Conducting an entity health check in Peru is increasingly important due to the set of local regulations outlining fiscal responsibilities and corporate compliance in the country.
Peru ranks 76 among 190 countries for ease of doing business. This shows that even though investing in and incorporating a business in Peru can be profitable, there are specific processes and requirements for establishing an entity and complying with fiscal and statutory law.
When you’re incorporating a business in the country, you’ll want to understand any potential corporate non-compliance or concerns for your business operation. Entity health checks in Peru are a key asset that mitigates risks by informing you of valuable fiscal and legal issues that you need to be aware of.
What is an entity health check in Peru?
An entity health check, also known as a corporate health check, is a service that assesses your business’ legal status and compliance with Peru’s tax regulations, employment laws, and other industry-specific laws. The results of the check will uncover any gap in your commercial contracts that may put your business at risk and will identify any unknown issue with your taxes and licenses.
Entity health checks are conducted by external, independent auditors that are experts in corporate compliance. Typically, entity health checks investigate both the fiscal and legal status of a business.
Fiscal entity health check in Peru
A fiscal health check will make sure that your finances, social security payments, and taxes are compliant with regulations and provide you with data that will be useful for your future decisions and strategies. For instance, you may discover invoices that your business was incurring over the year that haven’t been paid, or that your business inadvertently falls short of corporate compliance as a result of a recently reformed tax policy.
If conducting the entity health check around the appropriate time of the year, tax issues found could be avoided before the government issues any relevant penalties for non-compliance.
Legal health check
An entity health check with a legal focus reviews commercial contracts, intellectual property protection, employment contracts, and other industry-specific regulations. The industry in which your business operates is also important to consider when conducting a legal entity health check in Peru. There can be industry-specific regulations that businesses need to comply with, which you may not have previously been aware of.
For instance, a manufacturing business will focus on distribution contracts and suppliers. An entity health check will uncover any unfair terms of agreement or gaps that can create risk on your side.
Who can benefit from an entity health check in Peru?
Any small or large entity can benefit from an entity health check. When expanding a business abroad, it is particularly important to get assistance from local legal experts who can conduct these checks for you, and offer guidance on how to comply with local corporate law.
Businesses who particularly benefit from an entity health check in Peru include (but are not limited to:
An entity health check in Peru can benefit new arrivals to the market who lack knowledge or interaction with local corporate regulations. With a focus on growing a business, startup entrepreneurs may not necessarily focus on building watertight contracts initially or keeping track of any industry-specific requirements. As the business grows, gaps or issues in contracts can result in legal issues further down the line.
For instance, intellectual property is key for startups as often times the ownership of creations isn’t clearly defined. Startups often start with people working on the product before establishing a legal entity, in this sense, the ownership of the product could belong to these individuals as there wasn’t an employment contract that involved the entity. Entity health checks could help you define the rights of your company’s creation before it becomes a complex issue.
Mergers and Acquisitions
When considering acquiring a seemingly attractive business, it is important to conduct a thorough check on all aspects regarding the entity and its legal status or ‘health’.
Investors looking at incorporating a business in Peru must understand its current situation regarding any debt, contracts, fines, and financial statements. Knowing about the business’ health and any relevant risk factors makes it easier for prospective buyers to negotiate a fair agreement for its acquisition.
Parent companies with foreign branch offices
When expanding to Peru, companies need to understand the different legislation regarding zones, work culture, and performance, amongst other key issues.
To keep track of your branch’s performance as a parent company based outside of Peru and avoid potential legal issues, it is recommended to conduct entity health checks by external auditors within Peru. They’ll keep the parent company informed of the legal and fiscal status of its foreign branch, without the parent company needing in-house expertise to stay compliant with local law.
Why is important to have an entity health check in Peru?
After a number of high-profile corruption scandals in the region, transparency and corporate compliance in Peru have become a focus for the government. Businesses want to avoid any confusion or mishap that would damage their reputation or result in severe penalties. It is strongly recommended to conduct an entity health check in Peru, as it’s not uncommon to find even minor irregularities or risks in small and large businesses that you otherwise wouldn’t have been aware of.
A recent example of this is Telefonica, who had to pay USD68 million after losing a tax dispute with Peru’s tax administration, National Customs Superintendence and Tax Administration (SUNAT). Although discoverable non-compliance issues and subsequent sanctions aren’t as severe as this example, they can still catch even well-established businesses off-guard if not identified early. Entity health checks are crucial for identifying and remedying any risks early on when doing business in Peru.
Penalties that you could avoid by conducting an entity health check include temporary closure, permanent closure, financial sanctions, restriction to work with the government, bad reputation, amongst others.
In 2016, the government implemented Law N. 30424, a piece of legislation that established the economic and administrative responsibility for certain types of crimes. This law states that the business is responsible for specified crimes that occur in or through a business unless it can be accredited that it has an effective prevention model, consisting of surveillance and control measures suitable to prevent or mitigate such criminal risk.
This law is an example of the relevance that corporate compliance has in the country. Although developing this system isn’t compulsory, it can be beneficiary to avoid confusions and mitigate risks if activities not aligned with the law happen to occur by human error or other events out of the company’s control
Furthermore, In 2019, this law was amended to specify the aspects that these control measures should include:
- Identification, evaluation and mitigation of risks.
- Appointment of a prevention officer
- Implementation of internal complaint procedures
- Dissemination and periodic training of the prevention model
- Evaluation and continuous monitoring of the prevention model
- Policies for specific risk areas
- Activity log and internal controls
- Integration of the prevention model in commercial processes
- Appointment of an internal audit body
- Procedures that guarantee the interruption or remediation of risks
- Continuous improvement of the model.
Companies that are in the incorporation or expansion process can assure they are compliant with laws such as N. 30424. This can greatly contribute to being on top of tax, legal and regulatory compliance.
Contact us for an expert entity health check in Peru
Investing in Peru is considered a safe option in the region due to a stable economic and political climate. With opportunities in industries such as agribusiness, financial services (fintech), retail, mining and many more, incorporating a business in the Andean country can be a profitable venture. Make sure your business is compliant with its fiscal and legal duties through an entity health check in Peru, and get your business off the ground with the assistance of expert auditors.
At Biz Latin Hub, we help investors from all over the world incorporate their business in Peru and we provide auditing services regarding entity health checks, taxes and corporate and trade law. Our team of local lawyers is ready to assist your business and contribute to your success and growth in Peru. Contact us today for a consultation.
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