When, where and how to commence internationalization is possibly one of the most complex decisions an organization can make. But it’s also one of the most beneficial – if you start properly.
In this series, we discuss some of the complexities to consider when expanding your business across borders, or if you’re looking at multinational investment. There are many general issues, and different countries have very different legislation, regulation and tax regimes.
Here, we review complexities to keep in mind when expanding or investing into Peru.
Introduction
Peru is largely economically stable, thanks to reforms to trade and monetary policies effected some twenty years ago. Since these reforms, Peru has become one of Latin America’s most developed economies. With its relatively high growth, public debt below 35%, and an average inflation rate forecast between 1% and 3%, the Peruvian economy is on track for solid medium-term growth. Exports are a major contributor to the Peruvian economy.
In 2013, Peru entered into a Free Trade Agreement with the European Union allowing most European products to enter with tariffs between 0% and 2%. Among its many memberships are the Organization for Economic Cooperation and Development (OECD) and the WTO.
Opportunities
Peru is aiming towards carbon neutrality in 2050, which implies increasing the use of renewable energies by 80%, and providing an important economic benefit. Peru has enormous potential in terms of power generation: hydroelectric, wind, solar and biomass are all underway at different levels, though development of geothermal energy is still pending.
Investment Aid Agency: Invest in Peru
Tenders, Projects and Public Procurement:
- Tenders Info, Tenders in Peru
- Inter-American Development Bank, Tenders in South America
- Globaltenders, Tenders & Projects from Peru
- DgMarket, Tenders Worldwide
Other Useful Resources: Econolatin: Statistics on Peruvian investment
FDI by sector
Peru’s Constitution lists the rights of foreign investors – yes, the Constitution! That’s part of the reforms we mention in the introduction. The Constitution includes the following basic rights for foreign investors, among others:
- Freedom to remit profits or dividends abroad, upon payment of corresponding taxes.
- Freedom to use the most favourable exchange rate in the market.
- Freedom to acquire shares of domestic investors.
Seen as very attractive for FDI, Peru’s biggest investors are Spain (the largest investor), EU, USA and the UK, Chile, Brazil and the Netherlands. The sectors that attracted the most FDI are mining, communications, industry, finances and energy.
Foreign investment can be direct, contributions to social capital, or via contractual join ventures, or direct investments in nationally located goods or properties. The government also permits and recognises foreign investment in intangible goods, such as portfolio investment or technological contributions.
Property rules are also pretty much the same as for locals, but it is clearly stated that ‘no foreigner can be in possession of or own any mines, land, forests, water, fuel or any energy sources within 50km of Peru’s border’.
Tax & Accounting / Regulatory
Peru’s main taxes area levied on income, production, consumption, circulation of money, and patrimony. There are also Indirect taxes and Municipal taxes, However, there are categories within categories, so guidance is required. Transfer pricing can also be tricky.
There are not many double taxation treaties (DTT) in place. As at Jan 2021, Brazil, Canada, Chile, Korea, Mexico, Portugal, and Switzerland are ratified under the OECD Model. Meanwhile, the Andean Community agreement (Peru, Bolivia, Colombia, and Ecuador) is based in source income and not on the OECD Model. Peru has yet to ratify DTTs with Japan and Spain.
There are plenty of Bilateral Investment Agreements and Free Trade Agreements functioning.
Peruvian regulations in place allow GAAP standards for accounting and reporting, as well as IFRS, IAS, and their interpretations (SIC). There are specific rules for Audits and Consolidation for foreign investors to be aware of.
Labour / Payroll matters
Peruvian labour laws include employer contributions to health, Social Security, and the National Pension system.
Peruvian companies may not operate with more than 20% foreign staff, nor can the combined total remuneration for foreign workers exceed 30% (though Peruvian employers are exempt from this regulation, as are international transport or multinational services companies).
Contracts are usually indefinite term, but fixed-term and part-time are permitted. A ‘trial period’ of 3-6 months is common, but can also range for 6-12 months for trusted employees.
On termination after the trial period, if under an indefinite contract, employees are entitled to 1.5 months’ salary for each year of work. There are also rules in place for fixed-term and part-time contracts.
Banking
As discussed above (see FDI section), foreign investors rights are mentioned in Peru’s Constitution – and one of those is:
- Unlimited access to internal credit.
Still, like everywhere else, there are specificities to understand and red tape to comply with.
Doing business & establishing a company
Incorporation takes c. 25 days, which is speedier than many of its LATAM neighbours, and Peru’s Ease of Doing Business Ranking is 76/190.
There are 9 different legal entities to choose from in Peru, the most popular of which are:
| Business Corporation | Closed Corporation | Public Limited Company | Limited Liability Company | |
| No. of Partners | Min. 2 | 2 – 20 | <750 | 2-20 with participation |
| Constitution | Simultaneous | Simultaneous | By 3rd Party offering | Simultaneous |
| Administration |
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| Transferencia de acciones / reparto de ganancias | Free | Shareholders have the right of referential acquisition in case of transfer of shares to a 3rd Party (unless against bylaws) | Free. No restrictions or limitations permitted. | Transfer of participation is subject to prior authorisation of the Partners. |
There is no minimum share capital required in Peru. However, foreign investors require a minimum share capital of PEN 500,000 (approximately USD 150,000) in order to apply for an investor visa.
Conclusion
Peru has made FDI easy, and investors greatly appreciate it. Peru ranks fourth in LATAM for foreign investment.
As always, though, expert advice from the locals is essential.
Local Knowledge – International Coverage
Founded in 1979, Auxadi is a family-owned business working for multinational corporations, private equity funds and real estate funds. It’s the leading firm in international accounting, tax compliance and payroll services management connecting Europe and the Americas with the rest of the world, offering services in 50 countries. Its client list includes many of the top 100 PERE companies. Headquartered in Madrid, with offices in US and further 22 international subsidiaries, Auxadi serves 1,500+ SPVs across 50 jurisdictions.
All information contained in this publication is up to date on 2021. This content has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this content, and, to the extent permitted by law, AUXADI does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this chart or for any decision based on it.