades Promotoras de Salud or EPS). 25% of the amount paid to the EPS may be used as a credit against EsSalud contributions. Pension funds contributions Employers must apply monthly withholdings for pension funds contributions equal to (i) 13% of the compensation received by the employee in cases where the employee is affiliated with the National Pension System or (ii) approximately 12.5% in cases where the employee is affiliated with the Private Pension System (in this case, 10% corresponds to their personal pension account and almost 2.5% to insurance and commissions for managing the fund). Should a foreign individual’s labour contract end and the individual leaves Peru, the pension funds deposited in the Private Pension System (the aforementioned 10%) can be transferred to their pension fund abroad or wired to an account of the employee in a foreign bank if no individual pension fund abroad is available.

 

 

 

Employer Accruals Additional information

    Employment Accruals
Annual Leave Employees in the private sector are entitled to receive 30 paid time-off days per year (calendar days rather than working days). This equals 8.22% (30/365 days) of annual income
Maternity Leave Female employees are generally entitled to 14 weeks of paid maternity leave, seven to be taken before the birth and seven after. This equals 26.9% (14/52 weeks) of annual income
Paternity Leave Fathers are entitled to 10 consecutive days of paid paternity leave. This equals 2.7% (10/365 days) of annual income
Sick Leave Employees are generally entitled to at least five days of paid sick leave annually. This equals 1.37% (5/365 days) of annual income
Overtime The first two hours of overtime must be at least 25% of the employee’s total remuneration. For every hour afterward, the surcharge cannot be less than 35% an hour. Depends on the number of overtime hours worked
13th Month This is mandatory in Peru and is paid in July This equals 8.33% (1/12 months) of annual income
Social Security Employers must contribute to the Health Care Fund (HCF) at a rate of 9%. This equals 9% of annual income
Severance Employees dismissed without cause are generally entitled to severance pay for up to 12 months. This equals 100% of annual income

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