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Peru’s new regulations for withholding VAT on digital services aim to streamline tax collection for B2C transactions starting in January 2025.
Peru’s tax landscape for digital services is undergoing a significant shift as the government imposes new VAT withholding obligations on purchasers of digital services from non-resident providers. This comes as part of an ongoing effort to regulate the growing digital economy and ensure tax compliance for B2C transactions. The new regulations, set to take effect on January 1, 2025, require buyers—acting as withholding agents—to ensure VAT compliance when purchasing digital services from non-resident providers.
Overview of the New VAT Withholding Regulations
As of December 1, 2024, Peru officially adopted the VAT withholding tax model for digital services, following a series of delays. The regulation applies to non-resident service providers, facilitating platforms, and intermediary platforms that sell digital services to Peruvian consumers. This includes a broad range of digital services such as software support, online auctions, media streaming, and web hosting.
The key aspects of the new VAT withholding obligations are as follows:
- VAT Rate: The standard VAT rate in Peru is 18%.
- Withholding Tax Requirement: Payment processors (e.g., credit card merchants, e-wallets, wire transfers) will be required to withhold VAT on B2C transactions and remit it to the Peruvian tax authority, SUNAT (Superintendencia Nacional de Aduanas y de Administración Tributaria).
- Filing Deadlines: The withholding agents must submit the VAT return no later than 10 days after the end of the reporting month. A new online platform will be available to assist with the filing.
- Scope of Application: This regulation targets digital and intangible services, including but not limited to: software support, application hosting, media streaming, online consulting services, digital advertising, and interactive training platforms.
By 2025, this will make Peru the latest country to join the growing list of nations seeking to enforce VAT on cross-border digital services.
Streamlined Compliance: The Role of Withholding Agents
Instead of compelling foreign providers to register for VAT in Peru, the government is shifting the responsibility to local buyers or intermediaries (collectively referred to as “withholding agents”). These agents will be responsible for:
- Withholding the VAT: At the time of purchase, the withholding agents will deduct 18% VAT from the transaction and remit it to the tax office by the 10th working day of the subsequent month.
- Filing Returns: Withholding agents will be required to file their VAT returns online through the SUNAT platform, detailing the amount of VAT withheld for each transaction.
This approach eliminates the need for non-resident suppliers to register for VAT in Peru, streamlining the process for foreign service providers. Additionally, the system will enhance tax collection efficiency, ensuring that digital services provided to Peruvian consumers are taxed in accordance with national law.
Digital Services Covered by VAT
The legislation outlines the following services as subject to VAT withholding when provided by non-resident entities:
- Software support
- Technical network support
- Data storage (data warehousing)
- Web hosting and application hosting
- Digital access to social networks and online content
- Streaming or downloading media
- Advertising and online auctions
- Interactive websites and online portals
- Digital newspapers and magazines
- Online training services
This wide range of services captures many of the digital offerings that have surged in demand due to increased internet usage and the global shift toward digital business models.
Determining the Place of Supply
To establish whether VAT applies to a transaction, the place of supply must be determined. For Peru, digital services are subject to VAT if the transaction is deemed to occur within the country. The following criteria are used to determine the place of supply:
- Payment Details: The billing address associated with the payment method (e.g., credit card, bank details).
- IP Address: The geographical location inferred from the user’s IP address.
- Postal Address: The customer’s registered address.
- SIM Card Information: If applicable, the SIM card code can help establish the customer’s location.
These indicators allow Peru to assess whether a service purchased by a consumer qualifies for VAT withholding.
Impact on Foreign Providers and Payment Platforms
The introduction of VAT withholding means that foreign providers of digital services will no longer have to go through the complex process of registering with SUNAT to collect VAT. Instead, payment providers will handle the VAT withholding, simplifying compliance for non-resident suppliers.
However, the requirement could pose a challenge for local payment platforms, which must ensure they meet the withholding obligations and file the necessary returns. These platforms will need to ensure that they have the right infrastructure to handle the tax collection process, which could involve updating their systems and workflows to integrate with SUNAT’s new online platform.
Conclusion: A Strategic Move for Digital Taxation
Peru’s VAT withholding model aligns with global trends, as governments seek to ensure that cross-border digital transactions contribute fairly to their tax revenues. By placing the responsibility on local payment processors, Peru streamlines the collection process for digital services without placing an undue burden on non-resident suppliers.
While the transition may involve some growing pains, the changes represent a step toward more modern tax practices that reflect the realities of the digital economy. With clear guidelines on VAT compliance, Peru is positioning itself to secure its share of tax revenue from the rapidly expanding digital services sector.
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