Current regulations and practical application of the labor expatriation process in Peru
Before delving into the regulations related to the expatriation of an employee in Peru, it is advisable to clarify some concepts. Expatriates are defined as individuals who are working away from their home country for short term (1 to 6 months) to long term (beyond 6 months) assignments and will return to their home country once their assignment is completed. Although, an expatriate and a local hire are both employees of the same company, an expatriate is typically not a citizen of the country where they are on assignment and being hosted.
In Peru there are quotas established regarding the employment of expatriates. Local and foreign companies can only employ expatriate employees in a proportion of up to 20% of the total number of their employee base. In the same way, the amount of the total wage for expatriate employees can never be greater than 30% of the total payroll of the company. Despite this, companies can request exceptions on these constraints as long as they show that the expatriate employees hired will perform a specialized job.
Among the necessary documentation, the expatriate employee must have his/her corresponding immigration qualification, an employment contract signed by the employer company and authorized by the Ministry of Labor and Promotion of the Employment. With this contract the employee can obtain the Alien Registration Certificate at the National Superintendence of Migrations (DIGEMIN).
Prior to setting the salary of the expatriate employee the company must evaluate and choose between two possible options; the so-called regular salary (12 monthly payments and 3 extra payments paid out per year)- and the integral remuneration (divided into 12 monthly payments inclusive of the 3 extra payments). For certain cases there is an option to agree on an annual comprehensive remuneration agreement.
It is important to also understand what is the tax burden related to the employment of expatriate employees. An expatriate must remain a minimum of 183 days in Peruvian territory to be considered a “domiciled person,” which qualifies the employee for a lower tax burden than if “non-domiciled”. In particular, the latter is taxed with a percentage of 30% applied on total gross income, while a domiciled worker is taxed based on a variable rate dependent on the income level, ranging from 8% to 30%. Additionally they qualify for an initial deduction equivalent to S/ 29,050. In both cases, the employer needs to process the payroll and pay relevant taxes and contributions.
In addition to the percent of applicable tax there are specific conditions established that determine what is to be officially declared. If the expatriate has the status of “domiciled,” they are only taxed on the total income of Peruvian source; however, “non-domiciled” employees are taxed based on basis of the revenues obtained from any global source (worldwide income). In this latter case it is advisable to consult the law of the income tax-article 9. Agreements can be applied here to avoid double taxation. The agreement with Spain is pending approval to date.