The foreign investment areas of Peruvian law described in this Guide, as they affect
investors from certain countries, may be modified or supplemented by treaties to which Peru is a party, including in particular
the Andean Pact, the Latin American Integration Accord, and the World Trade Organization Agreement (the "WTO).
I. Foreign Investment Law.
Peru enacted a very novel Foreign Investment Law (the "Foreign Investment
Law""), effective August 29, 1991. The Foreign Investment Law dramatically changed the regulatory framework of foreign investment
in Peru. This new regulatory framework replaced the old foreign investment regime, which severely limited foreign investment
in Peruvian companies
Restrictions on Foreign Investments.
As a general rule, the Foreign Investment
Law allows foreign investors and Peruvian companies controlled by foreign investors, without prior approval, to (i) own up
to 100% of the equity of Peruvian companies, (ii) purchase fixed assets from Peruvian persons, (iii) engage in new activities
or produce new products, (iv) open and operate establishments, and (v) expand or relocate existing establishments
Few Activities Are Reserved to Peruvian Investors.
With the exception of a constitutional
restriction reserving to Peruvian nationals the ownership of land, water, and energy resources within 50 kilometers of the
border, and a restriction to foreign ownership of radio and television stations, all areas of economic activity are open to
foreign investment. These areas include, in particular, (i) oil and other hydrocarbons; (ii) basic petrochemicals; (iii) electricity
generation, transmission and distribution; (iv) agriculture; (v) mining; (vi) satellite communications; (vii) telecommunications
(including cellular communications, PCS, and other kinds of wireless communications); (viii) mail service; (ix) railroads;
(x) private pension funds; (xi) banking, insurance, leasing, and finance; and (xii) transportation
Investors May Negotiate Stability Agreements.
Qualified foreign investors may negotiate "legal stability agreements" with
the National Foreign Investment Commission (the "Foreign Investment Commission") in order to guarantee the stability of the
legal framework existing at the time the investment is made, including tax (current tax rate plus two percentage points),
foreign exchange, and labor laws. Under the Foreign Investment Law, foreign investors whose capital investments in a company
or joint venture exceed US$5,000,000 (US$10,000,000 for mining and hydrocarbons) are eligible to enter into legal stability
Under the Foreign Investment Law, only post-investment registration with the Foreign
Investment Commission is required to ensure repatriation of capital, profit remittances, and royalty payments. No prior foreign
investment approval is required
and Remittance Rights.
Peruvian law does not impose any general restrictions or limitations on the remittance
of dividends or repatriation of capital, except for post-investment registration with the Foreign Investment Commission
Peru has signed agreements guaranteeing the protection of foreign investments with
the U.S. Overseas Private Investment Corporation ("OPIC") and the World Bank's Multilateral Investment Guarantee Agency ("MIGA")
II. Privatization Law.
The Peruvian Congress has enacted a Law to Promote Private Investment in State Enterprises
(the "Privatization Law").
The Privatization Law declares of national interest the promotion of private investment,
both national and foreign, in approximately 100 state-owned companies in various economic sectors, including banking, mining,
telecommunications, transportation, and public utilities
The Privatization Law sets forth three main vehicles for privatization:
- the transfer
of shares or assets to private investors;
- the increase
of capital stock by allowing new subscription of shares by private investors; and
- joint venture
agreements, management contracts or similar arrangement with private investors
The Privatization Law creates a Commission for the Promotion of Private Investment
("COPRI"), which is charged with overseeing the privatization process and approving a privatization plan for each state-owned
company. COPRI has authority to make a case-by-case determination of the form of privatization to be utilized for each company.
To this end, COPRI appoints a special committee charged with preparing a privatization plan for each company and handling
the privatization process from start to finish. All relevant decisions made by COPRI are subject to ratification by the executive
Sales are made through the Stock Exchange or by public bid. Payments are made in cash, unless COPRI approves
deferred or installment payments. Similarly, COPRI conducts all negotiations for joint venture agreements, management contracts,
and leasing and service agreements with state companies
for Infrastructure Projects.
On August 20, 1996, the government enacted the Law for the Promotion of Private
Investment in Public Works of Infrastructure and Public Services (the "Concessions Law"). The Concessions Law declares of
national interest the promotion of private investment in infrastructure projects and public works, such as energy transmission
facilities, agricultural irrigation, and airports, seaports and highway construction. COPRI is charged with overseeing the
privatization process and approving the granting of concessions for each infrastructure project or public work. It has authority
to make a case-by-case determination of the form of concession contract to be used for each project (e.g., BOT). For each
infrastructure project, COPRI appoints a special privatization committee (typically called "Cepri") charged with preparing
a privatization plan for each company or infrastructure project through the system of concessions and with handling the privatization
and concession-granting process. All relevant decisions made by COPRI are subject to ratification by the executive branch
III. Corporate Law. Forms of Business
Peruvian law contemplates several forms of business organization, including:
Corporations ("sociedades anónimas" or "S.A.s"), which may be public or privately held (hereinafter referred to as
ii. Limited Liability Companies
("sociedades de responsabilidad limitada" or "S.R.L.s"); and
iii. Partnerships ("sociedades colectivas").
Generally, foreign investors do not use partnerships, as they do not provide limited
liability. Foreign investors sometimes use a S.R.L. (which does provide limited liability) for foreign income tax purposes.
The corporation, however, is by far the most common form of organization used by foreign investors in Peru. The balance of
the discussion in this Section is limited to corporations, which are governed by the provisions of the General Law of Companies
(the "Corporate Law
There is no minimum capitalization requirement under the Corporate Law. Contributions
may be made in cash or in anything having monetary value. The capital of both publicly and privately held S.A.s may be increased
or decreased by shareholder vote in accordance with the articles of incorporation and the bylaws of the company. In the case
of privately held S.A.s, these capitalization changes must be formalized with a notarial deed duly registered with the authorities.
In the case of public companies, special securities law requirements apply
The management of a corporation is vested in a Board of Directors, who are elected
by the shareholders. A minimum of three directors is required. The Board of Directors appoints a General Manager who is charged
with the day-to-day business of the corporation, the execution of general policy, and the implementation of the decisions
of the Board of Directors. Such appointment may be revoked at any time by the Board of Directors or by the Shareholders in
accordance with the company's bylaws
Peruvian corporations require a minimum of two shareholders at the time of incorporation.
The Corporate Law does not require a specific percentage of the shareholders to be Peruvian individuals or entities. Consequently,
all of the shareholders of corporations that qualify to be wholly foreign-owned may be foreigners
Under the Income Tax Law, a Peruvian company is subject to income tax at the following
i. For the year 2001, 20% on reinvested
profits, and 30% on all other taxable income.
ii. After the year 2001, 20% on
all taxable income
Dividends distributed by a Peruvian company are not currently subject to withholding
- The remittance of "royalties" is subject to withholding income tax. The current applicable rate is 30%.
- Generally, the effective withholding tax on service fees is 12% for technical services rendered "both in Peru and from abroad",
and 0% if the services are rendered wholly from abroad.
Payments - As a general rule, subject to some exceptions, interest payments to nonresidents are subject to withholding tax
at a rate of 5%
Peru imposes a General Sales Tax ("VAT") on all sales of goods and services
in the country. The general rate is 18% of the value of the product or service. The VAT normally operates by having each party
in the chain of production collect the tax from its customer and pay to the National Tax Authority ("SUNAT") the difference
between the tax paid to its suppliers and the tax collected from its customers.
Imports are also subject to VAT at
a rate of 18%. This tax is assessed on the CIF value of the import plus the import duty, exclusive of the VAT. Because the
importer is entitled to credit all VAT paid against VAT collected from its customers, the ultimate burden of the VAT is effectively
passed along to the importer's customers.
Exports are not subject to VAT and any amount of VAT stated in receipts constitutes
a balance in favor of the exporter as tax credit. Such tax credit may be applied against (I) other operations subject to VAT,
(ii) tax debt and Income Tax, and (iii) any other tax payable by the exporter, in that order
Peru has executed treaties for the avoidance of double taxation with various countries,
including Bolivia, Colombia, Ecuador, Sweden, and Venezuela. These treaties establish different rules for taxation of Peruvian-source
income (e.g., withholding rates on dividends, royalties and interest) derived by residents of the signatory countries. The
relevant tax treaty must be reviewed to determine applicable rates. Absent a treaty, the rules of Peru's Income Tax Law (the
"Income Tax Law") will govern
V. Labor Law.
The Peruvian Labor Law, as amended, generally regulates employment relationships
in Peru. The Labor Law is territorial in its application
Profit Sharing. All employers having more than twenty employees must distribute among their employees
a specific percentage of the employer's pre-tax profit. This percentage varies according to the economic activity involved.
The Labor Law gives employees the right to subscribe up to 10% of any capital increase made by the company through a public
Christmas and Independence Day Bonuses. All employers must pay their employees a bonus equal to one monthly
salary on July 15 and December 15 of every year.
Paid Vacation. All employees with more than one year of seniority
are entitled to thirty days of paid vacation.
Extraordinary Solidarity Contributions. The Labor Law requires employers and
employees to pay an amount equal to five percent (5%) of each employee's wages as an Extraordinary Solidarity Contribution
The Labor Law establishes a minimum wage that must be paid to all full-time employees.
In the case of employees working less than full-time, the minimum wage must be prorated. The minimum wage is determined by
the government from time to time
The maximum number of hours that employers may require their employees to work, without
having to pay overtime, is 48 hours per week. Employers must pay overtime at 125% of standard pay
Employers may voluntarily enhance the minimum benefits established by law. Benefits
such as savings funds, punctuality and attendance bonuses, cafeteria and transportation subsidies, productivity bonuses, etc.
are typically provided by large Peruvian employers
Occasion and Basis of the Payment; Reinstatement.
Peruvian employers may not freely dismiss employees without cause. To dismiss an
employee without being liable for the severance pay (one and a half monthly salaries per each year of services, with a maximum
of twelve monthly salaries), a Peruvian employer must (i) be able to prove, in labor court if necessary, that the dismissal
was for a "just cause," as defined in the Labor Law and (ii) give the employee prompt written notice of the dismissal and
the "just cause" therefor. If the employer fails to prove "just cause", the employer is obligated to make a severance payment.
Cause" for Dismissal.
The Labor Law lists the specific causes for which an employer may dismiss an
employee without being liable for severance pay. These causes include documented poor performance, repeated insubordination,
and layoffs when authorized by law
of the Individual Labor Relationship.
The Labor Law provides that a labor relationship may be terminated without either
party being liable under certain circumstances, including: (i) mutual agreement of the parties; (ii) death of the employee;
(iii) under limited circumstances, the conclusion of a specific job; and (iv) the physical or mental incapacity or disability
of the employee, duly declared by the Peruvian Social Security Institute
Withholding Obligations: Social Security and Income Tax.
Social Security. Social Security. All employers must register their employees with
the Peruvian Social Security Institute ("EsSalud"), or allow their employees to participate in a Private Pension Fund.
The employer is obligated to make Social Security contributions on behalf of its
Employers must also pay an insurance premium to cover work accidents. This premium
ranges between 1% and 12.2% according to the risk involved in the employee's activity.
Income Tax. The ITL obligates
employers to withhold personal income taxes from their employees' salaries and pay the amount withheld to the National Tax
Authority. The current maximum rate applicable for withholding purposes is 20% for the 2001 fiscal year
The hiring of foreign employees is subject to the regime established by the Labor
Law. Every employer must prefer the hiring of Peruvian employees. In this regard, when hiring foreign employees the employer
will be subject to limitations regarding (i) the number of employees it may hire, and (ii) the amount of their compensation,
which must show a preference in both aspects in favor of Peruvian employees.
The hiring of foreign employees is subject
to prior approval by the Labor Administrative Authority, except in cases where such employees are exempt from the above-mentioned
limitations, such as when the foreign employee (i) has a Peruvian spouse, parents, children, or siblings, (ii) has an immigrant
visa, (iii) is a national of a country with which Peru has a labor reciprocity or double nationality agreement, or bilateral
or multilateral agreements, (iv) is a foreign investor with investments not lower than S/.14,500.00 during the term of his
employment agreement, (v) is a specialized professional or technician, or (vi) will have a managing position in a new company
VI. Foreign Trade.
Peruvian import controls have been significantly liberalized. Most products no longer
require prior import permits. Import duties also have been reduced. Generally import duties fall within the 12%-25% range,
with most products at the lower end of the spectrum
The export of goods and services from Peru is not subject to customs duties of any
Peru is a party to the WTO, the Andean Pact, and the Latin American Integration Accord,
and has entered into bilateral trade agreements with several Latin American countries
Peru's Foreign Trade Law regulates international trade and prohibits unfair trade
practices such as dumping and trade subsidies. The Foreign Trade Law and its regulations generally follow WTO principles and
its Anti-dumping and Compensatory Duties codes
Antitrust matters in Perú are governed by Decree Law No. 701 and its implementing
regulations. (the "Antitrust Law"). The Antitrust Law and its regulations:
and regulate monopolistic practices and economic concentrations;
- Create an
Institute for the National Defense of Competition and the Protection of Intellectual Property ("INDECOPI"), which delegates
broad investigative and enforcement powers to an Antitrust Commission;
- Set forth
the basic procedure for actions by and before INDECOPI and the Antitrust Commission; and Create a private right of action for damages