Peru – VAT on Digital Services

The Peru VAT Legislative Decree No. 1623, adopted just two weeks ago, introduced the VAT liability for foreign providers of digital services to their residents. The legislation declares that non-resident providers of digital services and intangible goods will be obliged to register for local VAT and act according to domestic rules.

Looking from the perspective of the present legislative framework, the mention of the tax liability of the foreign providers of digital products and services to residents of Peru isn’t something entirely new without any provision adopted previously intending to establish similar liability to foreign suppliers. 

However, the bureaucratic blur and legal-tax complexities haven’t helped much in establishing the framework that will allow local authorities to collect tax from foreign digital providers and use their monitoring tools to punish non-compliant behavior. 

With the adoption of this piece of legislation, the framework of Cross-border digital VAT Peru changes from the foundation, and there will no longer be much “ free space” to leverage loopholes or non-monitored alleys to escape from the umbrella of tax compliance. Peruvian digital service tax compliance system shows that more and more countries worldwide are looking to develop new tax collection systems for non-resident providers of digital services or products to their residents.

Timeline 

The Legislative Decree, which introduces VAT liability for non-resident providers of digital services to local customers, will be effective on October 1, 2024. 

Tax on Non-Resident Digital Services 

The abovementioned legislation amends the General Sales Tax Law and Consumption Tax Law as a necessary step in paving the way for introducing Peru VAT on digital services and imported intangible goods supplied by non-resident taxable persons. 

The amendments to the General Sales Tax clearly define under what circumstances foreign providers of digital services or imported intangible goods are obliged to register for Peruvian VAT(Impuesto General a las Ventas or IGV).  

To simplify things, let’s start by explaining who is or can be “treated” as the non-resident provider of digital services or products and who is, per se, responsible for collecting and reporting IGV. 

Depending on the specific of the transaction or supply in place, the following types of taxable persons could be found liable for collection and remittance of IGV:

Responsible Tax Collectors 

• Non-resident providers operating independently (online vendors) 
• Digital Platforms (facilitator or direct suppliers) 
• Payment Services Providers or Intermediaries (payment facilitators) 

Types of Supply 

• Cross-border B2C Supply of Digital Services 
• Imported intangible products 

Tax Collection and Reporting 

According to the  Peru VAT Legislative Decree No. 1623, the answer to who is responsible for tax collection and remittance isn’t that simple and known in advance. The Decree introduced a very sophisticated and mutually exclusive modality for tax reporting mandate. 

We must admit that this approach could be very tricky and confusing if it isn’t reviewed in detail. One of the most important parameters to remember when deciphering which party is responsible for collecting and reporting the tax is the awareness of how many taxable persons are involved in the transaction. 

It shouldn’t be forgotten that this is the version of Digital Services VAT regulations Peru. The respective legislators haven’t previously implemented a legal-tax framework of this magnitude, at least not on this level and precision when it comes to this particular business ecosystem. 

Peru VAT tax obligations for digital companies, those operating independently or through a digital platform, are developed in a modern manner in alignment with the OECD rules and EU simplified system, which should make tax collection and reporting easier. On the other hand, the tax authorities will probably encounter fewer challenges when it comes to monitoring and evaluating declared taxes. 

Tax Agents 

Taking into account the various possibilities regarding the specific supply in question, the bearer of the tax responsibility could be the foreign provider of a digital service or imported intangible product; the tax agent with an obligation to collect or withhold the tax could be transferred to the operator of the digital platform; or, in particular cases, the “title” of the tax agent could be shifted to the payment service provider. 

The newly introduced cross-border digital VAT Peru framework undoubtedly shows how public institutions carrying out legislative powers could be creative when developing a tax mechanism that eliminates any potential barriers to tax collection within this space. 

The system, which will be effective in less than two months, is multi-sided. It is based on the foundation that if one responsible entity doesn’t perform its tax agent duty, it will be passed on to the second one, which is, to some extent, a substantial element for the transaction’s success. 

Depending on the particularities of the supply in question, that could be the operator of the digital platform or the payment facilitator.

Foreign providers of digital services or digital products to customers based in Peru should start working on establishing a tax compliance framework for their operations in the country. The General Sales Tax(IGV) should be collected and reported for their B2C Cross-border supplies starting October 1, 2024. The multilayered level of responsibility underscores the importance of compliance with regulations from day one.