Peru Rental Income Guide

Rental Income Classification — First-Category Income (Rentas de Primera Categoría)

• First-category income (Rentas de Primera Categoría): The rental income from the real estate (the "alquiler de bienes inmuebles") — the residential property, the commercial property, the land — is classified as the "first-category income" (the "rentas de primera categoría") under the Peru Income Tax Law (the "Ley del Impuesto a la Renta"). The rental income also includes: (a) the "sublease income" (the "subarrendamiento"), (b) the "improvements made by the tenant" (the "mejoras") that increase the property value, (c) the "premium for the lease assignment" (the "cesión de derechos").
• Taxation at the progressive IIT rates (8% to 30%): The rental income is added to the taxpayer's total annual income and is subject to the "Impuesto a la Renta" at the progressive rates: (a) 8% on the first 5 UIT, (b) 14% on 5 to 20 UIT, (c) 17% on 20 to 35 UIT, (d) 20% on 35 to 45 UIT, (e) 25% on 45 to 55 UIT, (f) 30% on the income exceeding 55 UIT. The rental income does NOT have the separate tax rate — it is aggregated with the other income categories.
• No separate rental tax: Peru does NOT have the separate tax on the rental income — the rental income is included in the general income tax return (the "Declaración Jurada Anual del Impuesto a la Renta") together with the employment income, the business income, and the other income sources.

20% Deemed Deduction (Deducción del 20%)

• Standard method — 20% deemed deduction: The individual landlord may elect the "standard deduction" — the 20% deemed deduction (the "deducción del 20%") of the gross rental income as the "deemed expenses". The remaining 80% of the gross rental income is the "taxable rental income" (the "renta neta de primera categoría") included in the annual tax return.
• Example calculation: The monthly rent of S/ 3,000 (S/ 36,000 per year). The deemed deduction is S/ 36,000 × 20% = S/ 7,200. The taxable rental income is S/ 36,000 × 80% = S/ 28,800. At the 14% marginal tax rate (for the total income within the 5 to 20 UIT bracket), the tax on the rental income is S/ 28,800 × 14% = S/ 4,032.
• No documentation required: The 20% deemed deduction does NOT require the receipts or the supporting documents. The deduction is applied automatically in the tax return calculation. The landlord simply reports the gross rental income and the system applies the 20% deduction.

Alternative Actual Expense Deduction

• Actual expenses method: The landlord may elect the "actual expenses" (the "gastos reales") deduction IF the total actual expenses exceed the 20% deemed deduction. The deductible actual expenses include: (a) the "municipal property tax" (the "Impuesto Predial" — the annual property tax), (b) the "maintenance and repair costs" (the "gastos de mantenimiento y reparación"), (c) the "property insurance premiums" (the "primas de seguro"), (d) the "mortgage interest" (the "intereses de hipoteca") on the loan used to acquire the rental property, (e) the "management fees" (the "comisiones de administración") paid to the property manager, (f) the "depreciation" (the "depreciación") of the building at the rate of 3% per year on the construction cost.
• Record-keeping requirement: The actual expenses method requires the complete documentation — the receipts (the "comprobantes de pago"), the invoices (the "facturas"), and the bank statements. The expenses must be directly related to the rental activity and must be properly substantiated. The SUNAT may request the supporting documents during the tax audit (the "fiscalización").
• Comparison example: For the rental property with the annual rent of S/ 36,000 and the actual expenses of S/ 10,000 (the property tax, the insurance, the maintenance): the deemed deduction is S/ 7,200 (20%). The actual expenses of S/ 10,000 exceed the deemed deduction, so the landlord should elect the actual expenses method to reduce the taxable rental income to S/ 26,000 (S/ 36,000 minus S/ 10,000).

5% Withholding Tax (WHT) on Rent

• 5% WHT by the business tenant: The tenant that is the "business entity" (the "persona jurídica" or the "empresa") must withhold 5% of the monthly rental payment as the "withholding at source" (the "retención en la fuente") and remit it to the SUNAT. The withholding is the "advance payment" (the "pago a cuenta") of the landlord's annual income tax liability.
• Withholding procedure: The business tenant: (a) withholds 5% from the gross rent, (b) issues the "withholding certificate" (the "Certificado de Retención" or the "Recibo por Honorarios" for the rental payments), (c) remits the withheld amount to the SUNAT through the monthly PDT, (d) provides the withholding certificate to the landlord by the end of the tax year.
• Landlord reporting: The landlord reports the gross rental income and the 5% withholding on the annual tax return. The withholding is credited against the total income tax liability. If the withholding exceeds the total tax due, the landlord receives the refund (the "devolución de impuestos") from the SUNAT.

FAQs

Is the rental income subject to the IGV?

The residential rental income is generally EXEMPT from the IGV (the "Impuesto General a las Ventas" at 18%). The commercial rental income (the rent of the "commercial premises", the "offices", the "warehouses") is subject to the IGV if the landlord is the "business entity" (the "empresa") or the "individual with the ongoing rental business". The individual landlord renting the single property is NOT required to charge the IGV.

What about the rental of the furnished property?

The rental of the "furnished property" (the "bien amueblado") — the residential or the commercial property with the furniture and the appliances — is treated as the standard "first-category income". The rental income is reported as the aggregate rent (the "renta total") including the furniture. The 20% deemed deduction covers all the expenses including the furniture depreciation.

Does the non-resident landlord pay the Peru tax on the rental income?

Yes. The non-resident (the "no domiciliado") who owns the property in Peru and receives the rental income from the Peru-source property is subject to the Peru income tax. The tax is withheld at the source by the tenant at the rate of 5% (for the individuals) or 30% (for the non-residents without the RUC). The non-resident must appoint the "tax representative" (the "representante fiscal") in Peru.