December 12, 2004 | By Keith Martin in Washington, DC

PERU adopted a temporary 0.6% tax on assets.

The tax will be in effect for only two years — in 2005 and 2006. It must be paid in nine installments during the year. It applies to all companies with annual earnings of more than about $1.5 million. The Peruvian Congress adopted it on November 26 by a vote of 42 to 32, at the request of the government, in order
to close a budget gap. 

In the meantime, two other taxes were eliminated. The Constitutional Tribunal, the country’s highest court, struck down a law on November 11 that requires most companies to pay a percentage of their anticipated income taxes in advance of actually earning the income. The tribunal said the tax was unconstitutional because it was imposed on income that did not yet exist. 

The business community also succeeded in persuading Congress to repeal a 1.7% supplementary payroll tax. Congress voted to repeal the tax on October 20. The tax disappeared on December 1.

Finally, new regulations issued by the tax authorities in October make it harder to do back-to-back loans into Peru to take advantage of a reduced withholding tax rate on interest paid to unrelated foreign parties.

Interest is normally subject to withholding tax at a 30% rate. However, the rate is only 4.99% on interest paid to an unrelated foreign lender. Some companies funding operations in Latin American countries have interposed a bank. The new regulations require Peruvian corporations borrowing money abroad to get a certificate from the lender stating that the loan does not conceal a transaction between related parties.