Setting up a new branch of your business in a foreign country can be a very complicated process depending on which country you choose to expand to. Oftentimes, there can be a heavy amount of regulatory red tape and rules that can make the process seem daunting. While Peru has become more attractive to investors and foreign business over the past decade, there are some things you should know in order to make the process of opening a branch in Peru go by more smoothly.
Foreign Branch in Peru – Why do Business in Peru?
Peru is the fastest growing economy in Latin America with 3.47% GDP growth in 2018 and an expected GDP growth of 3.82% by 2020, according to the World Bank Group. It is an optimal market for international investors or companies that want to set up their branch office, as Peru is statistically the 54th easiest country to do business in as stated by the World Bank. A considerable advantage that persists in Peru is the compliance with all norms and augmented breakup of barriers for foreign corporations. Don’t forget that apart from establishing a branch office, different types of legal structures can be set up in Peru. We will explain shortly the four common types of legal entities before illustrating, how to create a branch office.
Types of Legal Entities
There are four main types of legal structures in Peru. These include:
Joint Stock Companies (Sociedades Anónimas, S.A.)
S.A.’s require a minimum of two shareholders with no minimum capital, except for financial institutions, which require a minimum deposit of $1000 Soles. Joint Stock Companies are characterized by limited liability and centralized management.
Closely Held Corporations (Sociedad Anónima Cerrada, S.A.C.)
S.A.C.’s must have a minimum of two shareholders but cannot exceed an amount of 20 shareholders. Liability is limited and shares cannot be registered publicly on the Stock Exchange.
Publicly Held Corporations (Sociedad Anónima Abierta, S.A.A.)
S.A.A.’s are usually established if the company has a number of shareholders greater than 750 or if an IPO has been initiated. Liability is limited, management is centralized and shares must be registered publicly on the stock exchange.
Limited Liability Companies (Sociedad Comercial de Responsabilidad Limitada, S.R.L.)
S.R.L.’s can be established with between two and 20 partners and ownership interests determine the amount of capital. As the appellation indicates, S.R.L.’s are characterized by limited liability and management is centralized.
Lastly, a foreign company might establish a branch office. Therefore, we will explain in more detail what a branch office is and how it can be set up in Peru.
What is a Foreign Branch Office?
A branch office, called ‘Sucursal’ in Peru, is a location of business outside of the main office, which must be managed and represented by a permanent legal branch manager residing in Peru. As with all companies domiciled in Peru, branches of foreign companies are subject to a 30% Peruvian corporate tax rate. Nevertheless, foreign branches are not considered legally independent from the parent company but are still managed autonomously by the branch manager, who usually takes orders from the main office. For this reason, the parent company must already be registered and recognized by the Peruvian Mercantile Registry (RMP).
What are the Advantages of Setting Up a Foreign Branch Office
- Foreign companies can access a new market with the help of branch offices and offer its products/services to a new customer base.
- A foreign branch office isn’t set up from scratch, but rather takes on the resources and know-how from the parent company. Strategies in the fields of e.g. marketing or general administration can be adopted efficiently without a large number of expenses and time.
- Because the branch office is not considered legally independent from its origin, the parent company can still provide support to its branch office, providing investments in case of unexpected losses.
How is the Process of Opening a Foreign Branch Office?
In order to open a foreign branch, a Public Deed of Incorporation of the Branch Office is necessary. In addition, a ‘Certificate of Good Standing’ will be needed by the parent company, including a copy of the articles of association, bylaws or equivalent instruments in the country of origin. Next, a statement of agreement to set up the branch is needed, including information about the capital stock assigned to the branch, the activities to be performed, a statement of the location of the office and the appointment of minimum one legal representative.
There are two different instances, of how this agreement statement can be validated.
- If the ‘Haag Apostille’ is attached to the parent company’s agreement to incorporate a branch in Peru, the Foreign Affair Ministry of Peru (Ministerio de Relaciones Exteriores, RREE) can directly accept the legal validity of this document.
- If this is not the case, the Peruvian consulate in the country of origin and the Ministry of Foreign Affairs needs to authenticate the incorporation agreement.
In addition, the company legal representative of the branch shall be given enough authority to deal with any issues that arise. The RREE needs to legalize the power of attorney appointed to the representative and thus a statement written in Spanish must be forwarded. Lastly, it is very important to have legal representation for the branch just as there would be for any other type of company being created in Peru. As with the other company categories, the legal representative must be a Peruvian citizen or a foreigner with a Peruvian residency.
Interested in Doing Business in Peru? Need Local Support?
Choosing the best type of legal structure is the first step in beginning commercial operations in Peru. You must decide which type of legal structure best suits your company’s business needs.
Get in contact with our Peruvian Country Manager for personalized business advice. Our team of local and foreign experts at Biz Latin Hub offer a wide range of professional multilingual market entry and back-office services that can help you start your company in Peru.
Unsure of your accounting and taxation requirements in Peru? See the link below for more information.