By Gonzalo Escalante, Tax partner, Zegarra Aguilar Abogados and Tax Law lecturer at Universidad Católica San Pablo
On March 26, legislative decree 1541 was published in Peru on the taxable treatment regarding the distribution of profits to the party that acts as an associate to the profit-sharing contract. With this type of contract in Peru, there is a managing partner who is in charge of the business and relates directly to third parties while the associate only gives a contribution to obtain a gain from the investment. As the contract produces gains, the managing partner distributes those results to the associate.
This new regulation establishes that the results of a profit-sharing association contract distributed to a non-domiciled entity that participates as an associate qualify as a dividend. This implies that the results are subject to a 5% tax rate on the gross income. Under such circumstances, the managing partner will be obliged to apply the corresponding withholding tax. The legislative decree will go into force on January 1, 2023.
It is important to remember that the Peruvian tax court on April 2, 2021 issued the mandatory sentence 02398-11-2021, where it established the same criteria that have now been included in the legislative decree. Therefore, since the publication of this pronouncement, taxpayers have been required to follow these rules regarding their transactions.
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Gonzalo Escalante is a tax partner with Zegarra Aguilar Abogados and a lecturer in tax law at Universidad Católica San Pablo
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