Thursday, April 25, 2013

Tax Obligations for US Expats Living in Peru

The following is a guest post by Greenback Tax Services

If you’ve chosen to leave the US for a new cultural experience in Peru, there are a few financial issues you’ll need to be prepared for, including new tax rules and regulations. As a US expat, unfortunately taxes tend to get more complicated when you move to a new country. Why? Because although you may be working in Peru, you are still required to file US tax returns.

As a result, you’ll need to be aware of your tax commitments in both Peru and the US.

Filing Peruvian Taxes

Taxes in Peru are filed with the Superintendencia Nacional de Administración Tributaria (SUNAT). Taxes are due within three months of the end of the previous tax year – tax years end on Dec. 31.

Resident Status in Peru

For income tax purposes, individuals in Peru are considered to be either Peruvian residents or Peruvian non-residents. The category you fall under will determine how much and what kind of income taxes, if any, you must pay.

Peruvian Residents vs. Non-Residents

In Peru, domiciled individuals, or those who are in Peru for many than 183 days (need not be consecutive) during any 12-month period, are considered residents.

Peruvian Income Tax Rates

If you are a Peruvian Resident, you are required to pay tax on your worldwide income. The amount that you pay will depend on your net income. Peru uses an Annual Tax Unit or UIT that is equivalent to PEN3,650 ($1,251.85). The income tax rate is calculated according to the following table:

Peru Income Tax Rates
Tax Rate
0 to 7
7 to 27
27 to 54
More than 54

For Non-Residents, you are only required to pay taxes on Peruvian sourced income. This is taxed at a fixed rate of 30%.

Taxable Income

In Peru, income is classified into 5 categories, which are listed below:

Cat. 1: Rental or subleasing income

Cat. 2: Capital Revenue – Interest, royalties, patents, dividends, capital gains

Cat. 3: Trade or business partnership

Cat. 4: Income from self-employment

Cat. 5: Earned income

Filing US Taxes

As a US citizen or Green Card holder, you arerequired to file a US tax return each year even if you reside in a foreign country. Fortunately, as a US expat you receive an automatic two-month filing extension.

NOTE: This extension is for filing purposes only and does not apply to any money owed to the IRS. If you owe taxes, you are still required to pay by April 15th or you may be subject to late payment penalties.

Depending on how much money you have in foreign bank accounts and institutions, you may also be required to complete FBAR Form TD 90.22.1. This form is required for individuals who have more than $10,000 (cumulative) in foreign bank accounts. This form must be filed by June 30th.

Fortunately, there are certain provisions that help prevent double taxation, including:

o   The foreign earned income exclusion, which allows you to exclude up to $95,100 of foreign earned income from your US taxes (this will increase to $97,600 for the 2013 tax year),

  • The foreign tax credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar, and
  • The foreign housing exclusion, which allows you to exclude certain household expenses that occur as a result of living abroad.

If your income is over the minimum thresholds for filing US taxes you are required to file regardless of where in the world you live, even if you don’t owe any money.  Choosing not to file or filing late could result in late payment and late filing penalties if you owe money on your taxes.  Failure to file the FBAR can result in fines, seizure of assets or even jail time, in extreme cases.

Need Help Preparing Your US Taxes

If you’re feeling a bit overwhelmed and need some help preparing your US Tax Returns or FBAR Forms, Greenback Expat Services can help. For questions or tax preparation inquires, contact us today.



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