Peru is a promising place to establish a business presence in South America, thanks to a large workforce and growing GDP.
Companies thinking of scaling their business to Peru, must establish payroll in the country. A complicated tax structure and regular auditing means that securing the required HR and legal expertise is vital to ensuring compliance with local laws.
Taxation rules in Peru
Employers must make multiple contributions, which include giving 9% of their payroll to the National Health System (RPS). If employers offer an additional health plan, they can get a credit for part of that expense. Employers may also contribute an average of 11.5% of their gross salary to ASPs, which are private entities that manage pension funds for retirement, disability pensions, and funeral expenses. If companies operate in an industry that involves a higher risk of physical work-related incidents, they are required to offer supplementary insurance for employees.
Professionals contribute 13% of their salary to the national public pension system (ONP), or approximately 14% to the national private pension system (AFP).
Peru operates under a progressive personal income tax scale with rates ranging from 8% to 30%. However, tax rates typically change every year. Non-residents in the country only have to pay taxes on income earned in Peru at a rate of 30%. Other tax rates include:
- 18% of gross earnings for VAT.
- 29.5% for corporate income tax.
- 13% for social security.
Peru payroll options for companies
When establishing a company in Peru, it is important to consider various payroll options:
- Peru payroll processing company: One option is working with a local payroll processing company to establish payroll on your company’s behalf. However, the employer is still liable for any inaccuracies made by the payroll processing company.
- Internal: Larger companies may have more resources to operate internal payroll at the office of their subsidiary in Peru. However, this option can be more expensive because companies need to hire additional employees with payroll expertise.
- G-P: It is possible to work with a global EOR provider such as G-P. We take the stress out of establishing compliant payroll in Peru as your scale your business.
How to establish a payroll in Peru
It is necessary to establish a subsidiary or choose an alternative way of setting up a legal business presence before picking a payroll option. Start by registering the name of the company with the Peruvian Public Registry, after which it will be necessary to get a deed, minutes, and accounting books notarized by the Portal Servicios Ciudadano y Empresas. Employers must also receive a Certificate of Registration and a tax ID number to pay employees.
Entitlement and termination terms
The standard probationary period is 3 months. However, this can be extended up to 6 months or 1 year for management/trust positions. During the probationary period, an employer may terminate an employee without reason, as long as it is not prohibited by the constitution.
Following a probationary period, employees may be terminated with just cause, with documentation, or by mutual agreement. In general, an employer must send the employee a pre-notice letter of dismissal, and the employee has 6 calendar days to respond, or, in the case of capability, 30 calendar days to prove their capability. The employer must also provide in writing to the employee, and trade union if applicable, the dismissal decision and the reason for the dismissal.
Dismissed employees are entitled to severance pay in the amount of 50% of the regular monthly salaries for each full year of employment capped at a maximum of 12 salaries. In case of a non-completed year, this is prorated accordingly.
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