Peru has been the most constant economy in Latin America, not only in GDP terms but also through the augmentation of foreign investment. Private investments in the most important Peruvian sector, the mining industry, will increase and consolidate the GDP in the years to come. In addition, there will be a larger number of public investments to strengthen the infrastructure in preparation for the Pan-American Games. Not surprisingly, the World Bank Group estimates a 3.82% annual GDP growth by 2020, overtaking Bolivia and making it the 2nd fastest growing economy in South America, closely behind Paraguay.
This economic data and the drive by the Peruvian government to increase foreign investment gives every reason for foreigners to set up a business in Peru and continue to support the positive economic growth in Peru.
The foundation for the setup of a successful Peruvian business is vital, but several additional legal requirements before, during and after the incorporation process must be fulfilled. The key in respecting the legal business regulations can be through the co-operation with a local partner, who is able to take off the administrative burden and guide you through all relevant local law and regulation.
In this article, we will break down the most important legal requirements that must be met by businesses conducting commercial activity in Peru and how a specialized local partner can assist you to stay in good standing with local Peruvian authorities.
Local Business Legislations
The process of setting up a company in Peru is loaded by administrative regulations and may give foreign investors some initial problems.
Peruvian legislation states that there are no differences in investment regulations between foreign and local investors. In most cases, there are no special requirements that foreign investors need to consider before starting a business. This also means that foreign investors can freely acquire local investor shares through the Lima Stock Exchange (‘Bolsa de Valores de Lima’ – BVL) as long as they comply with the law.
We will first clarify several requirements foreign investors must comply with before establishing their company. Afterwards, we will shed light on the most important legislation for operating a local Peruvian business.
Which requirements must be met before and during the incorporation process?
Before the actual company incorporation process, the foreign investor must analyse his/her business needs in order to identify the optimal legal company structure. All of the legal company types in Peru have one significant requirement in common: Partnerships and Corporations need to be established by a minimum of two individuals. Generally, the shareholders, directors and managers of a company don’t need to be Peruvians, however, the company is required to have a company legal representative to officially interact with the National Tax Authority (SUNAT) and the Public Registry Superintendence (SUNARP).
Apart from the general prerequisites for setting up a company in Peru, every type of legal entity type has different legal requirements that must be taken into account:
- Joint Stock Company (S.A.): Is obliged to have a Board of Directors and a General Manager.
- Closely Held Corporations (S.A.C.): Cannot have more than 20 shareholders and must have a General Manager (Board of Directors is optional).
- Publicly Held Corporations (S.A.A.): The Initial Public Offering (IPO) needs to be executed and requires more than 750 shareholders. 35% of all share capital needs to be divided among a minimum of 175 shareholders. Alternatively, shares can be registered with the BVL. SAA’s are obliged to have a Board of Directors and a General Manager.
- Limited Liability Company (S.R.L.): Require a minimum of two and no more than 20 shareholders and a Public Deed in order to be incorporated. One or more managers are in charge of the SRL.
- Foreign Branch Office (Sucursal): Has no independent legal status from its parent company. Still, it is subject to corporate tax and it must present a Public Deed for its incorporation. The Sucursal requires a legal representative registered at the SUNARP.
Which Requirements must be met by an operating company?
After the process of incorporation, the operating business must conform to several additional legal requirements, above all corporate governance, tax obligations and labour requirements.
As depicted in the previous section, companies are generally guided by a Board of Directors and a General Manager, who engage in the company’s daily operations. On the other hand, General Shareholder Meetings need to be held within the first quarter of every year so that the company’s shareholders can assent to the dividend distribution, the previous year’s financial statement and the arrangement of the Board of Directors. Moreover, shareholder meetings are required for the cause of capital increases. Therefore, the Corporate Peruvian law presupposes that all registered companies are able to exhibit their corporate books. For financial and insurance entities, an additional requirement is the publishing of the balance sheet and income statement in the Peruvian newspaper ‘El Peruano’ and an additional Gazette.
Peruvian corporations or individuals pay taxes to one specific tax institution, called the National Superintendence of Tax Administration (SUNAT). Individuals earning less than S/ 50,000 Soles annually have to pay an income tax of 15% and the ones gaining more than S/ 50,000 Soles pay an income tax of 30%. Incorporated independent companies, including subsidiaries, are subject to a corporate income tax of 29.5% on the net income they make worldwide. On the other hand, branch offices of foreign companies have to pay the same tax rate, but only on the income they make in Peru.
In addition to the general corporate income taxes, a Value-Added Tax (IGV in Peru) of 18%, consisting of 16% VAT and 2% Municipal Promotion Tax, needs to be paid on purchases of goods/services, construction contracts and most imports, among others.
Peruvian Labour Law
Companies in Peru may hire employees on a fixed-term or, as it is in most cases, on an unlimited term and must register them in the Electronic Payroll System complying with the monthly salary payments. In doing so, the minimum monthly wage of S/ 930 Soles and a bonus of a monthly salary, one paid in July and one in December, must be respected.
Additional labour obligations include the following:
- Employers are obliged to make social security health and national/private pension fund contributions for all their Peruvian and foreign employees.
- If a company has more than 20 employees, it must generate a committee and a manual including safety and health issues in the firm.
- If a company has more than 500 employees, a doctor must be present for at least 6 hours per working day.
Don’t forget: Employers are obliged to provide a life insurance for an employee that worked for four years in the same company.
In Need of Corporate Secretarial Services in Peru?
Deciding to establish an independent company or set up a foreign branch office is only the first step in engaging the Peruvian business world. Several legal requirements need to be met before, during and after the company incorporation process. Therefore, a corporate secretarial service provider might reduce the bureaucratic weight straining your business by offering several services, as for example, coordination with local authorities, formulation of corporate documents/documents for shareholder meetings, management of electronic documentation, supporting in meeting accounting and tax obligations, amongst others.
In need of legal services in Peru? Check out this short video for more information.