World Geopolitics Global Economic Update: Navigating Shifting Dynamics in Currency, Growth, and Inflation
1. Global Economic Shifts: Labor Market Cooling and Property Woes
Signs of Stabilization in the US Labor Market
The US job market is showing clear signs of cooling, but this may not be the bad news some expect. According to the latest Job Openings and Labor Turnover Survey (JOLTS) for July, the job openings rate fell to 4.6%, its lowest since December 2020, marking a return to more typical pre-pandemic levels. While the figure is still historically high, the sharp decline suggests that labor market tightness is easing. This is a positive signal for inflation control, as less competition for workers may relieve wage pressures.
Despite the softening, job vacancies remain robust in sectors like healthcare, food services, and transportation, while industries such as manufacturing and retail are seeing reduced demand for labor. In August, the US added 142,000 jobs, fewer than anticipated but still above the threshold needed for stable growth. The slowdown has prompted a mix of market reactions, with equity prices declining and bond yields dipping, while the unemployment rate fell slightly to 4.2%.
Wage growth, which has been a central concern for inflation, has steadied at 3.8% in August, pointing to a moderating labor market. However, with job creation concentrated in just a few industries and declines in sectors like manufacturing and retail, investors are closely watching for broader signs of economic deceleration.
The End of the US Yield Curve Inversion: What Lies Ahead?
After 26 months, the inversion of the US yield curve has come to an end. This phenomenon, often seen as a precursor to recession, occurs when long-term interest rates fall below short-term ones, reflecting market expectations of future rate cuts. Historically, a recession has frequently followed the end of an inversion, though the timing varies.
This time, however, things might be different. While the gap between 10-year and 2-year bond yields has closed, the more closely watched gap between 10-year and 3-month bonds remains inverted. The market’s reaction has been to price in expectations of Federal Reserve rate cuts in response to a cooling labor market.
Though there are concerns about a potential downturn, the resilience of the US economy has been notable. Strong household and corporate balance sheets, along with ongoing fiscal support, have cushioned the effects of higher interest rates. As the Fed considers easing monetary policy, the question is whether the economy will slow enough to warrant concern, or whether it will transition to more sustainable growth without triggering a recession.
Commercial Real Estate: A Sector Under Strain
The US commercial property sector, particularly office space, continues to face significant challenges. The delinquency rate on office property loans has risen to its highest since 2014, as the shift toward remote work and hybrid models has reduced demand for office space. With many companies choosing not to renew leases or negotiate lower rents, office building owners are grappling with falling valuations and increasing difficulty in refinancing their mortgages.
As nearly $1 trillion in commercial mortgages comes due this year, the sector is under growing pressure. For many small- and medium-sized banks, which hold a substantial portion of commercial real estate loans, this represents a significant financial strain.
There is growing bipartisan support in the US for policies aimed at converting unused office space into housing, both to alleviate housing shortages and provide financial relief to property owners. However, the structural limitations of many office buildings mean that such conversions are not always feasible, leaving the sector at risk of further distress.
China’s Economic Dilemma: Deflationary Pressures and Global Parallels
China’s economy is facing a unique set of challenges, with deflationary pressure becoming a major concern. Former central bank leaders from China and Japan have pointed to worrying similarities between China’s current situation and Japan’s deflationary struggles in the 1990s.
Yi Gang, the former Governor of the People’s Bank of China, has urged for stronger fiscal stimulus and more aggressive monetary policy to combat the threat of deflation. He has highlighted the need to address China’s property market imbalance and the burden of local government debt, while also pushing for policies to boost domestic demand.
Meanwhile, Haruhiko Kuroda, former head of the Bank of Japan, noted that China’s mix of property market woes, weak demand, and demographic challenges closely mirrors Japan’s past economic troubles. While China’s deflationary pressures are not yet as severe as Japan’s were, both leaders agree that proactive measures are needed to avoid long-term stagnation.
Looking Forward: Navigating Economic Uncertainty
As we move through the latter part of 2024, economic signals are mixed. While the US labor market cools, inflationary pressures ease, and commercial real estate faces growing risks, China’s deflationary challenge remains in the spotlight. Global investors and policymakers will need to stay vigilant in navigating these shifts, ensuring that economic adjustments lead to stabilization rather than stagnation.
2. China Strengthens Ties with Africa
Chinese President Xi Jinping has announced a significant financial commitment to Africa, pledging over 360 billion yuan (approximately $50 billion) in aid and investments over the next three years. This announcement was made during the second day of the ninth Forum on China-Africa Cooperation (FOCAC) Summit, which is set to shape the future of China-Africa relations through new policies and agreements.
Xi emphasized the deepening of ties between China and Africa, noting that the relationship is at its strongest in history. "China is ready to deepen cooperation with Africa in industry, agriculture, infrastructure, trade, and investment," Xi said. He highlighted the mutual goal of modernization, characterized by a partnership that promotes "open and win-win" collaboration.
Strengthening Economic Partnerships
The timing of this summit comes as China seeks to recalibrate its economic ties with Africa amid increasing geopolitical tensions with the West. Leaders from over 50 African nations, including South African President Cyril Ramaphosa and Kenyan President William Ruto, gathered in Beijing, underscoring the importance of China’s relationship with the continent. These discussions are expected to yield deals that focus on trade, investment, and long-term cooperation.
A key aspect of the summit includes negotiations over loan terms, as African countries work to manage growing debt burdens. China has long been Africa’s largest creditor, with loans aimed at funding critical infrastructure projects, such as railways, hydropower plants, and roads. Between 2000 and 2023, China funneled over $180 billion into African infrastructure, positioning itself as a key partner in the continent's development.
Challenges Ahead for Xi
Although China has provided substantial financial assistance to Africa, challenges remain. At the previous FOCAC summit in 2021, China pledged to purchase $300 billion worth of African goods, a target that was not met. This shortfall, combined with growing concerns over debt sustainability, has led to some criticism of China’s lending practices, particularly under its Belt and Road Initiative. Many African nations have found themselves struggling to service their debts, prompting fears of defaults and economic strain.
Xi’s latest pledge of 360 billion yuan is broken down into various forms of support: 210 billion yuan in credit facilities, 80 billion yuan in assistance, and 70 billion yuan in direct investments from Chinese firms. Additionally, China will encourage African nations to issue panda bonds, providing further financial options.
Despite these challenges, Xi reinforced China’s long-term commitment to Africa. "No matter how the international landscape may evolve, China shall never waver in its determination to pursue greater solidarity and cooperation with Africa," he said, quoting an African proverb: "A friend is someone you share the path with."
Trade Relations on the Rise
China’s trade with Africa has seen exponential growth since it overtook the U.S. as Africa’s largest trading partner in 2009. In 2023 alone, trade between China and Africa reached 1.98 trillion yuan, marking an annual growth rate of 17.2%. This trend continues into 2024, with trade volume in the first seven months hitting a record 1.19 trillion yuan.
China’s strategy now includes the promotion of green technologies, such as electric vehicles and solar panels, which face barriers in Western markets due to export tariffs. These products are poised to play a central role in the future of China-Africa trade as the continent seeks sustainable development solutions.
Looking Forward
As the summit concludes, both China and Africa stand at a critical juncture. The financial pledges, along with strategic initiatives, will not only shape the next three years of bilateral relations but could also have long-lasting effects on Africa’s development. For China, maintaining its influence and continuing to support the economic growth of African nations will be essential as it navigates increasing global scrutiny.
In a world where geopolitical tensions are on the rise, China’s outreach to Africa underscores its desire to foster deeper connections with developing economies, positioning itself as a steadfast partner in the continent's modernization efforts.
Wealth, Succession &Legacy
Global Income Distribution and the Rise of a New Middle Class
Branko Milanovic's "Global Income Distribution from the Fall of the Berlin Wall to the Great Recession" offers a detailed examination of the shifts in global income inequality between 1988 and 2008. This period, marked by significant global economic developments, highlights how the rise of emerging economies reshaped the global wealth distribution landscape. Milanovic’s study, based on extensive household survey data, reveals the complex interplay between regions, nations, and income groups, underscoring the critical changes in global inequality during these transformative decades.
Global Inequality and the Gini Index: Stability Amid Change
Milanovic’s analysis centers around the global Gini index, a widely recognized measure of inequality, which remained relatively stable throughout the period. Despite minor fluctuations, the index hovered between 70% and 72%, signaling persistently high levels of global inequality. Between 2003 and 2008, a slight decline of 1.35 percentage points was recorded, but Milanovic emphasizes that this decrease is not statistically significant, given the standard errors involved. Thus, in global terms, inequality as measured by the Gini index remained steady, masking the deep structural changes occurring within individual countries and regions.
While the Gini index shows stability, it conceals significant movements within the global income distribution. The rapid rise of China, for example, shifted global wealth distribution, while regions like Sub-Saharan Africa saw stagnation. Milanovic's study suggests that while global inequality may appear unchanged, the story within nations, particularly in developed economies, is one of growing disparities.
The Role of Globalization in Shaping Income Distribution
The post-Cold War era, marked by the fall of the Berlin Wall and the rise of globalization, saw profound economic integration, especially with the emergence of China and India as global economic players. Milanovic’s report illustrates how this integration altered global income distribution. Countries like China and India experienced rapid economic growth, reshaping the global middle class, while many advanced economies saw slower growth in income levels, particularly among the upper-middle-income groups.
The data shows that individuals from countries at the global median income level, particularly from China and other Asian economies, emerged as the clear beneficiaries of globalization. In contrast, higher-income groups in advanced economies, such as those around the 85th percentile, experienced slower growth. This reshuffling of global income largely mirrors the impact of globalization and international trade, particularly as wealth and income shifted towards previously underrepresented regions.
The Emergence of a Global Middle Class
A key takeaway from Milanovic’s report is the rise of a new global middle class, largely driven by China’s economic ascent. Between 1988 and 2008, China’s economic growth pulled millions of people out of poverty, shifting them into the middle-income brackets on a global scale. This transformation is one of the most significant outcomes of globalization, as it fundamentally changed the global income distribution, creating a more unified distribution curve and reducing the traditional “twin peaks” pattern of global inequality.
This global middle class, concentrated in Asia, has altered the global economic landscape. It demonstrates the power of sustained economic growth and integration in lifting incomes in low-income countries. At the same time, it underscores the challenges faced by those in developed economies who saw their relative economic standing diminish as emerging markets gained a larger share of global wealth.
Regional Disparities: Uneven Growth Patterns
Milanovic’s report reveals a marked disparity in income growth across different regions. China, for instance, experienced a tripling of its average income between 1988 and 2008. India, while growing at a slower rate, also saw substantial income gains. In stark contrast, Sub-Saharan Africa experienced minimal growth during this period, with many countries in the region lagging significantly behind the rest of the world.
The report also highlights modest income gains in Latin America and some of the newer EU member states, though these were not on the scale seen in Asia. Advanced economies, particularly in the West, experienced slower growth in incomes, largely due to the redistribution of global wealth to emerging markets. Milanovic’s analysis demonstrates the uneven impact of globalization, where some regions have thrived while others have struggled to keep pace.
Accounting for Top Incomes: The Pareto Imputation Model
Milanovic addresses the common issue of underreporting top incomes in household surveys by employing a Pareto imputation model to account for missing top income data. His findings suggest that when these top incomes are fully considered, the global Gini index rises by approximately five percentage points. This underscores the concentration of wealth among the highest earners, a phenomenon that is often understated in conventional data analysis.
Milanovic’s use of this model reveals that the small decline in global inequality between 1988 and 2008 nearly vanishes when top incomes are fully accounted for. This finding is crucial for understanding the increasing concentration of wealth at the top, particularly in countries like the United States, where the wealthiest individuals have captured a disproportionate share of economic gains.
Global Economic Shifts: The Changing Landscape
The period from 1988 to 2008 saw monumental shifts in the global economy, driven largely by the rise of China and other emerging markets. Milanovic’s report illustrates how the global distribution of income has shifted, creating both opportunities and challenges. The rise of a new global middle class, particularly in Asia, has redefined the global income distribution, while persistent inequalities within countries highlight the ongoing struggle for equitable growth.
Milanovic’s analysis sheds light on the dual nature of globalization: while it has lifted millions out of poverty, especially in Asia, it has also exacerbated inequality within many advanced economies. These trends are essential for policymakers seeking to address global inequality and foster inclusive economic growth.
In conclusion, Global Income Distribution from the Fall of the Berlin Wall to the Great Recession offers valuable insights into the complex interplay of globalization, economic growth, and inequality. As the world continues to evolve, understanding these dynamics will be critical for creating policies that promote sustainable and equitable growth across all regions and income groups.
Navigating Wealth and Succession Planning in a Post-COVID World of Rising Taxes and Economic Uncertainty
In an evolving global landscape marked by increasing estate and death tariffs, wealth and succession planning has become more complex than ever. The post-COVID era has intensified these challenges, as governments worldwide grapple with burgeoning deficits, inflation risks, and the pressure to reignite economies. As nations struggle to find new sources of tax revenue, high-net-worth individuals (HNWIs) and families must strategically navigate an environment of rising taxes, shifting regulations, and economic volatility.
Estate and Inheritance Taxes: A Growing Burden
In the wake of COVID-19, many countries are facing severe financial shortfalls. The unprecedented fiscal stimulus measures taken during the pandemic have left governments with ballooning deficits. To address this, many are turning to estate and inheritance taxes as a potential solution, raising tariffs on wealth transfers to shore up their public finances.
Countries like the UK, the US, France, and Japan have been increasing their estate and death duties, while others are considering similar measures. For instance, the Biden administration in the US has proposed lowering the estate tax exemption threshold, which would subject more estates to higher tax rates. In Europe, several countries are re-evaluating their inheritance tax policies in an attempt to balance budgets. These increases come at a time when global wealth accumulation is growing, and intergenerational transfers of wealth are expected to reach unprecedented levels over the next few decades.
As a result, succession planning is no longer solely about wealth preservation but must now consider how to minimize the impact of rising tariffs on estate transfers. High-net-worth families will need to employ more sophisticated tax-efficient structures, such as trusts, foundations, and charitable donations, to mitigate the growing tax burden. It also becomes crucial to stay ahead of regulatory changes and adapt strategies accordingly.
A Shift Toward New Tax Revenue Sources
While estate taxes are on the rise, governments are also eyeing new sources of tax revenue. In particular, wealth taxes, capital gains taxes, and taxes on digital assets have gained prominence. Post-COVID, many nations have turned to these avenues as a means of addressing fiscal shortfalls.
Countries like Argentina, Spain, and Norway have implemented or expanded wealth taxes. The growing prominence of digital currencies, including cryptocurrencies, has also led to increased scrutiny and taxation of these assets. For HNWIs, this evolving tax landscape calls for a proactive approach to asset management. Identifying jurisdictions with favorable tax regimes, leveraging bilateral tax treaties, and taking advantage of tax planning opportunities through offshore structures or residence programs are critical steps to safeguard wealth.
Post-COVID Economic Pressures and Inflationary Risk
Another significant challenge for wealth and succession planning stems from the massive amounts of currency injected into global economies during the pandemic. Governments around the world rolled out unprecedented stimulus measures—through direct financial support, quantitative easing, and low interest rates—to keep economies afloat. While these actions were necessary to mitigate the immediate impacts of the pandemic, they also created long-term consequences.
One of the most pressing risks is inflation. With economies now reopening and consumer demand rebounding, there is growing concern that the excess liquidity in the market could lead to an inflationary spike. In the US, for example, inflation has already surpassed the Federal Reserve’s target, and similar trends are being observed globally. The inflationary pressures are further compounded by supply chain disruptions and labor shortages, which continue to affect various industries.
For wealth holders, inflation presents a dual threat. On one hand, it erodes the real value of savings and investments; on the other, it increases the likelihood that central banks will tighten monetary policy through higher interest rates. In turn, this could impact asset values, particularly in sectors such as real estate and equities, where ultra-low interest rates have driven up prices.
Wealth Preservation in an Inflationary Environment
To navigate these challenges, investors must adjust their portfolios to hedge against inflation. Traditionally, inflation-linked bonds, commodities such as gold, and real estate have been seen as effective inflation hedges. However, in today’s rapidly changing environment, diversification across asset classes is essential.
High-net-worth families should consider a more balanced portfolio approach, incorporating inflation-sensitive assets, growth-oriented investments, and defensive strategies to protect their wealth. Furthermore, with the rise of digital currencies and decentralized finance (DeFi), alternative investments are becoming a viable option for those seeking to preserve and grow wealth in an uncertain financial landscape.
Succession Planning in an Evolving World
Beyond tax efficiency and inflation concerns, succession planning in this new era requires careful consideration of family dynamics, governance structures, and the long-term sustainability of wealth across generations. It is no longer sufficient to rely solely on traditional mechanisms such as wills and family trusts. The complexity of modern families, including global mobility, cross-border asset holdings, and varying tax jurisdictions, demands more comprehensive strategies.
One crucial aspect of succession planning is the establishment of a clear governance framework for managing family assets. Many families are now turning to family offices, where wealth can be professionally managed, and succession planning can be handled with a long-term view. Family offices offer the added benefit of integrating financial and non-financial assets, including family businesses, philanthropy, and family legacy projects.
Another critical consideration is involving the next generation in the succession planning process. As the transfer of wealth accelerates, engaging heirs early and educating them on financial stewardship, tax implications, and the family’s values can help ensure the continuity of wealth.
Conclusion: Strategic Action in Uncertain Times
The post-COVID world has ushered in a new era of wealth and succession planning, marked by rising taxes, inflationary risks, and economic uncertainty. For high-net-worth families, preserving wealth and ensuring a smooth transition to future generations requires forward-thinking strategies and a proactive approach to navigating the evolving global landscape.
Careful planning—encompassing tax efficiency, inflation hedging, and governance structures—will be essential for safeguarding wealth in the years ahead. As governments continue to search for new tax revenue sources and inflation remains a looming threat, wealth holders must remain vigilant and adaptable in this shifting environment.
Global Taxation Overview
Taxing Cryptocurrency: US Digital Asset Regulations
In August 2024, new regulations on digital assets were released, shedding light on the tax treatment of cryptocurrencies and other blockchain-based assets. These rules address the definition of digital assets, including Non-Fungible Tokens (NFTs), and provide clarity on how various transactions involving these assets should be taxed.
Key Highlights:
- Digital Asset Definitions: The regulations provide specific guidance on the scope of digital assets, encompassing both cryptocurrencies and digital collectibles like NFTs, all within a blockchain framework.
- Transaction Taxation: Whether it’s trading digital coins, mining rewards, or buying digital art, the regulations define how to calculate gains and losses, and how transaction costs and basis should be reported.
- Compliance Requirements: New forms, such as Form 1099-DA, outline the tax obligations for digital asset holders, with important deadlines and compliance rules.
- Global Perspectives: As the US implements these new rules, other jurisdictions are following suit, with countries adapting their own frameworks through measures like FATCA and DAC8.
These new regulations mark a significant step in addressing the complexities of cryptocurrency taxation, offering both taxpayers and professionals a clearer path forward in this evolving space.
China Expands Corporate Income Tax Incentives for Green and Digital Sectors
In a move to further boost innovation and sustainability, China has introduced new Corporate Income Tax (CIT) incentives focused on digital transformation and environmental protection. These incentives build on previous measures aimed at fostering investment in green technologies and high-end manufacturing.
Key Features of the New Policy:
- Investment Incentives: Companies that invest in the digital or intelligent transformation of equipment related to energy conservation and environmental protection can now offset up to 50% of their tax base through a 10% CIT reduction.
- Eligibility Window: The incentive applies to investments made between January 1, 2024, and December 31, 2027, offering companies a multi-year opportunity to reduce their tax burden.
- Broadened Scope: While earlier policies focused solely on equipment purchases, this new incentive supports companies transitioning towards more intelligent and environmentally friendly technologies, aligning with China’s broader development goals.
This policy encourages businesses to adopt cutting-edge technology while addressing sustainability, providing long-term benefits for the country’s economic landscape.
Argentina’s New Promotional Regime for Large Investments
Argentina has launched a comprehensive new promotional regime designed to attract large-scale investments across various key industries. This regime offers a range of fiscal and regulatory benefits aimed at promoting long-term economic growth in sectors like infrastructure, technology, energy, and natural resources.
Key Provisions of the Regime:
- Eligible Industries: Sectors such as mining, steel, tourism, oil and gas, forestry, and technology are included in the regime, which provides tax, customs, and currency exchange benefits.
- Incentives for Special Purpose Vehicles: Domestic Special Purpose Vehicles (SPVs) can benefit from tax credits, customs exemptions, and more favorable currency exchange terms.
- Long-Term Stability: Investors can enjoy legal stability for up to 25 years, making Argentina an attractive destination for large-scale, capital-intensive projects.
With its favorable terms, the regime seeks to position Argentina as a competitive hub for international investors looking for opportunities in Latin America’s growing markets.
Canada Implements Pillar Two UTPR: Impact on Multinational Groups
In August 2024, Canada released draft legislation to implement the Undertaxed Profits Rule (UTPR) as part of the OECD’s Pillar Two global tax framework. This new regulation applies to multinational groups with Canadian entities and ensures that profits not sufficiently taxed in the parent entity’s jurisdiction are subject to Canadian tax.
Core Elements of the UTPR:
- Backstop for Global Minimum Tax: The UTPR serves as a safeguard to ensure multinational groups with low-tax jurisdictions still face minimum tax obligations. It applies to entities within Canada based on their proportion of employees and assets within the group.
- Safe Harbour Rules: Transitional provisions allow for a safe harbour in cases where the parent jurisdiction’s corporate tax rate exceeds 20%. This provides relief for groups complying with high-tax jurisdictions during the initial rollout period.
Multinational groups with operations in Canada should assess their exposure under the UTPR, especially regarding top-up taxes, to ensure compliance with the new global standards starting in 2024.
India’s 2024 Budget: Implications for Foreign Investors and Multinationals
India’s 2024 Union Budget, presented in July, outlines significant reforms aimed at boosting economic growth, with a particular focus on infrastructure, innovation, and foreign investment. This budget sets a roadmap for India’s ambitions to become a developed nation by 2047.
Key Fiscal Measures:
- Tax Stability and Simplification: The budget emphasizes stability in tax policies, aiming to reduce compliance burdens and improve the ease of doing business for foreign investors and multinationals.
- Infrastructure and Manufacturing Focus: Large-scale investments in infrastructure, skill development, energy security, and R&D are central to the economic strategy.
- New Tax Code: A new, simplified tax code is expected to be introduced within six months, modernizing India’s tax landscape and making it more accessible to businesses.
Foreign investors and multinationals should consider the impact of these measures on their operations in India, particularly in terms of tax planning and long-term strategic investments.
Israel to Implement Qualified Domestic Minimum Tax (QDMTT) in 2026
Israel has announced the adoption of the Qualified Domestic Minimum Top-up Tax (QDMTT), set to take effect in 2026. This move aligns Israel with the OECD’s Pillar Two framework while preserving its competitive edge in the high-tech sector.
Key Elements:
- Prevention of Double Taxation: The QDMTT ensures that Israeli companies are not subject to additional taxes on income earned domestically by foreign jurisdictions.
- Delayed Adoption of Other Pillar Two Rules: Israel has chosen to delay the implementation of the Income Inclusion Rule (IIR) and Undertaxed Payment Rule (UTPR), which will be reconsidered after the QDMTT is in place.
This strategy allows Israel to remain an attractive destination for innovation and investment while complying with international tax standards.
Italy Introduces National Minimum Tax Under Pillar Two
Italy has introduced a National Minimum Tax (NMT) under the EU’s Pillar Two Directive, effective January 1, 2024. The NMT applies to both multinational and domestic groups, ensuring that Italy can collect any required top-up taxes from low-taxed entities.
Key Features:
- Safe Harbour: The NMT can act as a safe harbour for groups, satisfying their overall tax obligations in Italy under the OECD’s simplification measures.
- Compliance Requirements: In-scope groups must identify a responsible entity within Italy for the payment of NMT and adjust their compliance strategies accordingly.
Italian businesses and foreign groups with Italian entities should evaluate the impact of the NMT on their operations to ensure they are meeting their obligations under the new global tax framework.
Luxembourg Reduces Corporate Income Tax by 1%
In a bid to maintain its competitive position, Luxembourg has introduced a 1% reduction in its Corporate Income Tax (CIT) rate, effective January 1, 2025. This brings the total tax burden for companies in Luxembourg City down to 23.87%.
Additional Reforms:
- EBITDA Ratio: A new group EBITDA ratio is being introduced retroactively from January 1, 2024, offering further relief to businesses with high leverage.
This tax reform is designed to support Luxembourg’s position as a hub for international businesses, while also providing relief for companies operating under the current challenging economic environment.
Peru Introduces New VAT Rules for Digital Services and Intangible Goods
Peru has made significant changes to its VAT system, targeting digital services and the import of intangible goods by non-residents. The new rules, effective August 2024, require foreign digital service providers to comply with local VAT obligations.
Key Changes:
- VAT on Digital Services: End-users in Peru who access digital services such as streaming, cloud storage, and online marketplaces will now be subject to VAT.
- Compliance for Non-Residents: Foreign service providers must register with the Peruvian tax authority (SUNAT) and adhere to local tax regulations, including acting as VAT perception agents.
These updates reflect Peru’s broader effort to modernize its tax system and capture revenue from the growing digital economy.
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