OECD Tax Policy Reviews: Peru 2026

5. The schedular design of the personal income tax in Peru

Abstract

The role of the personal income tax (PIT) in Peru could be strengthened by broadening the tax base. Currently, the effectiveness of the tax is limited by the high exemption threshold of 7 UIT. Deductions for certain expenses further narrow the tax base. There is scope to tax different types of capital income jointly rather than taxing each type of capital income separately. There is also potential to slightly increase the taxation of dividends and capital gains. Over time, Peru could transition to a Dual Progressive Income Tax, whereby labour and capital income would be taxed separately according to different progressive tax rate schedules. This reform would provide an opportunity to align the tax treatment of domestic and foreign-sourced equity income. Greater use of third-party information could help to strengthen compliance.

Comprehensive versus dual PIT systems: general introduction

At the personal level, the range of approaches to taxing personal income can be broadly divided between comprehensive and schedular income tax systems. Comprehensive income taxation involves the taxation of all realised income (e.g. labour and capital income) under the same tax rate schedule after allowable deductions. Comprehensive income tax systems typically apply progressive tax rates. On the other hand, schedular systems tax different types of income at different rates after allowable deductions. The most common type of schedular income taxation is dual income taxation, where labour and pension incomes are usually taxed together at progressive tax rates, and different types of capital income (e.g. dividends, rent) are taxed together, typically at lower flat rates. Income of self-employment tends to be taxed as employment income, where incurred business costs can be deducted from taxable business income, but in some countries, self-employed (business) income is taxed similarly to income from incorporated businesses at flat rates. Some dual income tax systems apply different rate schedules to different types of capital income. Semi-dual systems tax most, but not all, forms of capital income at flat rates and tax other forms of capital income (e.g. imputed rent from owner-occupied property) together with labour income at progressive tax rates.

Among OECD countries, dual income tax systems are the most common approach to taxation at the personal level. In practice, countries rarely operate “pure” tax systems; some forms of income may be excluded from the tax base or subject to a different tax treatment. Still, most countries fall broadly into the categories in Table 5.1 (Hourani et al., 2023[1]). Dual income tax systems, which were first introduced in Scandinavian countries in the early 1990s and have since grown in popularity, apply in 17 of 38 OECD countries (Table 5.1). A smaller number of countries operate semi-dual systems, taxing some forms of capital income (e.g. capital income from non-business sources in Mexico) on a comprehensive basis. Comprehensive income tax systems are also relatively common, applying in eight countries. Six countries have other income tax systems that combine elements of comprehensive and dual income taxation, typically applying a flat tax rate to capital income but allowing taxpayers to choose to include capital income with total income subject to progressive PIT rates.

Overall, dual income tax systems perform favourably in terms of efficiency but not so much in terms of equity. By taxing capital income at lower rates than labour income, dual income tax systems are often seen as encouraging savings and investment. This is particularly the case in countries where capital income would otherwise be subject to high marginal tax rates. However, the evidence is mixed (Hourani and Perret, 2025[2]). Taxing capital income at relatively lower rates than labour income reflects the fact that CIT has already been levied on returns to equity, thereby mitigating the risk of excessive overall taxation. PIT systems usually tax the nominal return to capital, even though the inflation premium just compensates for the erosion of the real value of the assets (OECD, 2018[3]). A lower tax rate on capital income might then offset the higher tax burden as a result of the taxation of the nominal return on savings and investment, an argument which especially holds in countries characterised with regular periods of high inflation. However, taxing individuals with a different mix of capital and labour income differently might be seen as violating horizontal equity if year-to-year income is used as the basis for evaluation. B lower proportional tax rate on capital income might also undermine the tax code’s vertical equity, particularly because income from capital tends to be concentrated among middle-income and, in particular, higher-income earners.

Table 5.1. Approaches to taxing personal income in the OECD

Classification of PIT systems in 38 OECD countries, 2022

Type of system	Comprehensive income tax system	Dual income tax system	Semi-dual income tax system	Other
Definition	Taxes all realised income (e.g., from labour, capital) together under the same rate schedule.	Taxes labour and capital income separately. Labour income is usually taxed at progressive rates and capital income is typically taxed at lower flat rates.	Taxes some forms of capital income with labour income and other forms of capital income separately.	Combines elements of comprehensive and dual income taxation.
Countries	Australia, Canada, Chile, Luxembourg1, New Zealand, Switzerland, United Kingdom2, United States3	Costa Rica, Denmark, Finland, Greece, Hungary, Iceland, Israel4, Italy, Latvia, Lithuania, Netherlands, Norway, Poland, Slovenia, Spain, Sweden5, Türkiye	Belgium, Colombia, Czech Republic, Estonia, Ireland, Mexico, Slovak Republic	Austria6, France7, Germany8, Japan9, Korea10, Portugal11

1. In Luxembourg, recipients of income from corporate bonds can opt for that income to be taxed separately at a 20% final withholding tax rate

2. The United Kingdom taxes income on a comprehensive basis but applies different tax rates to capital gains and dividend income. Separate allowances are available for savings, dividends, capital gains and property.

3. The United States taxes income on a comprehensive basis but applies different tax rates to long-term capital gains and some forms of dividends.

4. Interest income from corporate bonds is taxed at an individual’s marginal rate rather than at flat rates, under certain circumstances (e.g. if the individual claims interest expenses as tax deductions, the individual is a material shareholder, an employee or service provider, the individual (lender) is a party that does not operate at arm’s length from the entity).

5. Sweden taxes labour income progressively; a tax rate of 32% applies on the municipal level while and an additional tax of 20% applies at the central government level for incomes above SEK 537 200 in 2021. Capital income is taxed at a flat 30% statutory tax rate.

6. Austria applies a flat 27.5% withholding tax rate to capital income, but taxpayers can opt for capital income to be included in total income and taxed under the PIT schedule.

7. France applies a flat 30% tax rate to capital income (excluding rental income), but taxpayers can opt for this to be included in total income and taxed under the PIT schedule. Rental income is included in total income and taxed under the PIT schedule.

8. Germany applies a flat 25% withholding tax rate to capital income, but taxpayers can opt for this to be included in total income and taxed under the PIT schedule.

9. Japan applies a flat 20% tax rate to capital income. Taxpayers can opt for dividend income to be included in total income and taxed under the PIT schedule.

10. Korea applies a dual income tax system for taxpayers whose interest or dividend income does not exceed KRW 50 million per year and applies a comprehensive system above that threshold. Capital gains arising from the sale of listed shares of domestic incorporated firms are tax exempt while capital gains from over-the-counter transactions of listed and unlisted shares are taxed at flat rates.

11. Portugal applies a flat 28% withholding tax rate to capital income, but taxpayers can opt for this to be included in total income and taxed under the PIT schedule.

Source: Hourani, D. et al. (2023[1]) based on OECD Questionnaire on Top Income and Wealth Taxation, 2022.

With the expansion of the Exchange of Financial Account Information between jurisdictions, international tax arguments for low rates on capital income have become less compelling. In countries where tax administrations face difficulties in monitoring the foreign-source income of their residents, implementing a high tax rate on capital income increases the incentives for investing savings abroad, and then not declaring the foreign income earned to the tax administration where the individual is resident for tax purposes, which will lead to lower tax revenues and might reduce the available funds for domestic investment. However, the Automatic Exchange of Financial Account Information between tax administrations (AEOI) and the use of Exchange of Information on Request (EOIR) have significantly reduced this risk and have created an opportunity to strengthen the taxation of capital income at the individual level in countries around the world.

Schedular tax treatment not only has implications for the taxation of income but also for the deduction of costs. Schedular taxation not only entails the separate treatment of income categories, it also implies that, typically, costs and losses from one schedule are generally not deductible against income from another. This ring fencing of tax bases can enhance base protection by limiting opportunities for cross base cost and loss offsetting and the associated revenue risks. By restricting the allocation of expenses to higher taxed income streams, a schedular approach may therefore reduce certain forms of tax arbitrage related to cost assignments.

Even under a schedular tax system, capital income can be taxed progressively. Progressivity may be introduced through a basic capital income tax allowance that exempts a minimum level of capital income from taxation, in a manner comparable to the use of a basic tax allowances or zero rate bracket in the taxation of labour income. In addition, while capital and labour income are taxed separately under a schedular framework, capital income may be subject to its own progressive tax rate schedule. Such a system could be combined with a tax withholding system. Taxpayers who would face a final tax liability below the amount of tax withheld at source would receive a refund for the excess amount of tax paid. A system combining separate tax bases with a progressive rate structure for labour and capital income separately is commonly referred to as a dual progressive income tax system (DPIT).

Corporate income taxes add to the total tax burden on capital income. Personal level tax provisions that apply to capital income reveal a partial picture of the tax burden on capital owned by individual shareholders. Countries can adjust personal-level taxation to account for corporate-level taxes on distributed profits through different types of integration systems. Dividend imputation systems, for example, explicitly integrate CIT and PIT by providing a tax credit at the shareholder level for income tax paid at the corporate level (Table 5.2). Partial inclusion systems account for taxes paid at the corporate level by exempting a portion of dividend income from PIT or by taxing the returns on equity-financed investment at reduced rates under the PIT. Across OECD countries, the most common approach is the classical system (Hourani et al., 2023[1]), where no explicit adjustment is made to account for CIT and countries tax dividends under the same rules as other capital income (dual income systems) or total income (comprehensive income systems). In some countries, this is in line with a trend toward lower corporate statutory tax rates which has reduced the perceived need to integrate CIT and PIT.

Table 5.2. Interaction between corporate and personal level taxation of dividend income

Type of system	Classical	Dividend imputation	Partial inclusion
Definition	All distributed dividend income is taxable either under the PIT (shareholders remit the tax due) or under final withholding (tax is withheld by the distributing company and no further tax is payable at the shareholder level). There is no tax credit at the personal level for tax paid at the corporate level.	Distributed dividend income is grossed-up to approximate pre-tax corporate income. The tax payable on the grossed-up dividend is reduced by a tax credit that offsets the tax paid at the corporate level. Under partial imputation, the gross-up factor and/or the tax credit may be different from the rate of CIT paid.	A portion of distributed dividend income is tax exempt, and the remainder is taxed under the PIT. There is no tax credit at the personal level for tax paid at the corporate level.

Note: The classical system is the most common among OECD countries. Norway and the Netherlands apply systems that deviates from the three categories shown above.

Source: Hourani, D. et al. (2023[1]).

A too large difference in the tax burden on labour versus capital income will induce entrepreneurs to incorporate their business. A comparison of the tax burden on labour and capital income is not straightforward as it depends on many factors, including social security contributions that are typically levied on labour income only but, in return, entitle individuals to current or future, possibly contingent, benefits. Overall, if the tax burden on self-employed business income that in most countries is taxed under the progressive PIT rate schedule differs significantly from the tax burden on corporate profits that are either distributed and taxed as dividends or are retained and, eventually, realised and taxed as capital gains, the entrepreneur may prefer to incorporate its business. In order to avoid that manager-owners of closely-held corporations pay themselves a low wage, finance personal consumption through the business (e.g. company car also used for personal purposes, etc.) and distribute dividends if more cash is needed, some countries require manager-owners to pay themselves a minimum amount of salary that is taxed under the PIT and SSCs. To limit arbitrage opportunities, some countries tax self-employed business income broadly aligned with corporate taxation. On the other hand, by creating a differential between the PIT treatment of dependent employment and self-employment, such designs may generate incentives for firms to reclassify employees as self-employed contractors.

Overall, the design of the capital income tax system can follow a number of well-established tax design guidance principles.

• First, the capital income tax system has to integrate, in one way or another, the taxes levied at the corporate and personal level, in particular in countries with a high statutory CIT rate, with the aim to prevent double taxation of profits or, at least, reduce the overall capital income tax burden.

• Second, as interest payments are deductible from taxable corporate profits while the return on equity is not, interest payments should not be taxed less than, and should possibly be taxed at a higher rate, than dividends and capital gains at the individual level. The debt-equity bias can also be reduced by putting limits on the amounts of interest that can be deducted at the corporate level (e.g. aligned with Action 4 of the BEPS project).

• Third, tax systems should include tax base protection measures that prevent individuals who lend money to the corporation they own to make a tax arbitrage gain; interest on this type of loan should be taxed at a sufficiently high rate at the individual level.

• Fourth, the combined corporate and PIT burden on dividends could be aligned with the top statutory PIT rate.

• Fifth, the capital income tax system needs to be designed in ways that are aligned with the data availability and administrative capacity of a country’s tax administration. Also, third-party information should be used as much as possible to avoid under-reporting of capital income by individual taxpayers.

The design of the PIT in Peru

The PIT in Peru follows a schedular income tax approach where capital and employment income are taxed separately. First, employment income is taxed under category 5. Income from independent professional services is taxed in category 4; a presumptive cost deduction of 20% of gross income can be deducted after which the net income is added to the net taxable income of category 5. Gross employment income is reduced with a basic tax allowance equal to 7 UIT; certain expenses are tax deductible up to 3 UIT. Total taxable income of categories 4 and 5 are taxed under a progressive tax rate schedule with rates ranging from 8% to 30%.

The capital income tax treatment varies significantly across sources of finance, types of capital and sources of capital income. Income from letting property is taxed in category 1 at a rate of 6.25%; the rate is levied on gross income net of a presumptive cost deduction equal to 20% of gross income; the actual maintenance and financing costs incurred are not deductible from taxable category 1 income. Dividends and capital gains are taxed under category 2 at a rate of 5%. Under the assumption that distributed profits have incurred the statutory CIT rate, the total tax burden on dividends is about 33% (i.e., 29.5% + (1-0.295) * 5%). According to data from SUNAT, the average effective tax rate paid by corporations across the economy in Peru is about 24%, which results in an overall tax burden of dividends of about 28%, which is slightly lower than the top statutory PIT rate of 30%. On the other hand, foreign-source capital income is taxed under category 5 (instead of category 2 for domestic-sourced capital income) at the progressive PIT rate schedule with rates up to 30%. However, income derived from other Andean Community member states may be exempt from Peruvian tax under Decision 578,1 which allocates exclusive taxing rights to the source country and requires the country of residence to grant an exemption to prevent double taxation.

The differential tax treatment of domestic-source and foreign-source dividends and capital gains in Peru is notable. Profits distributed by domestic firms are subject to CIT in Peru at a standard rate of 29.5% prior to distribution. By contrast, foreign-source dividends and capital gains are typically derived from profits that have been taxed abroad, often at statutory CIT rates below those applicable in Peru, as the Peruvian statutory CIT rate is not particularly low. In addition, withholding taxes on dividends may be levied by the source jurisdiction upon distribution to a foreign jurisdiction, with applicable rates depending on the existence and terms of a bilateral tax treaty with Peru. Dividends received from Peruvian tax-resident companies constitute Peruvian source income and are subject to the 5% final dividend withholding tax when distributed to resident individuals. By contrast, dividends received from non-resident companies are treated as foreign-source income and must be aggregated with other foreign-source income and taxed under the progressive PIT schedule, with marginal rates ranging from 8% to 30%.

Investment through financial intermediaries does not allow the recharacterization of foreign-source equity income as domestic-source income. Most Peruvian investment funds (fondos de inversión) and mutual funds are treated as fiscally transparent vehicles for income tax purposes. As a result, the fund itself is generally not subject to CIT; instead, income is attributed directly to investors. Accordingly, distributions made by investment funds do not alter the source of the underlying income. Dividends derived from foreign companies continue to be classified as foreign-source income and are taxed in line with the applicable rules for foreign capital income, while dividends derived from Peruvian domiciled companies retain their preferential domestic tax treatment. For funds investing in both domestic and foreign assets, fund administrators are required to separately identify and track Peruvian-source and foreign-source income.

The differential treatment of domestic and foreign-source capital gains derived from the sale of securities is intended to encourage the investment of savings domestically rather than abroad, with some exceptions. While taxing foreign-source capital gains at progressive PIT rates may reduce incentives to invest abroad and, therefore, induce capital owners to save and invest in assets located in Peru, it may also mean that investors miss out on profitable savings opportunities. However, foreign-sourced derived from the sale of securities in the integrated stock exchange (MILA), which comprises the stock exchanges of Chile, Colombia and Mexico, are taxed at a 6.25% rate, in line with Peruvian-sourced capital gains derived from sale of securities. In addition, gains derived from the sale of securities sourced from another member country of the Andean Community are exempt from taxation in Peru in accordance with Decision 578.

The potential benefits of introducing a dividend imputation system in Peru appear limited, at least in the short run. Under a full dividend imputation framework, dividends are grossed up by the amount of (statutory or effective) CIT paid at the company level, with the resulting amount taxed at progressive PIT rates; shareholders are then granted a tax credit for the (statutory or effective) CIT paid on the distributed profits. In the Peruvian context, such a system would likely result in tax refunds for the majority of shareholders, as statutory PIT rates are generally below the CIT rate, with the exception of the top marginal PIT rate, which only marginally exceeds it. This would imply a substantial reduction in the effective tax burden on equity income. Given that dividend and capital income is predominantly earned by individuals in the upper part of the income distribution, the distributional implications of such a reform may raise equity concerns. The introduction of a partial dividend imputation system (under which only a fraction of the CIT paid at source is creditable, as implemented in Chile, for instance) would mitigate these effects to some extent; however, its impact on the overall tax burden on capital income would depend critically on the level of the imputation credit. In addition, dividend imputation systems tend to be administratively complex, particularly where the credit is linked to the effective (rather than the statutory) CIT paid. Their effective operation requires robust information systems and strong administrative capacity to track corporate level tax payments associated with dividend distributions.

The tax treatment of interest income differs across debt instruments. Interest earned on government bonds is exempt from taxation, which is an approach that can be found in other countries. However, also interest on savings accounts is tax-exempt. Moreover, interest on bonds issued by businesses generating income taxable under category 3 is subject to a reduced rate of only 5%. For legal entities, interest is treated as third-category income and is therefore included in total annual taxable income. The applicable tax rate depends on the company’s tax regime (29.5% for entities under the general regime, or 10% under the RMT, provided profits do not exceed 15 UIT).

Tax-induced incentives to incorporate differ across firms, reflecting heterogeneity in profitability and cost structures. The presumptive cost deduction of 20% of income under category 4 is primarily intended for individuals who provide services. Small but highly profitable unincorporated businesses with low operating costs may have limited incentives to incorporate, as PIT rates are lower than the combined statutory CIT and dividend tax rate. This is particularly the case where the presumptive cost deduction of 20% exceeds actual business expenses, resulting in a more favourable tax treatment under the PIT regime than under the CIT, which requires the declaration of actual costs. By contrast, firms with operating costs substantially above the presumptive threshold may face stronger incentives to incorporate and, therefore, being taxed under the RMT or the general CIT regime, as incorporation allows for the deduction of actual expenses. Therefore, assessing whether the 20% presumptive cost deduction under category 4 is appropriately calibrated remains an empirical question, requiring firm-level analysis of the types of businesses that choose to be taxed under either category 3 or 4, including information on cost structures across different types of businesses. Responses to the design of the tax system and the distortions it may create are expected to increase as informality is reduced and compliance levels rise.

The role of income tax withholding and information systems: general introduction

Withholding at source arrangements are generally regarded as the cornerstone of an effective PIT system and, depending on their design, they have been shown to be superior for achieving high levels of tax compliance. As is the case in Peru, the PIT levied on employment income is administered through a PIT withholding system in all OECD countries, except in Switzerland. PIT withholding systems also exist in most major non-OECD countries including China and India. Imposing the obligation on independent third parties such as employers and financial institutions to withhold an amount of tax from payments of income to taxpayers has major advantages (OECD, 2025[4]). PIT withholding enhances tax compliance by significantly reducing or even eliminating the ability of taxpayers to understate (employment and other) income for tax assessment purposes. It also reduces the incidence of unpaid taxes that might otherwise arise where taxpayers correctly report their income but are unable to pay all of the tax assessed. The timely remittance of amounts withheld by third parties to the revenue body also ensures a regular flow of revenue to government and assists budgetary management. Finally, PIT withholding systems are a cost-efficient way for both taxpayers and the revenue body to transact the payment of taxes. There are not only significant compliance-related benefits for individuals, but these systems also reduce administrative and enforcement costs for government.

“Cumulative” tax withholding regimes aim to ensure that, for most employees, the total amount of tax withheld over the course of a fiscal year is equal to their annual PIT liability. If this is achieved, employees are then exempt from the obligation to file an annual tax return. Under this approach, employees must provide their employers with details of any relevant entitlements that can be deducted from their earnings to help them determine the correct amount of tax. In some countries, such as Ireland and the UK, employees provide this information to the tax authority, which then advises the employer of a code that determines the amount to be deducted from earnings. Employers then withhold tax on income paid, as required, determining the amounts to be withheld on a progressive/cumulative basis over the course of the fiscal year. Under the cumulative approach, employees tend to have few tax expenditures they can claim, either in the form of tax allowances or tax credits, as this enables greater accuracy in calculating the amount of tax withheld over the course of a fiscal year vis-à-vis their end-of year tax liability.

The alternative, as is the case in Peru (see below), is described as “non-cumulative” PIT withholding. This operates on a “pay period” basis for each employee. Under this approach, employers withhold taxes for each pay period, taking into account the employee’s gross income and some, but not necessarily all, entitlements that may reduce the amount to be withheld, as well as the applicable withholding rate. When an employee changes jobs, their new employer simply beings the withholding process on the employee’s future income, regardless of their previous employment withholdings. However, as this approach involves a less precise form of withholding, the amount deducted for each employee over the course of a fiscal year only approximates their full-year tax liability. In these circumstances, employees are usually required to file annual tax returns to ensure the correct amount of tax is paid, while obtaining a refund of any overpaid tax or are charged an additional tax liability if the amounts withheld are too low, taking into account all categories of assessable income and entitlements (e.g. tax deductions and credits).

The effectiveness of PIT withholding systems depends on a combination of institutional, administrative, and compliance-related factors. The effectiveness of PIT withholding systems requires a high level of employer compliance and administrative capacity, since employers act as tax collectors and must be able to calculate, withhold, report, and remit taxes accurately and on time. The same applies to financial institutions or other agents that withhold PIT on capital income. Secondly, it requires reliable, up to date information flows between tax authorities and withholding agents, particularly where withholding rates depend on household circumstances or the PIT is levied at progressive tax rates. This is important in general, but even more so under cumulative PIT withholding systems. PIT withholding systems work best when the PIT base is broad and the number of tax expenditures is low, ensuring that the taxes withheld closely match the end-of-the-year final tax liability. Finally, effective withholding systems are supported by strong back-end mechanisms. While non-cumulative PIT withholding systems have to be complemented by the requirement to file an end-of-the year tax return by each individual taxpayer, reconciliation through annual tax returns should remain an option for taxpayers also under cumulative PIT withholding systems. Finally, the tax code must also include well-established legal rules that determine the withholding obligations. Moreover, the tax administration will have to monitor the complete and correct application of the withholding requirements and implement strategies to induce withholding agents to comply, including through the use of fines.

While PIT withholding is an important instrument to use in all countries, its effectiveness is inherently constrained by the limited reach of formal employment arrangements in countries with large informal economies. Since PIT withheld from employment income relies on employers acting as collection agents, its coverage is necessarily limited where a significant proportion of workers operate in the informal economy. This reduces the capacity of withholding to ensure broad-based, real-time tax collection and limits its effectiveness in reducing evasion. However, the use of withholding systems remains an important tool to administer the tax system. Nevertheless, in countries where taxpayer trust in public institutions is low, taxpayers may only support tax withholding when the system is perceived as transparent, predictable, and responsive to changes in income and household circumstances. As a result, in economies with high informality, PIT withholding is most effective when embedded within a broader compliance strategy that includes measures to encourage formalisation, strengthen information reporting, and support credible reconciliation and refund mechanisms to sustain taxpayer confidence.

The PIT withholding and information system in Peru

Peru operates a mandatory PIT withholding system, administered by SUNAT, for employment income and, in certain cases, also for other types of income. The employer estimates the employee’s annual gross income, deducts the basic tax allowance (the non-taxable amount equal to 7 tax units UIT) and, in case there is any remaining taxable income, applies the progressive PIT rate schedule. The resulting tax liability is shared over the months of the year for which there is an employment contract and remitted on a monthly basis to SUNAT. No PIT is withheld for workers earning less than 7 UITs. The withheld PIT is adjusted if the worker’s gross earnings change during the fiscal year. The withheld tax liability qualifies as the final tax for workers that have only one employer. The SUNAT may deduct up to 3 UIT based on information from financial transactions and electronic invoices.

Employees with multiple sources of labour income, as well as those seeking to deduct additional expenses from their taxable personal income, are required to file an annual end-of-the-year PIT return to reconcile their final tax liability. While some sources report that employees with multiple employers can inform the employer paying the highest salary of their other employment income, thereby enabling that employer to adjust the tax withholding accordingly, this arrangement would present significant practical and compliance challenges. In particular, it would mean that other employers could refrain from withholding PIT altogether. However, as employers do not receive verified information from SUNAT regarding their employees’ other employment relationships, they are unable to ascertain whether withholding obligations should be waived. Without reliable third-party information and systematic coordination, allowing selected employers to not withhold PIT would create a significant risk of under-withholding and increase opportunities for tax evasion.

Individuals who receive employment income and also earn income from other sources, such as personal services (e.g. consultancy activities), are required to file an annual tax return to declare these additional earnings. Businesses that purchase personal services are required to report these payments to the tax administration. This third-party reporting enables the tax administration to cross-check declared income and assess compliance more effectively. In addition, the paying business withholds a portion of the tax at source and remits it to the tax administration. This withheld tax is a prepayment of the individual’s final tax liability, and any excess is refunded upon assessment.

Different withholding tax arrangements apply to domestic-source capital income of tax-resident individuals. No tax is withheld on income from letting property in category 1, but taxpayers have to file a tax return to declare this income. From January 2026 onwards, rental income (first category) will be taxed on a cash basis rather than on an accrual basis. In light of this change, Peru could consider introducing a withholding tax on rental income with real estate agencies and platforms acting as withholding agents. Such a reform would need to be accompanied by additional enforcement measures to prevent that rental contracts are not registered to avoid category 1 tax. Dividend income in category 2, on the other hand, is taxed under the dividend tax in category 2, and this tax is withheld at source. As this is the final tax, dividend income does not have to be declared by the individual who received the dividends. The same applies to r interest income taxed under category 2. However, other category 2 income, such as capital gains realised on the sale of shares, has to be declared. If interest income from government bonds and savings bank deposits were included in the tax base, it would be straightforward for a financial intermediary to levy and remit the withheld tax to SUNAT. However, capital gains from the disposal of immovable property are not subject to withholding tax. Nevertheless, administrative procedures require the tax to be settled before the transfer can be completed.

Although domestic-source dividends distributed to resident individuals are subject to a final withholding tax and, therefore, do not need to be declared in PIT returns, the tax administration still collects information on dividend distributions. In order to strengthen tax compliance and improve income verification, it is important that firms, financial institutions and other financial intermediaries report dividend income received by individuals to the tax administration systematically. Comprehensive third-party reporting would facilitate cross-checking and risk-based enforcement. It would also enable better tax policy analysis, as the total income of taxpayers could be analysed. A key challenge in this context arises in relation to dividends distributed by non-listed companies, where withholding and reporting obligations may be applied less consistently, thereby limiting the tax administration’s ability to detect non-compliance.

Individuals need to declare foreign-source income. Tax-resident individuals are subject to PIT on their foreign-source income. This includes income derived from leasing real estate located abroad, interest earned on bank deposits held with financial institutions outside the country, income obtained from providing services performed abroad, and dividends received from listed and non-publicly traded foreign companies. Capital gains arising from selling shares issued by foreign companies, whether such shares are traded on foreign stock exchanges or the Lima Stock Exchange, are also taxable under the PIT and, therefore, needs to be declared.

The accuracy of the self-declared foreign-source capital income can be verified by cross-checking the data with information that SUNAT receives from foreign tax administrations via the Automatic Exchange of Financial Account Information (AEOI). This exchange operates under the OECD’s Common Reporting Standard (CRS), which requires participating jurisdictions to collect information from financial institutions on accounts held by non-residents and automatically transmit that information to the tax administration of the taxpayers’ country of tax residence (OECD, 2025[5]). Through the CRS framework, SUNAT gains access to standardised data on foreign bank accounts, investment income, and account balances. This significantly strengthens its ability to detect omissions, under-reporting of foreign-source capital income, or inconsistencies in declarations made by individuals who are resident for tax purposes in Peru.

However, the non-cumulative design of Peru’s PIT withholding system poses structural challenges to the effective application of the progressive PIT rate schedule, particularly for individuals with multiple sources of employment income. Since each employer calculates withholding independently and without aggregating income, progressive taxation cannot be fully enforced through withholding alone, and final tax liability must be resolved ex post through annual assessment.

Reform recommendations to strengthen the PIT in Peru

Peru operates a schedular PIT system. Employment (category 5) and self-employed income (category 4) are taxed jointly under a progressive PIT rate schedule. Actual business costs incurred are not deductible but self-employed entrepreneurs can deduct a presumptive deduction instead. At 7 UIT, the PIT exemption threshold for employment income is very high, which weakens the role of the PIT and suggests scope for a reduction. For most taxpayers, the exemption threshold is even higher as taxpayers can claim certain expenses up to 3 UIT. Lowering the threshold would broaden the tax base, but it should remain at a level that does not create significant incentives for tax evasion. If a large share of workers earns income close to the exemption threshold, employers may have incentives to under-declare reported wages to avoid withholding obligations and shift part of compensation into undeclared payments. In the short term, if the threshold is lowered more gradually, this should be accompanied by measures that strengthen reporting requirements and auditing by SUNAT. As currently is the case, employers should be required to report all employee earnings to the tax administration, regardless of income level, to support compliance and promote formalisation.

Capital income is taxed separately but the capital income tax rules vary across sources of finance (debt or equity), types of capital (immovable property or other capital) and sources of capital income (domestic economy, Andean Community or other countries). The PIT in Peru can therefore not be classified as a “Dual Income Tax” (but rather as a “multiple income tax”). There is scope to increase the taxes on dividends and capital gains, taking into account that the statutory and effective CIT rates in Peru are not particularly low. A tax rate of 10% seems feasible. The tax burden on bonds and immovable property that is let is particularly low. If the tax rate on category 2 income is increased, Peru is advised to also review the special treatment of foreign-source income derived from the sale of securities in the integrated stock exchange (MILA).

In the short term, different reform options could be considered, but it is important that these measures are aligned with the long-term reform direction. For instance, rather than taxing rental income and interest payments jointly with category 5 income, a more preferable reform would be to continue taxing these capital incomes separately, but at rates higher than currently apply. Over time, first and second category income streams could be taxed together.

Over time, Peru could introduce a Dual Progressive Income Tax, which would tax employment and capital income separately under their own progressive tax rate schedule. As part of this reform, the capital income tax burden could be slightly shifted from the corporations to individual shareholders. This would involve a number of reforms. Firstly, the statutory CIT rate could be reduced to the average rate found in OECD countries, while the tax rate on domestic-sourced capital income could be increased. Although a cut in the statutory CIT rate was introduced in 2016, it was reversed in 2018 as the reform did not produce the expected results and reduced tax revenues. This past experience shows that any cut to the statutory CIT rate should form part of a broader reform that strengthens Peru’s investment climate. Such a reform would also create an opportunity to align the tax treatment of domestic and foreign-sourced equity income, reducing compliance costs for SUNAT and financial intermediaries alike as it would allow to align the withholding tax treatment. Other types of capital income could be integrated in the equity tax base, including interest payments and, possibly, rental income. This would introduce a genuine Dual Income Tax in Peru. However, the introduction of a comprehensive income tax that would tax labour and capital income jointly under a single progressive tax rate schedule does not seem to be a preferred option, at least in the short term, as it would result in a significant increase in the tax burden on capital income due to the relatively high statutory CIT rate. Furthermore, the introduction of a (partial) dividend imputation system would place a significant burden on SUNAT and taxpayers. In fact, total capital income could be taxed at mildly progressive tax rates under a Dual Progressive Income Tax system. A basic tax allowance of up to 0.5 UIT, for example, could exempt a small amount of capital income from tax, meaning lower-income households would not pay tax on the interest from their savings account. Taxpayers would be incentivised to file a tax return so that they can claim a refund if they have paid more in withholding tax than their final tax liability. Alternatively, financial institutions would only levy withholding tax on interest income above a certain amount.

PIT compliance is supported by a non-cumulative PIT withholding system. Although SUNAT uses various sources of third-party information, there is still room to improve the reporting requirements and the use of information provided by third parties. Moreover, strengthening the information that SUNAT receives about capital income earned by individual taxpayers, both domestically and abroad, will enable the government to broaden capital income tax bases, increase rates, and strengthen tax compliance and overall tax progressivity gradually over time. SUNAT is encouraged to make increased use of AEOI and EOIR to verify the accuracy of taxpayers’ declarations of foreign-source income. Furthermore, a withholding tax could be introduced on capital gains from the sale of immovable property, with the notary acting as the withholding agent or, at least, the agent that verifies that the tax has been paid before the transaction is registered.

Although withholding tax on dividends distributed to resident individuals is final and therefore does not need to be declared in the PIT return, systematic information reporting is still important for effective tax administration. Financial intermediaries and businesses that distribute dividends and pay other types of capital income, including currently tax-exempt income such as returns on savings accounts and government bonds, should be required to report these payments to the tax administration, regardless of their final tax treatment. This would enable the tax administration to use the information for compliance and audit purposes, including to verify the origin of funds invested in shares and bonds, and to assess its consistency with other declared income.

Greater use of third-party information would strengthen compliance and improve the accuracy of income reporting. Self-declared rental income, in particular, could be verified more effectively by systematically cross-checking declarations against information from fiscal cadastres and other administrative registers on real estate ownership. Integrating these data sources would enable the tax administration to more easily identify the under-reporting and non-declaration of rental income. Enhanced data matching would also support a more risk-based approach to enforcement. Overall, optimising the use of existing third-party information would contribute to the fairer and more effective taxation of rental and foreign-source income.

The institutional foundations for broader income aggregation are already partially in place and could possibly be further developed by SUNAT. SUNAT uses various sources of information to determine individuals’ tax liabilities. While individuals have to declare certain types of income, including foreign-source income, SUNAT also receives third-party information on other types of income. The existence of reporting mechanisms and the taxation of foreign-source income – the accuracy of which needs to be assessed – demonstrate that the institutional foundations for broader income aggregation are already partially in place. This suggests scope for reform towards a dual progressive income tax system that applies a separate but progressive rate schedule to aggregated capital income, including dividends, realised capital gains, interest and rental income. This would enhance equity and internal consistency while remaining compatible with existing administrative constraints.

References

[1] Hourani, D. et al. (2023), “The taxation of labour vs. capital income: A focus on high earners”, OECD Taxation Working Papers, No. 65, OECD Publishing, Paris, https://doi.org/10.1787/04f8d936-en.

[2] Hourani, D. and S. Perret (2025), “Taxing capital gains: Country experiences and challenges”, OECD Taxation Working Papers, No. 72, OECD Publishing, Paris, https://doi.org/10.1787/9e33bd2b-en.

[5] OECD (2025), Consolidated text of the Common Reporting Standard (2025): Standard for Automatic Exchange of Financial Account Information in Tax Matters, OECD Publishing, Paris, https://doi.org/10.1787/055664b1-en.

[4] OECD (2025), Tax Administration 2025: Comparative Information on OECD and other Advanced and Emerging Economies, OECD Publishing, Paris, https://doi.org/10.1787/cc015ce8-en.

[3] OECD (2018), Taxation of Household Savings, OECD Tax Policy Studies, No. 25, OECD Publishing, Paris, https://doi.org/10.1787/9789264289536-en.

Note

← 1.  Decision 578 of the Andean Community.