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PERU International Comparison of Insurance Taxation January 2005

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PERU International Comparison of Insurance Taxation January 2005

PERU – General Insurance 1

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Definition

Accounting

Taxation

According to the Glossary annexed to the General Law for the Financial and Insurance System, an insurance company is defined as that whose object is to enter into contracts by means of which it compromises to (within certain limits and in exchange for a premium) indemnify a given damage or to provide capital, income or other agreed action in case of the occurrence of a pre- determined future and uncertain event.

A company to which insurance legislation applies.

Not defined by tax legislation.

Commercial Accounts/Tax and Regulatory Returns

Accounting

Taxation

Basis for the company's commercial accounts

Generally accepted accounting principles as set out in mandatory chart of accounts.

N/A

Regulatory return

A separate return (financial statements) as issued by the Regulatory Authorities (SBS).

N/A

Tax return

N/A

A separate return as required by the tax authorities (monthly and annually).

Technical Reserves/ Equalisation Reserves

Accounting

Taxation

Unearned premium reserves (UPR)

Calculated monthly by apportionment on premiums less acquisition expenses. 1/24th is usually used.

Allowed as deduction.

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PERU International Comparison of Insurance Taxation January 2005

PERU – General Insurance

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(continued)

Unpaid claims reported

Calculated based either on the estimated claim plus expenses or on the average cost per similar claims multiplied by the number of occurrences, excluding the portion recoverable from re-insurers.

Allowed as deduction

Claims incurred but not reported (IBNR)

Applying formula based on recent experience.

Allowed as deduction.

Non-expired risks

Not separately provided. The provision is covered by the unearned premium reserve.

Would be deductible if approved by the SBS.

General contingency/solvency reserves

Determined based on formula given by the SBS, based on annual retained premiums or total retained claims over the last three years.

Not allowed.

Equalisation/catastrophe reserves

The catastrophe reserve is constituted according to a formula established by the SBS. There are no provisions to allow equalisation reserves.

Catastrophe reserve is deductible.

Expenses/Refunds

Accounting

Taxation

Acquisition expenses

Charged in full in year incurred.

Allowable proportion matched against unearned premium reserve.

Loss adjustment expenses on unsettled claims (Claims handling expenses)

Provided by reference to previous experience.

Allowed when amount is determined..

Experience-rated refunds

Credited when earned.

Taxed when taken to profit and loss account.

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PERU International Comparison of Insurance Taxation January 2005

PERU – General Insurance 5

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(continued)

Investments

Accounting

Taxation

Gains and losses on investments

Fluctuations in value are taken to reserves (for fluctuations in value of securities). Realised gains and losses are included in P&L account.

Realised gains and losses are included in taxable income.

Investment reserves

All investments valued at lower of cost or market value.

Tax deductible only up to current year's adjustment for inflation.

Investment income

Included in P&L account.

Dividends are excluded from taxable income.

Reinsurance

Accounting

Taxation

Reinsurance premiums and claims

Reinsurance premiums paid/payable are recorded separately from gross premiums. Claims recoveries are recorded separately from claims paid/payable.

Follows accounting treatment.

Mutual Companies

Accounting

Taxation

Mutual companies (All profits returned to members)

No special treatment.

No special treatment.

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PERU International Comparison of Insurance Taxation January 2005

PERU – Other Tax Features 8

Further corporate tax features

Taxation

Loss carryovers

Four-year carry forward, starting-year profit is first determined.

Foreign branch income

Branches of resident company consolidated with parent company’s income and taxed on total income. Branches of non-resident company are treated as corporations and taxed at 27% on income earned annually plus an additional tax of 4.1% on deemed distributions.

Domestic branch income

Treated as though local corporation and taxed in the same way. Only income earned locally is taxed.

Corporate tax rate

Tax rate is 27% plus an additional 4.1% on dividends and profit distribution.

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PERU International Comparison of Insurance Taxation January 2005

PERU – Other Tax Features 9

(continued)

Other tax features

Taxation

Premium taxes

Premiums are subject to General Sales Tax at 18%, save for Life insurance premiums invoiced to individuals, premiums which are transferred from Pension Plan Administrators to re-insurance companies and premiums issued according to the ‘Credit Insurance for Small Companies’ established by Legislative.

Capital taxes

Not applicable.

Captive insurance companies

If domiciled, they are taxed as any other regular entity. If not, they would be taxed only on their net Peruvian source income (7% of the premiums earned).

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PERU International Comparison of Insurance Taxation January 2005

PERU – Life Insurance 1

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Definition

Accounting

Taxation

According to the Glossary annexed to the General Law for the Financial and Insurance System, Life Insurance Companies are defined as those whose main coverage are the risks that may affect the existence of the insured individuals. These companies are allowed to additionally offer benefits based on the individual’s health or for the case of accidents, provided said benefits are included within the Life insurance policy, as well as those insurance contracts based on retirement plans.

A company that carries on Life Assurance business. (No pure Life Assurance company is currently in business).

If domiciled, they are taxed as any other regular entity. If not, they would be taxed only on their net Peruvian source income (7% of the premiums earned).

Commercial Accounts/Tax and Regulatory Returns

Accounting

Taxation

Generally accepted accounting principles as set out in mandatory chart of accounts.

Not applicable.

Basis for the company's commercial accounts

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Regulatory return

A separate return (financial statements) as issued by the Regulatory Authorities (SBS).

Tax return

Not applicable.

A separate return as required by the tax authorities (monthly and annually).

General approach to calculation of income

Accounting

Taxation

Allocation of income between shareholders and policyholders

Accounted separately. Splitting is based on actuarial calculation

Policyholder's income is deductible.

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PERU International Comparison of Insurance Taxation January 2005

PERU – Life Insurance 4

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(continued)

Calculation of investment return

Accounting

Taxation

Calculation of investment income and capital gains

Included in P&L account.

Dividends are excluded from taxable income.

Calculation of underwriting profits or total income

Accounting

Taxation Tax deductible.

Actuarial reserves

Based on actuarial calculation. A formula established by the SBS applies to certain insurances.

Acquisition expenses

Charged in full in year incurred

Tax deductible immediately.

Gains and losses on investments

Fluctuations in value are taken to reserves. Realised gains and losses are included in P&L Account.

Realised gains and losses are included in taxable income.

Reserves against market losses on investments.

All investments valued at lower of cost or market value.

Tax deductible only up to current year’s adjustment for inflation.

Dividend income

Included in P&L Account.

Excluded from taxable income.

Policyholder bonuses

No rules provided.

Not deductible.

Other special deductions

None.

None.

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PERU International Comparison of Insurance Taxation January 2005

PERU – Life Insurance 6

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(continued)

Reinsurance

Accounting

Taxation

Reinsurance

Premiums paid/payable are recorded separately from gross premiums. Claims recoveries are recorded separately from claims paid/payable.

Follows accounting treatment.

Mutual companies/Stock companies

Accounting

Taxation

Mutual companies

No special treatment.

No special treatment.

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PERU International Comparison of Insurance Taxation January 2005

PERU – Other Tax Features 8

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Further corporate tax features

Taxation

Loss carryovers

Four-year carry forward, starting-year profit is first determined..

Foreign branch income

Taxed. Foreign tax credit allowed with limits. It may be exempt under treaty.

Domestic branch income

Branches of resident company consolidated with parent company's income and taxed on total income. Branches of non-resident company are treated as corporations and taxed at 27% on income earned locally plus an additional tax of 4.1% on deemed distributions.

Corporate tax rate

Tax rate is 27% plus an additional tax of 4.1% on dividends and profit distributions.

Policyholder taxation

Taxation

Deductibility of premiums

Not allowed for the employee. However, employer can deduct Life insurance premiums paid in benefit of its employees.

Interest build-up

Not taxable until paid.

Proceeds during lifetime

Taxable

Proceeds on death

Not taxable.

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PERU International Comparison of Insurance Taxation January 2005

Contact information >

Rudolf M. Roder PricewaterhouseCoopers Canaval y Moreyra 380 Lima 27, Peru tel: (51) (1) 211 6500 fax: (51) (1) 211 6565 e-mail: [email protected]

* Last updated in 2000.

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