July 23, 2018
On 30 April 2018, SUNAT issued a report[1] in response to a question raised regarding the tax treatment in Peru of life insurance products issued by foreign insurers. The points affected by the consultation are those related to the tax treatment of (i) insurance compensation payable to the beneficiaries in the event of death of the insured, and (ii) partial redemptions made by the policyholder.
Tax treatment of insurance payouts
On this point, SUNAT has confirmed that life insurance benefits originating from the death of the insured and received by natural persons residing in Peru, is excluded from the application of Peruvian Income Tax. This is valid regardless of the origin of the insurance company, that is, the payment of insurance compensation paid by a foreign insurer would be exempt from taxation in the same way in Peru, as long as the insurance policy was fully valid under applicable law. This last point, not being strictly about taxation, also has some relevance because it implies that a foreign life insurance product has the same validity, for the purposes of the Peruvian tax authorities, as a local insurance product. This is totally logical and legitimate and confirms the principle of non-discrimination between products offered by local and foreign insurers to customers residing in Peru.
Tax treatment in case of partial redemption of life insurance policies
On this point, SUNAT has indicated that the amounts redeemed from a foreign life insurance policy cannot be considered as income from Peruvian sources and that, therefore, they would not be included in the income tax exemptions provided for in subsection f) of article 19 of the Law on the Peruvian Income Tax. To reach this conclusion, SUNAT relies on parliamentary work linked to the draft bill to reform the said article in order to argue that the legislator introduced the exemption measure linked to life insurance policies with the aim of promoting the development of the local insurance market and not necessarily the foreign insurance sector with potential customers in Peru.
Therefore, in case of partial redemption of a life insurance policy issued by a foreign insurer, Peruvian Income Tax would be applicable to the capital gains realised in the framework of said redemption. On the other hand, it should be noted that in the case where no insurance redemption is carried out by the Peruvian resident policyholder, all the income and yields accumulated under the policy, would do so under the full tax deferral regime, with no fiscal impact on the policyholder.
With all that said, however, we consider that there are multiple planning possibilities that allow optimizing the tax treatment of insurance policies for Peruvian residents with specific tax, estate and/or inheritance planning needs. For this question or any other question about “unit-linked” insurance products linked to investment funds intended for investors who are residents in Peru, do not hesitate to contact us.
José Manuel Tara, Regional Director Iberia & Latam, at OneLife
Luis De La Infiesta, Regional Sales Director Iberia & Latam, at OneLife at OneLife
Gonzalo Garcia-Perez, Wealth Planner Manager for Iberia and Latam markets, at OneLife
Author: Gonzalo Garcia-Perez
[1] REPORT No. 042-2018-SUNAT/7T0000
