Last year, I attempted an importing business in Peru. An American friend in Bogota has a connection who refurbishes iPhones on the cheap. He was making good money selling them in Bogota. Looking at the used iPhone market online, Peru looked more attractive than Colombia. I decided to test the waters.
The supplier could sell a refurbished iPhone 3 for $154, which included taxes and shipping to Peru. At the time, $154 was about S/. 425. Used iPhones of the same model were selling for 700 soles on MercadoLibre. Even at S/. 500 each, we would realize a 20% profit.
Smartphones in Latin America are a hot item, especially iPhones. Their prices are prohibitively high and come with expensive plans, so middle class people rarely have them. BlackBerry still dominates the market. As you read this, there is a Peruvian (and a Colombian) somewhere signing up for a BlackBerry with a heavy plan attaches. In fact, that Peruvian (or Colombia) is really proud of himself (or herself) for doing so.
I believed that affordably-priced, unlocked, factory-refurbished iPhones would be a hit among middle-income Peruvians. I purchased nine units for $1386. We used DHL as a courier, thinking they would help with any importing issues.
I imported the iPhones in my wife’s name, as a gringo name would be a red flag to SUNAT, the customs office in Peru. To import iPhones, she had to establish a business ID (RUC) with VUCE. Once she had a RUC, she had to gain permission from Peru’s MTC, the Ministro de Transportes y Comunicaciones, to import cell phones. Once she was set up, we had the iPhones shipped.
Then SUNAT stopped our shipment. DHL Peru informed us that SUNAT had denied our valuation of the used iPhone 3’s at $135 per phone (excluding shipping), or $1215 according to the invoice. SUNAT slapped on an FOB value of $2,999.97, or $333.33 per phone, about 250% the real value of the phones.
These phones were the iPhone 3 8gb, and they were used. I couldn’t believe the arbitrary valuation. That was what they would’ve cost new a couple years prior. But what made things worse was that with the new valuation, SUNAT was demanding $418.05 in taxes ($46.45 per phone), or 30.2% of what we paid including shipping. This would’ve wiped out our planned profit.
We appealed the valuation but were denied. We paid the $418.05. I’d like to say we at least recouped our investment. But I prefer not to think about this venture.
1) Free trade deals don’t apply to small businesses
At least on the Latin American side, the free trade deals don’t apply to small players. For Chevrolet or McDonald’s, or other companies with millions of dollars and armies of lawyers, a free trade deal can be taken advantage of. But a small business with few resources is at the mercy of SUNAT.
2) SUNAT is a revenue center
Despite the Peru-United States Trade Promotion Agreement, SUNAT has been a profit center for a long time. The trade deal didn’t change that. I believe the SUNAT employees still believe their job is to charge for commerce, as opposed to allowing it to go unabated. I’ve heard similar stories from expats who have shipped containers of their home furnishings to Peru.
3) Latin American red tape is not to be underestimated
Bureacracy is a well-known problem in Latin American governments. To import these cell phones, my wife had to deal with two different government offices, which were both little more than rubber-stamping agencies. To sell Peruvian herbals in Colombia, I would’ve had to register the brand with INVIMA for $1000 per product. For a product that earns $2-3 profit per unit, you’d have to be extremely confident to just break even. So I didn’t even try. Each step, stamp, cost, and tax in the process discourages trade.
4) Free trade deals are never free
The United States subsidizes farm land, which puts Peruvian and other foreign food producers at an impossible disadvantage. The U.S. also demands certain treatment to organized labor from other countries. In order to get their interests into a deal, the American government allows concessions from the other side. While the U.S. protects American agriculture, Peru and other countries are allowed to tax other industries. You can see the Peru Tariff Schedule (where the cell phone tariff is between 4 – 7%).
Free trade deals are never truly free. The Peru-United States agreement didn’t even include the term, “free.”
5) SUNAT is an obstacle to free trade in Peru.
I’ve exported from Peru to the United States for almost five years at the time of this writing. I’ve had problems, but I’ve never been shut down so quickly and decisively by the FDA or CBP like I was by SUNAT.
After the fact, I thought about everybody I personally knew who was importing to Peru. In every case, the importer either has a (corrupt) connection at SUNAT, or they bring American products into Peru by hand (in a suitcase during a flight), which isn’t really importing.
At one point in my desperation I turned to the Expat Peru forum. One user from this forum thread:
Are you importing this things as a private person, or as a business. If you are importing them as a business then any IGV they force you to pay, actually is a IGV credit, which you can use as a credit in your IGV payment once you sell your items. So in reality you won’t pay those taxes, as they are refunded in your company.
If you import them however as a private person, then you pay the IGV, and I suppose you sell the items without factura or boleta. So it makes sense that Peru taxes you as you import ..
Suppose you bought the item for $100. And Customs tells you it is worth $200. and tax you IGV ( $36 )
Those $36 are a tax credit, which you deduct from your payment once you sell your product.
Let’s say you sell it for $125 + IGV ($22.50 ) = $147.50.
Now you don’t have to pay the IGV ( $22.50 ) as you have a credit of $36. So your new credit is $13.50 which you can deduct of your future payment, or ask back of Sunat to pay your utility tax with a PDB Exportadores.
The end result of all this calculations is that you simply pay the IGV over your selling price, which is logic and how it is supposed to be.
But apparently you import them as a private person, and have to pay the $36 of IGV. And then you sell them basically on the black market without an invoice. So what did Peru to stop this ? They tax you higher when you import, and when you legally sell it with invoices, you get the extra tax back. It is all to stop what you appear to be doing… Importing informally and selling it informally.
I almost thought this might me a legitimate argument. However, we got no documentation from SUNAT, no receipt, no invoice, nothing. As always, we just got a bank account number and a balance to pay. And the price we paid per phone obliterated any chance for a profit to sustain the business.
Also, DHL sent a guide outlining import duties. Try to make sense of this document outlining how much SUNAT decides to charge importers. Then you’ll understand why there are so many BlackBerrys in Latin America, and so many Latin Americans have phones with buttons.
What do you think?