On September 13, the Executive Branch published Legislative Decree No. 1644, which prolonged the initial date of the tax collection liability for foreign providers of digital services to customers based in Peru.
As we have previously explained in detail, the introduction of the tax collection mechanism for foreign providers of digital services to Peru-based customers will prompt us to jump right into the novelties on this occasion.
We will explain the novelties and provide more practical information about some types of providers covered by the new Peru VAT collection system.
The Executive Branch obtains an extraordinary “legislative power” in specific scenarios relevant to the tax framework and has decided to postpone the initial date from which the taxable persons in scope should start withholding the VAT generated from their cross-border operations.
Legislative Decree No.1623 introduced the obligation for foreign providers of digital services to charge, collect, and remit General Sales Tax(IGV) when the place of supply is within Peru, and the acquirer of the service is a natural person.
The abovementioned Decree stipulated that foreign providers already conducting these types of sales or planning to make them before September 30, 2024, should start collecting IGV on October 1, 2024.
However, the Revenue Administration and Ministry of Finance have noticed that economic operators in scope need additional time to prepare their tax systems to operate compliantly with the novelty of these proportions.
Timeline
Adopted Legislative Decree No. 1644 states that, starting from December 1, 2024, foreign providers of digital services or payment service providers(withholding agents) should start collecting General Sales Tax.
Providers in Scope
The Revenue Administration explained that currently, foreign providers of digital services aren’t collecting General Sales Tax. This fact gives them a significant advantage over local providers with this obligation. This inequality favors foreign providers.
The idea to introduce tax liability for foreign providers of digital services was initially triggered by the goal of ” putting ” streaming platforms inside the tax network. This is why, colloquially speaking, this type of tax in Peru is known as “Netflix Tax.”
Revenue Administration shares the information that, based upon their preliminary investigation, around six hundred foreign providers of digital services are providing “soon to be” taxable supplies, which should start collecting tax and, importantly, make state coffers richer.
Digital platforms offer a variety of digital services to customers in Peru. Based upon the type of electronically supplied service that foreign digital providers are offering to customers in Peru, we can differentiate the following:
- Providers of streaming services or the ones providing online access to movies and music: Spotify, iTunes, Apple Music, YouTube Music; Netflix, Amazon Prime Video
- Information storage (iCloud, Dropbox)
- Access to social networks and/or provision of additional functions on them ( LinkedIn, Tinder ).
Foreign providers of digital services and withholding agents have an additional two months to prepare their tax systems so that they can operate in full compliance with the Peru VAT mandate on the cross-border supply of digital services.
The taxable persons in scope shouldn’t take this grace period lightly. If they haven’t already started with the adaptation of their tax collection and reporting system for this mandate, they should begin as soon as possible.
The Peru Revenue Administration has adopted rigid fines and penalties for non-compliant providers that can result even in total blockage of foreign platforms or digital sellers in the country’s territory.
Aleksandar Delic
1stopVAT Senior Indirect Tax Researcher (Global Content)