The Peruvian Tax Agency has recently confirmed that Peru will seek adopting the Common Reporting Standard. After completion of the relevant bilateral and multilateral treaties, Peru will start exchanging financial information on bank accounts held by Peruvian residents (directly or indirectly e.g. through corporate/fiduciary structures) in foreign jurisdictions.
In December last year, Peruvian government approved Legislative Decree No. 1,264 establishing a temporary income tax regime (“Régimen Temporal y Sustitutorio del Impuesto a la Renta”) to regularise unreported capital so called the “Tax Amnesty”. Taxpayers only have until the end of December 2017 to take advantage of this opportunity.
Applicable tax rate to regularize unreported assets under the Tax Amnesty varies depending on whether the assets are repatriated and invested in Peru or not:
- 7% tax rate if the assets/cash are repatriated or
- 10% if not (i.e. assets are regularized but still kept abroad)
Clients should carefully consider, in conjunction with their advisors, the possibility to regularise their tax affairs within the context of the Tax Amnesty. They need to make sure their wealth is properly organised and deposited in wealth planning solutions which can be defended in front of the Tax Agency, solutions that are fully compliant with the new Peruvian tax, legal and regulatory framework. Corporate structures and fiduciary solutions should therefore be reviewed with local tax advisors as these might not be tax efficient since the introduction of Controlled Foreign Corporation Regime (CFC Rules) in 2013 and other changes which have been introduced in the Peruvian tax system in the last years.
One of the solutions which Peruvian investors may consider is international unit-linked life insurance. This is a fully recognised wealth planning tool in Peru which, if properly structured, may provide the investor with a great degree of flexibility and a tax efficient treatment.
ADVANTAGES OF LUXEMBOURGISH UNIT-LINKED LIFE INSURANCE
- Access to international investment opportunities.
- Possibility to maintain the existing investment strategy with the same financial advisors.
- A State-controlled policyholder protection regime in which securities linked to the insurance contract are held off balance sheet of the custodian bank and the insurance company, reserved for the client in case any issues would arise.
- Ability to nominate and revoke beneficiaries at any time during the life of the contract.
- Easy adaptability of the contract in case the client relocates to another jurisdiction.
- Possibility to address certain multi-jurisdictional tax and legal issues e.g. cross-border solutions for families with members spread across different countries.
From a tax perspective, an international unit-linked life insurance solution remains an attractive solution for Peruvian-resident clients in the current legal and tax context. This is because it continues providing
- Full income tax deferral during the life of the contract. i.e. if properly designed, it is out of the scope of CFC Rules.
- Tax exemption for partial or total surrender of the policy by the Peruvian resident policyholder (for more information on this, please refer to our article dated on 2 March 2016).
- Tax exemption on the life insurance proceeds paid to Peruvian resident beneficiaries.
If you have any questions or require further information regarding our solution for Peruvian clients, please contact Andreas Meier, our Head of Latin America or Alejandra Torner, our Senior Relationship Manager for LatAm.
Written by Pablo Peciña, Senior Wealth Planner