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Expense Reimbursement in Peru: A Guide for Overseas Employers

When you hire employees overseas there are going to be different rules on how expenses can be paid and reimbursed, and many of those practices will be different from your home country.  In that case, how will your company and employees make sure that you are following the correct rules, and avoiding unnecessary taxes or penalties?

We explain the basics of Peruvian expense reimbursement in this guide, but at some point, you will need to find an ongoing resource to assist with this important aspect of international employment.

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Expense Reimbursement Rules in Peru

In Peru, companies can pay certain employee expenses directly and deduct for tax purposes, including most expenses for the production of income.

On the employee side, the following expenses are non-taxable if they are included in the employment contract and paid via an accepted method:

  • Fuel and maintenance for a company provided vehicle
  • For expats, the first three months of lodging and food in Peru
  • Travel and moving expenses to and from Peru

Acceptable Payment Methods for Corporate Expenses in Peru

When your company reimburses or pays employee expenses directly, it must be done via non-cash methods within the Peruvian financial system. This includes bank deposits, credit cards, and wire transfers.  Otherwise, the payment could be viewed as a taxable benefit to the employee.

Case Example: Can you reimburse your employee directly for their expenses in Peru?

We had a client in Peru that wanted to reimburse an employee for expenses, and asked us if they could do so directly using a US-based credit card method.

Our response was that this would bring up a number of compliance-related issues in Peru, and would affect the taxable status of the payment.

Because the credit card was in the client’s name in the US, it would not meet the requirement of being within the Peruvian financial system.  This could mean the reimbursement would be a taxable benefit to the employee and would affect corporate tax deductibility as well.

We recommended that all expenses be run through the local GEO employer of record in Peru, for the following reasons:

  1. If directly reimbursed, it won’t be reviewed or invoiced as a non-taxable benefit
  2. If there is an audit, the employee will have non-declared income from a foreign entity
  3. The payment would tie the client to Peru as having business activity (rather than the EOR as a legal employer).

In the end, we felt the risks of non-compliance were too great, and recommended that the client make an interest free loan as an expense advance to the employee to be paid back on termination.

Need More Information About Peru?

As this example illustrates, even something as simple as expense reimbursement can bring up compliance problems in a foreign country.  If you are hiring employees in Peru, you have to ask yourself how are you going to manage this on your own without in-country experts to assist you?

Our solution does just that, through our local employer of record that is already well versed in employment and payroll laws in the foreign jurisdiction.  Our account managers walk you through every step of hiring staff overseas, while our local partners manage payroll and expenses for your employees.  We make international employment simple.

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Looking to hire an employee in Peru? Get in touch.

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