Peru is one of the most popular tourist destinations in South America. The Incan ruins of Machu Picchu attract hundreds thousands of visitors every year. Many American expats living in Peru live predominantly in Lima. Americans in Peru must understand the Peruvian income tax system. Filing taxes in Peru affects US tax returns on overseas taxes. Americans with past due returns must learn about filing back tax returns.
We get multiple questions from our clients who plan to move to Peru. What are expatriate tax rules in Peru? Which taxes should expats in Peru to pay? Do you provide US expatriate tax services to Americans expats in Peru? The purpose of this guide is to provide a short summary of the most popular questions.
Expatriate Tax Rules and Returns for American Expats in Peru
US taxes for expats are getting more and more complex. US citizens are taxed on their worldwide income. Consequently, Americans in Peru are required to file US tax returns on overseas taxes and comply with other expatriate tax requirements.
There are three IRC 911 provisions that expats should utilize:
- Foreign earned income exclusion. American expats in Peru can exclude up to $101,300 for 2016 on US tax returns if they have earned income and they meet either a bona fide residence test or physical presence test.
- Foreign housing exclusion. Additionally, Americans in Peru may be able to deduct eligible foreign housing expenses.
- Foreign tax credit. American expats in Peru can deduct foreign income taxes or take a foreign tax credit.
Another expatriate tax requirement is to file the FBARs. American expatriates in Peru are required to file the FBAR if the aggregate value of foreign financial assets exceeds $10,000 at any time during the year. FBARs are filed separately from US tax returns on overseas taxes.
Tax system in Peru– FAQ
I am an American expat residing in Peru. Is my worldwide income taxed in Peru?
- Americans in Peru who are considered domiciled are taxed on their worldwide income.
- Non-domiciled individuals are taxed only on income from sources in Peru.
Who is considered a domiciled individual?
American expats in Peru are considered domiciled if :
- s/he is a resident
- s/he is present in Peru for 183 days in any twelve month period.
What is the tax year in Peru?
Peru has a calendar tax year. The US tax returns are also filed on a calendar basis.
What is an income tax rate in Peru?
Domiciled foreign nationals are taxed on a progressive scale of 0%, 15%, 21% and 30%. Non-domiciled individuals are taxed at a flat rate 30% on income from sources in Peru.
Which income is considered a taxable income in Peru?
The taxable income includes employment compensation, self-employment income and some fringe benefits. Capital gains are not taxed unless they are earned as a business activity.
As an American expat in Peru, can I file a tax return on overseas taxes with a spouse?
Spouses must file separate returns. The income from jointly owned assets can be divided equally among spouses or it can be allocated to one spouse.
Is it a requirement to file an expatriate tax return in Peru every year?
American expats in Peru are not required to file a Peruvian tax return if the employer deducts all taxes at a source. A tax return is required under all other circumstances.
Does Peru have a tax treaty or social security agreement with the USA?
The USA does not have a tax treaty or totalization agreement with Peru. It means that Americans in Peru are required to pay self-employment taxes to both countries if they are self-employed. Americans in Peru should visit the IRS website or seek advice of an expatriate tax professional to review personal circumstances and issues related to overseas taxes and US expatriate tax returns.
This is a summary of the most popular issue that American expats in Peru should review before moving to Lima and filing US expatriate tax returns on overseas taxes.
American expatriates who need help with US taxes for expats, FATCA, FBARs, PFIC or any other overseas tax issue, please seek help of an expat tax CPA or expatriate tax expert that provides international tax services.