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Pursuant to a modification to Peruvian income tax law approved in 2018, the EBITDA rule has replaced the thin capitalization rule for purposes of determining the interest expense amount that taxpayers may deduct from taxable income, beginning January 1, 2021. 

Under the EBITDA rule, the amount of interest expense arising from related and unrelated party loans that taxpayers may deduct from taxable income is limited to 30% of its EBITDA from the previous fiscal year.  For these purposes, EBITDA is defined as taxable earnings before interest income and expense, depreciation and amortization.  Interest expense that exceeds the threshold could be carried forward and deducted in the next four fiscal years.  Taxpayers that incorporate or start their operations during the year will consider the EBITDA from their year of incorporation or starting of activities.

The EBITDA rule will apply irrespective of whether the interest expense arises from obligations that were issued before January 1, 2021.

Finally, the EBITDA rule does not apply to taxpayers whose net profits do not exceed 2500 Peruvian Tax Units (currently approx. USD 3 million) and taxpayers that develop public infrastructure projects or public services under Legislative Decree No 1224 (which regulates the private investment promotion framework through public private partnerships), among other exceptions.