Getting a SUNAT notice in Lima while a US tax deadline is bearing down back home is a special kind of stress, and it catches a lot of Americans in Peru off guard. Moving to Peru does not pause your obligation to the IRS. It adds a second filing system on top of the one you already have, and the two systems do not talk to each other or automatically prevent you from being taxed twice on the same income.
Do US Citizens Living in Peru Have to File Both Peru and US Tax Returns?
Yes. SUNAT looks at your residency and where the income came from; the IRS runs neither test on a citizen. Holding a US passport or green card by itself creates a worldwide income filing requirement that follows you to Lima the same way it would follow you to Miami. The two systems apply completely separate tests, so clearing SUNAT's bar does nothing to clear the IRS's.
SUNAT determines whether you are a Peruvian tax resident using tests centered on physical presence, generally treating someone who spends more than 183 days in Peru within a 12-month period as a resident subject to tax on worldwide income, with nonresidents typically taxed only on Peru-source income. A US citizen who has lived in Lima, Arequipa, or Cusco for decades and rarely sets foot in the United States still owes an annual Form 1040 reporting every dollar of worldwide income, from a Peruvian salary to interest on a US savings account. Missing this filing does not make the obligation disappear; it accumulates penalties and interest, and it can complicate a future US passport renewal if the IRS certifies a seriously delinquent tax debt.
Treat the two filings as parallel tracks reconciled every year, not a single combined process. Peruvian income gets reported on both returns, and the mechanisms described below exist to prevent that overlap from becoming double taxation.
How Does Peru Tax Residents?
Peru applies a residency-based system where tax residents are taxed on worldwide income and nonresidents are taxed only on Peruvian-source income, with the specific rates and categories set by Peruvian law rather than the US tax code. Employment income, business income, and investment income are generally taxed under different schedules.
This guide intentionally skips specific Peruvian tax rates or bracket thresholds, since those figures change and a stale number does more harm than a qualitative description. What matters for US planning is the general shape: Peru generally imposes meaningful tax on employment and business income, exactly the fact pattern that makes the Foreign Tax Credit attractive, since a credit is only as valuable as the foreign tax actually paid. Confirm current rates and deductions with a Peru-qualified advisor or SUNAT's own guidance before filing.
Should You Claim the FEIE or the Foreign Tax Credit on Peru Income?
Most Americans in Peru come out ahead with the Foreign Tax Credit instead of the Foreign Earned Income Exclusion, because Peruvian tax on wages and self-employment earnings tends to run comparable to or higher than US rates, so the credit typically offsets US tax dollar for dollar and often wipes it out completely. The FEIE only ever reaches earned income, which is why expats renting out a Lima or Miraflores apartment are often surprised that rental income gets none of the exclusion; it, along with investment income and AFP pension distributions, stays fully taxable with no FEIE relief available.
The Foreign Earned Income Exclusion, claimed on Form 2555 under IRC Section 911, lets a qualifying taxpayer exclude foreign earned income up to an annually indexed cap, $130,000 for the 2025 tax year, a ceiling that covers most salaried Americans working for a multinational or teaching in Lima but falls short for a senior expat executive. It reaches only pay for services actually performed abroad, so a Peruvian rental property, dividends, or capital gains get nothing from it, and it leaves self-employment tax untouched, so a self-employed American in Peru still owes the full 15.3 percent on excluded earnings and can lose the refundable Additional Child Tax Credit. Elect it, then drop it later, and the IRS locks you out of re-electing for five years without its consent.
The Foreign Tax Credit, claimed on Form 1116 under IRC Sections 901 and 904, works differently: it credits US tax liability, dollar for dollar, for income tax actually paid to Peru, computed separately by income category or "basket," and since no treaty tie-breaker or reduced rate applies, the credit runs against whatever SUNAT actually assesses. Unused credit carries forward rather than disappearing, as detailed in the comparison below. For a salaried employee facing high Peruvian withholding, the credit typically zeroes out US tax on that wage income while also reaching investment income the FEIE could never touch. Some households split the approach, claiming the FEIE on a lower-earning spouse's wages while running the FTC on everything else, since both can apply within the same return against different income streams.
Is There a US-Peru Tax Treaty, and What If There Isn't?
No, the United States and Peru do not have an income tax treaty in force, which means there is no treaty tie-breaker rule for dual residency, no treaty-reduced withholding rate on cross-border payments, and no treaty article to fall back on when Peruvian and US tax rules produce overlapping tax on the same income. Every one of these gaps has to be filled by unilateral relief under the US domestic Foreign Tax Credit rules instead.
For expats in countries that do have a treaty with the United States, the treaty typically resolves dual residency with tie-breaker tests, reduces withholding on certain pension or interest payments, and clarifies how specific income types are sourced. Peru offers none of that, and even where a US treaty exists elsewhere, its "saving clause" usually lets the United States keep taxing its own citizens as though the treaty were not in effect, so a treaty is never a full exemption for citizens abroad anyway. Without a treaty at all, the Peru analysis simplifies to one question: what foreign tax was actually paid, and how much can be credited under Form 1116. There is no Form 8833 treaty-based return position to file for Peru income, because there is no treaty position to take.
The absence of a treaty also means there is no article addressing pension deferral, so Peruvian retirement accounts need separate analysis under general US rules instead, covered below, and no US-Peru totalization agreement, so self-employed Americans in Peru can owe both US self-employment tax and Peruvian social security on the same earnings, with no certificate of coverage to avoid the overlap.
Are Peru Investment Funds Taxed as PFICs?
Yes. Fondos mutuos, the default mutual funds Peruvian banks and brokerages sell as everyday savings vehicles, along with other pooled and collective investment structures, are generally classified as Passive Foreign Investment Companies under IRC Section 1297, a US tax regime with no relation to how favorably Peru itself treats those funds. Long-term Peru residents get blindsided the moment a local advisor recommends a popular fondo mutuo with no idea what it triggers on the US side.
A PFIC is broadly defined as a foreign corporation where a majority of income is passive, or a majority of assets generate passive income, broad enough to sweep in essentially every fondo mutuo a Peruvian bank would pitch as an ordinary savings vehicle. Absent a timely QEF or mark-to-market election, the default excess-distribution regime under IRC Sections 1291 and 1298 taxes gains and certain distributions at the highest ordinary rates spread across the holding period, adds an interest charge treating the deferred gain as if it accrued evenly and sat untaxed the whole time, and requires a separate Form 8621 for every fund held. The most common fix is skipping Peru-domiciled pooled funds for individually held US-domiciled brokerage accounts instead.
What Foreign Accounts and Assets Must You Report?
Any American in Peru with foreign financial accounts, including Peruvian bank accounts, brokerage accounts, and certain pension accounts, needs to separately evaluate both FBAR and Form 8938 reporting, since these are informational filings that apply regardless of whether any tax is actually owed. Missing either one carries steep penalties that are unrelated to your actual tax liability.
The FBAR, FinCEN Form 114, kicks in once the combined value of your foreign accounts tops $10,000 at any point in the year, counted together, so an American juggling a sol checking account for daily life, a dollar account to hedge currency swings, and a Peruvian brokerage account crosses that line faster than any one account alone would suggest. Form 8938 rides along with your Form 1040 under FATCA and sets its own, generally higher thresholds that shift by filing status and by whether you live in the US or abroad, so a filer can clear one form's threshold while still owing the other. The two overlap in coverage but go to different agencies under different penalty regimes, so both get checked every year.
How Are Peru Pensions and Retirement Accounts Taxed by the US?
Peru requires most formal-sector workers to contribute to an AFP (Administradoras de Fondos de Pensiones), a privately managed, government-mandated retirement account, and that mandatory, official character leads many Americans to assume it earns the same tax-deferred treatment as a US 401(k). The IRS makes no such assumption. With no US-Peru tax treaty to write in a deferral provision, an AFP account instead gets tested against the general rules of IRC Sections 401(a) and 402(b), plan by plan, rather than waved through because Peru itself favors it.
In countries with a US tax treaty, the treaty sometimes contains a specific article allowing US tax deferral on contributions to, and growth within, a qualifying foreign pension, mirroring how a 401(k) is treated; Peru has no such article to invoke. Contributions, employer matches, and investment growth inside a Peruvian AFP account may therefore be currently taxable under general trust and deferred compensation principles, depending on the plan's structure and whether the employee holds a vested, nonforfeitable right to the funds. Plan structures and vesting terms differ enough that no single answer covers every AFP account, and the fund lineup inside one may itself raise the PFIC issue described above, so get a specific analysis before assuming any US tax deferral.
Bottom Line
The single biggest trap for Americans in Peru is the fondo mutuo a local bank recommends as a plain savings product, quietly handing a US taxpayer a PFIC problem with no treaty or totalization agreement to soften the blow. Filing both a SUNAT return and a US Form 1040 every year, choosing the Foreign Tax Credit over the FEIE for Peruvian wages, staying out of Peru-domiciled pooled funds because of that PFIC exposure, and getting a plan-by-plan read on any AFP pension are the decision points that separate an American in Peru who overpays the IRS from one who gets it right the first time.
Have questions about US expat taxes in Peru? Contact TS CPA for a free consultation. We respond within the same day.