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

 Few 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

 Very 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

 Foreign 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 agreements

Registration Requirements.

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

Repatriation 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

Investment Guarantees.

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

Forms of Investment.

The Privatization Law sets forth three main vehicles for privatization:

1. the transfer of shares or assets to private investors;
2. the increase of capital stock by allowing new subscription of shares by private investors; and
3. joint venture agreements, management contracts or similar arrangement with private investors

 Privatization Framework.

 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 branch.

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

 Concessions 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 Organization.

 Peruvian law contemplates several forms of business organization, including:

 i.        Corporations ("sociedades anónimas" or "S.A.s"), which may be public or privately held (hereinafter referred to as "corporation(s)");

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

Capital.

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

Management Structure.

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

Minimum Number of Shareholders.

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

IV.  Taxation

Corporate Income Tax.

Under the Income Tax Law, a Peruvian company is subject to income tax at the following rates:

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

Dividend Withholding Tax.

Dividends distributed by a Peruvian company are not currently subject to withholding tax

Other Withholding Taxes.

1. Royalties - The remittance of "royalties" is subject to withholding income tax. The current applicable rate is 30%.
2. Services - 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.
3. Interest Payments - As a general rule, subject to some exceptions, interest payments to nonresidents are subject to withholding tax at a rate of 5%

 Value Added Tax.

 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

Tax Treaties.

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

Mandatory Employee Benefits.

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 stock offering.

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

Minimum Wage.

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

Maximum Hours/Overtime Pay.

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

Additional Benefits.

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

Severance Payments.

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.

"Just 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

Termination 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

Employers 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 employees (9%).

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

Foreign employees.

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.

Imports Generally.

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

Exports Generally.

The export of goods and services from Peru is not subject to customs duties of any kind

International Trade Agreements.

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

Foreign Trade Law.

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

VII. Antitrust.

Antitrust matters in Perú are governed by Decree Law No. 701 and its implementing regulations. (the "Antitrust Law"). The Antitrust Law and its regulations:

1. Restrict and regulate monopolistic practices and economic concentrations;
2. 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;
3. Set forth the basic procedure for actions by and before INDECOPI and the Antitrust Commission; and Create a private right of action for damages