Doing Business In Comparative Guide

1 Legal framework

1.1 Does your jurisdiction have a civil law system, a common law system or a hybrid system?

Peru has a civil law system. The Constitution is the supreme source of Peru's legal system, which establishes the fundamental legal order of the state and society.

The legal hierarchy is organised in the following order:

• the Constitution;
• laws;
• legislative decrees;
• emergency decrees;
• supreme decrees; and
• resolutions of a general nature.

1.2 Which legislative and regulatory provisions primarily govern the establishment and operation of enterprises in your jurisdiction?

The establishment and operations of companies in Peru are mainly regulated by the following provisions:

• the General Companies Law, which regulates the provisions for the incorporation and corporate governance of companies;
• the Civil Code, which provides the legal framework for civil acts and agreements entered into by companies;
• the Code of Commerce, which regulates the commercial relations of companies through provisions on:
• • merchants;
  • acts of commerce;
  • books and accounting of commerce;
  • commercial contracts;
  • general warehouse companies;
  • special rules for banks and agricultural companies;
  • commercial commissions;
  • letters of credit;
  • commercial current account contracts; and
  • maritime commerce in general;
• the Tax Code, which regulates the tax obligations that companies must comply with derived from its commercial activity;
• the Labour Productivity and Competitiveness Law, which regulates the labour obligations that companies must comply with in their capacity as employers;
• the Framework Law for Operating Licences, which regulates the provisions for the establishment of premises where companies conduct their commercial activities;
• the Consumer Protection and Defence Code, which regulates consumer relations engaged in by companies within the Peruvian territory; and
• the Securities Market Law, which promotes:
• • the orderly development and transparency of the stock market; and
  • the performance of companies listed on the stock exchange.

1.3 Which bodies are responsible for drafting and enforcing these provisions? What powers do they have?

Regulatory provisions are issued by the Congress of the Republic, which is the body in charge of exercising legislative functions.

The following entities are responsible for enforcing the regulations:

• the National Superintendency of Tax Administration (Superintendencia Nacional de Aduanas y Administración Tributaria), for tax regulations;
• the National Superintendence of Labor Inspection (Superintendencia Nacional de Fiscalización Laboral), for labour regulations;
• the National Institute for the Defense of Competition and Protection of Intellectual Property Right (Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual), for competition regulations;
• the Securities Market Superintendency (Superintendencia del Mercado de Valores), for stock market regulations; and
• the municipalities, for regulations on the operation of commercial premises.

These entities are empowered to supervise, control and sanction companies within the scope of application of the aforementioned regulations.

2 Types of business structures

2.1 What are the main types of business structures in your jurisdiction and what are their key features?

The main type of business structure in Peru is the public limited corporation (sociedad anónima - SA) and its special forms. The limited liability company (sociedad comercial de responsabilidad limitada - SCRL) and the individual limited liability company (empresa individual de responsabilidad limitada - EIRL) are also used.

The key features of such business structures include the following.

EIRL: An EIRL is incorporated by the unipersonal will of a natural person (the owner). Its capital comprises:

• monetary contributions; or
• movable and immovable property.

The corporate powers of the company are:

• the owner; and
• the management, whose position may be assumed by the owner or a third party.

The owner is not personally liable for the obligations of the EIRL, except where:

• the EIRL is not duly represented;
• withdrawals have been made that do not correspond to duly proven benefits; or
• there has been a loss of 50% or more of the capital and the owner has not acted in accordance with the law.

The owner may transfer its right of ownership of the EIRL, by means of a public deed, only to another natural person ¡V under no circumstances may the right of the owner be assigned to a legal entity.

SCRL: An SCRL is incorporated by the will of between two and 20 partners ¡V either individuals or legal entities.

The capital of the SCRL is formed by contributions of goods or rights that are capable of economic valuation.

The corporate powers of the SCRL are exercised by the general meeting of partners and management.

The partners are not personally liable for the SCRL¡¦s obligations.

The partners may transfer their participations if they comply with the procedure required to allow the other partners to exercise their right of first refusal. The transfer of participations must be:

• formalised through a public deed; and
• registered with the Public Registry of Legal Entities.

SA: An SA is formed by the will of two or more shareholders ¡V either individuals or legal entities. A plurality of partners is not required:

• where the only partner is the state; or
• in other cases indicated in the law (eg, banking companies can incorporate subsidiaries in which they are the only partner).

There are two special forms of SA:

• the sociedad anónima cerrada (SAC); and
• the sociedad anónima abierta (SAA).

An SAC cannot have more than 20 shareholders. Any company with more than 750 shareholders must be incorporated as an SAA.

The capital of an SA is formed by contributions of goods or rights that are capable of economic valuation. The contribution of services is not allowed.

The corporate powers of an SA are generally exercised by:

• the general shareholders¡¦ meeting;
• the board of directors; and
• the management.

The exception is an SAC, where the board of directors is optional.

The shareholders are not personally liable for the obligations of the SA. Their liability is limited to the amount of their contribution.

The shareholders of an SA may freely transfer their shares to another shareholder or to third parties, except in an SAC, where the shareholders may transfer their shares as long as they comply with the procedure required to allow the other shareholders to exercise their right of first refusal.

An SAA must register all its shares with the Public Registry of the Securities Market, while an SAC cannot register its shares in this registry.

2.2 What capital requirements apply to these different types of business structures?

Peruvian law imposes no minimum capital requirements on these different business structures. However, it is recommended to incorporate a company with a minimum capital of PEN 500, to comply with the minimum deposit required to open a bank account.

Notwithstanding the above, a minimum capital requirement does apply in certain regulated sectors ¡V for example:

• banking companies must have a minimum capital of PEN 14,914,000;
• Customs Agency companies must have a minimum capital of $50,000;
• factoring companies must have a minimum capital of PEN 1,356,000; and
• e-money issuing companies must have a minimum capital of PEN 2,268,519.

2.3 What is the process for establishing these different types of business structures? What procedural and substantive requirements apply in this regard? What is the typical timeline for their establishment?

An SA can be incorporated simultaneously or through an offer to third parties.

Simultaneous incorporation involves the following steps:

• elaboration of the minutes of incorporation, in which the articles of incorporation and the company bylaws are included;
• issuance of the certificate of deposit for companies in formation (in case of monetary contributions) or elaboration of the affidavit of receipt and valuation of non-monetary assets;
• execution of the public deed of incorporation of the company;
• registration of the public deed of incorporation with the Public Registry of Legal Entities; and
• registration of the company with the Registry of Taxpayers.

The estimated term for the incorporation of the company is 30 calendar days.

Incorporation by offer to third parties (which is not a public offering) involves the following steps:

• preparation of the incorporation programme, which must contain the legally enforceable requirements, such as:
• • the articles of incorporation;
  • the terms and conditions to subscribe for the shares; and
  • information on non-monetary contributions;
• deposit of the incorporation programme with the Public Registry of Legal Entities and its communication to third parties;
• notification and holding of the meeting for subscribers;
• execution of the public deed of incorporation;
• registration of the public deed of incorporation with the Public Registry of Legal Entities; and
• registration of the company with the Registry of Taxpayers.

The term will depend on the terms agreed in the incorporation programme.

2.4 What requirements and restrictions apply to foreign players that wish to establish a business directly in your jurisdiction?

Generally, there are no requirements or restrictions applicable to foreign players that wish to establish a business directly in Peru, as the Constitution provides for equal treatment of foreign investments.

However, Peruvian regulations impose certain restrictions on foreign investments for defence and national security purposes: foreigners may not acquire or own, individually or in partnership, directly or indirectly, assets within 50 kilometres of the borders, except in cases of public necessity authorised by the state.

Likewise, restrictions on the incorporation of companies by foreigners apply in the following sectors:

• commercial aviation;
• private security and surveillance;
• commercialisation of arms and explosives;
• radio broadcasting services;
• maritime transportation of hydrocarbons; and
• fluvial transportation.

2.5 What other opportunities, using people/entities not connected with the main person, are there to do business in your jurisdiction (eg, agency, resale); and what requirements and restrictions apply in this regard?

Peruvian law recognises different commercial arrangements that afford opportunities to do business through persons or entities that are unrelated to the principal investor ¡V that is:

• commercial commission without representation;
• commercial agency;
• distribution; and
• commercial concession agreements.

A commercial commission contract without representation implies that the commission agent:

• acts in their own name, as if the business were their own; and
• is directly bound, as the person with whom the contract is entered into has no action against the principal.

A commercial agency contract implies that the principal entrusts the agent with the promotion or exploitation of its business and/or the commercialisation of its products within a certain area in exchange for a fee.

A distribution contract implies that the producer or manufacturer agrees to supply final or finished goods to the distributor, generally for mass consumption, to be placed on the market by the distributor in a certain area.

A commercial concession contract implies that the concessionaire makes available its commercial organisation ¡V acting in its own name, on its own account and at its own risk ¡V in favour of the grantor in order to:

• place its products on the market; or
• provide third parties with a service that the concessionaire prefers not to exploit itself.

3 Directors and management

3.1 How is management typically organised in the different types of business structures in your jurisdiction?

The management of sociedades anonimas (SAs) comprises:

• the general shareholders' meeting;
• the board of directors; and
• the general management.

In the case of a sociedad anonima cerrada, the appointment of a board of directors is not mandatory.

The general shareholders' meeting is the supreme body of the corporation. Its powers include:

• deciding on corporate management and economic results;
• determining how profits should be utilised;
• increasing or reducing the share capital;
• modifying the bylaws;
• appointing board members; and
• approving mergers or corporate reorganisations.

Likewise, the board of directors and the general management are the bodies in charge of the administration of the company. If the business has no board of directors, all its functions are exercised by the general management.

The functions of the board of directors include:

• preparing the annual financial statements;
• convening the general shareholders' meeting;
• appointing and removing the general manager; and
• approving mergers or spin-offs.

The powers of the general management include:

• executing ordinary acts and contracts corresponding to the corporate purpose;
• representing the company with judicial and arbitration powers; and
• attending meetings of the board of directors and general shareholders' meetings, albeit without a vote.

3.2 Is the establishment of specialist committees recommended or mandated for certain types of enterprises? If so, which areas should they cover?

In general terms, there is no obligation to create committees; however, a company may decide to establish such committees if it deems it appropriate.

Likewise, companies whose securities are registered with the Securities Market Registry should have the necessary committees to comply with the principles of good corporate governance.

In certain sectors, the establishment of committees for supervised companies is obligatory. For instance, banking companies must have:

• an audit committee;
• a risk committee;
• a compliance committee; and
• an appointment and remuneration committee.

3.3 Is the appointment of corporate directors permitted in your jurisdiction?

The appointment of corporate directors is not permitted in Peru. All directors must be natural persons.

3.4 What requirements and restrictions apply to the appointment of directors, in terms of factors such as number, residence, independence, diversity etc?

The company bylaws must specify a fixed number or a maximum and minimum number of directors, but there must always be at least three. Likewise, substitute or alternate directors may be appointed.

Members of the board of directors cannot be appointed for more than three years or less than one year. The position of director can be held only by natural persons and it is not necessary to be a shareholder to hold such position.

Likewise, the following may not be directors:

• legally incapable persons;
• bankrupt persons;
• persons who, due to their positions or duties, are barred from engaging in commerce;
• officials and public servants serving in public bodies whose functions are directly linked to the economic sector in which the company conducts its business activities, except where they represent the state's participation in such companies;
• persons who:
• • have litigation pending against the company as plaintiffs;
  • are subject to corporate liability actions initiated by the company; or
  • are prevented from assuming the role by an injunction issued by a judicial or arbitral authority; and
• persons who:
• • are directors, administrators, legal representatives or agents of companies or partners of partnerships with interests that are permanently opposed to those of the company; or
  • are personally opposed to its interests on a permanent basis.

In regulated sectors, further restrictions and requirements apply to the appointment of directors – for example:

• directors of financial system companies must comply with:
• • the moral and technical suitability requirements set out in the Regulations for the Authorisation of Companies and Representatives of the Financial and Insurance Systems; and
  • the requirements set out in the General Law of the Financial System; and
• directors of companies that require authorisation by the Superintendencia del Mercado de Valores must not be subject to the impediments specified in the Securities Market Law.

3.5 How are directors selected, appointed and removed? Do any restrictions or recommendations apply to their tenure?

Directors are appointed by resolution of the general shareholders' meeting. The board of directors must be constituted with minority representation through cumulative voting – that is:

• each share is given as many votes as there are directors to be appointed; and
• each voter can accumulate its votes in favour of one person or distribute them among several persons.

In addition, the board of directors may appoint a replacement for a vacated director (if there are no substitute directors) for the remaining term of the board, provided that they can validly meet to adopt such resolution.

Directors may be removed at any time by the general shareholders' meeting. This notwithstanding, the position of director will become vacant:

• due to:
• • death;
  • resignation; or
  • removal; or
• if any of the impediment causes indicated by law (mentioned in question 3.4) or the company's bylaws exist.

The appointment and removal of directors must be registered with the Public Registry of Legal Entities; and legal entities registered with the Registry of the Securities Market (eg, a sociedad anónima abierta) must also notify the Superintendencia del Mercado de Valores.

Finally, in certain sectors, there are regulatory requirements to report on the appointment and removal of directors – for example, financial companies must report to the Superintendencia de Banca, Seguros y AFP.

3.6 What are the directors' primary roles and responsibilities, and how are these exercised?

The General Corporations Law establishes general duties and responsibilities of directors, as follows:

• to serve with the diligence of an orderly merchant and loyal representative;
• to keep confidential the interests of the company's business and corporate information;
• not to use privileged commercial information of the company or adopt agreements that do not safeguard the interests of the company for their own benefit or that of related third parties;
• to declare the existence of a conflict of interest with the company and refrain from deliberating and resolving on such matters; and
• not to participate in activities that compete with the company, except with its express consent.

Notwithstanding the foregoing, the company may establish that a director (by their sole appointment) is empowered to represent the company in commercial, civil and procedural acts, among others. In this regard, the exercise of such powers will be governed by the provisions of the bylaws or the respective decision of the shareholders' meeting.

Finally, in certain sectors, regulations impose specific responsibilities for the directors. For example, the directors of financial system companies are obliged to respond to communications of the Superintendencia de Banca, Seguros y AFP or the Banco Central de Reserva which have been brought to their attention.

3.7 Are the roles of individual directors restricted? Is this common in practice?

The appointment of individual (independent) directors to the board of directors is optional, as Peruvian law does not establish such an obligation. In this sense, the functions of individual directors are not restricted, unless expressly provided for in the bylaws of the company.

However, in certain regulated sectors:

• there is a requirement to have a minimum number of individual directors on the board of directors; and
• certain restrictions are imposed – for example:
• • the individual director of a financial system company cannot:
  • • be an independent director of other companies of its economic group; or
    • hold such position for a term of more than 10 years; and
  • no one may simultaneously be an individual director in more than five companies that require authorisation from the Superintendencia del Mercado de Valores.

3.8 What are the legal duties of individual directors? To whom are these duties owed?

Individual (independent) directors do not have different legal obligations from those applicable to ordinary directors. In this regard:

• they have the same duties for the company and other shareholders as other directors; and
• their actions cannot be limited to defending the interests of those who elected them.

Likewise, individual directors must comply with their obligations under applicable sectoral regulations. For example, individual directors of issuing companies with securities registered with the Registry of the Securities Market (eg, sociedades anonimas abiertas) must comply with the provisions set forth in the Guidelines for the Qualification of Individual Directors.

3.9 To what civil and criminal liabilities are individual directors primarily potentially subject?

Individual (independent) directors are subject to the same civil and criminal liabilities as non-individual directors.

Thus, in the civil area, directors are liable for:

• damages caused by agreements or acts that are contrary to the law or bylaws, except where they expressed their disagreement:
• • at the time of the agreement; or
  • on becoming aware of it;
• damages caused by acts conducted with:
• • fraudulent intent;
  • abuse of authority; or
  • gross negligence;
• irregularities committed by directors who preceded them, if they did not report them to the general shareholders' meeting on becoming aware of them; and
• damages caused by participating in and resolving matters that represent a conflict of interest.

In the criminal area, directors may be liable for crimes such as:

• fraudulent administration;
• bribery;
• influence peddling; and
• corruption in the private sector and within private entities.

Likewise, directors of companies in the financial sector may be liable for offences such as:

• insider trading;
• concealment or misrepresentation of information; and
• manipulation of prices in the stock market.

4 Shareholders/members

4.1 What requirements and restrictions apply to shareholders/members in your jurisdiction, in terms of factors such as age, bankruptcy status etc?

In general terms, any person with full legal capacity (in principle, persons over 18 years of age) can be a shareholder of a company, unless they have been disqualified by court order.

This notwithstanding, additional requirements may apply under certain sectoral regulations. For example, moral suitability and economic solvency are requirements for shareholders of financial companies.

4.2 What rights do shareholders/members enjoy with regard to the company in which they have invested?

Peruvian law permits the creation of classes of non-voting shares. Hence, a company may issue both voting shares and non-voting shares.

Voting shares grant at least the following rights to their holders:

• the right to participate in the profit sharing and in the equity resulting from liquidation;
• the right to intervene and vote in general or special meetings;
• the right to supervise the management of corporate business in the corresponding manner;
• the right to subscribe preferentially to shares issued in the event of a share capital increase or share allotment; and
• the right to withdraw from the company in the cases provided for by law and the company bylaws.

Non-voting shares grant at least the following rights to their holders:

• the right to participate in the profit sharing and equity resulting from liquidation with the preference established in the bylaws;
• the right to receive information on the activities and management of the company at least every six months;
• the right to withdraw from the company in the cases provided for by law and in the company bylaws; and
• the right to subscribe to shares with or without voting rights, as established by law.

Additionally, in the case of a sociedad anónima cerrada (SAC) and a sociedad comercial de responsabilidad limitada (SCRL), the shareholders have the right of first refusal to acquire the shares of another shareholder if the latter intends to transfer them.

In the case of a share capital increase of a sociedad anónima abierta (SAA), the shareholders' pre-emptive rights to subscribe the shares created can be waived, provided that the following requirements established by law are met:

• The resolution has been adopted in the appropriate form and with the corresponding quorum;
• The resolution was approved by not less than 40% of the subscribed shares with voting rights; and
• The increase is not intended to improve the shareholding position of any shareholders.

4.3 How do shareholders/members exercise these rights? Do they have a right to call shareholders' meetings and, if so, in what circumstances?

Shareholders exercise their rights in accordance with the procedure established in the bylaws and the law.

The pre-emptive subscription right is exercised in at least two rounds:

• In the first round, the shareholders have the right to subscribe to the new shares pro rata to their shareholding; and
• In the second round (if there were unsubscribed shares in the first round), those that participated in the first round may subscribe to the remaining shares pro rata to their shareholding, considering the shares to which they subscribed in the first round.

The right of separation is exercised by means of a notarised letter delivered to the company up to the tenth day following the date of publication of the resolution allowing the exercise of such right (eg, a change of corporate purpose or a transfer of domicile abroad, among other cases established by law or in the company bylaws). This right may only be exercised by:

• shareholders that have recorded their opposition to the resolution in the minutes of the meeting;
• absent shareholders;
• shareholders that have been illegitimately deprived of their vote; and
• holders of non-voting shares.

In the case of SACs and SCRLs, the right of first refusal is exercised within 30 days of the date on which the shareholder is informed by the company about the proposed transfer of shares from another shareholder. The right of first refusal is exercised pro rata to the shareholding in the capital.

Finally, with respect to the right to call the general meeting, shareholders or a shareholder representing not less than 20% of the subscribed shares with voting rights may request that the board of directors or management, as the case may be, convene a general meeting. If the request is denied or if the meeting is not called within 15 days of filing of the request, such shareholders may request the notary and/or the judge of the company's domicile to order the meeting to be called.

In the case of an SAA, shareholders or a shareholder representing not less than 5% of the subscribed shares with voting rights, and whose political rights are not suspended, may request that a general meeting be convened through a notary public, applying the same procedure as indicated above.

4.4 What influence can shareholders/members exert on the appointment and operations of the directors?

Shareholders have direct influence on the appointment of directors, since the general shareholders' meeting is the body in charge of electing the members of the board of directors. Peruvian law contemplates election by cumulative voting; hence, minority shareholders also have a certain degree of influence on the election of board members.

With respect to the operations of directors, the law provides that:

• directors owe duties to the corporation; and
• their actions cannot be limited to defending the interests of those who elected them.

Therefore, shareholders should have no influence on the operations of the board of directors.

4.5 What are the legal duties/responsibilities and potential liabilities, if any, of shareholders/members?

Shareholders have responsibilities and duties by virtue of their status as shareholders. Thus, shareholders must pay their contribution to the capital in due time and according to the stipulated conditions; likewise, in the event of a call of shares, a shareholder must cover the unpaid portion of its shares in the appropriate manner and within the stipulated terms. A shareholder that does not comply with its payment obligations will be deemed to be in arrears without the need to be notified.

In the same way, shareholders are liable for losses of the company up to the amount established in the bylaws. If no amount is determined, shareholders will be liable for the losses of the company in proportion to the profits.

Likewise, the personal liability of shareholders will depend on the corporate form of the company. In the case of a sociedad anonima or an SCRL, the shareholders/partners are not liable for the company's debts; whereas in a sociedad colectiva or a sociedad civil ordinaria, the partners are jointly liable without limitation for its corporate obligations.

If the general meeting approves an interim dividend without the approval of the board of directors, the joint and several liability for payment falls exclusively on those shareholders that voted in favour of the resolution.

Finally, shareholders are obliged to comply with the resolutions of the general shareholders' meeting.

4.6 To what civil and criminal liabilities might individual shareholders/members be subject?

Shareholders may be civilly liable for damages caused to the corporation. Thus, shareholders that have voted in favour of authorising the execution of acts that exceed the corporate purpose of the corporation and that bind it before co-contractors and third parties in good faith are liable for damages that the corporation suffers as a consequence thereof.

Likewise, shareholders that exercised their voting rights while having an interest that conflicts with the interests of the corporation will be liable for any damage caused to the corporation, provided that the majority would not have been achieved without their vote.

Regarding criminal liability, shareholders may be liable for crimes such as:

• fraudulent administration;
• bribery;
• influence peddling; and
• corruption in the private sphere and within private entities.

4.7 Are there rules governing the issuance of further securities in a company? Do rights of pre-emption exist and, if so, how do they operate? Can they be circumvented? If so, how and to what extent?

The General Corporations Law establishes that, for the issuance of shares, it is a condition precedent that all subscribed shares be fully paid.

In addition, the pre-emptive subscription right is exercised in at least two rounds:

• In the first round, the shareholders have the right to subscribe to the new shares pro rata to their shareholding; and
• In the second round (if there were unsubscribed shares in the first round), those who participated in the first round may subscribe to the remaining shares pro rata to their shareholding, considering the shares to which they subscribed in the first round.

There is no pre-emptive subscription right in case of the conversion of debentures into shares or corporate reorganisations. Likewise, the pre-emptive subscription right may be excluded in SAAs if:

• the resolution has been adopted in the appropriate form and with the respective quorum; and
• the increase is not intended to improve the shareholding position of some of the shareholders.

If the new shares are to be offered to third parties, the company will draft and make available to interested parties the capital increase programme. Likewise, if the offer to third parties has the legal status of a public offer, the stock market regulations will apply.

4.8 Are there any rules on the public disclosure of levels of shareholding and/or stake building?

The Securities Market Law states that issuers (listed companies) must inform the Superintendencia del Mercado de Valores about the transfer of capital shares registered with the Securities Market Registry by persons that:

• directly or indirectly own 10% or more of the capital of the issuer; or
• as a result of an acquisition or disposal, come to own or cease to own such percentage.

The information contained in the Stock Market Registry is freely accessible to the public, except for information that has been classified as reserved.

5 Operations

5.1 What are the main routes for obtaining working capital in your jurisdiction? What are the advantages and disadvantages of each?

The main routes for obtaining working capital are:

• new capital contributions;
• capitalisation of earnings;
• issuance of financial instruments; and
• government or private financing

New capital contributions and the capitalisation of earnings imply an increase in the company's capital and the issuance of new shares. The advantages include the following:

• The new contributions generate a greater equity backing and do not generate short-term payment obligations; and
• In the case of the capitalisation of earnings:
• • no cash outlay is required from the shareholders; and
  • the company's equity can be strengthened.

Regarding the disadvantages, both involve formal procedures and associated costs (eg, the agreement of the general shareholders' meeting; notarial and registration procedures).

The issuance of financial instruments (eg, bonds or debentures) implies that the company recognises or creates a debt in favour of its holders. The advantages include the following:

• It allows the company to attract institutional investors; and
• It facilitates access to resources from the stock market.

The disadvantages are that it involves:

• formal and lengthy procedures; and
• submission to the supervision of the Superintendencia del Mercado de Valores.

Obtaining financing involves receiving loans from entities in the financial system or from third parties. The advantage is that it allows access to immediate liquidity and various financial products on the market. On the other hand, the disadvantages include the following:

• It generates financial obligations – such as the payment of interest, commissions and fees (in the case of financial loans); and
• It affects the company's leverage, which can impact its financial profile.

5.2 What are the main routes for the return of proceeds in your jurisdiction? What are the advantages and disadvantages of each?

The main routes for the return of proceeds are:

• the distribution of dividends; and
• the sale of shares.

The distribution of dividends implies the distribution of profits generated by the company in favour of its shareholders. The advantages include that it is a direct mechanism of return on investment. On the other hand, the disadvantages include the following:

• It requires:
• • the existence of profits; and
  • the agreement of the general shareholders' meeting based on the favourable opinion of the board of directors; and
• It is subject to income tax (withheld by the company) where the shareholder is:
• • an individual; or
  • a non-domiciled legal entity.

Shares can be sold in favour of another shareholder or a third party, depending on the business structure. The advantages include that this is a private transaction without major formal requirements – it is even possible to sign the sale and purchase agreement electronically. The disadvantages include that, in the case of a sociedad anonima cerrada, a procedure must be conducted to allow the exercise of the right of first refusal by the other shareholders (unless this right is waived in the bylaws).

5.3 What requirements and restrictions apply to foreign direct investment in your jurisdiction?

In general terms, foreign investment does not require approval or authorisation by any Peruvian authority. This is because the Constitution establishes that local and foreign investments are subject to the same conditions.

In this sense, Peruvian law accords foreign investors and investments equal treatment before the law; therefore, equality of rights and obligations between foreign and domestic investors is guaranteed.

However, Peruvian law imposes certain restrictions on foreign investments for reasons of national security and defence purposes: foreigners may not acquire or own, individually or in partnership, directly or indirectly, assets within 50 kilometres of the borders, except in cases of public necessity authorised by the state.

Likewise, restrictions on the incorporation of companies by foreigners apply in the following sectors:

• commercial aviation;
• private security and surveillance;
• commercialisation of arms and explosives;
• radio broadcasting services;
• maritime transportation of hydrocarbons; and
• fluvial transportation.

5.4 What exchange control requirements apply in your jurisdiction?

Peruvian law has no specific requirements on the foreign exchange market, since the state guarantees the free possession and disposition of foreign currency.

Likewise, the exchange rate for foreign currency transactions will be fixed by the supply and demand of such currency. In addition, upon payment of the taxes required by law, foreign investors are guaranteed the right to transfer abroad the entire amount of their capital from investments in the Peruvian territory:

• in freely convertible foreign currency; and
• without prior authorisation from any governmental authority.

5.5 What role do stakeholders such as employees, pensioners, creditors, customers and suppliers play in shaping business operations in your jurisdiction? What other influence can they exert on an enterprise?

Stakeholders play an important role in the operation of the company, since there are legal provisions that govern the relationships between the company and its stakeholders.

In this way, stakeholders can directly influence the company's performance and reputation, as they actively participate in the company's commercial activities in different ways.

Thus, employees and suppliers are involved in the production chain; while customers and creditors are part of the contractual and commercial relationships that the company maintains within its operation.

5.6 What key concerns and considerations should be borne in mind with regard to general business operations in your jurisdiction?

With regard to general business operations, it is necessary to consider compliance with the legal provisions that govern daily activities, such as regulations on:

• consumer protection;
• unfair competition; and
• protection of personal data.

Likewise, the corporate structure that best suits the company's interests must be determined, considering whether it is more convenient to be financed through equity or through debt. It should further be established whether:

• the management bodies of the company will be independent; or
• there will be a link between management positions (eg, shareholders who are directors or directors who are general managers), to avoid any tax contingency.

Finally, it is recommended to incorporate companies in a formal manner and in compliance with all legal requirements, since irregular companies entail joint and several liability for their administrators.

6 Accounting reporting

6.1 What primary accounting reporting obligations apply in your jurisdiction?

The main accounting reporting obligations in Peru are as follows:

• The obligation to keep books and accounting records requires that all input and output business transactions be recorded, stating the date of each operation. The obligation varies depending on the applicable tax regimen. For instance:
• • under the general income tax regime, the taxpayer must keep:
  • • a general ledger;
    • a logbook;
    • purchases and sales register reports; and
    • inventories and balance sheets;
  • under the small and medium-sized companies tax regime, the taxpayer must keep:
  • • at least the purchases and sales register reports; and
    • if its business income exceeds a certain threshold, a general ledger and a logbook; and
  • under the simplified tax regime, which applies to very small businesses, there are no accounting records obligations, but taxpayers must keep copies of both the issued and received invoices.
• The books and accounting records must be kept for at least four years and should be provided to the Tax Administration if required. In case of loss or destruction of the books and accounting records, the company must inform the Tax Administration and ask it for a period to restore the accounting information.

6.2 What role do the directors play in this regard?

The board of directors must prepare the financial statements at the end of the respective fiscal year. This document must clearly state:

• the economic and financial situation of the company; and
• the results obtained during the fiscal year.

The financial statements are prepared and presented in accordance with:

• the legal provisions on the subject; and
• accounting principles generally accepted in the country.

6.3 What role do accountants and auditors play in this regard?

Accountants:

• review, analyse and register the company's business activities under the applicable rules, procedures and internal policies and controls;
• advise on tax and financial strategies, identifying opportunities to make savings and optimise available resources;
• verify the observance of the applicable rules and regulations; and
• participate in budget preparation and internal audits.

Auditors review and evaluate the financial statements and all other necessary financial data to determine their reliability and accuracy. Their goal is to avoid mistakes, inaccuracies and fraudulent activities. Auditors may be either internal or external and their services are material in order to ensure the transparency and integrity of the financial information.

6.4 What key concerns and considerations should be borne in mind with regard to accounting reporting in your jurisdiction?

• The financial statements must reflect the company's reality regarding assets, liabilities and equity.
• All notes to the financial statements must be correctly related to the corresponding accounts.
• Company information should be provided on a going-concern basis.
• In the case of medium and large companies, the financial information must be prepared in accordance with International Financial Reporting Standards.

7 Executive performance and compensation

7.1 How is executive compensation regulated in your jurisdiction?

Peruvian law establishes that the position of director is mandatorily remunerated. Directors' remuneration may comprise:

• a fixed salary;
• attendance fees; or
• any other form provided for in the bylaws or agreed by the annual shareholders' meeting.

However, if the directors agree not to be paid, the shareholders' meeting can also validly agree not to pay them remuneration.

The position of general manager must also be remunerated. This remuneration may be determined by:

• the board of directors (at the time of appointment of the general manager); or
• the responsible division of the company.

7.2 How is executive compensation determined? Do any disclosure requirements apply?

Peruvian law does not regulate the determination of directors' remuneration; hence, the company may determine this based on its own criteria. Certain listed companies also have a remuneration policy for their directors.

There are no legal provisions that establish criteria for determining the remuneration of the management; however, there are tax regulations stating that such remuneration must be within the market value in order to avoid tax contingencies with respect to the deduction of the expense by the company.

7.3 How is executive performance monitored and managed?

The performance of the directors is monitored by the general shareholders' meeting, which can remove directors at any time.

The performance of the management is monitored by the board of directors, which is in charge of removing officers when they are not performing their duties correctly. In the absence of a board of directors, the general shareholders' meeting will evaluate the performance of the management.

7.4 What key concerns and considerations should be borne in mind with regard to executive performance and compensation in your jurisdiction?

In general terms, there are no rules regarding executive performance and compensation in Peru.

However, in the case of the general manager, care must be taken with tax audits, since the fact that the general manager's remuneration is not at market value could generate tax contingencies.

Notwithstanding the above, to implement good corporate governance, it is ideal to have a remuneration policy for company executives.

8 Employment

8.1 What is the applicable employment regime in your jurisdiction and what are its key features?

The labour regime applicable to private sector workers is regulated by the Consolidated Text of Legislative Decree 728, approved through Supreme Decree 003-97-TR. In this regard, the Labour Productivity and Competitiveness Law (LPCL) regulates formal labour relations, which, according to current data from the Ministry of Labour and Employment Promotion, are concentrated in the private sector. Therefore, special regimes and a public labour regime are established to regulate labour relations according to the specific needs of their sector.

However, the labour regime applicable in the private sector has certain features. First, employers are free to hire employees on an indefinite-term, fixed-term, part-time or teleworking basis according to the needs of the company. Currently, there are nine types of fixed-term or fixed-term contracts, demonstrating a trend towards more flexible employment contracts. These contracts can be grouped into the following categories:

• temporary contracts including:
• • contracts for the start-up or launch of a business;
  • contracts for temporary market needs; and
  • contracts for business redress;
• temporary contracts including:
• • occasional contracts to meet temporary company needs outside of normal business activities;
  • replacement contracts to temporarily replace a permanent employee whose employment relationship is suspended; and
  • emergency contracts to cover needs arising from a fortuitous event or force majeure; and
• contracts for work or services, including:
• • contracts for a specific work or specific service;
  • intermittent contracts, which entail preferential rights in the hiring of intermittent workers; and
  • seasonal contracts, justified by meeting needs specific to the company¡¦s business at certain times of the year.

The general rule is that the maximum duration of contracts subject to a specific modality is five years. However, the duration of certain types of fixed-term contracts, such as those for a specific work or service, may be extended until completion of the work or service. The same flexibility exists for emergency contracts, which can last for the same period as the emergency.

This flexibility in contracting is counterbalanced by the existence of presumptions of employment and the principle of the primacy of reality. Based on both concepts, the employer is obliged to follow formalities and use the types of contracts provided for by Peruvian law in a way that reflects the reality in the jurisdiction. As an example, Article 9 of the LPCL states that the lack of a written contract in fixed-term contracts (which constitutes an essential formality) generates a presumption that the employment relationship is for an indefinite period. Likewise, the principle of the primacy of liberty is consistently cited by the Peruvian courts to address cases in which workers claim there has been a distortion of their employment contracts.

Second, with regard to working hours and rest periods, Article 25 of the Constitution establishes that ordinary working hours are:

• eight hours per day; or
• a maximum of 48 hours per week.

The use of the disjunctive nexus allows for cumulative, compensatory or atypical working hours, although these must still average out at a maximum of 48 hours per week over a period of three weeks or a shorter period. Likewise, a mandatory weekly rest of 24 consecutive hours and an annual rest period of 30 calendar days, which must be paid, are recognised.

A fundamental aspect of annual leave is that its enjoyment can be accumulated for up to two consecutive years if the worker requests and the employer accepts such a postponement. Taking this information into account is vital, given that, according to Article 23 of Legislative Decree 713, if the employer does not grant vacation leave in a timely manner, a serious labour violation is immediately triggered, entitling the worker to triple pay as follows:

• remuneration for the month of unused leave;
• remuneration for working during the vacation period; and
• additional compensation equivalent to the worker¡¦s monthly salary.

Third, there is a compensation system for unfair dismissal. Therefore, if the employer unilaterally terminates the employment relationship without just cause, the employee¡¦s compensation claim is triggered, the amounts of which are regulated by Article 38 of the LPCL:

• For open-ended contracts, the compensation amount is 1.5 monthly salaries per full year of service, up to a maximum of 12 salaries; and
• For fixed-term contracts, there is compensation equivalent to the outstanding period.

There are three types of dismissal under Peruvian law:

• unfair dismissal, which occurs when the dismissal is for reasons related to discrimination, freedom of association or maternity protection, as indicated in Article 29 of the Consolidated Text of the LPCL;
• unjustified dismissal, which is governed by Article 34 of the same instrument and the ruling of the Constitutional Court in Llanos, and which occurs when no cause is given for termination of the employment relationship; and
• fraudulent dismissal, which occurs when:
• • non-existent or legally unforeseen facts are attributed to the employee;
  • evidence is fabricated to justify the termination; or
  • the dismissal is induced by unlawful means on the part of the employer, implying that there were intentional defects.

Although the regulations only provide for compensation as the sole remedy for the harm suffered, the Constitutional Court has indicated that another way to protect the employee¡¦s rights is through reinstatement.

Finally, Peruvian law recognises the employer¡¦s powers of organisation, direction, oversight and control over its workers. However, these powers are limited in the case of indirect hiring of personnel, such as outsourcing, in which the employer cannot:

• directly supervise workers assigned to its workplace; or
• sanction them for failure to perform their duties.

Furthermore, these powers:

• must be exercised while respecting both the specific and non-specific rights of the worker; and
• cannot violate due process in the exercise of their sanctioning powers.

8.2 Are trade unions or other types of employee representation recognised in your jurisdiction?

According to Article 28 of the Constitution, the state recognises the rights to:

• organise;
• engage in collective bargaining; and
• strike.

Based on such constitutional provisions, Peru recognises unions as legitimate organisations to engage in collective bargaining and represent workers. The Collective Labour Relations Law regulates basic aspects of unions, such as:

• their constitution;
• obligations;
• registration requirements;
• membership requirements; and
• minimum number of members.

The regulations also specify the different types of unions, which can be:

• company based;
• activity based;
• guild based; or
• diverse trade based.

Each union is subject to different requirements. For example, under Article 14 of the Collective Labour Relations Law regarding the minimum number of members required to form a union, this stands at:

• 20 workers for company-based unions; and
• 50 workers for other types of unions.

Article 15 of the law further provides that in companies which lack the requisite number of workers to form a union, their workers may be represented through two delegates who represent them before the employer and the Labour Authority (Ministry of Labour).

The recognition of unions and other forms of worker representation affords greater protection against arbitrary dismissal for workers who decide to exercise their right to freedom of association. This is reflected in the protection enjoyed by:

• workers who are members of the trade union system; and
• workers¡¦ representatives in companies that do not have the minimum number of members required to form a union.

However, not only workers who belong to this system are protected, but also those who decide to join a union or participate in union activities. Therefore, a dismissal that is justified on grounds related to the exercise of freedom of association will be void in Peru.

8.3 How are dismissals, both individual and collective, governed in your jurisdiction? What is the process for effecting dismissals?

Individual dismissal is governed by the grounds of lack of worker capacity and worker misconduct, as set out in Articles 22, 23 and 25 of Legislative Decree 728.

Regarding the first ground, the law contemplates three specific situations in which an employer may dismiss a worker for lack of capacity ¡V which, in practice, is difficult to enforce effectively. On the one hand, a worker¡¦s lack of capacity exists where there is supervening incapacity ¡V that is, where the worker loses the physical or mental abilities necessary to perform their job. However, this ground will apply only if it is proven that the employer has attempted to adjust the job to the worker¡¦s new conditions, but the worker is still unable to perform their job. Furthermore:

• there must be no other position available for the worker to fill without endangering their health; and
• this loss of capacity must be duly certified by an official entity.

On the other hand, the employer can fire the worker for poor performance compared to workers who work under the same conditions and perform the same tasks. To objectively determine poor performance, assistance can be sought from the Labour Authority or the Ministry of Labour.

Finally, individual dismissal may be carried out in the event of an employee¡¦s unjustified refusal to undergo medical examinations required by law or agreed upon with the employer, provided that these are essential to maintaining occupational health and safety.

With regard to the second ground, dismissal may be based on the employee¡¦s inappropriate conduct during the employment relationship. Similar to the previous ground, the law establishes three specific situations that justify dismissal based on the employee¡¦s conduct:

• An employee may be dismissed if they have committed one of the serious offences recognised in Article 25 of Legislative Decree 728.
• Grounds for dismissal also arise when the employee has been convicted of a wilful crime ¡V the dismissal will be valid if the sentence is final and the employer was unaware of the crime before hiring the employee.
• Individual dismissal will further be justified when the employee:
• • has been judicially or administratively disqualified for more than three months; and
  • is therefore unable to perform their duties.

Collective dismissals will be valid, even without the right to severance pay, in four specific cases:

• due to unforeseen circumstances or force majeure resulting in the closure of the workplace;
• due to economic, technological or structural reasons within the company;
• due to the dissolution, liquidation or bankruptcy of the employer; and
• in the event of asset restructuring (Article 46 of the LPCL).

For collective dismissal to be admissible, the administrative authority must verify:

• the existence of such objective reasons; and
• that the measure affects at least 10% of the workforce.

In addition to this oversight, Peruvian law stipulates that negotiations must be held with the union representatives or the workers themselves to attempt to reach an agreement in any of the four detailed scenarios, in an effort to find alternative solutions that are less damaging than collective dismissal.

Peru¡¦s labour regulatory framework at first glance appears restrictive with regard to the hiring of specialised foreign personnel. This is based on the percentage and duration limits imposed by Legislative Decree 689, the Law on the Hiring of Foreign Personnel, which limits the hiring of foreign talent to 20% of a company¡¦s total workforce. These contracts may only be fixed-term contracts with a maximum initial duration of three years, subject to renewal. This regulatory framework also indicates that the contract is subject to approval by the Administrative Labour Authority, with some exceptions. However, according to Article 5 of the aforementioned legislative decree, there is flexibility in the application of such provisions when hiring individuals who are:

• married to Peruvian citizens;
• parents of Peruvian children;
• permanent residents (for 10 years or more);
• management or confidential personnel;
• foreign under an employment contract with a company in Peru; or
• professionals with essential specialised knowledge.

With the same objective of attracting specialised foreign talent, the Immigration Law (Decree-Law 1350) governs the migratory status of designated workers, allowing foreigners to provide their services Peru and even receive full social benefits. Based on the above, there are educational and investment projects that take advantage of the relaxation of the hiring percentage limit to attract specialised professionals to fill positions of trust or to provide highly standardised services in companies. This is achieved through:

• agreements with transnational corporations;
• labour migration projects such as that between Peru and Spain; and
• the promotion of foreign investment, which is key to attracting foreign personnel for strategic megaprojects, among other things.

8.4 How can specialist talent be attracted from overseas where necessary?

Peru¡¦s labour regulatory framework at first glance appears restrictive with regard to the hiring of specialised foreign personnel. This is based on the percentage and duration limits imposed by Legislative Decree 689, the Law on the Hiring of Foreign Personnel, which limits the hiring of foreign talent to 20% of a company¡¦s total workforce. These contracts may only be fixed-term contracts with a maximum initial duration of three years, subject to renewal.

This regulatory framework also indicates that such contracts are subject to approval by the Administrative Labour Authority, with some exceptions. However, according to Article 5 of Legislative Decree 689, there is some flexibility in the application of these provisions when hiring persons who are:

• married to Peruvian citizens;
• parents of Peruvian children;
• permanent residents (for 10 years or more);
• management or confidential personnel;
• foreign under an employment contract with a company in Peru; or
• professionals with essential specialised knowledge.

With the same objective of attracting specialised foreign talent, the Immigration Law (Decree-Law 1350) governs the migratory status of designated workers, allowing foreigners to provide their services Peru and even receive full social benefits. Based on the above, there are educational and investment projects that take advantage of the relaxation of the hiring percentage limit to attract specialised professionals to fill positions of trust or to provide highly standardised services in companies. This is achieved through:

• agreements with transnational corporations;
• labour migration projects such as that between Peru and Spain; and
• the promotion of foreign investment, which is key to attracting foreign personnel for strategic megaprojects, among other things.

8.5 What key concerns and considerations should be borne in mind with regard to employment in your jurisdiction?

The considerations that should be kept in mind revolve around the protection of individual and collective rights under Peruvian labour regulations. These regulations refer not only to essential requirements in hiring but also to specific workers¡¦ rights such as maximum working hours and paid leave. Companies are therefore obliged to consistently ensure the establishment of a lawful employment relationship ¡V whether indefinite term, fixed term or part-time ¡V from inception to termination. The practice of the Peruvian courts has significantly contributed to the exercise of legal doctrine, as evidenced in Llanos. In that ruling, the Constitutional Court:

• introduced the concept of fraudulent dismissal; and
• established the existence, in addition to compensatory remedies, of the possibility of exercising restitutionary remedies in favour of the worker.

Similarly, there is evidence of a recurring pattern of unnaturalness in indirect personnel hiring, especially in outsourcing, given that employers mistakenly believe that their powers can be exercised equally in any hiring scenario.

However, employers must be aware of their obligations, not just their powers. Among other things, these include:

• implementing an occupational health and safety system; and
• providing training on underlying gender-related issues such as sexual harassment.

It can thus be asserted that, despite the comprehensiveness of the Peruvian labour regulations, it is essential to review the practice of the Peruvian courts to understand the key considerations analysed in cases brought by workers against employers. This will ensure that employers:

• are informed about their obligations and the limits of their powers; and
• fulfil their role of ensuring that labour relations are conducted in accordance with the law.

9 Tax

9.1 What is the applicable tax regime in your jurisdiction and what are its key features?

The Peruvian tax regime is composed of the following taxes.

Income tax: This applies separately to:

• income from business activities, to which corporate income tax (CIT) applies; and
• income from other sources obtained by individuals, to which individual income tax (IIT) applies.

CIT: Companies incorporated in Peru are subject to CIT on their worldwide income. To determine the tax basis, the taxpayer can:

• deduct from the Peruvian source income the costs and expenses allowed by Peruvian law; and
• add its foreign net source income.

The tax year coincides with the calendar year. The tax rate under the general income tax regime is 29.5%. This regime requires monthly advanced payments equivalent to 1.5% of the taxpayer's monthly net income or to the amount that results from a coefficient determined under specific rules, whichever is higher.

IIT: Individuals considered domiciled in Peru are also subject to IIT on their worldwide income; while non-domiciled individuals are taxed solely on their Peruvian source income.

Income from personal services, whether as an independent contractor or an employee (so-called 'income from work'), is subject to accumulative and progressive tax rates from 7% to 30% on the annual net income, which is determined after deducting statutory expenses. Income from passive activities and most capital gains obtained by individuals are subject to a 6.25% tax rate on the net income, determined after deducting an amount equivalent to 20% of the person's gross income (except for dividends, which are subject to a 5% tax rate on the gross amount).

Value-added tax (VAT): VAT ('IGV' in Peru) is an indirect tax applied to the sale of goods and services within the territory.

VAT taxpayers are Peruvian companies. The tax rate is 18% (16% for VAT and 2% for the municipal promotion tax), and the tax should be paid and declared monthly before the National Superintendency of Tax Administration (SUNAT). The taxpayer determines its tax liability by subtracting its input credit from output tax and the tax economic burden is borne by the end consumer.

Substantial and formal requirements apply to the deduction of input VAT from purchases of goods and services.

Exports of goods and services are exempt from VAT under certain conditions. In this case, a right to obtain a cash-flow reimbursement of input VAT can be exercised.

The anticipated recovery of input VAT regimes is also available under certain conditions.

Excise tax: Excise tax is applied to reduce the consumption of taxed goods affecting the health and wellbeing of consumers, such as:

• alcoholic beverages;
• sugary drinks;
• fuel; and
• cigarettes.

Rates vary depending on different variables.

Financial transaction tax (ITF): All transactions using financial and banking entities regulated by the Superintendence of Banking and Insurance are subject to ITF. The applicable rate is 0.005% of the amount of the transaction and the bank is the withholding agent. The owner or beneficiary of the bank account must pay the ITF directly, with certain statutory exceptions.

Corporate assets tax (ITAN): ITAN is an annual tax levied at a rate of 0.4% on the value of corporate net assets of taxpayers included in:

• the general income tax regime; or
• the small and medium-sized companies tax regime.

The tax applies if the value of the corporate net assets exceeds the amount of PEN 1 million.

To determine the ITAN tax basis, inflation, depreciation and amortisation, among other things, will be considered.

Withholding tax for non-residents: Generally, income from activities performed within the country is considered as Peruvian source income. Therefore, income obtained by non-domiciled individuals from activities performed within the Peruvian territory is taxed at a 30% rate on gross income. In the case of independent services, a 24% effective tax rate will apply.

Regardless of any physical presence within the territory, technical assistance services provided by non-domiciled persons on behalf of Peruvian beneficiaries are taxed at a rate of 15%. Income from 'digital services', royalties and Peruvian source income from other activities obtained by non-domiciled persons are taxed at a rate of 30%, unless a lower statutory rate applies.

Peruvian income tax law defines the concepts of:

• 'technical assistance services';
• 'digital services'; and
• 'royalties'.

In respect of interest on foreign credits, if certain requirements are met, a 4.99% tax will apply. If the loan is granted between related parties, the applicable tax rate will be 30%.

In the case of dividends and other distributions of profits by a Peruvian company on behalf of non-domiciled shareholders, the applicable withholding tax will be 5% (dividends are not taxed if the beneficiary is a resident company).

In respect of capital gains, in general, a tax of 5% applies to stock-listed transactions. Similarly, capital gains from the sale of real property by non-domiciled individuals are subject to a 5% withholding tax. In other cases, a tax rate of 30% may apply.

Other Peruvian source income rules and tax rates may apply in particular cases.

Regarding tax treaties to avoid international double taxation, Peru has a double-tax treaty (DTT) network negotiated under the Organisation for Economic Co-operation and Development model with:

• Brazil;
• Canada;
• Chile;
• Mexico;
• Portugal;
• South Korea;
• Switzerland; and
• Japan.

Peru is also a member of the Andean Community Treaty (578 Decision), along with Bolivia, Colombia and Ecuador.

DTTs can reduce or eliminate income tax where applicable, provided that a tax residency certificate is issued by the tax authority from the country of residence of the respective party.

9.2 What taxes apply to capital inflows and outflows?

Capital inflows are not subject to tax. On the other hand, capital outflows might be taxed according to their structure. Hence, dividends are subject to a 5% tax if the recipient is an individual or a foreign corporation; while capital gains from the sale of shares by foreign investors are subject to a 30% withholding tax on the net income, determined after a capital investment deduction, unless the shares are traded on the stock exchange or similar organisation, in which case a 5% tax will apply.

9.3 What key exemptions and incentives are available to encourage enterprises to do business in your jurisdiction?

The main exemptions and incentives offered in Peru are as follows.

Agriculture: Among the most relevant benefits for this sector are:

• exemptions from VAT for sales of certain products within the country;
• a reduced income tax rate of 15%; and
• provided that certain requirements are met, an additional deduction for income tax purposes equivalent to 50% of the worker's salary in case of new hirings.

Amazonian regime: The main tax benefits for the Amazonian area include, under certain conditions:

• an exemption from income tax; or
• a reduced income tax rate of 5% or 10% for certain areas.

The benefits also include:

• a general exemption from VAT for the import and sale of goods or services within the Amazonian area;
• the application of an additional tax credit; and
• exemptions from excise tax and VAT on the sale of fuel in specific Amazonian areas.

Mining: Mining activities are subject to rules and regulations that provide several tax benefits and warranties. Hence, specific rules apply for:

• amortising the purchase of mining concessions; and
• deducting mine exploration, development and implementation expenses.

The system also offers tax stability and the deduction of investments in infrastructure related to utilities and public services, provided that certain requirements are fulfilled.

Special economic zones: Certain geographic areas are subject to tax benefits aimed at promoting their economic development. The benefits include exemptions from:

• income tax;
• VAT;
• excise tax;
• ad valorem tariffs; and
• other tax obligations.

Currently, the most important free zones are in Tacna, Ilo and Paita.

Aquaculture: Aquaculture companies with annual revenues of up to 1,700 tax units (UIT) qualify for a reduced corporate income tax rate of 15% until 2032. In 2025, the same tax rate applies for companies with annual revenues of more than 1,700 UIT, with a tax rate of:

• 20% until 2029; and
• 25% from 2030 to 2032.

Thereafter, aquaculture companies will be subject to the general income tax rate. Investments in canals and harvesting infrastructure can be depreciated at a rate of 20%.

Forestry and wildlife: Companies involved in forestry and wildlife activities with annual revenues up to 1,700 UIT qualify for a 15% corporate income tax rate until 2030, being subject to the general tax rate thereafter. If the annual revenues exceed 1,700 UIT:

• between 2025 and 2027, the applicable tax rate will be 25%; and
• thereafter, the general income tax rate will apply.

Investments in infrastructure for forest and wildlife management can be depreciated at a 20% rate.

Small and medium-sized businesses tax regime: A small and medium-sized companies tax regime applies to taxpayers with annual revenues of up to 1,700 UIT. Under this regime:

• the taxpayer's net income equivalent to 15 UIT is taxed at a 10% corporate income tax rate; and
• the excess is subject to the regular 29.5% tax rate.

For the purposes of the monthly advance payments, if the company's annual net revenue is less than 300 UIT, the monthly payment is equivalent to 1% of the net income. Otherwise, the monthly payment is determined under the general income tax rules.

9.4 What key concerns and considerations should be borne in mind with regard to tax in your jurisdiction?

• Currently, tax audits focus on:
• • transfer pricing issues; and
  • the reliability of transactions.
• Tax audits can be lengthy and tax auditors are strongly biased towards the Tax Administration and tax revenues.
• Claims against the Tax Administration are usually unsuccessful, while appeals before the Tax Court – the second administrative instance – and judicial administrative proceedings that would result in a final resolution might take years to conclude, due to both:
• • the court's caseload; and
  • the scarcity of tax judges.
• Administrative and Tax Court decisions might differ from Supreme Court rulings regarding similar tax issues.
• New regulations to tackle tax evasion – such as the taxpayer's compliance profile, rules on persons (both companies and individuals) without operational capacity and the determination of additional tax evasion structures by the Tax Administration –might pose some complexities for taxpayers.

10 M&A

10.1 What provisions govern mergers and acquisitions in your jurisdiction and what are their key features?

Mergers and acquisitions in Peru are mainly regulated by:

• Law 26887, the General Corporate Law; and
• Resolution 200-2001-SUNARP/SN, the Corporate Registry Regulations.

Mergers in Peru may take one of the following forms:

• the merger of two or more companies to form a new incorporated company; or
• the takeover of one or more companies by another existing company.

The terms of the merger are included in the merger plan, which is approved by the board of directors or, in its absence, the management body of each company involved.

The merger agreement (which includes the merger plan) is adopted by the general shareholders' meeting of each intervening company. The merger agreement is published in the Official Gazette and in a local newspaper, allowing creditors of the intervening companies to exercise their right to oppose the merger (within 30 days of the last publication of the merger agreement).

Notwithstanding corporate regulations, mergers and acquisitions are also subject to prior authorisation by the Commission for the Defence of Free Competition (INDECOPI), provided that they comply with the conditions set forth in question 10.2.

The main characteristics of the regulations are as follows:

• The merger plan (which is submitted to the general shareholders' meeting at the time of approving the merger) is approved by the board of directors or, in its absence, by the management body of the intervening companies.
• The merger agreement must be approved by a qualified majority of the general shareholders' meeting of the intervening companies.
• The merger agreements (adopted by the general shareholders' meeting of each of the companies involved) are published in the Official Gazette and in a local newspaper.
• The creditors of the intervening companies may exercise their right to oppose the merger agreement, while the shareholders of the intervening companies may exercise their separation right.
• In the case of a simple merger, certain requirements of the merger plan (eg, the determination of the shares exchange ratio) are omitted.

10.2 How are mergers and acquisitions regulated from a competition perspective in your jurisdiction?

From a competition perspective, mergers and acquisitions are within the scope of application of Law 31112, which requires the prior control of business concentration operations if they comply with the following thresholds:

• Individual threshold: The value of the sales or gross income generated in the country or the value of the assets in the country of at least two of the companies involved, in the fiscal year prior to that in which the operation is notified, amounted to a value equal to or greater than 18,000 tax units (UIT).
• Collective threshold: The total sum of the sales or gross income generated in the country, or the value of the assets in the country of the companies as a whole, during the fiscal year prior to that in which the operation is notified, amounted to a value equal to or greater than 118,000 UIT.

The current value of the UIT is PEN 5,350.

Thus, mergers and acquisitions that meet both thresholds concurrently require prior authorisation from INDECOPI.

INDECOPI may decide to:

• authorise the transaction;
• reject the transaction; or
• authorise the merger with conditions aimed at avoiding or mitigating the possible adverse effects on competition that may arise from the transaction.

10.3 How are mergers and acquisitions regulated from an employment perspective in your jurisdiction?

Under Peruvian law, mergers, acquisitions and other forms of business transfers have significant implications for the labour market. With regard to the continuity of the employment relationship in the event of a change of ownership in the employer, this will not be affected, according to Article 4 of the Consolidated Text of the Labour Productivity and Competitiveness Law (Legislative Decree 728).

This is essential, given that it establishes the maintenance of acquired labour rights – including working conditions agreed upon in the employment contract or collective bargaining agreements – by the new employer, which assumes this status in the event of a business transfer. Labour inspections may be conducted to verify this aspect, even if the merger or acquisition is still in progress, reflecting the protective nature of Peruvian labour law.

Finally, business transfers do not affect existing union relations or the binding force of current collective bargaining agreements, unless a renewal is agreed between the new employer and such representatives. In this sense, Peruvian law:

• guarantees the continuity of the employment relationship; and
• safeguards the rights acquired by workers during the process of changing employers.

10.4 What key concerns and considerations should be borne in mind with regard to M&A activity in your jurisdiction?

It is important to conduct due diligence of the financial situation of the companies involved in order to verify the appropriate procedure to execute the merger, since certain authorisations may be required depending on their accounting situations.

The financial/accounting analysis should further be considered before the legal analysis, since Peruvian regulations are not unfamiliar with the accounting situations that may arise in a merger; for instance, the acquisition of a company with negative net equity does not oblige the acquiring company to increase its capital or issue new shares.

11 Financial crime

11.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction?

Money laundering and other forms of financial crime are regulated by:

• the Law on the Administrative Responsibility of Legal Entities in Criminal Proceedings (Law 30424);
• the Law on Customs Offences (Law 28008);
• the Law Creating the Financial Intelligence Unit (Law 27693);
• the Law that Incorporates the Financial Intelligence Unit of Peru to the Superintendencia de Banca, Seguros y AFP (Law 29038);
• Decree Law 25475, establishing the penalties for terrorism crimes and procedures for investigation, investigation and trial;
• the Criminal Code (Legislative Decree 635);
• the Criminal Tax Law (Legislative Decree 813); and
• Legislative Decree 1106 combating money laundering and other crimes related to illegal mining and organised crime (Legislative Decree 1106).

Likewise, resolutions issued by the Superintendencia de Banca, Seguros y AFP require regulated entities to report to the Financial Intelligence Unit in relation to the prevention of:

• money laundering;
• terrorist financing; and
• financing of the proliferation of weapons of mass destruction.

11.2 What key concerns and considerations should be borne in mind with regard to the prevention of financial crime in your jurisdiction?

In Peru, two systems are aimed at preventing crimes within business organisations:

• the System for the Prevention of Money Laundering and Financing of Terrorism (SPLAFT); and
• the Prevention Model under Law 30424.

Thus, if a company conducts an activity that subjects it to an obligation to report to the Financial Intelligence Unit, an SPLAFT must be implemented to allow for the timely detection of suspicious transactions related to money laundering and terrorist financing crimes.

Likewise, to mitigate administrative responsibility for the commission of crimes indicated in Law 30424, companies must implement a prevention model to reduce and mitigate the risk of crimes being committed.

12 Audits and auditors

12.1 When is an audit required in your jurisdiction? What exemptions from the auditing requirements apply?

The bylaws, the articles of incorporation or an agreement of the general shareholders' meeting may provide for the conduct of:

• permanent annual external audits; and
• special audits.

If a corporation does not have permanent external audits, shareholders representing at least 10% of the subscribed shares with or without voting rights may request that:

• the financial statements be reviewed by external auditors; and
• special reviews and investigations be conducted on specific aspects of the management or accounts of the corporation.

A sociedad anónima abierta (SAA) is obliged to have an annual audit.

Audits are also required in certain sectors – for instance, financial and insurance companies must conduct internal and external audits to comply with the obligation to submit information to the Superintendencia de Banca, Seguros y AFP. In addition, listed companies must submit audited information to the Superintendencia del Mercado de Valores.

12.2 What rules relate to the appointment, tenure and removal of auditors in your jurisdiction?

The general shareholders' meeting:

• appoints the external auditors; or
• delegates this task to the board of directors.

In the case of an SAA, the mandatory annual audit must be conducted by external auditors chosen by the General Meeting of Shareholders and registered in the Registry of Auditing Companies.

In certain sectors, additional provisions on the appointment and removal of auditors apply – for instance, the Superintendencia de Banca, Seguros y AFP establishes requirements and standards for internal and external audits for financial and insurance companies.

12.3 Are there any rules or recommendations that limit the scope of services as regards the provision of non-audit services by an auditor?

In general, auditing services are governed by the International Standards on Auditing; hence, auditors apply these standards when providing services other than auditing services.

Notwithstanding the foregoing, the External Audit Regulations (applicable to financial companies) state that audit services may only be provided by companies that have already been contracted by the client to provide services that are incompatible with the external audit in the exercise of their functions.

12.4 Are there any rules or recommendations which cap the remuneration of an auditor as regards payment for the provision of non-audit services?

Some professional associations in Peru have chosen to apply the Manual of International Pronouncements on Quality Control, Auditing, Review, Other Assurance Engagements and Related Services.

Although there are no regulations that limit auditors' remuneration, the manual provides that the applicable ethical requirements must be complied with in relation to audit services, including the following:

• The auditors must not be excessively dependent on the fees paid by the client; and
• The fees charged by the auditors for the provision of non-audit services must be communicated to the client.

13 Termination of activities

13.1 What are the main routes for terminating business activities in your jurisdiction? What are the advantages and disadvantages of each?

The main routes for terminating business activities are:

• liquidation;
• merger by absorption; and
• the sale of assets.

Liquidation involves the following steps:

• the execution of a dissolution agreement;
• the liquidation itself; and
• the dissolution of the company.

The advantages of liquidation include the following:

• It achieves the definitive dissolution of the company; and
• It allows for the distribution of any remaining company assets to the shareholders.

The disadvantages include the following:

• It involves an extensive and formal procedure that is subject to opposition from third parties (creditors); and
• Post-liquidation obligations apply – for instance, retention of the corporate books and accounting documents of the dissolved company (which may be subject to tax audits).

A merger by absorption extinguishes the legal personality of the company that is taken over. The advantages of this route include the following:

• It allows for the termination of the company without the need for liquidation; and
• It affords tax efficiencies and corporate synergies that could lead to a new business.

The disadvantages include that it does not result in the complete termination of the business because the participation of the shareholders continues in the acquiring company, unless the company taken over has negative equity at the time of the merger.

Finally, the sale of assets involves the individual or block sale of machinery, brands, real estate and other assets. The advantages include the following:

• The parties enjoy considerable flexibility in negotiating the sale; and
• Liquidity can be obtained in a progressive manner.

The disadvantages include the following:

• The sale of assets does not result in the dissolution of the company; hence, tax and labour obligations, among others, will continue to apply; and
• The individualised sale of assets incurs higher tax costs than a merger.

13.2 What key concerns and considerations should be borne in mind with regard to the termination of business activities in your jurisdiction?

In case of liquidation, it is important to ensure that the financial balances of the company are correct at the time the closing balance sheet is approved, since there may be contingent debts that, if not correctly provisioned, may trigger civil liability.

Likewise, there are obligations that apply following the dissolution of the company; thus, the corporate and accounting documents should be properly retained in order to comply with the requirements that may arise from a subsequent tax audit.

14 Trends and predictions

14.1 How would you describe the current landscape for doing business and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

The Ministry of Justice and Human Rights has published a draft of a new General Corporations Law which would introduce, among other things:

• new regulations on shareholders' agreements and remote meetings;
• new provisions on challenging corporate agreements;
• amendments to the regime applicable to the company's directors (both in terms of liability and composition, including the incorporation of individual directors and the establishment of committees); and
• the possibility to incorporate sole proprietorships.

With regard to the securities market, the Superintendencia del Mercado de Valores has included in its regulatory agenda the need to strengthen the transparency of information on:

• the remuneration of directors;
• the management of securities issuers; and
• the composition of audit committees.

15 Tips and traps

15.1 What are your top tips for doing business smoothly in your jurisdiction and what potential sticking points would you highlight?

The incorporation of a company is duly regulated by Peruvian law; hence, it is important to comply with all respective formalities to avoid any irregularities that may lead to the joint and several liability of the administrators.

Emphasis must also be placed on regulatory compliance in the execution of business activities – that is, the company must hold all necessary licences, authorisations or permits to conduct its activities. In the same way, priority should be given to the implementation of the necessary legal devices to establish relations with customers – for instance:

• maintaining a complaints book on the premises; and
• ensuring that signage is legally compliant.

In the case of e-commerce, the necessary legal documents must be implemented to comply with Peruvian regulations, including:

• terms and conditions;
• a complaints book;
• a privacy policy; and
• authorisation notices (if applicable).

Finally, companies should keep abreast of regulatory changes – especially as these are often unexpected.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.