If you are looking to enter the Peruvian market, you will need to decide what type of entity you want to establish based on the size and nature of your operation. For companies that want a permanent legal presence in the country, two possible options are to register a subsidiary in Peru or to form a branch.
Peru is Latin America’s sixth-largest market, with a gross domestic product (GDP) in 2019 of $226.8 billion (USD), and one of the fastest-growing economies in the region. With a low inflation rate of 1.3%, the South American nation has experienced a boom in agricultural exportation, driven by seasonal exports of fruits and vegetables to countries located in the northern hemisphere such as the United States and Canada.
The country has also seen success in reducing poverty in rural regions, which decreased from 80 percent in 2004 to 36 percent in 2018. Furthermore, Peru remains the 4th freest country to do business in South America, according to the 2020 index of economic freedom.
Read on to learn more about how to register a subsidiary in Peru, or a branch if that suits you better.
What’s the difference between a branch and a subsidiary?
There are multiple options available for foreign executives thinking about establishing a business in Peru, including registering a branch or a subsidiary. The main differences between a branch or a subsidiary are:
Branch: A branch is part of the parent organization and conducts the same business operations as the holding company. Moreover, a branch is dependent and has a subordinate relationship, as it does not work without the parent company. This means that the branch and the head office are legally a single entity. It is worth mentioning that branches can be installed in different locations within the country or abroad. It is also possible for a foreign company to create a branch in Peru.
Subsidiary: A subsidiary company is a local entity that is controlled and owned by its parent company. However, a subsidiary company can have its own bank account and manage the company independently, making decisions, and taking risks for the benefit of the business. Note that the subsidiary can be used as a “liability shield,” reducing potential losses or liabilities for the parent company. If a subsidiary established in Peru faces legal problems, only this entity is responsible, and not the parent company.
Handling of liability when registering a subsidiary in Peru
When you have a branch, the liability lies with the parent company and if the branch becomes commercially unviable, it is closed. That means that when a Peruvian branch presents a claim of insolvency, it doesn’t mean that it will seriously affect the parent company.
In the case of the parent company presenting a claim of insolvency, the assets destined to the operations in Peru would be the property of both that non-domiciled subject and the creditors of the Peruvian business, meaning the matter would need to be addressed in the Peruvian courts.
On the other hand, when you register a subsidiary in Peru, the liability doesn’t lie to the parent company and if the subsidiary starts suffering losses, the process of closing it down or selling it is very straightforward because the subsidiary is a different legal entity.
This means, if the subsidiary presents a claim of insolvency, that company could be subject to bankruptcy proceedings without involving the parent company, although the subsidiary would still have access to the parent company’s resources. It also means the subsidiary can be sued by a third party without involving the parent company.
Buy a subsidiary in Peru?
While registering a subsidiary in Peru is one way to establish a decentralized legal entity in the country, another popular route to market is to buy a subsidiary.
As mentioned previously, one of the advantages of having a subsidiary is the ease with which it can be closed or sold. That can also be to your advantage when entering the market.
Entering the Peruvian market by purchasing a subsidiary can give you a head start in terms of giving you an entity with an already established presence in the country with preexisting clients and a recognized brand.
Register a subsidiary in Peru with Biz Latin Hub
If you are looking to enter the Peruvian market by registering a subsidiary or forming a branch, it pays to find a reliable local partner. At Biz Latin Hub, our team of multilingual specialists is equipped to help you navigate the company incorporation process in Peru. With our full portfolio of market entry and back-office services, we are your single point of contact to successfully register a subsidiary in Peru.
Reach out to us now or personalized assistance.
Learn more about our team and expert authors and watch the following video to learn how to form a company in Peru: