INVEST THIS

Peru 2015 | EXECUTIVE GUIDE | REVIEW: DOING BUSINESS

From the beginning of the new millennium through 2014, Peru has achieved an impressive cumulative GDP growth of 116% accompanied by a cumulative inflation during the same period of just 52%—the best rates of their kind in Latin America.

In monetary terms, poverty has been reduced by half in recent years, with more Peruvians living in better conditions, with a brighter future. Nowadays, Peru is a true economic miracle nearly 20 years after the end of hyperinflation and terrorism: these circumstances have given way to the best possible conditions of stability, respect, and promotion of investment in the region, making Peru the fifth-largest economy in South America—measured in purchasing power parity—after Brazil, Argentina, Colombia and Chile.

What to expect for Peru in the year 2025?

Today, Peru is considered one of the world's leading emerging markets, with a solid recent history of economic stability based on an uninterrupted average annual growth over the past 15 years of 5.3% of its GDP, as well as a people who are notable for their productivity and entrepreneurship. According to the IIMF, Peru is part of the new wave of leading emerging markets, and today has solid fundamentals, a framework of sensible policies, and a prudent macroeconomic approach, all of which enables it to enjoy sustained growth and reduced vulnerability. This outlook gives great expectations towards the country's environment for doing business in 2025. In the following chart, we present some of the goals the country has to achieve over the period of ten years.

Business environment

Peru seeks to attract both domestic and foreign investment in all sectors of the economy. To achieve this, it has taken the necessary steps to establish a consistent investment policy that eliminates barriers that foreign investors may face. As a result, Peru is considered a country with one of the most open investment systems in the world. According to Doing Business 2015, Peru ranks 35th out of 189 countries in terms of ease of starting a company and doing business, and ranks second in Latin America, as corroborated by Forbes.

Peru has achieved significant progress in its macroeconomic performance in recent years, with very dynamic GDP growth rates, stable currency exchange rates, and low inflation. This dynamism has been driven by the promotion and diversification of exports, the world commodity prices, market policies beneficial to investors, and aggressive free trade strategies. Over the past decade, Peru's GDP has tripled as a result of the country's economic growth, moving increasingly towards a middle and upper-middle income economy.

The development strategy of Peru is based on an economy opened to the world and competitive in its export offer. It has been a successful strategy that has permitted the country to consolidate its foreign trade in goods and services as an instrument for economic development and the reduction of poverty. International trade negotiations, which have benefited from rigorous macroeconomic management and consequent stability, have allowed the Peruvian economy to gradually tackle and reduce its external vulnerability in times of crisis such as the current international situation. In recent years, Peru has negotiated Free Trade Agreements (FTA) with large- and medium-sized markets.

Peru's principal economic activities

The Peruvian economy reflects its varied geography. The abundance of resources is found mainly in mineral deposits in the mountainous regions, while its extensive maritime territory has always yielded excellent fishing resources. Despite the fluctuations of the world economy, the administration has resisted pressures for fiscal spending and has used the savings generated by the high prices of commodities between 2006 and 2008, investing from 2011 as of today in infrastructure and in social aid programs, paying off part of the public debt, and increasing assets.

In 2014, the non-traditional productive markets that registered the highest exports were the agricultural (21.2%) and handcraft (61.9%) markets. With regards to the traditional products, the most important were gold, copper, silver, lead, tin, zinc, gas, petroleum oil, coffee, quinoa, and fishmeal. In mining, according to the Mineral Commodity Summaries Publication authored by the US State Department, Peru ranked third in the world in 2014 in the production of silver, copper, tin and zinc, fourth in molybdenum and lead, fifth in mercury, and sixth in gold, besides having large deposits of iron ore, phosphates, manganese, petroleum, and gas.

What investors should know (legal structure, taxes, and promotion mechanisms)

There are different types of legal entities which investors can use in order to incorporate businesses in Peru. The following are those most commonly used by foreign investors:

Joint stock companies

A minimum of two shareholders is required. Non-domiciled shareholders must appoint an attorney-in-fact to sign off on the by-laws on their behalf. Funds in local or foreign currency for the initial capital contribution must be deposited in a local bank. There is no minimum amount required by law, but financial institutions generally require a minimum initial capital of approximately $330.

Closely held corporations

Closely held corporations resemble limited liability companies and must have a minimum of two and a maximum of 20 shareholders. Shares cannot be registered in the Public Registry listed on the Stock Exchange.

Publicly held corporations

Publicly held corporations are intended basically for companies with a large number of shareholders (more than 750) or for which an Initial Public Offering has been made, or which have debts that can be converted into shares, or in which more than 35% of the capital stock belong to 175 or more shareholders. They must be registered in the Public Registry listed on the Stock Exchange.

Limited liability companies

Limited liability companies may be established with a minimum of two and a maximum of 20 partners. This type of company does not issue shares. The incorporation procedures are the same as those for all other corporations. Its capital is divided into ownership interests, which are accumulative and indivisible.

Branches

A parent company agreement is required to incorporate a branch in Peru, and must be certified by the Peruvian Consulate in the country of the home office and authenticated by the Peruvian Ministry of Foreign Affairs (MRE) where applicable, or otherwise have it stamped with the Apostille (Convention of The Hague) in the country of origin before it is put into the form of a notarially recorded instrument and registered in the Public Records Office of this country. A Certificate of Good Standing from the parent company is also required.

1. Investment Promotion Conditions

Peru has adopted a legal framework for investments that requires no previous authorization for foreign investment. In this regard, foreign investments are allowed without restrictions in the large majority of economic activities, and can be freely made in either US dollars or local currency, without heavy foreign exchange controls. Foreign investors may remit abroad the net profits (without any restriction whatsoever) from their registered investments, as well as transferring their shares, ownership interests, or participatory rights, perform capital reductions, and dissolve or wind-up their companies.

The Peruvian government guarantees legal stability to national and foreign investors with regard to the legislation governing income tax and specifically, distribution of dividends. Foreign investors with the right to obtain legal and tax stability are those willing to invest in Peru for a period of no less than two years and for a minimum amount of $10 million in the Mining and/or Hydrocarbons sectors, or $5 million in any other economic activity.

2. Taxes

In Peru, the main taxes are levied on income, production and consumption, the circulation of money and equity. The corporate income for domiciled companies are subject to a tax rate of 30% (2014 period), 28% (periods 2015 and 2016), 27% (periods 2017 and 2018) and 26% for 2019 onwards) and the dividends distributed by companies incorporated or established in Peru are taxed at 4.1% (2014), 6.8% (2015-2016), 8% (2017-2018), and 9.3% (2019 and beyond).

3. Accounting standards

The Peruvian Business Corporation Act (LGS) establishes that the financial statements of companies incorporated in Peru must follow the general accounting principles accepted in Peru and other applicable legal provisions. In 2011, the Peruvian Congress approved a law whereby all companies included in the Business Corporations Act and whose assets or revenues exceed the 3,000 Tax Units (UITs) (approximately $4 million) are obliged to submit their audited financial statements to the SMV. This entity has published a schedule for the implementation of this law, based on the size of the companies.

4. Auditing requirements

At present, companies whose assets or annual revenues exceed 10,000 UIT (approximately $12 million) must submit their audited financial statements of 2015, prepared with the IFRS approved by the International Accounting Standards Board (IASB).