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On August 12, 2022, Peru's President enacted Law 31556, establishing a temporary VAT rate reduction for activities conducted by restaurants and hotels. According to the law, the purpose of the temporary VAT rate reduction is to promote the economic reactivation of the hospitality sector.

Background

Generally, transactions carried out in Peru are subject to a total VAT rate of 18%, which is composed of a 2% promotion municipal tax and a 16% VAT.

Law 31556

Law 31556 temporarily reduces the VAT rate from 16% to 8% for hotels and restaurants. The promotion municipal tax remains at 2%.

Accordingly, the effective tax rate for hotels and restaurants will be 10% (comprised of the reduced 8% VAT rate plus the 2% promotion municipal tax).

Law 31556 establishes that the reduced VAT rate applies when:

• The taxpayer's primary business is conducting hotel and restaurant activities
• At least 70% of the taxpayer's total income comes from hotel and restaurant activities
• The taxpayer is a part of the micro and small companies' regime (meaning annual sales of no more than approx. USD 2,057,890)

Under Law 31556, Peruvian companies that are part of a domestic or international economic group will not benefit from the VAT reduction. The law defines "economic group" as a group of companies under the control of the same legal entity or individual.

The total reduced VAT rate of 10% is effective from September 1, 2022, to December 31, 2024.

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