According to the general rule in Peruvian Income Tax (IT) Law, services rendered by non-resident individuals are subject to a 30% withholding income tax (WHT) rate. However, services that qualify as ‘technical assistance’ are levied with a 15% WHT rate applied on the Peruvian source income. At half the regular rate, it is worthwhile taking this regulation into consideration when a service is going to be provided by a non-resident in Peruvian territory.
The IT Regulation qualifies technical assistance services as those provided independently, rendered from abroad or locally, and by which the provider uses some expertise, skills or techniques in order to provide specialised unpatentable knowledge, that is necessary in the production process, marketing, rendering of services or any other activity performed by the user. In addition, the technical assistance service must be economically used in Peru according to the IT Law.
Note, that by services provided ‘independently’, the IT Regulation means that such service should not be provided under a working agreement with dependency relationship, it must be rendered by an independent party with which there is no working bond. In this regard, the technical assistance service involves providing knowledge and not just solving a technical, scientific, professional or any other specific problem or issue. Thus, the transferred knowledge could be replicated by the user indefinitely in order to make or get that something.
Likewise, when the IT Regulation refers to the technical assistance services being ‘necessary’ in the production process, marketing, rendering of services or any other activity performed by the user, it means that it should be referred to the core business of the user. Therefore, the IT Regulation’s main purpose is to levy as Peruvian source income highly specialised activities that are strictly essential with the activities by which the user generates his income. This is why complementary or accessory activities of the user are not included as technical assistance services.
For example, if a Peruvian company whose core business is fishing hires a non-resident entity to design and implement an accounting system it would not be considered as technical assistance as it is not necessary for the fishing activities. In addition, it would not qualify as technical assistance because it does not transfer any knowledge that the user may use directly in their fishing activities. However, if the same service is provided to an accounting firm it should qualify as technical assistance due to the transfer of knowledge and techniques which would be used afterwards by the user to provide their own generating income services.
Special cases regarding the technical assistance
There are some special cases that do not qualify as technical assistance according to the general definition mentioned above, but pursuant with the IT Regulation they are considered as technical assistance in any case. Such services are: (i) engineering services; (ii) research and development of projects; and, (iii) financial consultancy and advice. Bear in mind that these services must be included in the definition provided by the IT Regulation.
On the other hand, the IT Regulation considers that the following services must not be qualified as technical assistance in any case: (i) the payment received by a worker under his employment agreement with the user; (ii) marketing and advertising services; (iii) information about enhancements, improvements and other releases related to patents, patentable procedures and similar; (iv) activities developed to provide information concerning industrial, commercial and scientific experience; and, (v) imports surveillance.
About the Technical Assistance Certification
Since 1 January 2013, according to the latest amendments introduced into the Peruvian IT Law, in order to prove the execution of a technical assistance service it would be to obtain and submit to the necessary Peruvian Tax Administration a report issued by an audit firm certifying that the technical assistance services have been provided when the amount paid for the rendering of such services - incorporated in one agreement, including extension and/or amendments - exceeds 140 Tax Units (approximately USD 186,330).
If this certification is not fulfilled, a fine will be applicable. The fine is 0.3% of the net income of the prior taxable year in which the sanction was detected. Therefore, to ensure the rate of 15%, and to avoid sanctions, it is necessary to obtain the audit report and to keep any additional documentation that supports the rendering of technical assistance services.