Professional Documents
Culture Documents
differently
PwC supports and promotes the growth of the
business sector and the country, offering innovati-
ve solutions and integrated solutions which can
2
Doing business and
investing in Peru
4
Foreword
Doing business
Business and investing
Investing in
in Peru
Peru 2016
2016 5
Contents
05
Foreword
08
Business
40
Corporate
environment aspects
Country overview 11 Incorporating a legal entity in
Major industries 16 Peru 41
Potential growth areas 23 Corporation - Sociedad
Investment incentives 34 Annima 43
36 Relationships of shareholders,
45
Agreement (TPP) 37 Limited liability company
Trade agreements 38 (S.R.L.) 48
Integrated Latin American 39 Branch of a foreign company 49
Market Participation account
agreement
Consortium or joint venture
agreement 50
73
Financial accounting
77
Business
& reporting associations
51
Labour
60
Tax
legislation aspects
Labour relations 52 Corporate income tax 61
Payroll costs 54 Withholding taxes 62
Indirect sale of shares 63
Market value and transfer pricing rules
Stability agreements 64
Income tax on individuals 65
Controlled foreign corporations (CFC) rules
Tax treaties in force 67
Payroll taxes
Financial transactions tax (FTT)
Temporary net assets tax (TNAT)
Value added tax (VAT) 69
Obligatory Tax Payment System (SPOT)
Early recovery of VAT 70
Recovery of VAT on exploration activities for mining, oil and gas
Exporters positive VAT balance
Excise tax 71
Customs duties
Free Trade Agrements (FTA)
Foreign Account Tax Compliance Act (FATCA) 72
82
Regulatory
88
PwC Peru
bodies professional services
1.
Business
environment
Historically, Perus economy has been underpinned by the production and export of
and favourable external factors, such as the high prices for Perus export commodities,
the past decade: construction grew in line with a real estate boom and the increase in
-
cantly fuelled by increased investment and foreign demand for manufactured goods.
However, in the last three years, the global economic growth has slowed down and the
prices for the commodities that Peru exports, especially metals, have remained low.
-
recent years, in line with the slower growth in main sectors of the Peruvian economy,
evidencing the impact that international commodities prices has on the rate of the
45
39.1 41.8 40.8
40 37.1
35 32.5
30 28.4
25 23.7
21.4
20 17.2
15
10
0
Source: BCR
2007 2008 2009 2010 2011 2012 2013 2014 2015
7.0
6.0 5.8
5.1
5.0
4.3 4.3
4.0 3.8
3.6
3.0
2.4
2.1
2.0
1.2
1.0
0.0
Source: BCR, FMI Venezuela Mexico Brazil Chile Ecuador Argentina Colombia Bolivia Peru
80
60
40
20
0
Source: BCR
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Venezuela 41.3
Argentina 14.3
Bolivia 6.3
Brazil 5.9
Ecuador 4.4
Mexico 4.1
Colombia 3.9
Chile 3.7
Peru 3.2
10
1.1. Country overview
Population
Peru has the worlds 42nd largest population, and the fourth largest population in Latin
America, surpassed only by Brazil, Mexico, Colombia and Argentina. As of 30 June 2015,
the countrys population is estimated at 31,151,643 people, with an average annual growth
of 1.10%. Three quarters of the population live in urban areas and one quarter in rural
areas. By 2021, Perus bicentennial year of independence, the population is projected to
exceed 33 million; and by 2050, it is expected to reach 40,111,393 people, according to the
estimates of Instituto Nacional de Estadstica e Informtica (INEI), Perus national statistics
institution.
2015 2021
Age group Men Women Men Women
0-4 1,460,651 1,401,223 1,552,891 1,492,428
Peru has experienced robust economic growth during the past decade, and is currently
the sixth largest economy in South America as measured by Gross Domestic Product
(GDP) based on Purchasing-Power-Parity (PPP), according to the IMF; and, according to
Bloomberg Markets Magazine, it is also in the seventh place of the 20 best countries and
frontier markets to invest in.
Brazil 3,207.86
Argentina 964.28
Colombia 664.98
Venezuela 491.59
Chile 424.30
Peru 385.38
Ecuador 181.81
Uruguay 74.19
Bolivia 73.88
69.61 68.44
62.04 59.26 58.97 58.78
57.26 56.30
53.24 52.63
48.93 48.33 46.19 45.78 45.65
45.30 43.75
39.59 38.31 37.89
Malaysia
Brazil
Peru
Poland
Thailand
Phillippines
Chile
Morocco
Czech Republic
Panama
Colombia
South Korea
Mexico
Indonesia
Russia
South Africa
China
Latvia
Turkey
Hungary
12
Bloomberg ranked emerging markets based on the overall investment climate on a projec-
ted risk-adjusted return basis through 2015.
Although Peru has experienced a deceleration in its GDP growth rates in 2014, the trend
is expected to reverse in the next years. The Peruvian Government has adopted several
9.1%
8.5% 8.5%
7.5%
6.3% 6.5%
6.0% 5.8%
5.5% 5.2%
4.3%
4.0%
3.3%
3.26%
2.4%
1.0%
The growth of the Peruvian economy in the last decade has been possible due to the high
the investment in infrastructure improved electrical connectivity and coverage. These large
investments were accompanied by many others in agroindustry, services, etc. Nowadays,
due to the global economic context, many projects are in a stand-by phase.
25.4 24.7
24.0
22.3 22.1
20.3
19.4
18.0 17.8 17.4 16.8
Source: IMF
Peru Ecuador Colombia Chile Mexico Bolivia Uruguay Brazil Venezuela Argentina Paraguay
Perus sound economic policies have been key to obtain an investment grade from the major
affected by the business slowdown in international markets. It has been its worst slowdown
in the last seven years.
Source: MEF
*Countries appear in alphabetical order
14
World Bank Doing Business Ranking - Regional Doing Business Ranking
Latin America, 2016
Peru 112
Paraguay 112
Bolivia 94
Colombia 92
Uruguay 90
Chile 85
Mexico 83
Argentina 69
Ecuador 57
Brazil 50
Venezuela 20
Source: Getulio Vargas Foundation (Oct, 2015)
Mining
The mining sector has been a key element in the economic growth experienced by Peru in
the past few years. In the last 5 years, on average, mining has accounted for 12% of GDP,
57% of total exports and 13% of tax income (23% of income tax)2.
In 2014, Peru was one of the worlds main mining exporters, as the worlds third largest
silver, copper, zinc and tin producer; the fourth largest lead producer and the sixth largest
gold producer3.
and the legal and bureaucratic burden affecting some investment projects, which have
prompted a revision of the investment plans by the mining companies operating in the
country. Nevertheless, during these years, Peru has seen healthy investment of about US$
prices, such as Toromocho (Chinalco), Las Bambas (MMG), Marcona (Shougang Hierro
Peru) y the expansion of the Cerro Verde mine (Freeport-McMoRan). Thus, in 2016 Perus
mining GDP is expected to increase by 12% compared with 2015. 4
70,000
59,612
60,000 55,035 54,554
50,714 51,043 52,473
49,599 50,076
50,000 45,892
43,236 44,058
39,206
36,993
40,000
30,000
20,000
10,000
Source: BCR
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2
Source: BCR, INEI, Sunat, Apoyo Consultora.
3
Source: Apoyo Consultora
4
Source: Apoyo Consultora
16
Mining investment US$ Millions
12,000
9,934
10,000
8,503 8,883
8,000 7,243 7,150
6,000
4,069
4,000
2,000
Mining production
8,000
7,000
6,000
5,000
4,000
3,000
Silver (thousands of Kg)
2,000
Iron (thousands of t)
Zinc (thousands of t) 1,000
Copper (thousands of t )
0
Source: Apoyo Consultora 2008 2009 2010 2011 2012 2013 2014 2015
15,000
10,000
5,000
0
Source: Apoyo Consultora
2010 2011 2012 2013 2014 2015
18
Manufacturing
The manufacturing sector is another of Perus economic foundations. In the last 5 years,
manufacturing represented, on average, 15% of GDP, 16% of exports and 18% of tax
In spite of a deceleration in line with the international economic situation, with a decline
of 3.7% in its manufacturing GDP in 2014, the Peruvian manufacturing sector presents
many opportunities for growth in the coming years. International demand for Peruvian
manufactured goods is expected to rebound led by the United States, increased investment
is expected to follow a public-private concession program, and manufacturing is expected
6
80,000
65,265 68,508
64,330 66,041 64,938
70,000
57,354 59,255
60,000 52,807 53,502
47,766
44,529
50,000 41,778
38,883
40,000
30,000
20,000
10,000
0
Source: BCR
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2014
2005
US$ Millions
1,188
1,052 1,040 1,064
949
5
Source: BCR, Sunat, INEI, Apoyo Consultora
6
Source: BCR, Apoyo Consultora.
2,176
1,989
1,926
1,799
1,323
Source: Sunat
2011 2012 2013 2014 2015
492
Source: Sunat
2011 2012 2013 2014 2015
25,000,000
21,451,866 21,768,314
19,723,359
20,000,000
17,877,861
15,712,489
15,000,000
11,939,148
10,309,868
10,000,000 9,293,426
5,000,000
20
Construction
The construction sector is one of the most important to the Peruvian economy and has been
one of the most dynamic in the past 10 years, with an annual growth rate of 11.3%, well
above the countrys GDP growth, reaching 7% of total GDP and tax income.7
In recent years construction has experienced a slowing growth in line with the current
economic situation. Public and private investment in construction has contracted in recent
years and is estimated to have contracted by around 2.7% in 20158.
sector will improve due to the recovery of the countrys economic activity and increased
public investment by subnational governments. It is projected that in 2016, the construction
sector will grow between 4% and 5%.
5,000
0
Source: BCR
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
14,000
11,550
12,000 11,260 11,381
10,119
10,000 8,956
8,441
8,000
6,000
4,000
2,000
7
Source: BCR, Sunat, INEI, Apoyo Consultora.
8
Source: BCR, Apoyo Consultora.
22
1.3. Potential growth areas
Power
As the main power source, electricity is of vital importance to the development of the
countrys economic activities. In the coming years, demand will follow the dynamism of
Perus economy, and is projected to grow at an average rate of 9.5% (in energy terms)
between 2015-20189. In 2015, annual growth was projected at 5.1%, due to the higher
demand from mining and industrial projects10. In the following years, investment is
expected to fall following completion of large projects, and overcapacity is expected to
place downward pressure on energy prices. Large transmission projects are expected to
Despite ample availability of hydro-resources and natural gas to meet growing demand,
there is still room to explore and develop renewable energy projects, such as solar, wind,
biomass and geothermal, to continue increasing power generation.
Evolution of GDP
8.5
7.6
6.0 6.2
8.1 5.9
4.9
6.5
5.8 5.5
Electricity GDP
2.4 3.3
National GDP
Source: BCR
2010 2011 2012 2013 2014 2015
Maximum demand
67,590 71,711
60,645 64,378
57,006
52,992
MW
9
Source: Maximixe
10
Source: Maximixe
11
Source: Apoyo Consultora
44,540
41,796
36,669
37,321 2,313
1,132 882
1,511
Other
Natural gas
Hydraulic
Total
2,589
2,440 2,475
337
421 401
1,749 470
188 244
229
1,370
279
107
Distribution
1,241 1,781 1,830 1,829 1,263
Transmissionn
Generation
Total
12%
10.76%
2%
2.91%
Energy
Maximum demand
0% 0.84%
Source: COES 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
24
Hydrocarbons
The hydrocarbons sector is essential to Perus development, not least because 64% of the
energy consumed daily comes from fossil sources, but also because in the past 5 years the
sectors contribution to GDP increased by 62%12.
Peru is a net hydrocarbon importer, with a consumption of 150,000 bbl per day, but a
production of less than 70,000 bbl per day. Peru imports mainly from Ecuador and Africa 13.
In recent years, production has decreased, and this tendency is expected to continue due to
gas production has been increasing notably due to investment in infrastructure, new
production from completed projects such as Camisea, and the expansion of existing
projects14 . Peru has great potential in this sector. Today, only one third of all basins has
been explored, with 18 oil basins yet to be explored. It is estimated that exploration in
these basins could potentially double current production, enough to satisfy internal
demand and eventually export.
GDP evolution
28.4%
19.7%
Source: BCR, Apoyo Consultora 2010 2011 2012 2013 2014 2015
12
Source: SNMPE, Sociedad Peruana de Hidrocarburos
13
Source: SNMPE
14
Source: Apoyo Consultora
Thousands of barrels
456,407
430,559 441,244
418,795
401,169
255,609
1,880
1,444
1,324 1,361
1,190
755
351
120
US$ Millions
Source: Perupetro 2000 2005 2010 2011 2012 2013 2014 2015*
26
Crude oil price evolution WTI (1Line) US$/BL
110 97.9
94.2 93.2
100
90
80
70 59.3 59.8
54.4
60 50.7 47.8 50.9
47.2 45.5 46.3
50 42.8 42.7
37.3
40
30
20
10
0
Source: Perupetro
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
2012
2013
2014
20.00
17.50
15.00
12.50
10.00
7.50
5.00
2.50
0
Source: Perupetro
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
2012
2013
2014
Algonquin City Gate 3.98 7.04 8.28 10.10 17.82 7.37 3.25 1.97 1.78 2.17 2.46 2.72 3.79 3.06 2.44
Henry Hub 2.75 3.72 4.37 2.97 2.85 2.80 2.58 2.84 2.77 2.83 2.76 2.65 2.32 2.08 1.92
UK NBP 9.48 10.65 8.23 6.99 7.75 7.07 6.97 6.82 6.75 6.76 6.18 6.29 6.07 5.45 5.15
Belgian Zeesbrugge 9.45 10.56 8.14 6.75 7.49 6.86 6.87 6.71 6.72 6.70 6.28 6.25 5.95 5.35 4.97
Asian JKM 15.12 16.58 13.88 8.81 6.90 7.56 7.08 7.48 7.35 7.76 7.88 7.08 6.82 7.47 7.18
of the countrys GDP, it represents 7% of exports15. It is projected that this sector grew 70%
will allow for an increased anchovy capture16. However, as a consequence of the El Nio
phenomenon, anchovy availability was reduced as the quota was the lowest in 10 years.
Nevertheless, it is expected that El Nio will subside from January 2016, and capture will
return to normal levels17.
GDP evolution
52.9%
24.8%
8.5% 15.9%
6.5%
6%
2.4%
5.9% 3.3%
Fishing GDP -19.6%
National GDP -32.2% -27.9%
6,994,051
4,698,532
3,331,761 3,615,477 3,616,484
2,255,453
15
Source: Apoyo Consultora
16
17
Source: Semana Econmica
28
Fishmeal and oil production (Gross metric tonnes)
1,634,676
1,118,572
846,260 839,703
785,630
524,605
347,558
173,463 201,605 169,733
Fishmeal 96,867 100,438
South-Central Zone
6.2
4.4
3.7
3.5
2.5
0.7 0.7
0.8 0.8
0.9
2011 2012 2013 2014 2015
South Zone
Peruvian sea - 200 miles
274.9 443.1
232
234.7 281.6
196.9
1,612.9 1,766.6 1,751.9 1,355 1,319.6 1,121.1
Fishmeal
71.40
31.00 67.30
38.00
57.98
25.80
982.60
873.80
833.20 832.60 735.87
Cured 540.50
Frozen
Canned
53.30 105.90 94.70 107.10 94.20 95.69
Source: Produce 2010 2011 2012 2013 2014 2015
30
Fishmeal exports by country of destination
4.70%
3.00%
5.80%
7.10%
11.70%
67.70%
1,711.78 1,921.47
1739.22 1,624.30 1,764.20
1519.25
The great variety of products cultivated in Peru has placed the country as one of the worlds
10 largest agricultural producers. Roughly every 5 years, the value of Perus agricultural
exports has doubled, growing at a rate of approximately 17% annually; and it is expected
that, by the end of 2016, it will reach US$ 7 billion as a result of new products and more
irrigated land18. On the other hand, the effects of the El Nio phenomenon are not expected
to affect the sectors growth in 2015, which is expected to exceed 2.5%, mainly due to the
recovery of important crops such as coffee and the growth of the livestock subsector19.
GDP evolution
8.5%
6.5%
6.0% 5.8%
4.3% 4.1% 5.9%
2.4% 3.3%
1.5%
2.8%
Agroindustrial GDP
1.9%
National GDP
2010 2011 2012 2013 2014 2015
Source:BCR
5,015
4,505
4,098 4,142
2,043
4,172
3,361 3,308
3,023
3,164.6 2,832
2,190
1,673
975 1,075 843
781
515
32
Production of main agricultural products (thousands of tonnes)
25%
31%
36%
44%
21%
16%
5%
6%
10% 6%
Investors in Peru have the same rights over their investments as local investors, based on
the principle of national treatment. No authority has the power to apply differentiated
treatment concerning prices, exchange aspects, tariffs, non-custom duties, business
information or any other feature with equivalent effects, based on nationality, types of
economic activity or geographic location in the country.
Moreover, the acquisition of shares belonging to local investors is freely allowed, both
through the stock market as well as over the counter operations. Investors have the
right to organize and carry out their business activities in any form envisaged by the
law. For example, companies have complete freedom to maintain deposits overseas
and remittance of profits, dividends and royalties are not limited in any way. They are
allowed to access local and overseas credit, and have free access to foreign exchange to
cover obligations or acquire goods.
34
Furthermore, the legal framework for investment promotion provides special regimes
among which the following terms prevail:
a) The Legal Stability Agreement by which the State Guarantees the investor:
Stability in the regulations for non-discriminatory treatment.
Stability in the Income Tax Regime (dividends).
Stability in the right to use the most favourable market exchange rate.
Stability in the regime of freely available foreign exchange and right of free remittance
of profits, dividends and royalties.
b) The agreement for Early Recovery of V.A.T. in which the state authorizes the
benefit of:
Reimbursement of Value Added Tax during the pre-operation stage (minimum duration
of 2 years) which is applicable to all sectors of the economy.
The minimum investment is US$ 10 million for mining or hydrocarbon activity, US$5
for other activities, except for agricultural activities where there is no such requirement.
The project can be divided into stages, segments or similar.
In Peru, the authority responsible for promoting private investment is the Private Investment
Promotion Agency (Proinversin). Among its main activities are the proposal and execution
of the national policy to promote private investment in infrastructure projects and public
services; investors guidance in the stages of pre-establishment and post-establishment;
subscription of Legal Stability Agreements and Investment Agreements (for the early
recovery of VAT), and foreign investment registration. Regional governments also promote
private investment projects in their territorial jurisdictions and within the framework of
their functions and competencies.
Source: Proinversin
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (1)
Costa Rica began the process of joining the Alliance on 10 February 2014.
Objectives
Strengths
As a whole, the Pacific Alliance constitutes the eighth largest economy and represents
the eighth largest exporting entity worldwide.
In Latin America and the Caribbean, the block represents 38% of GDP, concentrates 50% of
total trade, and attracts 45% of the direct foreign investment that flows to the region.
The four countries hold a combined population of 214.1 million people, with an average
GDP per capita of 16,500 dollars (in terms of purchasing power parity).
The population, mostly young, provides a skilled labour force, in addition to an attractive
market with purchasing power in constant growth.
The Pacific Alliance is a suitable platform to encourage joint ventures. It provides
opportunities for foreign investment and it is open to entrepreneurship and innovation
in various areas.
It has competitive advantages in mining, forest resources, energy, agriculture,
automotive, fishing and manufacturing.
36
1.6. Trans-Pacific Partnership
Agreement (TPP)
The Tran-Pacific Partnership Agreement (TPP) is an initiative developed by 12 members
of the Asia-Pacific Economic Cooperation forum (APEC): Australia, Brunei Darussalam,
Canada, Chile, United States of America, Japan, Malaysia, Mexico, New Zealand, Peru,
Singapore and Vietnam.
TPP has been one of the most ambitious and wide-ranging multilateral negotiation
processes between countries in 3 continents (The Americas, Asia and Oceania).
The goal of this agreement is to build a high quality inclusive agreement that underpins
economic growth, development and job creation in its 12 member countries, which in turn
sets the foundation for a future Free Trade Area of Asia Pacific (FTAAP). To this end, the
TPP will remain open to other members of APEC and to the development of mechanisms
that allow for its flexibility and evolution.
Other economies that have expressed an interest in joining TPP are Thailand and the
Philippines (APEC members), as well as Colombia and Costa Rica.
As part of this long-term commercial strategy, Peru has signed 20 trade agreements to
increase and consolidate access to the markets of its main trading partners for its main
products with the goal of developing a competitive export offer.
Peru has also signed three trade agreements soon to be effective with Guatemala, Honduras
and the Trans-Pacific Trade Partnership (TPP), and is currently negotiating four additional
agreements: with Turkey, El Salvador, the Trade in Services Agreement (TISA), and the
Doha Development Round.
This framework of international agreements has allowed over 90% of exports to enter over
50 countries under favourable conditions with reduced or no tariffs or other trade barriers.
This has contributed to a threefold growth in exports over the last ten years (2004-2014),
jumping from US$ 12.5 billion to US$ 38.6 billion. Trade agreements have also facilitated
an increase in the flow of foreign direct investment.
38
1.8. Integrated Latin American
Market - MILA
The Latin American Integrated Market (MILA) is the result of an agreement signed by the
Santiago Stock Exchange, the Colombia Stock Exchange, and the Lima Stock Exchange,
along with the central securities depositories (CSD) DCV, Deceval and Cavali, respectively.
Recently, in December 2014, Mexico joined these three countries through the Mexico
Stock Exchange and its CSD Indeval. The agreement establishes a regional market to trade
equities from the four countries, opening up a great number of opportunities for investors
and brokers from Chile, Colombia, Peru and Mexico, who can now purchase and sell shares
from the four stock exchange markets through a local broker.
MILA is the first cross border initiative to integrate equity markets without any sort of
merger or corporate integration, achieved using only technological tools along with
adaptation and standardization of regulations on trading in capital markets and the custody
of securities. One of the most important characteristics of MILA is the fact that one market
sacrifices its independence or regulatory autonomy, in exchange for the growth of the joint
market, since they complement each other. Likewise, all MILA transactions are performed
in the respective local currency without the need to leave the country, and with book entry
through the local broker, thereby, enabling easier international transactions with this tool.
The main benefits of the MILA for the investors include more alternatives of financial
instruments for diversification and the possibility of creating new portfolios. For
intermediaries, it promotes more attractive and competitive stock markets, increases the
type and number of products to distribute to their clients, and enables the creation of new
investment vehicles and new portfolios. For issuers, it reduces the cost of capital, provides
access to a wider market than their local ones and expands the demand for their financing.
Finally, for the country, it supports the integration process of the economies that comprise
the MILA, providing greater stability in the rules of the game and making the region much
more competitive.
Choice of entity
A corporation (sociedad annima) is the legal vehicle most commonly used by foreign
and domestic investors. However, foreign investors may also set up a partnership, limited
liability entities or establish a branch, which is taxed like a corporation, with the differen-
ce that branches are only subject to income tax on Peruvian source income.
Capital requirements
There are no specific rules establishing percentages for foreign or domestic investment
participation. However, the Peruvian Companies Law (Ley General de Sociedades LGS)
requires every corporation or partnership to have at least two shareholders/partners. This
requirement does not apply for branches.
There is no minimum capital requirement, except for banks, financial entities and certain
other controlled companies. However, all companies must deposit their capital in a Peru-
vian financial entity, and there are minimum amount requirements for opening a bank
account, which may vary according to each financial entity.
Shareholders requirements
The minimum number of shareholders required is two. There is no requirement for share-
holders to be Peruvian.
There is no general requirement stating directors or managers must be Peruvian residents
or nationals. However, directors shall formally accept the designation in order to carry
out the registration of their appointment at the Peruvian Public Registry (Sunarp). Also,
appointing at least one Peruvian citizen or resident as representative of the company is
recommended for practical reasons.
Repatriation of funds
Repatriation of funds is totally unrestricted.
Tax considerations
Capital gains, as defined by the Income Tax Law, are taxed as ordinary corporate income.
Forms of business enterprise
The Peruvian Companies Law and a number of other laws, decrees and regulations govern
financial, commercial and industrial activities. The Companies Law regulates the incorpo-
ration and conduct of business entities in general. Special laws may affect the conduct of in-
dustrial, mining, telecommunications, banking and insurance activities to varying degrees,
as well as companies operating under special conditions.
All its shares must be registered with the Stock Exchange, and the Corporation is subject
to the supervision of the Stock Market Superintendence (Superintendencia del Mercado
de Valores SMV). The Board of Directors and General Manager are both mandatory.
Sucursal Branch
It is a permanent establishment of a local or foreign company outside its legal domicile,
dedicated to one or some of the activities which constitute the corporate purpose of its
head office. A Branch does not have legal independence or a different legal status from
its head office. However, it is considered as an independent company for tax purposes. A
Branch must have a permanent legal representative, who acts as General Manager.
Government supervision
On a general basis, the Peruvian Government supervises certain industry activities, such us:
Insurance, financial and banking operations, as well as the companies under the control
of the Banking and Insurance Superintendence (Superintendencia de Banca, Seguros
y AFP SBS) and the Superintendence of the Stock Market (Superintendencia del
Mercado de Valores SMV);
Mining and energy;
Drug and chemical use;
Education;
Public infrastructure;
Transport and telecommunications;
Water and sewage services, among others
42
2.2. Corporation (S.A.)
Incorporation process
A copy of the Public Deed must be delivered by the Notary Public in order to be registered
at the Peruvian Public Registry.
Registration formalities normally take about 10 working days. The Notary Public and
Public Registrys fees will depend on the extension and complexity of the Public Deed, as
well as the amount of the capital stock.
Except for banks, financial entities, insurance companies, pension fund administrators,
labour service intermediation entities, and some other regulated entities, there is no legally
required minimum authorized capital. However, all companies must deposit its capital in a
Peruvian financial entity, and there are minimum amount requirements for opening a bank
account, which may vary according to each financial entity.
Shares are nominative and different classes are allowed (bearer shares are prohibited).
However, all shares must have the same face value, which cannot be zero. The issuance of
shares with and without voting rights is permitted.
Shares can be issued once they have been fully subscribed and paid-up at least 25 percent.
Bylaws may establish limitations on the transfer of shares but may not prohibit them.
The Corporation may not grant loans or guarantees with the guarantee of its own shares,
not even for the acquisition of the latter, under responsibility of the Board of Directors or
the General Manager, in case there is no Board of Directors.
44
2.3. Relationships of shareholders,
directors and officers
Management of the company
The shareholders exercise the control of a company through the General Shareholders
Meeting. The management of the company is normally delegated to a Board of Directors
and to the managers, one of whom must be the General Manager. In the event that the
company does not have a Board of Directors, the management will be delegated to the
General Manager.
Powers of each body are defined in the Companies Law and in the bylaws of the corporation.
Directors and managers are not required to hold shares. Minutes of all shareholders and
directors meetings must be kept in legalised minute books or on loose-leaf pages. Every
corporation must keep a legalised share registry book in which the creation, issuance,
rights, transfer, liens and guarantees granted in respect of the companys shares must be
registered. At the official year-end, the directors must prepare and submit to the shareholders
the corporate financial statements, along with their report on the corporations activities.
An annual mandatory shareholders Meeting must be held within three months of the year-
end. At this meeting, shareholders approve, among other matters, the management, the
financial statements of the past year, the dividend distribution (if any), and the renewal of
the Board of Directors.
Other meetings are held when required by the company, for which a fixed agenda and
meeting date should be set.
Increase or decrease of capital stock and bylaws amendment should be decided by an absolute
majority of shareholders at a General Shareholders Meeting. Shareholders representing not
less than two-thirds of the subscribed shares with voting rights must be present or represented
by proxy in a first citation, and representing no less than three-fifths in a second citation, in order
to meet the required quorum. No agreed resolution will be valid if the required representation
of shareholders is not present at either of these two meetings.
Voting rights for the different classes of shares are normally established in the bylaws, each
share being entitled to one vote. Proxies for Shareholders Meetings may be granted by
letter, fax and other similar methods, if provided in the bylaws.
Non-voting-right shares are allowed by Peruvian law. These shares are not taken into
account in determining the quorum of the General shareholders meeting. However, they
grant preferential rights for profit distribution.
Dividends
Unless otherwise stated in the bylaws, the shareholders at the annual Mandatory
Shareholders Meeting decide the distribution of dividends. The rules for dividend
distribution are as follows:
Dividends are only to be paid based on profits obtained or on free reserves, and provided
the companys net worth is not lower than the paid-up share capital.
Unless otherwise stated in the bylaws or agreed on by the General Shareholders
Meeting, all shares of the corporation (even if not fully paid-in) have the same right to
dividends, no matter when they have been issued or paid.
Distribution of dividends in advance is valid, except for those corporations that have an
express legal prohibition.
In the event that the General Shareholders Meeting approves the distribution of dividends
in advance, with no favourable report from the Board of Directors, the shareholders who
voted in favour of such a distribution shall be jointly, severally and exclusively responsible
for the payment.
Directors may be empowered to decide on the distribution of dividends in advance.
Dissolution must be agreed by the General Shareholders Meeting. Such resolution must
be published on three consecutive occasions within ten days following the agreement. The
registration of the dissolution resolution at the Public Registry must be performed within
ten days following the last publication.
A company must enter into a liquidation process if it incurs in losses that exceed two-thirds
of its paid-in capital. A company that continues to operate after accumulating losses in
excess of more than two-thirds of its paid-in capital is deemed as an irregular company
and, as such, loses its limited liability status, whereupon its shareholders, directors and
managers assume personal and unlimited responsibility for all obligations incurred.
Liquidators designated by the shareholders conduct the liquidation process. Liquidators
are empowered to sell the companys assets, pay its debts and obligations and distribute any
remaining equity among the shareholders.
The General Bankruptcy System Law is also applicable, when creditors request the
beginning of a bankruptcy procedure at the Antitrust Law and Costumers Protection
Institute (Indecopi).
46
Books, records and publications
All companies must have corporate books for recording resolutions that have been taken by
their governing bodies. The corporate books are used for:
General Shareholders Meetings minutes.
Board of Directors resolutions (if applicable).
Shares Registry.
Banks, insurance companies and other supervised entities are required to publish their
balance sheets and profit and loss statements in the Peruvian Official Gazette El Peruano,
and another daily newspaper.
A standard form for presentation is requested, but the information required is minimal.
Statutory audit
40
2.5. Branch of a Foreign Company
Under Peruvian legislation, a Branch is any secondary establishment by means of which
a company performs certain activities included in its corporate purpose in a different
location from its legal domicile.
A Branch foreign company is registered by means of a Public Deed, issued by a legal
representative of the head office in Peru. The following documents must be attached to the
Branchs Public Deed:
Board of Directors or competent bodys resolution to establish the Branch in Peru. This
resolution should specify:
The activities to be performed by the Branch, and that they are within the head
offices corporations purpose;
Domicile of the Branch;
Name of the person designated as permanent legal representative and other
representatives in Peru, the powers vested in them and the express submission of the
head office to Peruvian Law, for covering the obligations of the Branch.
Affidavit or certification confirming that the Directors or legal representatives of the
Head Office that signed the resolution were entitled to decide upon the establishment
of a Branch in accordance to the Head Office countrys law.
Copy of the bylaws (memorandum and Articles of Association) of the head office.
Certification of the head offices existence issued by a local authority (Certificate of
Good Standing).
The above mentioned documents require certification by a Notary Public or appropriate
government officials in the country of incorporation of the head office, and to be duly
apostilled or certified by the Peruvian Consulate in the country of the company.
A Peruvian official translator must translate any document that is not in Spanish, in order
to submit it to the Peruvian Public Registry for registration.
The business of the Branch is directed by a permanent legal representative, appointed by
the head office, whose powers of attorney must be duly registered at the Peruvian Public
Registry. Such powers may be revoked only by the head office company or by the holder
of an overriding power of attorney in Peru. The scope of the representatives powers of
attorney may vary according to the head offices policy but should be sufficiently extensive
to allow adequate representation in Peru.
There is no regulation requiring filing of the financial statements of the parent company
in Peru.
It is important to note that the Peruvian Government has adopted the Hague Convention
of 5 October, 1961, which abolishes the requirement of legalization for foreign public
documents to be used only in signatory countries.
The managing partner operates the business and will be the sole responsible towards third
parties. This agreement does not involve the incorporation of an entity different from the
managing partners.
2.7. Consortium or
Joint Venture Agreement
Under this form of collaboration agreement, two or more parties associate to actively and
directly participate in a certain business for the purpose of obtaining an economic profit.
However, each party will maintain its independence at all moment.
Each party will be individually liable to third parties for the activities that it carries out
under this agreement. When the Consortium or Joint Venture enters into agreements with
third parties, there is joint liability for the partners if it is stated in the agreement or when
determined by law.
The parties should determine the extent of participation in the results; or otherwise it will
be deemed to be equal for all parties. For tax purposes, a Consortium or Joint Venture is
considered as a separate taxable entity when independent accounting records are kept (in
certain circumstances, one party can keep the accounting of its shares in the agreement).
3
50
3.
Labour
legislation
Doing business and investing in Peru 2016 21
3.1. Labour relations
Labour and management relations
Peruvian labour legislation is characterised for being atomised into many laws and
regulations.
With regard to the labour relationship, it should be noted that once it is initiated, employees
undergo a trial period of three months, during which they can be dismissed for any cause
without indemnity. The trial period can be extended to six months or one year for skilled
employees, or those appointed for management positions and positions of trust.
Unlimited term agreements are those entered into for an unlimited (i.e. open-ended)
period of time (permanent employees). In the event of unjustified dismissal, employees are
entitled to an indemnity that equals 1.5 times their monthly remuneration per each year of
service, up to a limit of 12 monthly remunerations. This type of agreement does not require
compliance of any special formality.
Fixed Term agreements are those signed for a limited period of time. Employees hired under
this type of work contract, are entitled to an indemnity that equals 1.5 times their monthly
remuneration per each month pending until the end of the contract (with a maximum of 12
remunerations), in the event of work termination due to unjustified dismissal. These types
of agreements are exceptional, and are only acceptable for temporary positions and certain
specific jobs. If they do not correspond to the nature of the tasks performed, they could be
considered by the labour authority as unlimited term agreements, which would imply the
obligation of providing all the legal rights originated by this type of contract. According to
law, fixed term agreements must be formalised in writing and the purpose of each one of
them must be duly detailed in the contract.
Payroll
Peruvian employers are obliged to use the Electronic Payroll System to register employees
and to comply with their monthly payments.
This system is formed by T- Registro, which contains information of the employees,
professional services agreements, trainees, outsourced personnel, among others; and
PLAME, which contains the monthly payments.
Both registries are carried out electronically, and have to be submitted monthly to the tax
authority.
52
Indirect hired employees
Currently, the Peruvian labour legislation establishes two kinds of agreements in order to
indirectly hire employees: intermediation and outsourcing agreements.
Intermediation agreements consist of the rendering of temporary, complementary and
highly specialised services. Through this type of agreement, the intermediary entity assigns
employees to a company in order to perform services under instructions of the latter, while
their labour relationship continues to be with the intermediary entity. It is important to
highlight that intermediary entities assume the labour costs involved in the employees
assignment. Moreover, they need to be registered before the labour authority, and must
post a guarantee letter to cover any possible unpaid social benefit while rendering services.
On the other hand, an outsourcing company is an entity that is hired to render specialised
service or work, as long as it assumes the services to be rendered under its own risk, with
its own financial, technical and material resources, assumes responsibility for the result of
its activities and its employees are its exclusive subordinates. Some characteristic elements
of an outsourcing company are, among others, evidence of having more than one client,
its own equipment, capital investment and that the service fee must not be determined per
employee but for a comprehensive service.
Companies that hire employees through intermediation agencies or outsourcing services
are jointly responsible with the employer for the fulfilment of labour and social security
obligations accrued during the employees assignment term.
Unions
Fringe benefits
Voluntary and statutory fringe benefits usually granted to personnel, are deemed by the
employers as an additional cost of employment. In this regard, fringe benefits established
are those related to medical care, vacations, recreational expenses, bonuses, among others.
Legal bonuses paid in July and December are not subject to any social contribution and only
to income tax.
Compensation is commonly paid in the form of wages and salaries or by way of commissions,
and may be paid in either Peruvian or foreign currency. Compensations are subject to
statutory social contributions and employees taxes.
Supreme Decree 007-2012-TR dated 17 May, 2012 increased the minimum wage to seven
hundred and fifty (750) Soles (PEN) from 1 June 2012.
The employer may also agree with employees whose monthly compensation is not less than
two Tax Units (equivalent to S/. 7,700 or approximately US$ 2,333.33, at an exchange rate
of 3.03) that their compensation be paid as an annual package calculated on an annual
basis, including all legal and conventional benefits with the exception of profit sharing.
Profit Sharing
Fishing 10%
Telecommunications 10%
Industry 10%
Mining 8%
Wholesale, retail and restaurants 8%
Other activities 5%
54
Legal bonuses
According to Law N. 27735, employers must pay a bonus equal to one monthly salary on
July and December.
Legal bonuses are not subject to social benefits and contributions, and instead, this amount
is given to employees as an extraordinary bonus. They are only subject to income tax.
Overtime
Employers with employees who work between 10:00 p.m. and 6:00 a.m. are obliged to
make an additional payment of 35% of the ordinary work hour wage if the employees earn
the minimum salary (S/750).
Vacations
Employees are entitled to paid annual vacations of one month upon completion of each
year of service, with a minimum attendance of 260 days per year if the work week is six
days long, and 210 days if the work week is five days long.
The employer and the employee may agree to allow up to two years vacation to accumulate.
However, at the end of the first year, the employee should take a seven-day vacation period.
If the employer does not grant vacations to the employee, a payment equivalent to two
monthly compensations must be made (one corresponding to the work performed, and the
other as indemnity for not having taken vacations).
Termination of employment
The employer may not dismiss an employee for reasons of behaviour or qualification without
granting the employee a reasonable term of not less than six calendar days to defend him/
herself in writing against such charges, unless a serious misdemeanour is involved; or a
term of thirty calendar days to prove his/her qualification or correct the behaviour.
Should the employee be terminated and no fair cause exists (dismissal without grounds),
the employee will have the right to receive a severance payment equal to 1.5 monthly
salaries for each year of service, up to a maximum of 12 salaries for indefinite term labour
contracts and 1.5 salaries for each month left in the contract terms for fixed term contracts.
56
Social Security Administration for Health Services (EsSalud)
There is a general state system of social security for health services, which is administered
by EsSalud, providing health coverage as established by law. In general, all dependent
employees registered on the payroll are covered by EsSalud, the labour relationship being
the only requirement for obtaining coverage, regardless of the term of employment or the
number of hours worked per day, week or month.
Employers must contribute for all their employees, including foreign employees registered
on the payroll, based on the total monthly compensation, including compensation in kind,
with certain exceptions such as profit sharing payments and extraordinary bonuses. The
rate of this contribution is 9% of his/her compensation.
The National Pension Fund System, managed by the Oficina de Normalizacin Previsional
(ONP), provides pensions to retired employees who have reached the age of 65, provided
they have fulfilled their contribution for a minimum of 20 years. This contribution amounts
to 13% of the employees compensation.
Legislative Decree N. 688 states that employees who have worked for the same employer
for 4 years (consecutive or not), are entitled to a mandatory life insurance provided by the
employer.
In addition, the life insurance contract must be registered before the labour authority.
According to Law 26272, individuals or legal entities that develop industrial activities
included in Category D of the International Standard Industrial Classification of all
Economic Activities (CIIU) are obliged to make contributions to SENATI (Servicio
Nacional de Adiestramiento en Trabajo Industrial), paying a percentage of 0.75% over all
remunerations paid to their workers.
The employer is in charge of the Occupational Safety and Health Management System and
its implementation in each of its workplaces.
Among the employers main obligations, are:
Companies with twenty (20) or more employees must prepare an Occupational Safety
and Health at Work Manual.
Companies with twenty (20) or more employees must establish an Occupational Safety
and Health Committee, with participation of employees and companys representatives.
In workplaces with less than twenty (20) employees, a Supervisor must be designated.
To be able to identify the Supervisor and the members of the Committee, the employer
must provide an identification card or visible insignia to each of the members.
Companies must implement registries (for accidents, diseases, trainings, medical
examinations, statistics, safety and health equipment, etc.) and documentation of the
Occupational Safety and Health Management System, through magnetic or physical
means. These documents must be kept updated and available to employees and to the
labour authority.
Companies must ensure the presence of a doctor in the workplace in accordance with
the following rules:
In any workplace with more than 500 employees, the doctor must remain for at least
6 hours a day 5 days a week;
In any workplace with less than 500 employees, health supervision is in charge of a
doctor, without the requirement of a minimum of hours, which will be verified with
the following information:
Occupational Annual Health Plan
Employees Health Supervision Program
Compliance with the above-mentioned documents is the employers responsibility.
58
People with disabilities
The General Law of Disabled People, Law N 29973, states that people with disabilities
have the right to work in equal conditions to other employees.
Hence, private employers with more than fifty (50) workers are obliged to hire people with
disabilities at a rate not lower than 3% of their payroll.
The labour authority will begin verifying compliance of said obligation since 1 January
2016.
The labour authority is in charge of supervising and ensuring that employers fulfil labour
and social security provisions. Also, this entity is in charge of providing technical assistance
to employers as well as employees, protecting their corresponding rights.
The labour authority is entitled to impose fines on employers who infringe the Labour law.
In January 2013, the National Superintendence of Labour Inspection (Sunafil) was created.
This is a technical and specialised organism attached to the Labour Ministry, which will be
in charge of the Labour Audit System. Maximum fines (if infringement affects more than
141 workers) have been increased as detailed in the following chart.
Infringement Fine
Slight infringement (50 Tax Units) S/ 192,500
Serious infringement (100 Tax Units) S/ 385,000
Very serious infringement (200 Tax Units) S/ 770,000
Infringement accumulation S/ 1155,000 per year
By Law 30222, fines imposed by Sunafil were capped up to 35% of the original amount
after evaluation of each particular case, considering principles of reasonableness and
proportionality. This benefit will be applicable until 12 July, 2017 but will not apply to very
serious infringements, such as the ones that affect unionization, non- discrimination rules,
prohibition of child labour, forced labour, infringements regarding rules on safety and
health at work that lead to employees death or permanent disability, labour inspection
obstruction, and repeated infringements-understood as the commission of the same offense
within a six month period after the previous resolution that punished a prior infringement
was confirmed.
Overview
Companies incorporated in Peru are considered domiciled for Income Tax purposes and,
therefore, subject to income tax at a 28% rate (2015-2016), 27% rate (2017-2018) and 26%
rate (as from 2019), on net income determined on a worldwide basis. Branches, agencies
and permanent establishments incorporated in Peru of non-domiciled companies or
entities are subject to Income Tax at the same rates on their Peruvian source income only.
In order to fulfil their annual income tax obligation, the aforementioned entities must
comply in advance with monthly estimated tax payments by choosing the higher amount
of: i) the quota obtained by applying to the net income a coefficient that results from
dividing the tax determined in the prior fiscal year (or in the preceding year, in the case of
January and February) and the total net income of said fiscal year, or ii) the one obtained
by applying 1.5% to the months net income.
If no tax is calculated in the prior fiscal year (or in the preceding year) the advance payments
shall be determined by applying 1.5% to the months net income. Any unpaid balance or
excess payment is paid or credited, respectively, upon the filing of the annual Income Tax
return. The Income Tax must be filed and paid within the first 3 months of the fiscal year
following the one in which the tax obligation arises (e.g. 2014 annual income tax return
must be filed no later than March 2015). The fiscal year is the calendar year.
For the purposes of determining their taxable income, entities are allowed to deduct
business expenses, to the extent that they are needed, in order to produce taxable income
or to maintain its source. Requirements, limits and/or caps may be applicable for the
deduction of certain expenses, such as finance expenses (thin capitalization rules apply),
bad debt provisions, salaries, travel expenses, gifts, among others.
However, certain expenses are disallowed, such as those derived from transactions with:
(i) entities domiciled in tax havens included in the list attached to the income tax Law, (ii)
permanent establishments located in tax havens, or (iii) entities that obtain revenues or
income through tax havens. Notwithstanding this, expenses derived from the following
transactions are excluded from the above mentioned limitation: (i) interest on loans, (ii)
insurance premiums, (iii) lease of aircraft and ships, (iv) maritime freight, and (v) toll for
transit through the Panama Canal.
Depreciation allowance of assets is available using the straight line method. The depreciation
allowance is limited to the one recorded for accounting purposes (financial depreciation);
however, the depreciation allowance is limited to the following maximum rates:
(*) Buildings are subject to a flat 5% depreciation rate (regardless of financial depreciation) and a flat 20% depreciation rate, in case the
construction of the building started as from 1 January, 2014 and, until 31 December, 2016, the construction reached 80% of the works
4. 2. Withholding taxes
Income paid to non-domiciled entities is subject to the following withholding tax rates:
(*) Dividends paid out of undistributed profits as of 31 December, 2014 will be subject to a 4.1% withholding tax.
(**) The user of the technical assistance has to have a report issued by an audit firm stating that the technical assistance was effectively
rendered, if the consideration for the services exceeds 140 Tax Units (PEN 539,000).
Note that domiciled taxpayers cannot deduct the withholding tax paid on behalf of a third
party, except in the case of loans provided by non-domiciled creditors, to the extent that the
domiciled debtor has expressed its agreement to bear the withholding tax.
Capital gains derived from the sale of securities through the stock exchange received by
non-domiciled entities or individuals are subject to income tax at a rate of 5%.
62
Nonetheless, an exemption has been granted from January 2016 until December 2018
when no more than 10% interest is transferred and the stock has market presence. If the
security is not traded in the stock exchange, a 30% income tax rate will be applicable.
In the case of the following services in which activities are performed both within Peru and
abroad, non-domiciled entities generate Peruvian source income at the following percentages:
Insurance 7% 2.1%
Lease of vessels 80% 8%
Lease of aircrafts 60% 6%
Air transport 1% 0.3%
Maritime transport 2% 0.6%
Telecom services 5% 1.5%
International news services 10% 3%
Distribution of movies, records and similar products 20% 6%
Supply of containers 15% 4.5%
Demurrage 80% 24%
Right for broadcasting within Peru live foreign TV shows 20% 6%
60
4.6. Income tax on individuals
Individuals are taxable in Peru by reason of their domicile rather than by residence criteria.
Foreign individuals are deemed to be domiciled in Peru for tax purposes, if they are
physically present in Peru for more than 183 calendar days within a 12 month period.
Temporary absences up to 183 days within a 12 month period do not interrupt the
continuity of their presence.
The tax status of the individual (domiciled or non-domiciled) is determined at the beginning
of each fiscal year. Changes regarding such condition that may occur during the fiscal year
shall enter in force as of the next fiscal year. This means that non-domiciled individuals will
be considered domiciled in Peru the next year they meet the conditions mentioned above.
Domiciled individuals are subject to income tax on their worldwide income, whereas non-
domiciled individuals are only taxed on their Peru source income. In such case, however,
individuals are entitled to a foreign tax credit for the taxes paid on foreign income taxable
in Peru determined by their average Peruvian tax rate applied on their foreign income, with
a limit of the tax paid abroad.
Income tax rate is based on a progressive rate schedule on salaries, retribution for services
and foreign source income, as shown below:
(*) For fiscal year 2015, 1 Tax Unit is equal to S/. 3,850.
(**) The first 7 Tax Units are exempt from Income Tax
Capital gains derived from the sale of stock are levied with a 5% rate, provided that:
The shares are listed in the Stock Public Registry; and,
The shares are traded through the Lima Stock Exchange.
The aforementioned capital gains will be exempted as from January 2016 until December
2018 if:
No more than 10% interest is transferred; and,
The shares have market presence.
Otherwise, a 30% rate is applicable.
Withholding obligations:
Non-domiciled individuals are subject to withholding taxes as a mechanism to collect
the final income tax by the Tax Authority. Said obligation is not applicable when the
sale of stock is conducted through the Lima Stock Exchange. In this case, the Peruvian
Clearing House (Cavali) has the obligation to withhold the corresponding income tax.
Tax exemptions
Capital gains made by the direct or indirect sale of securities underlying an Exchange
Traded Fund (ETF) when such sale or conveyance is performed for the constitution of
the ETF, the sale of the ETF unit or the management of its investment portfolio.
Capital gains derived from the sale of treasury bonds.
Interest from bank deposits when the beneficiary is an individual will be tax exempt.
66
4.7. Controlled Foreign Corporations
(CFC) rules
In Peru, CFC rules are applicable in order to avoid the deferral of Peruvian income tax
liabilities derived from passive income received by determined foreign entities controlled
by domiciled taxpayers. Concepts, such as dividends, interest, royalties and capital gains,
are considered passive income.
Pursuant to the CFC rules, when a domiciled taxpayer owns (directly or indirectly) more
that 50% interest in a foreign entity located in a tax haven or jurisdiction with reduced
tax rates (i.e. where the applicable tax rate on similar income is less than 75% of the rate
which would apply in Peru), the passive income obtained by the foreign entity would be
attributed to said domiciled taxpayer. Therefore, the shareholder will pay the income tax
on foreign passive income obtained by the foreign entity in the fiscal year when said entity
actually receives it, and not when a dividend is distributed to the shareholder.
68
4.10. Financial Transactions Tax (FTT)
FTT is applied at a rate of 0.005% on credits and/or debits on bank accounts held by the
taxpayers.
However, operations made between accounts of same holder, credits to bank accounts for
payment of salaries, among others, are exempted from the FTT.
Payments of FTT are deductible as an expense for income tax purposes.
The amount paid for TNAT may be credited against the taxpayers income tax. If not
totally utilised, the remaining TNAT may be refunded by the tax administration.
60
4.15. Recovery of VAT on exploration
activities for mining and oil & gas
Holders of mining concessions have the right to recover the VAT paid in connection
with their activities during the exploration stage. In order to access this regime, mining
companies must comply with certain conditions, such as being entirely at a pre-operative
stage and performing exploration activities of minerals within the country, and entering
into an exploration investment contract with the Government, for a minimum investment
of an amount in national currency equivalent to US$ 500,000.
Likewise, entities that enter into oil & gas agreements with the Government (Perupetro)
have the right to recover the VAT paid in connection with their activities during the
exploration stage.
72
5.
Financial
accounting &
reporting
Doing business and investing in Peru 2016 21
5.1. Application of International
Financial Reporting Standards
(IFRS) in Peru
Group 1 Listed companies (oversight of local regulator) IFRS mandatory since 2011
74
It is important to emphasize that Peruvian companies are required to adopt IFRS in
the consolidated financial statements as well as in the separate or individual financial
statements. This means there is no freedom of choice in adopting IFRS in the individual
financial statements as is possible, for example, in some European countries.
According to the previous chart, Group 1 consists of companies with equity shares or debt
instruments traded in the local markets or operating in specific business areas (broker
dealers, mutual funds and investment funds). These entities are overseen by the local
regulator of entities and securities (Superintendencia del Mercado de Valores - SMV), and
they were required to fully adopt IFRS for the preparation of their financial statements
of 2011; except for broker dealers, mutual funds and, investment funds, which have been
required to prepare their first IFRS financial statements for the year ended on 31 December
2012
Groups 2 through 6 consist of private companies (not overseen by SMV) with assets or
revenues greater than a specific level measured on the basis of UIT*; which, despite not
being public companies, are required to file their financial information with the local
regulator (SMV This means that the SMV has enhanced its functions in order to act as
an agent that compiles information presented by private entities and has the ability to
impose fines on entities that fail to comply with this requirement for an amount up to 25
UIT (approximately US$29,000). The minimum information required to be filed with SMV
consists of a set of basic financial statements (without notes), which will be made public to
any party making a formal request. The entities included in these groups have due dates for
filing their information based on a schedule informed by SMV which establishes maturities
in June of the year following the date of the information that is being presented.
Group 7 consists of private companies (not overseen by the SMV), with assets or revenues
below 3,000 UIT (US$3.5 million), which should apply generally accepted accounting
principles in Peru (Peruvian GAAP). Nevertheless, these companies may apply IFRS
voluntarily. In this regard it should be mentioned that the Peruvian standard-setter
(Consejo Normativo de Contabilidad (CNC) made official in November 2010 the IFRS for
small and medium sized entities issued by the IASB.
In summary, it should be emphasized that to date most Peruvian companies have adopted,
or are in the process of adopting, IFRS.
Peruvian GAAP is based on the IFRS made official through resolutions issued by the
Peruvian standard-setter (CNC) and certain specific local accounting rules. Currently,
considering the most recent approvals of certain standards and pronouncements by the
CNC, the major differences between IFRS and Peruvian GAAP are as follows:
Under Peruvian GAAP, effective as of 31 December 2004, the financial statements were
required to be adjusted to reflect the effects of inflation, based on a methodology approved
by the CNC. The balances restated for inflation were considered to be the historical opening
balances to prepare the financial statements for 2005.
Under IFRS, Peru did not qualify as a hyperinflationary country after 1994; therefore,
the financial statements for years beginning on or after that date are not required to be
restated for inflation, in accordance with IAS 29 - Financial Reporting in Hyperinflationary
Economies.
For Peruvian GAAP purposes, it is permitted to apply the equity method to account for
investments in subsidiaries in separate financial statements. Under IFRS, until 31 December
2015, IAS 27 Separate Financial Statements (IAS 27), investments in subsidiaries
presented in separate financial statements are permitted to be accounted for at cost or
applying rules of IAS 39. However, it should be mentioned that the IASB published narrow-
scope amendments to IAS 27 in August 2014. The amendments to IAS 27 will allow entities
to also use the equity method to account for investments in subsidiaries, joint ventures and
associates in their separate financial statements. An entity which has decided to change to
the equity method shall apply the amendments for annual periods beginning on or after
1 January 2016 in accordance with IAS 8. Earlier application is permitted. It could be
reasonably expected that many companies will decide to apply the equity method in order
to reduce compliance costs.
In addition to the previous GAAP differences, although Peruvian GAAP includes most of
the IFRS, it shows, in practice, certain departures from a strict application of IFRS. For
example, most companies follow tax criteria to depreciate fixed assets, or do not apply
concepts such as componentization, or residual values or do not identify embedded leases
or embedded derivatives.
For entities required to apply full IFRS, it is necessary that their management assesses
the impact of IFRS on their financial reporting framework. The transition to the IFRS
framework may be much more complex than the technical accounting challenge arising
when adopting new accounting standards. This process implies focusing on complex issues
inherent to the financial information collection and formulation process as well as the
business processes and systems; in addition, but equally important, this conversion process
requires making sure awareness is raised company-wide of the implications of adopting this
new accounting framework. Careful planning and monitoring of the activities underlying
this conversion initiative will contribute to a smooth transition for the company, and will
mitigate any potential additional pressure that this initiative may place on the day-to-day
activities of the companys personnel.
6
(*) UIT = Unidad Impositiva Tributaria, which is an index generally used as a referential value for tax determination purposes in Peru, that is
updated on an annual basis to reflect changes in prices. Calculations based on UIT have been made with the value prevailing at the date of
this publication (PEN 3,950)
70
76
6. Business
associations
70
78
Association of Companies Promoting the Capital Market
(Procapitales)
www.procapitales.org
This union institution is oriented towards the promotion of investment. Its main objectives
are to support the creation of better conditions for private investment, strengthen good
corporate governance practices, and encourage financing through the capital market and
investment funds.
www.asociacionafp.com.pe
This is a private union organization that assembles the four Private Pension Fund
Administrators (AFP) that operate in Peru. Its objectives are to spread a culture of saving
for retirement, and to protect the interests of the private pension funds affiliates and
pensioners.
www.snmpe.org.pe
The SNMPE is a business organization constituted as a non-profit civil association, which
assembles legal entities related to mining, hydrocarbon and electricity activity. Its functions
are to promote the responsible development of activities related to these sectors.
www.snp.org.pe
The SNP groups the Peruvian fishing companies that make responsible use of hydro-
biological resources. These companies are provided with union support services in their
planning, execution and control activities, which helps improve their operations and
contributes to the countrys foreign exchange.
www.perucam.com
Perucmaras groups the chambers of commerce of the country, with the objective to
contribute to the strengthening of the countrys chambers of commerce, support the
development of small and micro-provincial companies, and represent its associates
interests before the national government.
www.agapperu.org
This non-profit civil institution represents the agro exporting companies of Peru before
public and private, both national and foreign institutions. Its main objective is to promote
the development of the national agricultural sector, seeking to improve its competitiveness.
www.aap.org.pe
The AAP is a non-profit private business union of the automobile sector. It represents its
associates throughout the country. It aims to bring together individuals and legal entities
related to the automobile sector, to protect their interests, and to represent them before the
authorities.
70
80
National Association of Pharmaceutical Laboratories (Alafarpe)
www.alafarpe.org.pe
This entity brings together companies of the pharmaceutical industry dedicated to the
production, commerce and promotion of pharmaceutical products for human use. Its main
function is to represent its associates, made up of national and foreign capital laboratories.
www.apa.org.pe
The APA is a business guild that seeks to add to the countrys development through
national poultry farming. Its objectives are to propitiate the development and profitability
of the sector, as well as to coordinate the development of the agricultural sector with the
government.
www.snrtv.org.pe
The SNRTV is the union body in charge of promoting the growth and consolidation of the
commercial radio broadcasting services and television and radio production in Peru. It also
defends the principles of free and fair competition in radio broadcasting and television and
radio production.
www.asppor.org.pe
This association groups the sector companies that provide port, maritime, logistic and
storage services. Its main objectives are to promote the development of the maritime and
port operations of Peru, and represent the interests of the union with public or private
entities.
www.sbs.gob.pe
The SBS is the entity in charge of the regulation and supervision of the financial and
insurance systems, as well as the Private Pension System, and the prevention and detection
of money laundering of assets and financing of terrorism.
www.smv.gob.pe
The SMV is a specialized technical entity attached to the Ministry of Economy and Finance
that has the purpose of ensuring the protection of investors, the efficiency and transparency
of the markets under its supervision, the correct formation of prices and the dissemination
of all the necessary information for such purposes.
www.osiptel.gob.pe
Osiptel is a decentralized public entity in charge of regulating and supervising the market
of public telecommunication services. It seeks to promote fair competition, good quality
telecommunication services throughout the country, and to protect the rights of the users.
www.osinergmin.gob.pe
This public institution is in charge of regulating and supervising the companies of the
electric, hydrocarbon and mining sector. Its main function is to ensure that the supervised
companies comply with the legal provisions of the activities they carry out.
www.sunass.gob.pe
Sunass is a decentralized public entity, which aims to regulate, supervise and monitor
the provision of water and wastewater to users. It is its main objective to encourage the
improvement of quality and coverage of sanitation services in Peru.
70
84
Supervising Body of Investment in Transport Infrastructure of
Public Use (Ositran)
www.ositran.gob.pe
Ositran is a public organism responsible for regulating, supervising and monitoring the
behavior of the markets involved in transport infrastructure and public transportation. It
is also in charge of solving controversies and handling complaints between companies and
the users.
www.indecopi.gob.pe
This institution seeks to promote the market protect the rights of the consumers. It also
encourages the development of a fair and honest competition culture within the Peruvian
economy, safeguarding all forms of intellectual property: from distinctive signs and
copyright to patents and biotechnology.
www.sunarp.gob.pe
Sunarp is in charge of establishing the technical registration policies and norms of the
National System of Public Registries. It must also plan and organize, direct, coordinate and
supervise the inscription and publication of minutes and contracts in the Registries that
make up the system.
www.sunafil.gob.pe
This specialized technical organism attached to the Ministry of Labor and Promotion of
Employment. It is responsible for promoting, supervising and monitoring the compliance
of the socio-labour legislation and that of safety and health in the workplace.
www.sunat.gob.pe
This is a specialized technical organism attached to the Ministry of Economy and Finance
in charge of promoting the compliance of tax and customs regulations, and of creating
tax awareness. It also is responsible for easing compliance procedures regarding tax and
customs..
www.digesa.minsa.gob.pe
This is the technical-regulatory organ in aspects related to basic sanitation, occupational
health, food hygiene, zoonoses and environmental protection. Its main functions are
formulating policies, regulating and inspecting interventions related to environmental
health.
www.oefa.gob.pe
This specialized technical organism is responsible for the evaluation, supervision, control
and sanctioning of environmental matters of business operations, as well as the application
of incentives in the mining, energy, fishing and industrial sectors.
30
Doing business and investing in Peru 2016 21
8. PwC Peru
professional
services
30
Doing business and investing in Peru 2016 21
Great Challenges
Do Not Solve Themelves
Finding the right solution to a problem often depends on knowing how to ask the right
question and finding the right ally to answer it.
At PwC, we understand that the challenges faced by companies and the market cannot be
addressed on an individual basis, but rather as part of a complex system of relationships to
which they belong. For this reason, we offer a crosscutting solutions platform to help our
clients obtain the value they are looking for.
CFO Labour
Tax
Advisory
Consulting
People &
Organization
Transfer
Pricing
Advisory
Strategy & Tax & legal
Innovation
Outsourcing
Transactions
& Corporate
Finance
Assurance
Capital
Markets and Litigation
Accounting
Advisory Services
(CMAAS)
Systems
and Process
Assurance Foreign Trade
(SPA) & Customs
Legal
Assurance Consulting
30
Business Specialized
challenges industries
How do I...
Mining
Infrastructure
and construction
Public sector
... effectively manage my human capital?
... align my tax burden with the best practices in my industry? Fishing
Agroindustry
... manage crisis situations?
Doing business and investing in Peru 2016 21
30
Advisory
It is through the right mix of industry-centered and functional experience that we can
work creatively to meet new client needs in strategic planning and implementation of
urban integration, crisis management and compliance (including cyber risks), data
analysis and digital disruption, among others.
Risk
Transactions Technology,
Strategy & People & Operations & Management & CFO
& Corporate Digital &
Innovation Organization Supply Chain Corporate Advisory
Finance Analytics
Governance
30
Assurance
Trust is the basis on which we build relationships with our customers. This value is
particularly important in our audit services, through which we provide our clients with
the reliability of financial information necessary to make appropriate and timely decisions
about their business.
It is this trust and certainty in the results of today that allows our clients can make decisions
that will enable them to build the future that they expect.
157
countries
53,049
new employees
around the world
10,611
208,109
partners
33,985
administrative
employees
756
Our clients
PwC Peru
We have more than 90 years
and 1,200 professionals helping
organizations create the value
theyre looking for.
418 443
We work with all groups and Fortune Global FT Global
leading companies of Peru. 500 companies 500 companies
Global
10 % US$35.4bn
Assurance
6% US$15.2bn
A single global
Advisory network
18% US$11.2bn We are part of the largest global
network of professional services,
working with multidisciplinary
Tax and legal
approach to offer effective and
7% US$8.9bn innovative solutions to our clients.
9%
58,000 attractive companies to work for.
volunteers
increase
537,000
4% hours
increase
Follow us:
Contacts
Esteban Chong
Country Senior Partner
esteban.chong@pe.pwc.com
Orlando Marchesi
Deputy Senior Partner
Tax & Legal Leader Partner
orlando.marchesi@pe.pwc.com
Hernn Aparicio
Assurance Leader Partner
hernan.aparicio@pe.pwc.com
Humberto Salicetti
Advisory Leader Partner
humberto.salicetti@pe.pwc.com
PricewaterhouseCoopers PwC is the brand under which member firms of PricewaterhouseCoopers International Limted (PwCIL) operate and provide services. Together, these firms form the PwC
Santo Toribio 143, Piso 8 network. Each firm in the network is a separate legal entity and does not act as an agent of PwCIL or any other member firm. PwCIL does not provide any services to clients.
PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgement or bind them in any way.
San Isidro, Lima, Per
T: (511) 211 6500 PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. Close to 208,000 people in 157 countries in firms across the PwC
network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com/pe for more information.
F: (511) 211 6550
PricewaterhouseCoopers S. Civil de R.L (PwC Peru) is a member firm of the global network of independent and separate firms of PwCIL. It has operated throughout the
Peruvian territory for over 90 years with more than 1,000 professional talents devoted to building value-driven relations with its clients.
www.pwc.com/pe