Latin America. Doing Business in Peru

Transcription

1 Latin America Doing Business in Peru 2013

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3 Doing Business in Peru Table of Contents 1 Introduction The Role of the State Promotion of Private Investment General Investment Guarantees Guarantees for Foreign Investment Privatizations and Concessions Legal Stability Agreements Multilateral and Bilateral Investment Agreements Company Structures for Economic Activities Types of Company Corporations Closed Corporations Open Corporations Limited Liability Companies Branches Processes of company reorganization Powers Associative Contracts Joint Venture Tax Regime General Standards International Agreements Single Registry of Taxpayers - RUC Income Tax Value-Added Tax Selective Consumption Tax - ISC Financial Transactions Tax Temporary Tax on Net Assets (ITAN) Most relevant Municipal Taxes... 24

4 6 Labor and Immigration Standards Employment Contracts Remuneration Termination of the Employment Relationship Immigration Intellectual Property Protection Protection of Free and Fair Competition International Trade Guarantees Regime Multilateral Trade and Integration Agreements Sectors Agriculture and Agro-industry Banking, Insurance and Finance Banking and Insurance Finance Electricity and Hydrocarbons Electricity Hydrocarbons Mining Fishing Telecommunications Transportation Infrastructure Environment Water Resources Error! Marcador no definido Tourism Main Foreign Companies Present in Peru Frequently Asked Questions... 89

5 Doing Business in Peru 1 Introduction The Estudio Echecopar is a prestigious law firm with extensive experience in Peru. As an organization engaged in providing legal consultancy services to domestic and foreign clients, we know the importance for potential investors of having general and simple advice, but at the same time also taking into account the most relevant aspects of the legal framework of our country. Accordingly, we introduce to you the Peruvian Business Legal Guide The Peruvian economic growth during the last years, as well as the government-implemented policies are only some of the factors that have transformed our country into one of the best investment places in Latin America. Thanks to continued private investment and the strength of internal consumption which have resulted in lower inflation rates in Latin America, it is expected that Peru will experience higher economic growth. Peru s sustained growth is expected to reach 6% in Based on the latest report of the International Monetary Fund (IMF), the Peruvian economy is ranked fifth in Latin America. The IMF provided this result after measuring the GDP of the countries in the region according to the purchase parity prices. Peru is still keeping the first place in Latin America regarding the weather to carry out business in the region at the end of the last four quarters, based on the Economic Weather Index (EWI) performed by the Brazilian center of economic studies Fundación Getulio Vargas (FGV). For the coming years, private investment in Peru may reach its highest level in 25 years and it shall be an honor for us to be part of this growth. Our global vision, experience, professionalism, multidisciplinary approach and teamwork guarantee our clients integral solutions Baker & McKenzie 1

6 developed according their business needs, where creativity and innovation play an important role. Thus, the Estudio Echecopar offers, in one place, comprehensive advice to develop investment projects in Peru. We hope you will find this information useful and that we can work together in the near future. 2 Baker & McKenzie

7 Doing Business in Peru 2 The Role of the State With the advent of the Framework Law for Private Investment Growth, Legislative Decree 757 passed in November 1991, and all forms of reserving of economic activities for the state were eliminated and banned. These reserves only hold for reasons of public interest or national security and must be approved by the Act of Congress. Equal conditions for public and private activity were established. The Peruvian constitution provides that the state can perform business activities only in a subsidiary manner and when authorized by law, for reasons of public interest or national need. The state has the mission of supervising and favoring free competition and repressing any conduct that restricts it. In addition, it must also fight against any practice that limits it and against the abuse of dominant positions or monopolies. No law or agreement may authorize or establish monopolies.

8 3 Promotion of Private Investment 3.1 General Investment Guarantees The Peruvian constitutional and legal framework opens the economy to private investment, which is practiced in the context of a social market economy. It also promotes competition and ensures foreign investment in any type of company. It provides that prices are governed by the law of supply and demand, indicating that the only prices that are administratively regulated are tariffs for public services in accordance with what may be established by an Act of Congress. It also recognizes the freedom of trade and industry and of exports and imports. Since the early 90s, investment guarantees were introduced such as the right to freedom of ownership and disposition of foreign currency, and repatriation of capital and dividends to all natural and legal persons, both national and foreign. It is also guaranteed that there shall be no discrimination or differential treatment in foreign exchange, prices, customs tariffs or duties among investors based on sectors or types of activity or geographic location, nor between natural or legal persons, domestic or foreign. In addition, there is a legal stability regime for rights as an investor and in fiscal and labor matters. 3.2 Guarantees for Foreign Investment Article 63 of the 1993 Constitution stipulates that foreign investors have the same rights as national investors. Investors are guaranteed the right to freely transfer abroad, in freely converted currency and without any authorization whatsoever, the whole of their capital, dividends, profits, royalties and consideration for the use and transfer of technologies and elements of industrial 4 Baker & McKenzie

9 Doing Business in Peru property. Where appropriate to convert national currency to foreign currency, they shall be entitled to the most favorable exchange rate. Investor rights can be stabilized by legal stability agreements meeting the requirements established in the law. The automatic authorization of investments is established, subject only to registration after their completion. The only restriction allowed by the constitution in respect of foreigners is that they cannot acquire or possess, within 50 miles of the border, mines, lands, forests, water, fuels and energy sources, unless an exception is declared by Supreme Decree based on a public necessity cause or because of national interest. The Framework Law for Private Investment established concessions in productive activities as a public necessity cause, with these requiring only a Supreme Resolution for their approval. Likewise, the General Law of Hydrocarbons considers the exploration and exploitation of hydrocarbons to be of public necessity and national interest, and they are therefore exempt from the indicated prohibition. 3.3 Privatizations and Concessions In 1991, the Peruvian government established a framework for the promotion of private investment in state-run companies. In line with the constitutional dictate by which the State may only carry out business activity in a subsidiary manner, a privatization process was set in motion, whereby a number of companies were transferred to the private sector of the economy. As a consequence thereof, all the telecommunication companies, banks and companies of the production industries having the state as main stakeholder were transferred to private ownership. There is a legal regulation for public private partnerships (PPP) which seeks to foster private investment for infrastructure and utilities concessions. This legal framework regulates in a comprehensive

10 manner the several forms of state intervention through public bidding mechanisms with special benefits for this type of investment. Promotion is usually performed through special committees working inside the ministries or, for national scope projects, through PROINVERSION ( The regulatory framework seeks to protect private investment at the three government levels, namely central, regional and local governments. It is worth to mention that the possibility of presenting projects under private initiative has been considered in the regulatory framework. In this case, if there are no additional participants the project may be directly awarded, but in a process with the intervention of more than one bidder the project enters a public tender in which the government is entitled to reimburse of the expenses. Some of the most remarkable concessions granted under this legal regulation are the concession for the construction and operation of Transmantaro Transmission Line, the concession of the telecommunications PCS Band, the operation of Lima International Airport Jorge Chávez, concession of the Trans-Oceanic Highway, as well as the concessions of the Callao Seaport. Important concessions have also materialized as a consequence of private initiatives. Most significant examples are the concession for the execution of the Taboada wastewater treatment plant by PROINVERSIÓN, the concession granted to a private company for the construction and operation of an express way for the city of Lima named Linea Amarilla (Yellow Line) was granted by the Municipality of Lima and the minerals terminal at Callao Seaport. 3.4 Legal Stability Agreements ProInversión enters into legal stability agreements with investors on behalf of the Peruvian state. The legal stability agreements subscribed 6 Baker & McKenzie

11 Doing Business in Peru between ProInversión and investors carry the force of law and grant the stability of a series of rights for 10 years from their subscription dates. Among the rights that are stabilized are the following: The tax regime referred to income tax The free availability of foreign exchange regime The right to remit abroad the total capital and dividends of the company The right to use the most favorable exchange rate The right to freedom from discrimination The employment regimes Certain export-oriented regimes such as temporary admission, duty-free zones and the like To access this regime, a minimum investment of USD5 million must be met in any sector of the economy, with the exception of mining and hydrocarbons sectors, which require an amount not less than USD10 million. Legal stability expires if the investment is not made within the prescribed period, which cannot exceed two years from the signing of the agreement. It also expires if the investment is not registered on time or if the agreement is transferred without the consent of ProInversión. The Organic Law of Municipalities (Law 27972) of 27 May 2002, provides that municipalities may enter into municipal tax stability agreements.

12 3.5 Multilateral and Bilateral Investment Agreements Foreign investors have access to multilateral and bilateral agreements such as OPIC and MIGA and through them are protected against expropriation, political violence and other non-commercial risks. Likewise, Peru is part of the International Convention for the Settlement of Investment Disputes (ICSID), which offers an alternative to resolve disputes that may arise between private investors and the state. The Peruvian government has signed and has bilateral investment agreements in force with Germany, Argentina, Australia, Bolivia, Canada, Chile, China, Colombia, Korea, Cuba, Denmark, Ecuador, Spain, Finland, France, Great Britain and Northern Ireland, Holland, Italy, Malaysia, Norway, Paraguay, Portugal, Czech Republic, Romania, El Salvador, Sweden, Switzerland, Singapore, Thailand, Belgian Luxembourgish Economic Union and Venezuela. 8 Baker & McKenzie

13 Doing Business in Peru 4 Company Structures for Economic Activities 4.1 Types of Company The Framework Law for Private Investment Growth, adopted by Legislative Decree 757 in November 1991, recognizes the freedom of investors to adopt for their economic activities the business structure they may prefer. Only for activities related to the financial system and the mining sector may the law establish an obligation to adopt a certain business structure. The legal framework recognizes the existence and capacity of legal persons established abroad to exercise in the country, contingently or individually, all the actions and rights to which they should be entitled. To exercise on a regular basis acts within their social purpose they must conform to the requirements established in Peruvian law. This means that, at least, they must register with the Public Registry, indicating an address and a legal representative, who must be Peruvian or a foreigner residing in Peruvian territory who should have an immigration card. Some sectors may require it to be established as a company or branch in the country. The General Law of Companies regulates the different types of companies that investors can use to make their investments in Peru. The three types which are most commonly used are the corporation, the commercial company with limited liability and the branch (which does not qualify as a legal entity separate from the parent company). This law regulates three special forms of corporation: the ordinary corporation, the closed corporation and the open corporation.

14 The shareholders or partners of any type of company may enter into agreements among themselves or with third parties in order to regulate their rights and obligations in the company, agree on investment obligations, minimum periods of permanence in the company, and voting syndicates, among others. 4.2 Corporations The corporation is the type of legal structure most often used for doing business in Peru. It is a limited liability company, eminently capitalist, whose structure enables distinguishing the administration from the property administered. For its constitution, it requires a minimum of two shareholders, which may be natural as well as legal persons. The capital will be split into transferable securities referred to as shares. The transfer of shares in an ordinary corporation is free, unless otherwise agreed. With regard to social capital, the law does not set a minimum capital, although in certain industries, sector regulation, for example in the financial sector, does set some minimum capital requirements. The initial contribution for its constitution must be deposited in a local bank. The governing bodies of the corporation will be the general meeting of shareholders, the board and the general manager. The statutes are formalized by public deed and entered in the public registry. In addition, two specialized types of corporations can be found under Peruvian law, which in addition shall be subject to the rules of the ordinary corporation: closed corporations and open corporations. 4.3 Closed Corporations The closed corporation is quite similar to the commercial company with limited liability (see 4.5). It is required to have a minimum of two and a maximum of 20 shareholders. 10 Baker & McKenzie

15 Doing Business in Peru It carries certain limitations on the transfer of shares, such as those posed by stockholders preemptive rights (in this case, agreements to the contrary are allowed), and in some cases, the consent of the company (this should be agreed in the statute). Shares may not be listed in the Public Registry of the Securities Market. It is optional for this type of society to have a board, which is a matter defined in its statute. Similarly, this type of corporation allows non-contact shareholders meetings. It is ideal for small capital companies or for those with few partners. 4.4 Open Corporations A corporation is open when it meets one or more of the following conditions: It has made a primary public offering of shares or convertible bonds. It has more than 750 shareholders. Over 35 percent of its capital belongs to 175 or more shareholders, excluding from this number those shareholders whose individual holdings do not reach two per thousand of the capital or exceed 5 percent of the capital. It is constituted as such. All shareholders with voting rights unanimously approve the adoption of that regimen. The open corporation must register all its shares in the Public Registry of the Securities Market. They are companies subject to supervision by the National Supervisory Commission of Companies and Securities (Conasev).

16 4.5 Limited Liability Companies The limited liability company is constituted with a minimum of two and a maximum of 20 partners. It does not issue shares (but participations) and has no board. Its form of organization is similar to that of corporations. In this type of company, there are, necessarily, stockholders preemptive rights. 4.6 Branches The procedures for forming a branch in Peru are similar to those for constituting a company. It requires formalization through a public deed which must contain at least: a certificate of validity and existence of the parent company; a copy of the statutes of the parent company; an agreement indicating the social capital that is allocated for the operations of the branch; the objectives of the branch; the business and operations that it will conduct; a statement specifying that the branch operations are included in the objectives of the parent company; the location of the domicile of the branch in Peru; the appointment of at least one permanent legal representative in the country; the powers conferred; and their subjection to the laws of Peru to meet the obligations assumed by the branch in the country. These documents must be legalized by the Peruvian Consul of the jurisdiction of the parent company, and then his signature must be legalized by the Ministry of Foreign Affairs in Peru. 4.7 Processes of company reorganization It is important to note that, according to our law, there is a variety of forms of corporate reorganization, considering not only reorganization mechanisms applicable to all companies with each other, but also with the other types of legal persons that are not companies existing under Peruvian law. The main mechanisms of corporate reorganization include: (i) the merger (either by incorporating a new company resulting from the merger of two or more companies such as by 12 Baker & McKenzie

17 Doing Business in Peru absorption, where a company absorbs another preexisting company); (ii) (iii) (iv) the plain reorganization (capital contribution from one society to another, with one company becoming a shareholder of another company); the split (division of an equity block into two or more blocks to be contributed to the constitution of a new company or to another pre-existing company, or the division of a company into two or more companies); and the transformation (transformation of the company into another type of company or legal person). 4.8 Powers The different types of companies and contractual forms recognized by Peruvian law require an effective regime of powers that enables their performance in the market. The General Law on Companies (LGS) recognizes in the board and management, in their capacity as administrative bodies, as appropriate, all the powers of management and legal representation necessary to achieve the social objective of the company. However, the market needs require the implementation of specific regimes invested with publicity, by registering in the Public Registry. The powers are especially relevant with respect to those foreign companies that conduct business in Peru through branches or subsidiaries. These powers are equally important for those companies incorporated abroad that lack legal representation in the country, in which case the appointment of a legal representative becomes an indispensable requirement if activities are performed in Peru.

18 All appointments of agents and granting of powers made abroad must follow a specific sequence of legalization with the relevant authorities, such as ministries of foreign relations, consulates, notaries, apostils or similar, to acquire validity within the national legal system. 4.9 Associative Contracts Associative contracts are those that create and regulate relations of participation and integration in businesses or individual companies in the common interest of the participants. The associative contract does not create a legal entity, it must be in writing, and is not subject to registration in the public registry. Associative contracts can be: joint venture contracts and consortium contracts. In the Joint venture agreement, a person, referred to as the general partner, concedes to another person or persons, called limited partners, a share of the profit or profits of one or more businesses or companies of the general partner, in exchange for a certain contribution. The consortium contract is one whereby two or more persons join together to participate actively and directly in a particular business or company, for the purpose of obtaining an economic benefit Joint Venture Although the national system does without the denomination of joint venture, this form of contract has spread easily in the main national economic sectors. The joint venture creates a legal relationship between two or more individuals or legal entities willing to develop a specific economic activity during a specific time. Unlike other associative contracts, this figure can generate a separate legal entity. The joint venture is an extremely versatile legal construct, on which there is no exact and final definition, and which can accommodate a variety of situations. 14 Baker & McKenzie

19 Doing Business in Peru 5 Tax Regime 5.1 General Standards The Framework Law on Private Activity Growth approved by Legislative Decree 757, in November 1991, develops the constitutional principles of legality and publicity in tax matters. In particular, it sets limits on the capacity of regional and local governments to create, modify or delete taxes. 5.2 International Agreements Peru has signed agreements with Chile, Canada, Brazil, Spain, Mexico, Switzerland and the countries of the Andean Community, to avoid double taxation. The agreement entered into with Spain, Mexico and Switzerland are currently undergoing confirmation by the Congress of the Republic of Peru. 5.3 Single Registry of Taxpayers - RUC Any subsidiary or branch incorporated or established in the country must obtain its Single Registry of Taxpayer (Registro Unico de Contribuyentes - RUC) number. However, though from the point of view of company law there are no restrictions to the general manager being a foreign individual, the Tax Administration requires that the general manager of a Peruvian company be a Peruvian citizen, or a foreign citizen but with an immigration card. This requirement is intended that such person may be registered as the legal representative of the company in the Single Registry of Taxpayers. 5.4 Income Tax Companies constituted in Peru are subject to income tax, both in terms of their income from domestic as well as foreign sources. The fiscal

20 year ends on 31 December. There are no exceptions. The tax return is normally presented towards 31 March of each year. It is expected that monthly payments will be made on account of estimated annual tax. Until 2004, the inflation adjustment of accounting for tax purposes was mandatory, except for companies that were allowed to keep records in foreign currency. Currently, that adjustment regimen is suspended. Expenses incurred to generate income or maintain their source in terms of productivity are deductible for purposes of income tax. All expenses, except for some special cases (for example, interest on loans) arising from transactions directly or indirectly carried out with residents in tax havens are not deductible for tax purposes. Depending on the system chosen by the taxpayer, losses can be carried forward for up to four consecutive years from when they are incurred, or until their import is exhausted, but limiting the amount of the annual deduction to 50 percent of the net taxable income of each year in which the compensation is made. For purposes of the Income Tax Law, capital gains is that which comes from the sale of goods that are not intended to be marketed within the scope of a line of business of the company. From 1 January 2010, any capital gain from the sale of securities will be subject to income tax, provided that, for non-domiciled investors, securities (stocks, bonds, etc.) are issued by a company domiciled in the country. The rate applicable to such investors will be of 5 percent or 30 percent, depending on whether the sale is made within or outside the Lima Stock Exchange. If the seller is domiciled, the rate will be 5 percent or 30 percent depending on whether the sale is made by a natural person or a company. 16 Baker & McKenzie

21 Doing Business in Peru Also, consideration must be given to the fact that any capital gain derived by a domiciled person from the sale of securities issued by a non-domiciled company, is taxed at the rates of 15 percent, 21 percent and 30 percent, if the seller is a natural person, and 30 percent in the case of a company. However, if the securities issued by a nondomiciled company are registered in the Public Registry of Securities of Peru and their sale is made: (i) through a centralized negotiation mechanism of the country; or (ii) foreign trading mechanisms and provided there is a signed integration agreement with these entities (currently, there are agreements with Chile and Colombia), the applicable rate will be 5 percent. It is worth noting that earnings obtained by the indirect sale of shares representing the capital of a company domiciled in the country is considered Peruvian source income. There is an indirect sale when shares are sold representing the capital of a foreign company in the country which in turn owns - directly or through one or more companies - shares representing the capital of companies in the country, provided than in any of the 12 months preceding the sale, the market value of the shares of the foreign company in the country, of which the non-domiciled company is the owner directly or through one or more companies, is equivalent to 50 percent or more of the market value of all shares representing the capital of the non-domiciled company. It also provided that the indirect sale regime requires that the shares sold represent at least 10 percent of the capital of the non-domiciled legal person given that, otherwise, the regime does not apply. The computable cost to be deducted in determining taxable profit will be determined by the market value of the shares that are sold. The market value, in the case of the sale of listed shares, will be the stock exchange price. If the company does not trade on the stock exchange, the market value is the value of the transaction, which may not be less than net asset value of the shares sold. The net asset value will be

22 calculated on the basis of the latest balance sheet of the issuing company issued prior to the date of the sale. The applicable tax rate in this case is 30 percent. Likewise, interest earned by a company on its bank deposits, are taxed at an income tax rate of 30 percent. It should be noted that the interest earned by natural persons, whether domiciled or not, remain exempt from tax until 31 December The tax depreciation rate is 5 percent for buildings; for the following assets, the following maximum rates apply: 20 percent for vehicles, 25 percent for livestock, 20 percent for machinery and equipment used in mining, oil and industrial construction, 25 percent for hardware and 10 percent for other fixed assets. The tax rate for companies domiciled in Peru is 30 percent. Dividends are taxed at the rate of 4.1 percent provided they are paid to natural persons, whether domiciled or not, or to non-domiciled legal persons. Royalties paid abroad are subject to a rate of 30 percent as a fixed tax to be withheld by the local payer. Interest paid abroad are subject to a withholding at a fixed 4.99 percent if the debt to which they relate and corresponding interests meet certain conditions. Otherwise, the rate is 30 percent. In the case of loans from related companies, the retention rate is 30 percent. Payments abroad for technical assistance services are subject to a withholding of 15 percent if certain requirements are met; otherwise, the rate is 30 percent. Branches are only taxed on their Peruvian income, while affiliates or subsidiaries are taxed on their worldwide income. All types of companies are subject to the same taxation. Local companies that hold foreign investment may subscribe tax and legal stability agreements. The reinvestment of profits qualifies as 18 Baker & McKenzie

23 Doing Business in Peru foreign investment for this purpose. The tax stability regime is limited to income tax, including the rate in effect at the time of conclusion of such agreements, except in the case of certain economic sectors such as mining, and oil and gas activity in which the stability extends to other taxes. On the other hand, it is important to mention that Law No declared investment and development in agriculture to be of priority interest, and tax benefits were made available for certain activities. Thus, all natural or legal persons who develop crops and/or breeding activities, except for the forest industry, fall within the scope of this law. In addition, also included in the scope of this law are natural or legal persons conducting agro-industrial activity (production, processing and preserving of meat and meat products, processing and preserving of fruits and vegetables, and sugar processing), provided they mainly use agricultural products outside the province of Lima and the constitutional province of Callao. Note that the agribusiness activities related to wheat, snuff, oilseeds, oils and beer, are not included in this law. Persons covered in the preceding paragraphs will enjoy a 15 percent rate on income for purposes of income tax. Also, natural or legal persons covered may depreciate, at an annual rate of 20 percent, the amount invested in hydraulic infrastructure and irrigation works during the term of the law. In order that the natural or legal persons may enjoy the benefits, they must be current in the payment of their tax obligations with SUNAT. It is understood that the beneficiary is not up to date when it fails to pay any taxes to which it is subject, including payments on account of IT, for three monthly periods, consecutive or alternated, during the same fiscal period. The tax benefits will be in force until December 31st, 2021.

24 In addition, Law N establishes a regime to promote investment in the Amazon, including tax benefits that shall depend on the activity performed and the geographical location of the potential beneficiary. For purposes of the aforementioned regime, the Amazon is comprised of the following Departments: Loreto, Madre de Dios, Ucayali, Amazonas and San Martín, as well as some provinces of the Departments of Cajamarca, Huánuco, Junín, Pasco and some districts of the Departments of Ayacucho, Cusco, Puno, La Libertad and Piura. To qualify for the tax benefits of this regime, the potential beneficiary shall have its tax address, fixed assets and registration as legal person in the Amazon. Likewise, potential beneficiaries must be engaged in the following economic activities: livestock, agriculture, aquaculture, fishing, tourism, forest extraction, manufacturing activities related to the processing, transformation and trading of primary products arrived from the abovementioned activities, and forest transformation or trade. The activities listed in the preceding paragraph shall enjoy an exemption or a reduced tax rate of 5 percent or 10 percent, depending on geographic location, for purposes of income tax. Likewise, income tax monthly advanced payments may be determined by applying a 0.3 percent or 0.5 percent to the monthly net income, depending on whether they are subject to the 5 percent or 10 percent income tax rate, respectively. Such tax benefits shall be applied up to December 31st, Value-Added Tax The Value-Added Tax rate (General Sales Tax - VAT) is 18 percent and applies to the following activities: Sales of chattel in Peru Services provided or used in Peru 20 Baker & McKenzie

25 Doing Business in Peru Construction contracts First sale of real estate by the builder Importation of goods The VAT paid on the purchase of goods or services may be used as tax credit against the VAT that derives from transactions performed by the company. Exporters can request a refund of VAT paid on the purchase of goods and services. They can also use the refund as a credit against the VAT levied on its operations or, failing that, against payment of income tax. If there were any balance that cannot be used, it can be transferred to third parties. Companies that have not yet begun their productive activities and that import or purchase capital goods for the production of goods and services for export, or which are subject to the VAT, are eligible for the so-called Advanced Recovery of VAT Regime. This regime consists of applying to the tax authorities for a refund of the tax credit stemming from the VAT paid on purchases of goods and services, and imports. Natural or legal persons in the agricultural sector who are in the preproductive stage of their investments may recover in advance the VAT paid through the purchases of capital assets, supplies, services and construction contracts, according to the amounts, terms, coverage, conditions and procedures established in the regulations. The preproductive stage of investments may, in no case, exceed five years according to what the Regulations of the Law on the Promotion of the Agricultural Sector may stipulate. On their part, the subjects registered in the Amazon will enjoy the exemption of the VAT for the sale of goods that are consumed in the same zone, for the rendering of services in the zone and for

26 construction contracts or first sale of real property performed by the builders of said property in the zone. 5.6 Selective Consumption Tax - ISC The following activities are taxed with Selective Consumption Tax (Impuesto Selectivo al Consumo - ISC): Sales in the country at the producer level of certain goods included in a list, which include fuel, beer, liquor and cigarettes The importation of the products mentioned above Betting and gambling, such as sweepstakes and raffles In the case of soft drinks, alcoholic beverages, certain vehicles, cigarettes, and others, and activities related to gambling and betting, the tax is determined by applying a certain percentage, which varies depending on the specific goods. Likewise, the tax may also be calculated by means of the ad valorem system, by applying the tax based on the retail price, as is done, for example, in the case of beer. 5.7 Financial Transactions Tax The Financial Transactions Tax (Impuesto a la Transacciones Financieras - ITF) is a temporary tax levied on certain financial transactions outlined in the Law that created this tax. The referred Law provides that all obligations in excess of PEN5,000 or USD1,500 must be paid using the so-called Means of Payment. The Law considers the following Means of Payment : i) bank account deposits; ii) drafts and wire transfers; iii) payment orders; iv) debit and credit cards issued in Peru; v) credit cards issued abroad by foreign companies whose object is the issuing and managing of credit cards, as well as by foreign banking or financial entities, provided that payments are channeled through Peruvian financial institutions or 22 Baker & McKenzie

27 Doing Business in Peru banks; vi) checks bearing the non negotiable clause or equivalent; and vii) others to be approved by Supreme Decree. With regard to the tax effects on Income Tax, the Law provides that payments made without using the specified Means of Payment, when the law thus requires it, will not allow deducting expenses, costs or applying credits for purposes of determining the taxable income. This tax must be withheld and paid by the financial institutions and other companies specified by law that may intervene in the financial transaction. The ITF is deductible for purposes of Income Tax. The ITF is applicable regardless of the amount of the transaction, when it is done using one of the Means of Payment, even if it had not been required by law (when the amount involved is less than PEN5,000 or USD3,500). Credits or debits to the accounts of governments, diplomatic and consular missions, and international agencies and organizations accredited in Peru. As of 1 April 2011, the tax rate is percent, which is applied to the amount of the financial transaction in local or foreign currency, without any deduction. 5.8 Temporary Tax on Net Assets (ITAN) Temporary Tax on Net Assets (Impuesto Temporal a los Activos Netos - ITAN) is levied on the assets of persons generating taxable income of the third category (usually companies) in accordance with the provisions of the law on income tax. The tax rate is 0.4 percent and is applied to the value of company assets in excess of one million soles. The tax actually paid can be used as a credit against payments on account or payments for the regularization of income tax.

28 5.9 Most relevant Municipal Taxes Property Tax: This tax is levied on the ownership of a property by a natural or legal person in a given district. The rate varies between 0.2 percent and 1 percent depending on the value. The tax must be paid annually. Alcabala Excise Tax: This tax applies to the free or compensated transfer of land property. The rate is 3 percent and is applied to the value of the property agreed by the parties or the self-appraisal value determined by the district municipality where the property is located, whichever is greater. The tax must be paid by the buyer. Vehicle Property Tax: This tax applies to vehicles owned by companies or natural persons. The rate is 1 percent per year and is applied to the original value of the acquisition, importation or entry of a vehicle up to three years old. Municipalities are only authorized to create, modify or eliminate certain taxes related to the services they provide to the granting authorities. Arbitrios Municipal Tax: Taxes for public cleaning, municipal police, and parks and gardens. 24 Baker & McKenzie

29 Doing Business in Peru 6 Labor and Immigration Standards 6.1 Employment Contracts A. General features of the contracts The provision of personal services, if both subordinated and paid, gives rise to the existence of an employment contract for an indefinite period. The hiring of personnel does not require any great preconditions, except having achieved the age of majority, which in Peru is acquired by age 18. Minors between 15 and 18 require parental permission to work, as well as the approval of the Ministry of Labor and Employment Promotion ( The national personnel are generally hired for an indefinite period. In this case, the contract need not be concluded in writing. B. Term contracts Term contracts may be concluded only for work of a temporary nature, or for the start of a new business or activity. Term contracts must be in writing, and subsequently, within 15 calendar days, they must be entered in the Contracts and Agreements System of Formative Work Modalities located on the website of the Ministry of Labor and Employment Promotion. Workers hired under this modality are entitled to all legally-mandated benefits. C. Hiring through labor intermediation companies In general, the personnel should be hired directly by the employer. However, third parties may provide personnel to an employer in the following cases: Temporary services: Occasional services or personnel replacement.

30 Complementary services: A complementary activity of the user company is one that is ancillary, not linked to the main activity, and whose absence or lack of implementation does not interrupt the business, such as surveillance, security, maintenance and repairs, external messaging and cleaning. Highly-specialized services: Services that are not part of the core business of the company and which are of high complexity and specialization, such as sanitation and specialized maintenance. D. Outsourcing Outsourcing is understood as hiring companies to develop specialized activities or works, provided they assume the services rendered independently and at their own risk; have their own financial, technical or material resources; are responsible for the results of their activities, and their workers are under exclusive subordination to them. Characteristic features of such activities, among others, are the plurality of clients, and that they count with the equipment, the capital investment and payment for work or service. In no case is the sole provision of personnel allowed. E. Workday The maximum workday is eight hours per day or 48 per week. Overtime is calculated using the hourly wage of the worker. Overtime is paid an additional 25 percent of the normal hourly pay for the first two hours and 35 percent for the remainder. Cumulative or atypical workdays can be established long as they do not exceed a weekly average of 48 hours. Management personnel, personnel not subject to immediate inspection, or personnel who provide intermittent standby or surveillance services, are not entitled to overtime pay. 26 Baker & McKenzie

31 Doing Business in Peru F. Paid Breaks Weekly. Workers are entitled to a minimum of 24 hours of rest a week. It is customary to enjoy a day of rest on Sunday, however, it is possible to work on Sunday and substitute this rest day with another day of the week. National holidays. In the days considered non-working holidays, workers have no service obligations. The employer and personnel can agree to alter the timing of the break. When the work is done on holiday without an alternative rest day, the employer must pay a bonus equal to 100 percent of the daily pay. Vacations. Every worker is entitled to 30 vacation days for each full year of services rendered. With the agreement of the worker, the vacation break can be fractionated, reduced or accumulated. In no case can a vacation break of less than seven calendar days a year be granted. 6.2 Remuneration A. Minimum Income To date, the minimum wage established by law is PEN (approximately USD291.83). The minimum wage may be adjusted periodically by the government. B. Comprehensive Annual Remuneration It is possible to agree on a comprehensive pay per year of work, when the employee earns not less than PEN7,400 (about USD ) per month. This comprehensive compensation may incorporate all the current benefits in the workplace, except the right to share in the profits.

32 C. Gratuities There are two mandatory gratuities in the year with each being equivalent to one monthly remuneration, one that is paid in the first half of July and one in the first half of December, provided the employee has worked the entire semester. They are calculated on the basis of the monthly remuneration. In case the employee does not work the entire semester, the gratuity is paid proportionally at the rate one sixth per full month worked. In accordance with the provisions of Law No. 29,351, effective until 31 December 2014, gratuities paid to personnel will not be subject to contributions, or taxes other than income tax. In addition, the rule states that, during its term, employers must pay workers directly as a special bonus, the amount of the contribution to Social Health Insurance (Essalud) corresponding to the gratuity, equivalent to 9 percent. D. Compensation for length of service It is a legal benefit consisting of a semiannual deposit of 8.33 percent of the remuneration received by the employee in each semester, including gratuities. The deposit is made in a bank chosen by the worker in an account in his name labeled CTS Account. E. Profits The right to a percentage of company profits (between 5 percent and 10 percent), is recognized according to the sector to which the company belongs. There is a maximum limit for this benefit. Thus, a worker can receive up to 18 monthly salaries on account of annual profits. Companies with fewer than 20 workers are excluded from this obligation. 28 Baker & McKenzie

33 Doing Business in Peru F. Life Insurance Employers are required to pay for life insurance for employees who have served the company for more than four years. G. Family Allowance It applies to employees whose salaries are not regulated by collective bargaining. It consists of the right to receive 10 percent of the minimum wage (currently equivalent to PEN75.00) if the worker has one or more children under the age of 18. H. Taxes levied on remunerations The taxes levied on the remuneration of workers are the following: Paid by the worker Paid by the employer Rate Private Pension System or National Pension System X 12.90% % 13% Essalud X 9% Income Tax - Domiciled X After the deduction of PEN25, on the income of the employee, the following cumulative

34 Paid by the worker Paid by the employer Rate progressive scale shall be applied: Up to 27 Tax Units (UIT PEN 99,900.00), in excess of 27 UIT up to 54 UIT (PEN199,800.00): 21%, and on the amount in excess of 54 UIT: 30%. Also, depending on the type activity of the company, a worker s remuneration could be further subject to other taxes, such as: Senati, Supplemental Hazardous Work Insurance, Conafovicer, among others. 6.3 Termination of the Employment Relationship If there are objective reasons that justify it, one can dismiss the employee without payment of an indemnification. In the absence of such causes, compensation for unfair dismissal would be of one-anda-half monthly remunerations for each year of service up to a maximum of 12 remunerations. Because of constitutional court jurisprudence, arbitrarily dismissed workers may waive compensation and ask to be reinstated in the workplace, except for managerial personnel or employees entrusted with confidential matters engaged to perform in such positions from the beginning of their employment. In the case of term contracts or foreign personnel, compensation is of one-and-a-half monthly remunerations until the end of the contract with a ceiling of 12 remunerations. 30 Baker & McKenzie

35 Doing Business in Peru 6.4 Immigration A. General Rules In the case of the hiring of foreign personnel, it is necessary to conclude the contract in writing with certain formalities and limitations. Contracts must be approved by the Ministry of Labor and Employment Promotion. The number of foreign workers should not exceed 20 percent of all workers and their salaries cannot exceed 30 percent of the payroll. The law provides certain exceptions to the limitations, allowing the hiring of foreign personnel beyond the limits described above, such as when the foreign personnel is a professional or is a specialized technical staff; in the case of senior management and/or management of a new business activity; or in the event of corporate restructuring, or whether it is personnel in private companies that have entered into contracts with public sector organizations, institutions or companies. B. Tax aspects 1. The foreign citizen with a business visa A foreigner with a business visa that has not had Peruvian source income while in Peruvian territory must present, upon leaving the country, the corresponding sworn statement per the pertinent form approved by the tax administration. Foreign citizens who engage in activities that involve the generation of income from Peruvian sources must submit a certificate of income and deductions issued by the payer of the income to the immigration authorities when leaving the country. It should be noted that foreign citizens may render subordinate and paid services only while counting with the enabling immigration status afforded by the work visa.

36 2. Taxable income To the extent that a foreign worker has the status of non-domiciled for purposes of income tax, all income will be taxed at a rate of 30 percent annually. However, that tax rules stipulate that the foreign worker, who has been in the country for 183 calendar days, may choose to be treated as domiciled and for that purpose must communicate that option to his employer. In this case, the change to resident status shall only take effect on the taxable period following the date of the communication. The income tax rate to be applied to the income of a foreign worker who has acquired the domiciled status is as follows (after deduction of PEN25,900): to income up to 27 tax units - UIT (PEN99,900): 15 percent, to income in excess of 27 UIT up to 54 ITU (PEN199, 800): 21 percent, and to income in excess of 54 ITU: 30 percent. The income tax is withheld by the employer who must in turn pay it to the tax authority. 32 Baker & McKenzie

37 Doing Business in Peru 7 Intellectual Property Protection Within this area, we can distinguish industrial property protection and copyright. Industrial property protection shall apply to all sectors of economic activity. All natural or legal persons organized in any of the ways permitted by the constitution of Peru and its laws, whether or not domiciled in Peru, are entitled to this benefit. The protected elements of industrial property are: (i) invention patents; (ii) certificates of protection; (iii) utility models; (iv) industrial designs; (v) trade secrets; (vi) goods and services marks; (vii) collective marks; (viii) certification marks; (ix) trade names; (x) commercial slogans; and (xi) appellations of origin. Industrial property in Peru is governed mainly by the Paris Convention for the Protection of Industrial Property, the Agreement on Related Aspects of Intellectual Property Rights (TRIPS), the General Inter-American Convention for Trade Mark and Commercial Protection (Washington Convention), the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration, the Treaty on the Law of Marks, Decision 486 of the Andean Community - Common Intellectual Property Regime, Legislative Decree No which approves complementary provisions to Decision 486, Legislative Decree No (approving Border Measures for the Protection of Copyright and Related Rights and Trademark Rights), the Patent Cooperation Treaty Patent (PCT), and Law No (law that modifies, incorporates and regulates various provisions to implement the trade promotion agreement signed between Peru and the United States of America). The National Institute for the Defense of Competition and Intellectual Property Protection (Indecopi) is the authority responsible for maintaining records and amendments to the elements of industrial property and the correct application of the respective rights.

38 Patents are granted for inventions, whether products or processes, in all fields of technology, provided they are new, involve an inventive step, and are industrially applicable. The patent of invention has a term of 20 years from the date of filing the application, after which, the invention will be of public domain. At the request of the applicant, the Office of Inventions and New Technologies shall make an adjustment of the term of the patent in case its granting procedure were the subject of unreasonable delay (this adjustment is not granted to patents for pharmaceutical procedures and is subject to certain requirements). The patent of invention can be licensed for exploitation, but such license may not be invoked against third parties if it is not stipulated in a written document or if it has not been registered with the Office of Inventions. Similarly, the holder of a patent or whoever considers himself entitled to have it, in accordance with applicable law, may institute any actions claiming ownership and indemnification that are conferred by law, in order to assert their right. A utility model is any new form, configuration or arrangement of components of any device, tool, instrument, mechanism or other object, or any part thereof, which allows a better or different operation, use or manufacture of the object incorporating it or that lends it any usefulness, advantage or technical effect that it did not have before. The utility model has a term of 10 years, counted from the date of filing the respective application, after which the utility model shall be in the public domain. The utility model can also be licensed. Industrial design must be understood as any arrangement of lines or combination of colors, or any bi-dimensional or tri-dimensional external shape, which is incorporated into an industrial product or handicraft to give it special appearance, without changing the target or purpose of the product and serves as type or pattern for its 34 Baker & McKenzie

39 Doing Business in Peru manufacture. Industrial design protection has a term of 10 years, counted from the date of filing the respective application, after which the industrial design is of public domain. The industrial design may be transferred or licensed. The marks of products and services must be registered with Indecopi to obtain legal protection. Registration is done according to the International Classification of Goods and Services for the Purposes of the Registration of Marks (Nice Classification) and can be carried out through multi-class registration request. Upon completion of the registration procedures, the competent directorate issues a certificate that grants the holder exclusive rights over the mark for 10 years. Owners of mark registrations are entitled to split their records and applicants can do the same with their registration requests. Registration may be renewed from six months prior to expiration and up to six months after the expiration date. If a registered mark has not been used in Peru or in any of the member countries of the Andean Community, by the owner or a licensee, for three consecutive years, the mark may be canceled by the person having a legitimate interest. Similarly, the competent directorate may decree, either ex officio or at the request of an interested party, the nullity of the registration of a mark, if: (i) the mark does not meet the requirements for registration; (ii) the right to the mark has been granted contrary to absolute and/or relative registration bans, and/or (iii) the registration has been granted in bad faith. The trade name does not require registration to be protected. However, the protection of an unregistered trade name shall be limited only to the geographical area where it is used.

40 The holders of industrial property rights may bring infringement proceedings, without prejudice to civil and/or criminal proceedings that may apply, against persons who violate their rights. The protection of copyrights accrues to all intellectual works in the literary and artistic sphere, whatever their type, form of expression, merit or purpose. Copyrights are compatible with: (i) the industrial property rights that may exist over the work; and (ii) the related rights and other intellectual property rights recognized by the law. In case of conflict, emphasis shall always be placed on what may be most favorable to the author. Copyright in Peru is governed mainly by the Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations, Decision 351 of the Andean Community: Common Regime on Copyright and Related Rights, Law on Copyright (Legislative Decree No. 822) as amended by Legislative Decree No. 1076, Legislative Decree No (approving Border Measures for the Protection of Copyright and Related Rights and Trademark Rights), and by Law No (law that modifies, incorporates and regulates various provisions to implement the trade promotion agreement signed between Peru and the United States of America). As in the case of industrial property rights, Indecopi is the authority responsible for maintaining records and amendments to copyright and monitor the proper use of these rights. In accordance with the legislation, the following are protected: (i) literary works expressed in writing through books, magazines, pamphlets or other writings; (ii) literary works expressed orally such as lectures, speeches, and sermons or didactic explanations; (iii) musical compositions with or without words; (iv) dramatic, dramatico-musical, choreographic, pantomimic and performing arts works in general; (v) audiovisual works; (vi) plastic art works, whether or not applied, including sketches, drawings, paintings, sculptures, engravings and lithographs; (vii) architectural works; (viii) photographic works and works expressed by a process analogous to 36 Baker & McKenzie

41 Doing Business in Peru photography; (ix) illustrations, maps, drawings, plans, sketches and plastic works relative to geography, topography, architecture or science; (x) the slogans and phrases to the extent that they have a form of literary or artistic expression, with original features; (xi) computer programs; (xii) anthologies or compilations of assorted works or expressions of folklore, and databases, provided that such collections are original by reason of the selection, coordination or arrangement of their contents; (xiii) newspaper articles, whether or not on current events, reports, editorials and commentaries; and (xiv) in general any other product of the intellect in the literary or artistic domain, which is characterized by originality and is susceptible to being disclosed or reproduced by any means or process, known or yet to be known. Copyright recognized in Peru is independent of the ownership of the material in which the work is embodied, and its enjoyment or exercise is not subject to the requirement of registration or compliance with any other formality. Patrimonial rights are for the author lifelong, and will continue for 70 additional years, wherever the country of origin of the work, and are transmitted because of death in accordance with the provisions of the Peruvian Civil Code. Property rights may be transferred by mandate or legal presumption, by transfer inter vivos or mortis causa, by any means permitted by law. The holders of copyrights may bring infringement proceedings, without prejudice to civil and/or criminal proceedings that may apply, against persons who violate their rights. In relation to pertinent effective technological measures, the current legislation provides that administrative and criminal sanctions be applied to those persons who elude them without authorization. It also requires sanctions for those who manufacture, import, distribute, offer to the public, provide or market devices, products or components to

42 elude effective technological measures (for these purposes establishing certain exceptions to punitive measures by the circumvention of effective technological measures). The national legislation has also established the application of border measures for counterfeit and pirated goods when imported, exported or in transit. 38 Baker & McKenzie

43 Doing Business in Peru 8 Protection of Free and Fair Competition As a general rule, business mergers are not subject to authorization by the free competition authority, which in Peru is the Commission for the Defense of Free Competition of Indecopi. However, the prior approval of that authority is required by merger operations involving companies engaged in the generation, transmission and distribution of electricity. In such cases, the free competition authority examines the merger operation and, if it considers that the merger can reduce, harm or prevent competition, it may subject it to conditions or prohibit it. Moreover, in order to promote economic efficiency for the benefit of consumers, the law prohibits and penalizes anticompetitive behaviors. The anti-competitive behaviors typified in the law are: (i) the abuse of dominant positions; (ii) the horizontal collusion practices; and (iii) the vertical collusion practices. Furthermore, all acts of unfair competition that have the effect of preventing the proper functioning of the competitive process are repressed. An act of unfair competition is one that is objectively contrary to the requirements of good faith in business, the rules of good market conduct and efficiency in a social market economy.

44 9 International Trade 9.1 Guarantees By means of Legislative Decree 668 in force since October 1991, the Peruvian government approved a regime for guaranteeing freedom of domestic and foreign trade. It guarantees to economic operators free access to the acquisition, processing and marketing of both final goods and inputs. The law eliminated and prohibited all types of exclusivity, limitation or any other restriction or monopolistic practice in the production and marketing of goods and services In keeping with the provisions of the constitution, it guarantees the free holding and disposal of foreign currency and the free convertibility of the national currency at a single exchange rate. In addition, the law prohibits the use of surcharges, aliquots or any other charges, with the sole exception of customs duties and taxes levied on the domestic sale of products. It also annulled all types of licenses, reports, records, and visas for import and export operations, and forbade the creation of non-tariff restrictions The Ministry of Foreign Trade and Tourism defines, directs, executes, coordinates and supervises the foreign trade policy. However, certain issues must be coordinated with other ministries. 9.2 Regime As pointed out above, international trade is open. The Customs Act (Executive Order 1053) establishes the legal framework applicable to imports and exports. No restrictions apply to these operations. As an exception, due to safety or public health reasons, the importation of some goods may be prohibited (e.g. some 40 Baker & McKenzie

45 Doing Business in Peru animals, pharmaceutical and agrochemical products, used goods, used clothing, etc.). This prohibition has to be ruled by law. As a general rule, imports are subject to the payment of customs duties (ad valorem, based on CIF) and VAT (designated in Peru as General Sales Tax (VAT, as per the Spanish acronym). Customs duties to imported goods have three rates or aliquots: 6% (33.55% of the tariff universe) 11% (10.47% of the tariff universe) while 55.96% of the tariff universe is 0% (including a high percentage of capital goods: machinery and equipment). In Peru, the WTO rules are applied on the valuation of imports. The Customs Act governs definitive import and export of goods (in contrast to temporary import/export) and it also establishes customs regulations for export promotion, including: Drawback, aimed at totally or partially recovering paid customs duties which have been imposed on the import of inputs incorporated to exported goods or which have been consumed during their production. Through the Simplified Tariff Restitution Procedure currently in force a 5% of the FOB value of exported goods may be recouped, as long as some requisites are fulfilled. For instance, the value of the inputs should not surpass 50% of the exported good FOB value. Temporary Importation for Outward Processing, which allows the entry of certain goods suspending the payment of customs duties and other taxes levied on imports, when the goods will be exported within a term of 24 months after having been transformed or manufactured. Those goods must be materially incorporated into the exported good.

46 Other goods that may additionally be subject to drawback are those directly used and consumed during the production process, such as catalysts, accelerators or retarders. Replacement of Goods with Duty-Free Treatment, which allows (without payment of customs duties or taxes imposed on imports) the importation of goods equivalent to those goods that, after having entered the country, have been transformed, manufactured or materially incorporated into the permanently exported goods. Goods imported under the replacement regime enjoy free availability. However, these goods shall be used under their production of an exported product, they may be subject again to the replacement of goods with duty-free treatment. Temporary-Admission for Reexportation in the same condition, formerly referred to as Temporary Importation, through which the customs allows the entering of certain goods, with suspension of customs duties and importation applicable taxes as long as these goods are identifiable and are aimed at meeting a specific purpose in a specific place, in order to be re-exported without any change whatsoever in their original nature, within a term not exceeding 18 months. In addition, there is a customs facilitation, to dispose the imported goods within a term not exceeding 48 hours upon the time of unloading called "Expeditious Clearance" (Anticipated Clearance). The above-mentioned clearance consists on the electronic submission of the Customs Declaration before the arrival of the carrier and prior presentation of a financial guarantee in favor of the customs administration, after which the goods are released. Custom duties and application taxes could be paid after this process. Peruvian legislation also regulates the existence of free trade zones defined as areas of the territory protected by the legal fiction of being 42 Baker & McKenzie

47 Doing Business in Peru considered outside our frontier. The entry of goods to the abovementioned zones do not paid customs duties or applicable taxes. 9.3 Multilateral Agreements on Trade and Integration Peru is a founding member of the World Trade Organization (WTO) and all its agreements. Also, Peru is currently a member of the Andean Community of Nations (CAN) formed by Peru, Bolivia, Ecuador and Colombia. It is important to be mentioned that was a former member of CAN, denouncing the CAN Treaty on April, Finally Chile Brazil, Argentina, Uruguay and Paraguay (Mercosur countries) are associated members of this Regional Agreement. As a consequence of the Trade Liberation Program negotiated within the Andean Community, the trade of goods between Bolivia, Colombia, Ecuador and Peru enjoys total liberation, having become a free trade zone 1. Peru joined the Program according to a liberation schedule that was established by Decision 414 of the Andean Community and that ended in Peru has signed agreements with other countries of Latin America, under the rules of the Latin American Integration Association (ALADI) and in conjunction with other members of the Andean Community it has entered into commercial agreements with MERCOSUR. Peru Bilateral Investment Treaties (BIT) also a chapter on investments protection is ruled under severed Free Trade Agreements (FTA). The following countries that Peru has BITs and a chapter on investments in a FTA are: 1 However, Ecuador has been applying safeguards to certain products since January 2009.

48 1. Argentina 2. Australia 3. Bolivia 4. Canada* 5. Chile* 6. Colombia 7. Cuba 8. Czech Republic 9. Denmark 10. Belgium- Luxembourg Economic Union 11. Ecuador 12. El Salvador 13. Finland 14. France 15. Germany 16. Iceland* 17. Italy 18. Japan* 19. Liechtenstein* 20. Malaysia 21. México* 22. Netherlands 23. Norway* 24. Panama* 25. Paraguay 26. Portugal 27. Republic of Chine 28. Republic of Korea* 29. Rumania 30. Singapore* 31. Spain 32. Sweden 33. Switzerland* 34. Thailand 35. United Kingdom 36. United States* 37. Venezuela The countries marked with an asterisk have an investment chapter in a Free Trade Agreement. Peru has current Free Trade Agreements (FTAs) with: MERCOSUR (since January 2, 2006) United States of America (since February 1, 2009) Chile (since March 1, 2009) Canada (since August 1, 2009) Singapore (since August 1, 2009) China (since March 1, 2010) European Free Trade Association (EFTA) (Norway, Liechtenstein and Switzerland since July 1, Iceland since October 1, 2011) 44 Baker & McKenzie

49 Doing Business in Peru South Korea (since August 1, 2011) Iceland (since October 1, 2011) Thailand (since December 31, 2011) Mexico (since February 1, 2012) Japan (since March 1, 2012) Panama (since May 1, 2012) European Union (since March 1, 2013) The main zones included in the negotiations of the aforementioned Trade Agreements are Customs Affairs and Trade Facilitation; Technical Barriers to Trade; Sanitary and Phytosanitary Measures; Trade Defense; Services, Capital Establishment and Movements; Public Procurement; Intellectual Property; Competition; Dispute Settlement, Horizontal and Institutional Affairs; Trade and Sustainable Development; Technical Assistance and Capacity Building, among other trade issues. Trade Agreements will also be signed with Costa Rica, Guatemala and Venezuela. However, Trade Agreements with El Salvador, Honduras, Thailand and the Trans-Pacific Partnership Agreement (TPPA) are still under negotiation.

50 10 Sectors 10.1 Agriculture and Agro-industry The legal framework for the exploitation of agricultural land considers the comprehensive, competitive and sustainable development of the Agricultural Sector, as well as the preservation and effective exploitation of agricultural land, of national interest and common well-being. The State ensures free access to land ownership, as well as any and all rights to benefit from land ownership. Likewise, investments in agro-industrial activities are not subject to legal or administrative requirements restricting the free establishment, operation, set up and marketing of products derived therefrom. Agricultural product prices are determined by free market conditions. Pursuant to the provisions set forth in Law Law Approving Rules for the Promotion of the Agricultural Sector, amended by Law and regulations thereof, approved by Supreme Decree AG, individuals and legal entities developing crops and/or animal breeding, benefit from certain tax and labor benefits until December 31, According to the provisions of such law, the beneficiaries of this promotional system are (i) individuals or legal entities developing crops and/or animal breeding, except for the forestry industry; and, (ii) individual or legal entities carrying out agro-industrial activity, provided they exploit agricultural products, directly produced or acquired from persons developing the crops and/or animal breeding referred to in item (i) above, in areas where such products are produced, outside the Province of Lima and the Constitutional Province of El Callao. The main tax and labor benefits granted to the beneficiaries of the agricultural system are detailed in the following comparative chart: 46 Baker & McKenzie

51 Doing Business in Peru AGRICULTURAL SYSTEM COMPARISON WITH THE GENERAL SYSTEM ITEM* GENERAL LABOR SYSTEM AGRICULTURAL SYSTEM Income Tax Rate (3rd Bracket) Depreciation Rate Deduction with Sale Vouchers and Payment Slips Early Valued Added Tax (VAT) recovery Recruitment 30% 15% As provided for by Law (usually 10% per year) Only expenses duly supported with invoices may be deducted An investment agreement must be executed with the State, for the amount of no less than US$ 5,000,000 Indefinite term contracts and, as an exception, fixed-term contracts, as provided by law 20% per year for hydraulic infrastructure works and irrigation works Only expenses duly supported by Sales Vouchers and Payment Slips may be deducted There is no need to execute an investment agreement Indefinite or definite term contracts. The term of definite term contracts shall depend on the activity to be carried out (season)

52 AGRICULTURAL SYSTEM COMPARISON WITH THE GENERAL SYSTEM Minimum Wage Independence Day Holidays and Christmas Bonuses S/.675 per month or S/ per day, provided an average of more than four hours are worked per day A monthly remuneration in July and in December, as applicable S/ per month or S/ per day, provided an average of more than four hours are worked per day. Remuneration include severance pay and Independence Day Holidays and Christmas bonuses Included in the RMV (See RMV) * Except for land ownership restrictions and exploitation of natural resources by foreigners within a 50 km territory outside the Peruvian border. Severance Pay CTS Vacation Semi-annual deposits in May and in November of each year, in a bank or financial institution designated by the workers, consisting of 8.33% of their remuneration including bonuses earned in each semester 30 calendar days paid per year of service or applicable fraction Included in the Living Wage - RMV (see RMV) 15 days per year of service or applicable fraction 48 Baker & McKenzie

53 Doing Business in Peru Family Allowance Compensation for Wrongful Dismissal Employer s Contribution to the Social Security for Health (ESSALUD) Applicable to workers whose remuneration is not adjusted by collective bargaining. It is the right to 10% of the minimum wage (at present S/.67.50) if the worker has one or more children under 18 years 1.5 monthly remunerations for each complete year of service with a limit of 12 remunerations 9% of the monthly remuneration for each worker Not applicable Equivalent to 15 daily remunerations for each complete year of service with a limit of 180 daily remunerations 4% of the monthly remuneration for each worker Any other item not included in this chart shall be adjusted for the Agricultural System in the same manner as it is adjusted in the General System. The Labor and Social Security System of the Agricultural Sector does not apply to administrative staff performing duties in the Provinces of Lima and El Callao. It must be pointed out that agro-exporters may also enjoy general benefits granted to exporters, such as the Simplified Payment of Customs Duty ( drawback ) and Balance in favor of the Exporter, in the conditions established in the applicable legal provisions.

54 In addition, during the year 2012 several environmental -related provisions of the Agricultural Sector were approved. This legal provisions includes the following: (i) Regulations on Solid Waste Management of the Agricultural Sector, approved by Supreme Decree AG which seeks to regulate the management and handling of solid waste generated by the Agricultural Sector, in a sanitary and environmentally adequate manner. (ii) Regulations on Environmental Infringements and Penalties of the Agricultural Sector, approved by Supreme Decree AG. The purpose of this provision is to regulate the administrative sanctioning procedure in the Agricultural Sector, as well as the determination of infringements and application of penalties for noncompliance with the legislation and environmental commitments included in the environmental management instruments. For the purposes thereof, the Regulations approved a new classification of administrative fines. (iii) Regulations Concerning Public Participation for Environmental Management Instruments of the Agricultural Sector, approved by Supreme Decree AG. The purpose of said regulations is to regulate the public participation procedure before, during and after approval of the environmental management instruments of the Agricultural Sector. (iv) Regulations on Environmental Management of the Agricultural Sector, approved by Supreme Decree AG. The purpose of such provision is to promote and regulate the environmental management in the activities of the agricultural sector. These Regulations also regulate the environmental management instruments of the Agricultural Sector, depending on the negative impact on environment, in (a) Category I: Environmental Impact Statement; (b) Category 50 Baker & McKenzie

55 Doing Business in Peru II: Semi-detailed Environmental Impact Assessment; and, (c) Category III: Detailed Environmental Impact Assessment Banking, Insurance and Finance Banking and Insurance The rules relating to banks and financial companies are found in Law 26702, General Law of the Financial and Insurance Systems and the Organic Law of the Superintendence of Banking and Insurance. Foreign investment in companies in the financial and insurance system authorized to operate in Peru and their subsidiaries has treatment equal to that given to domestic capital subject, where appropriate, to international agreements on the subject. The Superintendence of Banking, Insurance and Private Administrators of Pension Funds (SBS) ( an autonomous entity created by the constitution, is the authority responsible for authorizing and supervising the activities of banks, financial companies, insurance companies, as well as Private Administrators of Pension Funds (AFP). In Peru, approval by the SBS is required to carry out activities involving the collection of money from the public. Likewise, companies wishing to offer insurance in Peru must obtain a permit from the SBS. The foreign investor can establish a bank, a branch or establish a representative office. Banks must be established under the form of a corporation or as branches of foreign banks. Representative offices are established by foreign financial companies to do business with companies of a similar nature operating in Peru, in order to facilitate foreign trade and provide foreign financing and other services. Representatives of financial companies cannot raise funds from the public or performing operations and provide services that are specific to their principal s activity.

56 Foreign investors may establish an insurance company in Peru or designate an intermediary, or insurance or reinsurance broker. Insurance companies must be constituted under the form of a corporation. Interest rates, commissions and expenses for active, passive and service operations are freely determined by the financial system companies. In turn, companies in the insurance system freely determine the terms and conditions of insurance stipulated in their policies, their fees and commissions Finance Currently, in Peru, there is no rule that prohibits or restricts the granting of credit by persons not domiciled in the country. In this sense, both the non-domiciled lender and the borrower enjoy flexibility to agree on the terms and conditions under which credit will be granted. As for guarantees to ensure compliance with the obligations assumed by the borrower, the parties may agree on the constitution of personal and real guarantees, such as sureties, endorsements, mortgages, securities, guarantees on flows, mortgages on infrastructure concessions, letters of credit, etc. It is also possible to provide more complex guarantees as in the case of trusts. In credit agreements, the parties may agree on the submission to a foreign law. They can agree to submit to a foreign court or arbitration, whether local or international, on the settlement of disputes arising between them. With regard to income tax applicable to financing granted by legal persons not domiciled in Peru, the interest payable on foreign loans are subject to a retention rate of 4.99 percent, as long as they comply with the requirements specified in the law. In case of noncompliance with the requirements, or if economic ties exist between the parties, interest payments will be subject to a retention rate of 30 percent. 52 Baker & McKenzie

57 Doing Business in Peru For the purposes of the Peruvian tax law, expenses and commissions, bonuses and any other additional amount paid to foreign beneficiaries beyond the interest agreed, will be considered as interest. Also, interest payments to non-banking, non-financial or non-credit entities shall be subject to the general sales tax, at a rate of 18 percent Electricity and Hydrocarbons Electricity The passage of the Electricity Concessions Law (Decree Law 25844) in November 1992 put an end to reservations and restrictions on private investment in the electricity sector. Electrical activities are divided into generation, transmission and distribution. For generating activities with water resources and renewable energy resources (with an installed capacity of over 500 KW), transmission (when these require affecting state property or easements) and distribution (above 500 KW), concessions are required. In the case of thermal generation (with an installed capacity greater than 500 KW), authorization is required. Concessions and authorizations are processed by the Ministry of Energy and Mines ( Legislative Decrees 1002, 1041 and 1058, published between May and June 2008, promote the use of renewable energy sources (biomass, wind, solar, geothermal, tidal, and hydraulic, but in the latter case when the installed capacity does not exceed 20 MW). Thus, it provides that to obtain a concession for use of renewable energy resources (with an installed capacity below 20 MW), it will be sufficient to meet the requirements for authorization for power generation. Similarly, it stipulates that the electricity generated from these resources will have priority in the daily load service, for which it shall be assigned a variable cost of production equal to zero.

58 Currently, a national power grid links facilities throughout the country. However, there are still some isolated systems not connected to the system. There is a Committee of Economic Operation System (COES) ( consisting, in accordance with the provisions of Law No , or the Law to Ensure the Efficient Development of Electric Power Generation, of four sub-committees: one of generators, one of distributors, one of transmitters and one of free clients. Supreme Decree EM approved the regulation of the COES, which supplemented Law The purpose of the COES is to coordinate its operation at the lowest cost ensuring the security of supply electric power and the best use of energy resources. The Osinergmin ( is the regulatory body responsible for setting the rates and overseeing the quality of electric power service. Additionally, it is responsible for overseeing compliance with the obligations of the concessionaires, as well as the duties assigned by the COES. The Law on Electrical Concessions distinguishes between so-called users of the public electricity service (or regulated clients) and free clients. In this sense, users whose maximum annual demand is equal to or less than 200 KW have the status of regulated user. On the other hand, users whose maximum annual demand is greater than 2,500 KW will have the status of free users. Finally, users whose maximum annual demand is greater than 200 KW up to 2500 KW are entitled to choose between the status of regulated user or free user. The state, through the Osinergmin, regulates the rates that distribution companies must charge users for the public electricity service. The regulated rate, also called fare bar, is set periodically by the 54 Baker & McKenzie

59 Doing Business in Peru Osinergmin. In contrast, free clients can directly negotiate the conditions of supply with any generation or distribution company. The rates and compensation charged by holders of transmission and distribution systems, the energy sales from generators to distribution concessionaires when they are intended for the public electricity service (except in the case where a tender has been conducted to contract this service), and sales to distributors and users of the public electricity service, are subject to the fare bar. There are limits on mergers of electrical activities, either in the vertical or horizontal sense, requiring in such cases the authorization of the antitrust authority (the Commission for the Defense of Free Competition of Indecopi). In the framework of Convention 169 of the International Labor Organization, in 2011, the Law on the Right to Prior Consultation with the Indigenous or Native Peoples was enacted, which, among others, must be applied by the Peruvian State in any project which may directly affect the collective rights on physical existence, cultural identity, quality of life or development of indigenous or native peoples. This law has been regulated by D.S MC. It is relevant for purposes of generation and transmission projects that may be developed in areas related to indigenous peoples Hydrocarbons Through the Organic Law of Hydrocarbons regulates the exploration, exploitation, processing or refining, storage, transportation, marketing and distribution of hydrocarbons. The state promotes the development of hydrocarbon activities on the basis of free competition and open access. The hydrocarbons policy is proposed by the Ministry of Energy and Mines ( Hydrocarbons are state property. Perupetro was created as an entity of the state which holds that right and promotes investment in the exploration and exploitation of

60 hydrocarbons. It negotiates, subscribes and monitors contracts held for exploration and exploitation. The exploration and exploitation operations are carried out through licensing or service agreements. In the former, the state transfers the hydrocarbons that are extracted in exchange for a royalty. In the latter, it pays a fee for the service. Exploration contracts are for seven years (in exceptional cases, the term may be extended for up to three years) and operating contracts are for up to 30 years for oil and up to 40 years for natural gas. The exploitation and economic recovery of hydrocarbon reserves are conducted according to technical and economic principles generally accepted in the international hydrocarbons industry, subject to compliance with environmental standards. The holders of license agreements have the free availability of the hydrocarbons allocated to them under the contract and can export them free of all taxes. They enjoy customs facilities for the importation of goods and supplies for exploration and exploitation. The transportation, distribution and marketing of hydrocarbons are free, subject to the rules approved by the Ministry of Energy and Mines. The use of pipelines for the provision of transportation of hydrocarbons and distribution services requires the granting of a concession. The activities related to hydrocarbons are under the supervision of Osinergmin, and regarding environmental matters, under the OEFA. Law No (December 2003) promotes investment in the exploitation of marginal resources and reserves of hydrocarbons by reducing royalties in licensing contracts, or increasing the compensation agreed upon in service contracts. 56 Baker & McKenzie

61 Doing Business in Peru The exploitation of natural gas reserves of Camisea (Lots 56 and 88) is the most important project in the hydrocarbons sector in Peru. This is one of the most important natural gas fields in Latin America. In order to promote the participation of private investment in the Camisea project, and the development of the natural gas industry, the Peruvian government has passed several laws and regulations whose purpose is to provide investors the necessary tools to enable the development of this industry, and to develop a local market for natural gas. Among these rules, the following are noteworthy: The Law on the Promotion of Development of the Natural Gas Industry, which establishes the conditions to promote investment in natural gas production and the development of natural gas transmission and distribution networks, and for the creation of a market for natural gas. The Law on the Promotion of Investment in Natural Gas Processing Plants, which aims to grant the legal and tax benefits as incentives for investment in natural gas processing plants, such as those for the production of liquid natural gas (LNG). The Law on the Promotion of Investment in Petrochemical Plants, which provides legal and tax benefits that encourage investment in the construction and operation of petrochemical plants located in decentralized areas designated by the Ministry of Energy and Mines (currently there are three: San Juan de Marcona and Paracas, in the Ica region, and Lomas de Ilo, in the region of Moquegua). The Law that Promotes the Development of the Petrochemical Industry based on ethane and the energy node in southern Peru, which declares, of public necessity and national interest, the promotion and development of the petrochemical industry based on the ethane content in natural gas, prioritizing that

62 which would be installed in the south of Peru, and in turn, promotes the decentralized development of pipeline-based transportation systems for hydrocarbons. In addition, provision has been made to promote the massive consumption of natural gas to industrial and residential consumers and in public transportation. In the latter case, the use of natural vehicular gas (NGV) has been declared of national interest. In the case of the bio-fuels market, regulations have been adopted which are intended to promote the development of the bio-fuels industry. These rules establish the conditions for the production and marketing of ethanol and biodiesel. The Peruvian government has established the percentages of bio-fuels that must be blended with gasoline and diesel, which can only be done in duly authorized storage facilities. In order to address the volatility of fuel prices, in 2004, the Fund for the Stabilization of Prices of Petroleum Fuels implements its purpose to prevent price changes from being passed on to consumers in the domestic market. Its validity has been extended until 31 December The Ministry of Energy and Mines has approved the Peruvian National Energy Policy, which provides guidelines for achieving the policy objectives, among which we highlight the following: 1. Counting with a diversified energy matrix, with emphasis on renewable sources and energy efficiency 2. Counting with a competitive energy supply 3. Achieving self-sufficiency in energy production 58 Baker & McKenzie

63 Doing Business in Peru 4. Developing an energy sector with minimal environmental impact and low carbon emissions within a framework of sustainable development 5. Developing the natural gas industry and its use in home activities, transportation, commerce and industry as well as efficient electric power generation In the framework of Convention 169 of the International Labor Organization, in 2011, the Law on the Right to Prior Consultation with the Indigenous or Native Peoples was enacted, which, among others, must be applied by the Peruvian state in any hydrocarbonrelated project which may directly affect the collective rights on physical existence, cultural identity, quality of life or development of indigenous or native peoples. This law has been regulated by D.S MC Mining General Framework The development of mining activities in Peru is subject to the provisions of the General Mining Law ( Mining Law ) and Regulations thereof. In accordance with the Mining Law, mining activities (excluding exploration, prospecting, commercialization and storage outside the area of mining operations) must be solely carried out under the concession system. The concession grants its holder the exclusive and excluding right to carry out a specific mining activity, within a specific geographical area. The Mining Law identifies four types of concessions: (i) Mining concession (for exploration and exploitation) granted by the Institute of Geology, Mining and Metallurgy Institute of the Ministry of Energy and Mines ( INGEMMET - (ii)

64 Processing concession (for ore-processing tasks such as metallurgy, refinery and mechanical preparation) granted by the General Mining Bureau of the Ministry of Energy and Mines ( DGM (iii) General Service concession (for executing ancillary services) granted by the DGM and (iv) Mining transportation concession (for transporting ore through non-conventional systems) also granted by the DGM. Concessions must be recorded with the Public Mining Registry, which forms part of the National System of the Public Registry, thus generating a entry for each concession. Any act, transfer, burden, encumbrance or agreement related to the concession must be recorded in said entry so that the act can be enforced against the State and third parties. The Mining Law establishes that the mining concession constitutes a different, separate and independent right with respect to the surface land where it is located, in other words, it does not grant rights over the surface land, having the concession holder to obtain a right to use the corresponding surface land from the landowner in order to start mining activities. Holders of mining concessions or exploration claims (mining concessions being processed) must meet several obligations, including the payment of Good Standing Fee (US$3 per hectare, applicable for mining concessions and mining claims) taking into account that failure to pay in a timely manner of two consecutive years causes the cancellation of the mining concession or of the mining claim. Holders of mining concessions are also required to meet a minimum annual production target established by the Mining Law. By Legislatives Decrees 1010 and 1054 the minimum annual production target was amended. Under the new system, the target is equivalent to one Tax Unit- UIT (S/.3,700) per year and per hectare for metallic mining concessions and to 10% of one UIT (approximately S/.370) per year and per hectare for non-metallic mining concessions. The minimum annual production target under the new system must be 60 Baker & McKenzie

65 Doing Business in Peru reached the first semester of the 11 th year following the year on which the mining concession was granted. If the minimum annual production target is not reached, the holder of the mining concession is obliged to pay a penalty equivalent to 10% of the corresponding minimum annual production per year and per hectare until the year on which the holder reaches such production, provided it occurs before the 15 th year as from the granting of the mining concession. Failure to pay this penalty during two consecutive years shall give rise to the cancellation of the mining concession. In the assumption that the holder of a mining concession does not reach the minimum annual production on the 15 th year commencing as from the year on which the mining concession was granted, it will expire, unless the holder thereof (i) may prove that such noncompliance is the result of a cause not attributable to the holder (for example, acts of God or force majeure); or (ii) the holder accredits that it has invested an amount equivalent to at least ten times the amount of the penalty it has to pay in investments intended for mining activities and/or basic infrastructure of public use. In this assumption, the holder of the mining concession shall continue paying the respective penalty. Should failure to comply with the minimum annual production continue until the 20 th year commencing as from the year following the year in which the concession was granted, the mining concession shall automatically expire. Environmental Affairs In compliance with the Environmental Regulations on Mining Exploration Activities, approved by Supreme Decree EM, the development of mining exploration activities requires an authorization from the General Mining Environmental Matters Bureau of the Ministry of Energy and Mines ( DGAAM ). According to these Regulations, mining exploration activities are classified into two categories (Category I and II). Category I consists of exploration activities with small impact on the environment and require an

66 Environmental Impact Statement ( DIA ) and Category II consists of exploration activities with moderate impact on the environment and require a Semi-detailed Environmental Impact Assessment ( EIA- SD ). Likewise, pursuant to the Environmental Regulations for Environmental Protection in Mining-Metallurgical Activities, approved by Supreme Decree EM, the holders of mining activities who completed the exploration stage and are about to carry out mining development activities, mining exploitation activities and/or ore-processing activities shall have a Detailed Environmental Impact Assessment ( EIA-D ). In addition, every holder of a mining project must apply public participation mechanisms before, during and after the preparation of the pertinent environmental management instrument (for example, an EIA-SD or an EIA) so as to analyze the social and economic problems or issues of the population that lives or works in the areas surrounding the mining project. It should be pointed out that by Law 29968, the National Service of Environmental Certification for Sustainable Investments ("SENACE") was created. SENACE will be in charge of revising and approving the EIA-D of the mining sector from the date the Ministry of Energy and Mines has transferred it competency to approve EIA-D to such entity (for more information see Section 10.8 Environment). This activity is currently being performed by the DGAAM. In accordance with the Mine Closure Act, Law 28090, all the holders of mining activities who intend to start their exploitation activities shall prepare and submit, in no more than one year following the approval of the pertinent EIA, a Mine Closure Plan. This plan must contain the measures to be taken to recondition the areas, services, works and premises of each mining operation unit and requires the establishment of guarantees by the holder of the mining activities. 62 Baker & McKenzie

67 Doing Business in Peru Nowadays, the Enrironmental Supervision Agency ( OEFA ) imposes the administrative sanctions on environmental issues. It is worth mentioning that OEFA has approved a new classification of administrative fines applicable to mining exploitation activities, which constitutes a significant increase of the limits on monetary fines, up to 10,000 Tax Units (UIT) that is, up to S/.37,000,000. Mining Royalty and Special Mining Tax The mining royalty is the amount paid to the State by the holders of mining activities for the exploitation of metallic and non metallic mineral resources. The holders of mining activities are the (i) holders of mining concessions, (ii) mining assignees, and (iii) integrated companies that carry out the exploitation of metallic or non metallic mineral resources. On September 29, 2011, the Mining Royalty Law was amended by Law 29788, in force as of October 1, 2011, according to which, the holders of mining activities must pay the royalty on a quarterly basis. This Law also amended the calculation base of the mining royalty. As from this date, the mining royalty is calculated by applying the effective rate (between 1-12%) to the operating profit of the holders of mining activities. The amount of the mining royalty shall be the higher amount that is obtained by comparing the result of the above mentioned and the 1% income resulting from the sales made in that quarter. On September 28, 2011, Law was approved which created the Special Mining Tax, in force as of October 1, This tax is levied on the operating profit that the holders of mining activities obtain from the sales of metallic mineral resources, regardless of the state in which they are sold, as well as from the self-comsumption and unjustified withdrawal of these goods. As the mining royalty, the calculation base of this tax shall be the quarterly operating profit of the holders of mining activities. This tax

68 obligation arises at the end of each quarter and is calculated by multiplying the quarterly operating profit by the effective rate (between 2 and 8.40%) based on the operating margin obtained by the holders in the quarter in which the duty was generated. The amount paid on the tax shall be considered a deductible as expense for income tax purposes in the fiscal year in which such payment is made. Stability Conditions As provided for by the Mining Law, companies which are starting or carrying out mining operations over 350 MT/day and up to 5,000 MT/day, as well as those having investment programs amounting to US$2,000,000, or the equivalent in domestic currency, shall enjoy tax and administrative stability conditions for a 10-year term, as from the fiscal year in which the investment performance is proved. This stability will be guaranteed by a contract executed with the Peruvian Government through the Ministry of Energy and Mines (Guarantee Contracts and Investment Promotion Measures). It should be pointed out that such contracts may be signed together with the Legal Stability Agreement entered into with the Agency for Promotion of Private Investment (PROINVERSIÓN). Benefits included in the Tax Stability Agreement are: (i) tax stability (only taxes) only with respect to the taxes in force as of the date of the investment program approval; not applicable to any tax to be created in the future (the effective Income Tax rate plus two additional percentage points) (ii) free disposal of the currency generated from their exports in Peru or abroad, (iii) free commercialization of mineral products in Peru and abroad (iv) free domestic currency exchange (v) no exchange rate discrimination (vi) stability of special systems, when these are granted with respect to tax refund, temporary admission and other similar situations, and (vii) stability of the administrative system (rights and obligations of the holders of mining activities). The Mining Law also provides that companies having mining projects with an initial capacity of at least 5,000 TM/day or extensions of mining project to reach a capacity of at least 5,000 MT/day shall enjoy 64 Baker & McKenzie

69 Doing Business in Peru tax stability conditions to be guaranteed by a contract with the Peruvian government (through the Ministry of Energy and Mines) for a 15-year term. To obtain this benefit, investment programs shall be of at least US$20,000,000 for the initial mining activities and of at least US$50,000,000 for mining projects already started. In addition to the benefits mentioned in previous paragraph, by this Stability Agreement the holders of mining projects shall have the right to (i) an accelerated annual depreciation for machinery, industrial equipments, other fixed assets and buildings; and (ii) the authorization to carry their books in foreign currency. Social Issues By Law 29785, Right to Prior Consultation Right to Indigenous or Native People, in force as of December 2011, and regulated by Supreme Decree MC, the Prior Consultation procedure was regulated in Peru in favor of indigenous people. In accordance with these rules, such procedure shall be performed only by the authorities when the collective rights of indigenous peoples may be affected directly by an administrative measure. The Prior Consultation does not grant the right of veto to indigenous peoples in respect of any specific activity or project. This legal provision is currently in force. However the Ministery of Culture has not elaborate yet the list identifying of indigenous peoples vested with the right of consultation. With respect to mining projects located in areas inhabited by indigenous peoples with the right to Prior Consultation, the Ministry of Energy and Mines (MEM) must follow the Prior Consultation procedure before granting the start-up authorization for Authorization Exploration or Exploitation Activities, as well as before obtaining the Processing concession. According to INGEMMET, the Prior Consultation should not be conducted when mining concessions are being granted.

70 10.5 Fishing Fishing activity is regulated primarily by the General Law on Fishing, approved by Decree Law No (hereinafter the Law on Fishing ) and its Regulations, approved by Supreme Decree PE. As required by the Law on Fishing, the hydrobiological resources contained in the territorial waters of Peru constitute national patrimony, so that the state must regulate their exploitation in accordance with the principle of sustainable use of natural resources. Furthermore, according to the Constitution of Peru, the jurisdictional waters are found within the belt of sea adjacent to its coast up to a distance of 200 nautical miles, including its bed and subsoil. Also, the Fisheries Management Regulations are approved in accordance with the characteristics of each specie, geographic area or destination of the hydrobiological resources. Among them are the recently approved Fisheries Management Regulations for the Anchovy and White Anchovy Resource for Direct Human Consumption ; the Fisheries Management Regulations for the Hake Resource ; the Fisheries Management Regulations for the Horse Mackerel and Mackerel Resources (species reserved exclusively for the manufacture of products for direct human consumption - preserves, canned, frozen or cured - among others), the Fisheries Management and Aquaculture Regulations for the Lake Titicaca Basin, and the Fisheries Management Regulations for the Peruvian Amazon. The Ministry of Production ( is the administrative authority on fisheries. Its main functions are: to adopt fisheries management measures, grant administrative rights to individuals for the development of fishing activities, and inspect, and if appropriate, punish any infringement related to the rules governing the activity. Noteworthy among the management measures that the Ministry of Production regularly approves is the determination of the total quotas of catch per specie, the individual fishing quotas -in the case of the anchovy and hake species- and the fishing seasons. Also within the administrative rights granted is the fishing permit to operate 66 Baker & McKenzie

71 Doing Business in Peru vessels, the license to operate processing plants, and the authorization or concession for aquaculture. At present, the Law on Fishing and its regulations recognize five types of fishing activities, as detailed below: 1. Research and Training Activities: In order to promote scientific research on fisheries, the Ministry of Production grants authorizations to individuals to develop research in the territorial waters of Peru. This right allows the holder to operate scientific vessels and extract specimens, including various types. 2. Hydrobiological Resources Extraction Activities: In general, these extraction activities can be divided into commercial and noncommercial. The non-commercial activities encompass research, aquatic hunting, and subsistence. In contrast, commercial activities comprise the artisanal and industrial fisheries. The Ministry of Production is the authority responsible for granting fishing permits for individuals to operate fishing vessels in territorial waters of Peru. The fishing permit includes the rights, obligations and conditions under which the right is granted, highlighting: vessel name, registration, storage capacity, species it may fish and fishing gear that may be used. In addition, the fishing permit can be granted to national or foreign flag vessels, the latter being subject to special rules for foreign vessels. Special attention should be given to anchovy, the feedstock for the production of fishmeal and fish oil. In addition, it should be noted that Peru is the world s largest producer of fishmeal. As of 2009, fishing for anchovy has been the subject of a global management measure called Individual Fishing Quotas, according to which each national fleet vessel is assigned a maximum percentage of the catch (individual quota) which grants an aliquot of the total catch quota determined for

72 a fishing season, leaving aside the Olympic race regime. This new fishing regime was approved by Legislative Decree No Law of Maximum Catch per Vessel. With this new system, fishing companies can better plan their investments in proportion to the amount of anchovies that can be drawn. According to reports issued by the Ministry of Production, this system has energized the fishing market, eradicating inefficiencies and generating significant benefits for the ecosystem and the environment. In Peru, the transfer of the ownership of fishing vessels involves the transfer of the enabling title - the fishing license - as well as the supplementary rights and accessories thereto. On the other hand, Peruvian authorities have been studying the adoption of rules that encourage the exploitation of tuna resources, from its extraction by national flag vessels to its processing in plants located in Peru. Peru as a member state of the Inter American Tropical Tuna Commission (IATTC), has a global share -expressed in cubic meters of storage capacity- to be distributed among the vessels that make up its national fleet. Currently, the exploitation of tuna resources in Peruvian waters is carried out mostly by foreign flag vessels. 1. Hydrobiological Resources Processing Activities: In general, processing in Peru can be divided into processing aimed at the manufacture of products destined for indirect human consumption such as fishmeal and fish oil, and processing aimed at the manufacture of products destined for direct human consumption, where we can find a diverse group of products, most notably the canned and frozen. For the development of both activities, processing for indirect or direct human consumption, it is required that the Ministry of Production grant a license to operate the plant in question. To qualify for this, it is necessary to count with the environmental certification issued by the same entity. However, while the state promotes the development of processing activity for the development of products such as canned and frozen products, for which a new license request to the Ministry of Production suffices to meet the requirements of the 68 Baker & McKenzie

73 Doing Business in Peru law, access to processing activity for indirect human consumption is restricted. Indeed, the only way for someone to access a processing activity for production of fishmeal and fish oil is by operating a plant with an existing license. Generally, this access is realized with the purchase of the plant, and thus of its license, for which use is made up of different contractual arrangements. Notwithstanding the provisions in the preceding paragraph, the Ministry of Production is empowered to grant new licenses for the installation and operation of residual flour plants, i.e., plants that process the waste from the plants that process products destined for direct human consumption. For this reason, they are incidental to such plants and their operation is subject to special rules. 2. Marketing and Services Activities: In Peru, the marketing of fishery products (with the exception of exports) does not require any permit, license or authorization. However, for the provision of quality control and certification services for commercial fish products, one must be authorized by Indecopi. 3. Aquaculture Activities: Aquaculture, unlike fishing, consists of cultivating aquatic species, usually throughout all stages of maturation of the species, from birth until ready for marketing or processing. Just as in fishing, the Ministry of Production is the administrative authority responsible for issuing special regulatory measures, grant administrative rights its development, and oversee and penalize. By virtue of its particular characteristics, which are substantially different from those of the fishing activity, aquaculture is governed primarily by Law No or the Law on the Promotion and Development of Aquaculture and by its Regulations, approved by Supreme Decree No PE, which provides a series of legal and tax benefits. Legal benefits include the suspension of payment for aquaculture rights until 31 December 2021, and tax benefits include

74 the depreciation, for income tax purposes, at 20 percent per annum, of the amount of investments in the construction of production ponds and water channels until 31 December 2021, and the Special Regime of Advanced Recovery of VAT until 31 December 2013, all of which were carried over according to the provisions of Law No. 29,644 enacted on 30 December As noted in the preceding paragraphs, the Ministry of Production is the authority responsible for granting administrative rights for individuals to develop this type of activity. In the case of aquaculture developed in water bodies in the public domain, like the sea, lakes or rivers, the Ministry of Production grants a concession, which may, in turn, be of greater or lesser scale or for subsistence, according to the capacity and scope of the project. But when it comes to aquaculture to take place in private water bodies, such as specially designed artificial ponds in private properties, the authority grants a permit, which again, may be of greater or lesser scale or for subsistence. Finally, it should be emphasized that the Peruvian state promotes the development of aquaculture activities by implementing policies that ensure rapid access to aquaculture rights, such as the Single Window in Aquaculture (VUA) Telecommunications Since the mid-nineties, all public telecommunications services (landline, mobile, long-distance carrier, cable TV) in Peru are being provided by private companies under a free competition regime. Telecommunications markets are open and there are no restrictions on foreign participation (other than radio broadcasting services), or concerning the number of operators in any service or market. Exceptions to this open policy are the restrictions based on the allocation of scarce radio spectrum. Market conditions and public telecommunications services are regulated by the Open Policy Guidelines for the Telecommunications 70 Baker & McKenzie

75 Doing Business in Peru Market, the General Telecommunications Law and its Regulations. The Supervisory Body for Private Investment in Telecommunications - Osiptel ( is the regulatory agency responsible for monitoring market conditions, and the Ministry of Transportation and Communications ( is the entity that grants concessions for public telecommunications services and authorizes the use of the radio spectrum. In order to provide any public telecommunications service (for example carrier, landline and mobile phone services), operators must obtain a concession from the state and sign a contract. The grant authorizes the operators the provision of any public telecommunications service. Before providing any new service, the operator must register it with the Ministry of Transportation and Communications. To provide value-added services, companies must register with the Ministry of Transportation and Communications. Internet access is considered a value-added service The marketing of public telecommunications traffic and services is allowed and also requires prior registration at the ministry. The satellite service providers must register with the Ministry of Transportation and Communications in order that they can provide satellite capacity services to local customers, who must be dealers or entities authorized by the ministry. Interconnection is mandatory for the concessionaires in accordance with the regulations on the subject. The interconnection includes access to essential facilities. If the parties do not agree on the terms of interconnection, the regulator can issue a mandate establishing them. The markets in which there is no competition are subject to rate regulation.

76 In order to promote the provision of telecommunications services in poorly served areas, and to facilitate the entry of new operators and for the expansion of existing networks, several standards have been adopted. These include the law governing the sharing of infrastructure (antennas, ducts, and poles) for the provision of public telecommunications services; regulation to obtain forced easements to allow operators to extend their telecommunications networks in places where they serve; the regulation of special services with interoperability; standards for infrastructure expansion in telecommunications (regulating the use of areas and property in the public domain by telecommunications operators for the deployment, improvement or maintenance of existing infrastructure, or infrastructure yet to be installed, and ensuring that the rates or rights charged to obtain the required permits and/or authorizations correspond to the actual costs incurred for their granting); and provisions allowing and facilitating access by operators of telecommunications services to infrastructure belonging to owners of other public services (thus, for example, any road to be built must include in its infrastructure ducts and chambers technically suitable for the installation of fiber optic cables). In relation to the above, it is considered of public interest and need the access and sharing of telecommunications infrastructure, including collocation, which is mandatory for holders of telecommunications infrastructure which are considered major suppliers of public telecommunications services. In Peru, approval certificates or similar documents pertaining to telecommunications equipment from the United States of America and/or Canada are recognized as equivalent to national approval certificates, with some exceptions. The Peruvian government has ordered the implementation of a System of Emergency Situations Communications that, among other provisions, requires that the concessionaire companies reserve, free of charge and permanently, the capacity to ensure communication by the 72 Baker & McKenzie

77 Doing Business in Peru authorities, and limits the time duration of calls in emergency situations. From 1 January 2010, the mobile number portability regimen became effective, whereby mobile phone service users can change operators while keeping their mobile numbers. In Peru, sending unsolicited commercial s (SPAM) is regulated, with established requirements to be observed by those who send s that qualify as SPAM Transportation Infrastructure Peru has a concessions law and a regulatory framework that promotes investment in transportation infrastructure through concessions to private operators. The operation of railways, airports and roads can be granted for up to 60 years through the concessions system. You can also grant the concession of ports up to 30 years. Under this regime, ownership of the infrastructure remains with the state and is not transferred to private operators, who receive the right to its economic exploitation (for example, the collection of tolls). In consideration of this exploitation, they are obliged to pay royalties to the state and make investments. Concession contracts must include the principles governing the rates. At the end of the concession, the operator must return the infrastructure to the state with all the improvements made. Access to the transportation infrastructures considered essential facilities, is mandatory according to the regulations. Currently, the Jorge Chavez International Airport, the Port of Matarani, the Ancón- Huacho-Pativilca highway and the Cusco-Machu Picchu Railway, among others, are being operated by private companies under this framework.

78 The regulatory body is the Supervisory Body of Investment in Public Transport Infrastructure - Ositran ( The Ministry of Transportation and Communications grants infrastructure concessions and authorizations for the provision of public transportation services Environment The Environment Act Law, approved in 2005, is the legal framework that governs environmental affairs in Peru. This legal provision regulates a series of international renowned environmental principles, acknowledges environmentally-related rights, establishes the guidelines for the National Environmental Policy, the environmental management, the access to information and citizen participation as regards to environmental issues. It also monitors the liability system for environmental damages in Peru and articulates the national environmental systems in force (the Environmental Impact Assessment System, the National System for Environmental Supervision, among others). In May 2008, the Ministry of Environment was created by the Executive Branch in order to establish a single environmental policy in Peru, to be duly coordinated and implemented nationwide. The purpose of the Ministry of Environment is to preserve national environment and ensure the sustainable and rational exploitation of natural resources, biodiversity and natural protected areas. The Environmental Supervision Agency ("OEFA") was also created to supervise and sanction any violation to the environmental law by private parties. Competences from sector authorities shall be gradually transferred to the OEFA. As of today, competence related to environmental supervision, monitoring and imposition of penalties of the mining, hydrocarbon, electricity and fishing sectors and the beer and paper industry subsectors (industries) have already been transferred. In compliance with the schedule for the transfer of duties approved during 2013, competences regarding the supervision and imposition of sanctions with respect to the environmental effect on the 74 Baker & McKenzie

79 Doing Business in Peru cement and tanning sub sectors (which form part of the industrial sector) will also be transferred. In accordance with the National Environmental Impact Assessment Law, Law and its Regulations, approved by Supreme Decree MINAM, any individual or legal entity which intends to develop an investment project that may generate environmental impacts must obtain an environmental certificate. This environmental certificate is a ruling to be issued by the pertinent environmental authority which approves an environmental management instrument. That is, the environmental certificate is a statement by the pertinent authority that a project is feasible on environmental terms. The activities subject to an environmental certificate are contained in the List of Investment Projects subject to the National Environmental Impact Assessment System (SEIA) included in Exhibit II of these Regulations. Based on the environmental impacts that may arise, all projects should be classified into the following categories: Category I: Environmental Impact Statement (DIA): Environmental assessment which evaluates the investment projects causing minor adverse environmental impacts. Category II: Semi-detailed Environmental Impact Assessment (EIA-SD): Environmental assessment which evaluates the investment projects which are expected to cause moderate adverse environmental impacts. Category III: Detailed Environmental Impact Assessment (EIA-D): Environmental assessment which evaluates the investment projects which are expected to cause significant adverse environmental impacts. As may be observed, each category refers to a different instrument for environmental management, and must be prepared by a registered environmental consulting firm.

80 It should be noted that on December 20, 2012, Law 29968, Act for the Creation of the National Environmental Certification Service for Sustainable Investments ("SENACE") became effective. According to such Law, SENACE will be the entity in charge of reviewing and approving the EIA-D, which comprise public, private or combined capital investment projects of national and multiregional scope involving activities, constructions, works and other commercial activities and services that are likely to cause significant environmental impacts. The implementation process of SENACE will be permanent and continuous according to a schedule of transfer of competencies from the respective sectors with regard to the EIA-D. Thus, the intention is to designate SENACE as the public entity exclusively in charge of the EIA-D, with the relevant sectors retaining the competences pertaining to the DIA and EIA-SD Water The Water Law N 29338, and its Regulations, approved by Supreme Decree AG, are aimed at regulating the use and management of water resources, which comprise the surface and ground continental water as well as the assets related thereto. In accordance with such regulations, the water resource is property of the Nation and it is not privately owned. In addition, such law and regulations constitute the regulatory framework for the water use rights (permits, authorizations or water use license), and regulate the respective administrative proceedings. The utilization of the water resource to be obtained from a natural source is contingent upon its availability and must take place efficiently. Regardless of the project s productive sector, a water use right (usually a Water Use License) must be previously obtained from the decentralized bodies of the National Water Authority for utilization of the water resource. The National Water Authority is the governing body of the National Water Resource Management System, and is competent to enact 76 Baker & McKenzie

81 Doing Business in Peru provisions and establish procedures for the integrated and multisectoral management of water resources. It is worthwhile mentioning that the aforesaid regulations also contain the regulatory framework for the utilization of desalinated water, it being understood as the water obtained through the extraction of the salts which are dissolved in the brackish or saline seawater until they reach acceptable values required for a specific use. In order to use desalinated water, a water use right granted by a decentralized body of the National Water Authority is also required Tourism The General Tourism Law, or the Law and its Regulations approved by Supreme Decree MINCETUR, establishes the basic principles for the development of the tourism activity in the country, having as its object to promote, encourage and regulate the sustainable development of tourism. It recognizes the intention of the state to contribute to the process of national identity and integration, by promoting the development of the infrastructure and quality of tourism services, with the Ministry of Foreign Trade and Tourism (Mincetur) as the national governing body, and creates a Tourism Advisory Committee composed of representatives of entities related to tourism ( According to Supreme Decree MINCETUR, the Commission for the Promotion of Peruvian Exports and Tourism (PromPeru) is now the entity that integrates the former Commission for the Promotion of Exports (Prompex) and the former Commission for the Promotion of Peru (PromPeru), previously responsible for the promotion of tourism ( This institution is responsible for developing activities to promote exports and tourism, always at the service of the exporting companies

82 and tour operators, and is also responsible for promoting the image of Peru and its tourism. On the other hand, the legal framework governing tourism activities in Peru has delegated the task of protecting and managing the cultural and natural patrimony of the nation to the National Institute of Culture (INC) ( and the National Service of Areas Protected by the State (Sernanp) ( making them responsible for protecting the historical and archaeological monuments, and the parks and nature reserves, respectively. The latter was established by Legislative Decree 1013, replacing the former Natural Resources Institute (INRENA). Companies that qualify as providers of tourism services fall within the scope of Law 29408, among which are the travel and tourism agencies, hosting establishments, tourist guides, tourist transport services, casinos, restaurants and the like, among others. It is noteworthy that Supreme Decree ICTI-TUR declares it to be of national interest to protect all domestic or foreign tourists who individually or in an organized manner, stay or travel within the national territory. It also promotes social tourism by providing special rates for students, teachers, retirees as well as facilities for any kind of procedure in criminal and administrative matters. According to these rules, the Mincetur may propose at its own initiative or at the request of a party, the declaration of Tourist Reserve Zone regarding the places that are areas with evident tourism potential and merit special protection by the state. The qualification of the Tourist Reserve Zone does not restrict the development of other economic activities, and allows taking advantage of the regulated use of the area for tourism, subject to compliance with the provisions contained within the Mincetur Tourism Development Plan. 78 Baker & McKenzie

83 Doing Business in Peru On the other hand, the competent regional authorities in the Regional Directorates of Foreign Trade and Tourism of the Regional Governments, and the municipality of Lima, through its competent authority, shall be the entities responsible for monitoring compliance with the Regulation of Travel and Tourism Agencies (Supreme Decree MINCETUR) and for granting authorizations in accordance with it. This rule also establishes the requirements and procedures for authorizing the provision of services by travel and tourism agencies, defines the concept of travel and tourism agencies, sets the conditions to be met for the provision of services, establishes the classification of agencies as retailer, wholesaler, or tour operator, and specifies the obligation to submit a sworn statement detailing the meeting of minimum requirements. The travel and tourism agencies are responsible for promoting national and international tourism, the hiring of tour guides, the chartering of transportation for the realization of tourist services, among others. Meanwhile, the National Chamber of Tourism of Peru (Canatur), which brings together institutions, organizations, companies and individuals who perform activities related to tourism in Peru, contributes to the economic and social development of the country by promoting internal and inbound tourism, responding to consultations and issuing opinions. It also organizes conferences, seminars and other events where the various topics related to our economic activity are analyzed ( Also relevant is Supreme Decree MINCETUR, or the Hosting Establishments Regulation under which the competent authorities in the regional directorates of foreign trade and tourism of the regional governments, and the municipality of Lima, through its competent authority, are also responsible for enforcing this regulation, and are empowered to grant the classification and categorization of establishments, monitoring compliance with the requirements, and performing supervisory visits at will, among others.

84 This regulation details the minimum requirements to be met in order that establishments may bear the classification and categorization of hotels, apart-hotels, resorts, eco-lodges and hostels, respectively. In turn, the National Building Regulation, approved by Supreme Decree VIVIENDA, includes all the technical rules laying down requirements for the construction and maintenance of buildings, regulating building construction for tourism purposes. In addition, Law (Law of the Tourism Guide), amended by Law (General Tourism Law), regulates the activity of the tourism guide, which is an activity exercised by the graduates of tourism and by the tourist guides who hold degrees awarded on behalf of the nation and are registered in the appropriate register. Likewise, on 16 January 2010, the Regulation of the Law of the Tourism Guide (Supreme Decree MINCETUR) was published. Also important are the provisions of the Regulation of Hosting Establishments Qualifiers (Ministerial Resolution ITINCI/DM, 30/07/2001). This norm defines the functions and procedures for assessment and designation of hosting establishments qualifiers who have the role of issuing technical reports in connection with requests by hosting establishments tin order to obtain the status of classified or categorized establishments. Supreme Decree MINCETUR approved the Regulation of Restaurants. As in the previous regulations, the competent authorities in the regional directorates of trade and tourism of the regional governments, and the municipality of lima, through its competent authority, shall be responsible for monitoring compliance with the regulation in question, awarding the respective category to restaurants, as well as for performing the respective supervisory visits, among others. In addition, that regulation lists the requirements, conditions, and general and specific characteristics necessary to be categorized as restaurants, of one to five stars, depending of course on the service they provide. 80 Baker & McKenzie

85 Doing Business in Peru Also, Supreme Decree MTC approved the Regulation for the National Transportation Administration to regulate the ground transportation service in general, including the terrestrial tourist transportation service to promote its development within the framework of free competition, meet the travel needs of the users in conditions of safety and quality, and protect the environment and the health of the community as a whole. This regulation extends to companies providing tourism services which develop tourist ground transportation activities, and to travel and tourism agencies that transport users in vehicles owned by them. On 20 December 2007, Law 29164, the Law on the Promotion of Sustainable Development of Tourism Services in Real Estate belonging to the National Cultural Heritage, was promoted. The purpose of the law is to establish conditions that favor and promote the development of private investment for the recovery, restoration, conservation, enhancement and sustainable development of real estate belonging to the National Cultural Heritage, through concessions for the provision of tourism services in the areas that for this purpose may be determined by the National Institute of Culture (INC). This rule establishes conditions that will ensure that the real estate heritage is not damaged and that the granting of tourist services concessions are made within the framework of the constitution and existing rules that ensure their protection. Tourism services for which concessions are feasible are hosting restaurants with a minimum rating of four stars, and, complementarily, the sale of handicrafts and souvenirs. This rule limits the initiatives to real estate that is suitable for this investment and will generate high-impact tourism. The National Institute of Culture, in coordination with Mincetur, is responsible for publishing the list of real estate suitable for the development of this type of project, as prescribed by law. Through the publication of Law 29092, Law No was amended and its scope defined, giving regional governments the ability to deliver a list of

86 archaeological sites that are not to be affected by the law, per the agreement of the council. There are certain tax benefits in relation to tourism which are designed to encourage inbound tourism, by exempting the accommodation and food services purchased locally by non-domiciled individuals from the general sales tax. These food services must be rendered in the very establishment providing the hosting services. Among others, the following provisions are in force: (i) the provision of hosting services, including food, to non-domiciled individuals is considered an export (Legislative Decree 919); (ii) regulations have been issued for the implementation of tax benefits for hosting establishments that provide services to non-domiciled individuals (Supreme Decree EF); (iii) rules have been issued relating to the special registration of hosting establishments (Resolution SUNAT); and (iv) Law was enacted, which amended Article 33 of the consolidated text of the Law of General Sales Tax and the Excise Tax, whose numeral 4) refers to the provision of hosting services. The executive branch enacted new tax measures designed to encourage and facilitate investment in the long run, and generate a more equitable tax framework. The anticipated recovery of VAT is a regime by which the financial cost of investment is lightened, allowing the refund of VAT paid on purchases of goods and services. Its main objective is not to increase financing costs for projects that require large amounts of investment (a minimum of USD5,000,000) and have long-lasting pre-operational stages (minimum of two years). To date, the regimen was applicable to only some economic activities and was found scattered in various legal provisions (mainly mining and hydrocarbons). The tax measures make the Special Regime of Advanced Recovery of VAT applicable to all economic activity involving significant investments and extensive pre-operational periods, including in 82 Baker & McKenzie

87 Doing Business in Peru sectors that already counted with the anticipated recovery of VAT regime (mining and hydrocarbons). In addition, it organizes and unifies its legal treatment in a single regulatory body, gathering the regulation of sector norms, standardizing their conditions and coverage. There are various agreements and conventions concluded between the Peruvian state with other states that are intended to facilitate and promote cooperation in tourism. Among the countries that have signed agreements for cooperation in tourism are: Mexico, Costa Rica, Guatemala, Dominican Republic, Panama, Thailand, Romania, El Salvador, Italy, Hungary, China and the signing of an Agreement for the Promotion of South American Tourism signed by members of the Latin American Integration Association (ALADI) including Argentina, Bolivia, Brazil, Colombia, Chile, Ecuador, Paraguay, Uruguay and Venezuela. Notably, the member countries of the Andean Community (Bolivia, Peru, Colombia and Ecuador) have legislation that allows their nationals to be admitted and enter any of those countries, as tourists, by the mere presentation of one of the national identification documents currently valid in the issuing country and without the requirement of a consular visa. Furthermore, there are agreements that allow the free movement of persons (as tourists) between Peru and Brazil, and Peru and Chile. It is also noteworthy that Peru is a member of the Asia Pacific Economic Cooperation (APEC),, composed of 21 different economies. These are Australia, Brunei Darussalam, Canada, Chile, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Russia, Singapore, Taipei China, Thailand, US and Vietnam. Its main objective is to achieve the liberalization and facilitation of trade and investment for developed economies; in 2020 for developing economies. APEC

88 works to create a safe environment for the efficient movement of goods, services and people in the region. In 2008, Peru was the seat of the most important meetings of APEC. This event represented the biggest challenge for Peru to raise its economy in terms of efficiency and competitiveness to the standards of Asia Pacific economies. The large number of delegates to the APEC meetings has been a huge challenge, as well as a favorable opportunity to promote business and investment opportunities. The purpose of the meetings of 2008 was to reach consensus on an integration strategy that promotes sustainable development in the region and shares the benefits among the members, through the active participation of the governments, international financial institutions and the private sector. It is appropriate to highlight the importance and significance that the recognition of Machu Picchu as one of the Seven Wonders of the World has had and continues to have, given that it undoubtedly brought and will continue to attract a large number of tourists to the country. Regionally, the Project for Reorganization and Rehabilitation of the Vilcanota Valley will promote sustainable development initiatives in that valley, which has about 100,000 inhabitants, through the support on cultural preservation, tourism development, urban infrastructure, environmental protection, and local social and economic development. The project is being implemented jointly with UNESCO, the National Geographic Society, the World Monuments Fund, non-governmental organizations and bilateral donors. A particular purpose of the project is to assist the government of Peru in its efforts to improve the management of tourism in the Historic Sanctuary of Machu Picchu (SHMP) and preserve the status of Machu Picchu as a world heritage site. 84 Baker & McKenzie

89 Doing Business in Peru 11 Main Foreign Companies Present in Peru SECTOR COMPANIES TRADE SERVICES Allard Laboratories Inc I Aiwa International Inc. (USA) I Abbey Life International (United Kingdom) I Aldeasa (Spain) I Ambev I Baker Hughes Mining Tools Incorporated I Cargill America Inc (USA) I Coca Cola Interamerican Corporation I Disney Enterprises Inc I Kellogg Company I Polaroid Caribbean Corporation I Reader s Digest Latinoamerica S.A I Smith Kline & French Interamerican Corporation I Engelhard Energy Corporation I General Electric Company I General Motors Corporation I General Petroleum Company INC. (USA I Glaxosmithkline International S.A (Luxembourg) I L oreal S.A. (France) I Mitsui & Co. Ltd. (Japan) I Falabella (Chile) I Ripley (Chile) I Cencosud S.A. (Chile). McDonald s Corporation (USA) I Xerox Corporation (USA) Appex Inc I Brink s Incorporated I Butthuam Naresuan I Caterpillar International Services Corporation I Cinemark International Inc I Continental Shelf Associates Inc. (USA) I Sarsec International Limited (United Kingdom) Bradley Bros Ltd I Eagle Mapping Services Limited (Canada) I Antena X De Television S.A I ATOS O.D.S. S.A., (Spain) I China National Import And Export Commodities Inspection Corp (China) I

90 INDUSTRY SECTOR TELECOMMUNICATIONS AND INFORMATION TECHNOLOGY BCD Travel (USA). COMPANIES A.B. Volvo (Sweden) I Abbott International Ltd I Albatro S.A. I Assea Brown Boveri (Switzerland) I Baxter World Trade Corporation I Cryovac International Holdings Inc I Goodyear International Corporation I J.P. Morgan International Capital Corporation I Parke Davis Inter - American Corporation I Pfizer International Corporation I R.J. Reynolds Tobacco Co I Johnson Shareholdings, Inc. (USA) I Adidas Chile Limitada (Chile) I B. Braun Melsungen A.G I Braune & Warnsloh (Germany) I Bayer Foreign Investments Ltd. (Canada) I Blansjaar A.G I Nestle S.A. (Switzerland) I Honda Motor Company Ltd I Toyota Motor Corporation (Japan) I The Turkish Tobacco Company (Argentina) I Bristol Myers Squibb Company (USA) I Daewoo Corporation (Korea) I Gerdau S.A. (Brazil) I Chicago Bridge & Iron (USA) I China Fishery Group (Hong Kong) I Carmela S.A.R.L - Pesca (Luxembourg) I Compañía Nacional de Chocolates S.A. (Colombia) I Marubeni Corporation (Japan) I P&O Dover (United Kingdom) I Grupo Bimbo (Mexico) I Kraft Food Inc (USA) I Saab Miller (Holland) I Kimberly Clark Corporation (USA). Telmex I Audiovox Communications International Inc I At&T International Inc I Bear Stearns & Co. Inc. (USA) I Millicom Holding 86 Baker & McKenzie

91 Doing Business in Peru SECTOR FINANCIAL SERVICES AND INSURANCE OTHER SERVICES MINING OIL AND COMPANIES Nv I Nokia Finance International B.V. (Netherlands) I Nextel International LLC I T.I. Telefónica de España (Spain) I Alcatel Standard Electrica (Spain) I Amper SA (Spain) I Motorola Inc. (USA) I America Movil S.A. de S.V. (Mexico). Aetna International (USA) I Banco Standard Chartered (England) I Banco Bilbao Vizcaya Argentaria (Spain) I Banco Santander (Spain) I Citibank N.A. (USA) I Scotiabank I Chase Manhattan International Finance Limited I Ing Baring I International Merchant Bank (United Kingdom) I Compañía Española de Seguro de Crédito a la Exportación S.A. (Spain) I HSBC I Banco Falabella (Chile) I Willis (United Kingdom) I Banco Ripley (Chile). Bivac International S.A., (France) I Bureau Veritas Bivac A.G. (Switzerland) I Continental Airlines Inc. I Sheraton International Inc. I Aguaytia Energy, LLC (USA) I Marriott Hotels International, B.V. I E.I. Freight Holding B.V. (Netherlands) I Bechtel Enterprises International Limited (United Kingdom) I Berndt Friedrich Braedt Kriza (Germany) I Dhl Worldwide (Netherlands) I Flughafen Frankfurt (Germany). Aguaytia Energy LLC (USA) I The Shell

92 ENERGY SECTOR COMPANIES Petroleum Company Limited (Netherlands) I Cambior International (United Kingdom) I Chilectra (Chile) I American International Petroleum Corporation I Petrobras (Brazil) I Duke Energy (USA I Hunt Pipeline Company (USA) I Bitosi Usa Corporation I Endesa Internacional (Spain) I Energy Development Corporation Inc. (USA) I Hallwood (USA) I Exploration Company Perú Inc. (USA) I Breckenridge A.V.V. (Netherlands) I Bretzin Mines Limited (Canada) I Mobil Oil Corporation (USA) I Pluspetrol (Argentina) Repsol S.A. (Spain) I Suez-Tractebel (Belgium) I Tribank International (Caiman Islands) I Pseg (USA) I Sempra (USA) I Techint (Argentina); Sk (Korea) I Sonatrach (Algeria) I Talisman Energy (Canada) I Royal Vopak (Holland) I Cardero Resources (Canada) I Votorantim Metals Ltds (Brazil) I Xstrata (Switzerland) I Sumimoto Metal Mining Co (Japan) I Rio Blanco Copper Limited (Caiman Islands) I Gold Fields Corona (BVI) Limited (United Kingdom) I Ls Nikko Cooper Inc (South Korea) I Teck Cominco (Canada) I Barrick Gold Corporation (Canada) I Newmont Mining Corporation (USA) I Grupo México (Mexico) Grupo Zeta (Mexico) I Anglo American Services Uk Ltd (United Kingdom) I Maple (USA) I Chevron Corporation (USA). 88 Baker & McKenzie

93 Doing Business in Peru 12 Frequently Asked Questions 1. What guarantees does the legal framework recognize for investors, whether domestic or foreign? The right to have contractual terms that cannot be modified by laws or other provisions of any kind Free access to all productive sectors Right to non-discrimination between Peruvians and foreigners, or between private and public companies The right to receive all the profits or dividends which they are entitled to Right to use a more favorable exchange rate available in the exchange market Subscribe legal stability agreements with the state 2. What are the specific guarantees in favor of the foreign investor? Right to the remittance of profits and capital using the most favorable exchange rate available in the exchange market Free availability of foreign exchange 3. Are there Investment Stability Agreements? Yes. Investors and companies receiving investment can sign legal stability agreements with the state which stabilize, among others, the income tax regime.

94 With regard to foreign investors, the stabilization also includes the right to the free availability of foreign exchange and the right to freely remit profits, dividends and capital. 4. What is the advantage of the Legal Stability Agreement? This is a law-contract, which cannot be modified unilaterally by the state, even if new laws on foreign investment were enacted. 5. Are there limits to foreign investment in Peru? The only limitation is that foreign investors require state authorization to hold or own property located in areas within 50 kilometers of the country s borders. 6. Are there limits to remit profits abroad or repatriate the capital invested? No. The foreign investor may remit profits and capital at any time. 7. Is it possible to waive the Legal Stability Agreements? Yes. If so, the investor will be governed by ordinary law. 8. Is there a deadline to meet the committed investment in Legal Stability Agreements? Yes, the general rule is that the term is two years from the signing of the agreement. In the case of state concessions to develop public infrastructure and public services, the deadlines and requirements of the investment referred to in the respective concession contracts will be applied, and not the general two-year term. 90 Baker & McKenzie

95 Doing Business in Peru 9. Are there restrictions on hiring foreigners? Foreign workers are subject to the same legislation as Peruvian workers. Foreign personnel may be hired in a proportion of up to 20 percent of the total number of workers and the total amount of remuneration of foreign personnel may not exceed 30 percent of total payroll. Foreign workers require a work visa issued by immigration authority to work in Peru. 10. Is there a merger control regime? There is no merger control regime, except in the electricity sector, for which a procedure has been regulated for prior authorization of each transaction before the Competition Commission of Indecopi (competition agency). Thus, mergers, acquisitions and other transactions which do not involve electricity generation, transmission and distribution of electric energy are not subject to the approval of the antitrust authority. 11. Is Intellectual Property protected? Patents, marks, geographical indications (including appellations of origin), copyright and related rights, and other elements of intellectual property are protected in Peru by various treaties and international conventions on the subject, and by the Andean Community and national legislation. The intellectual property rights are registered in Peru at the National Institute for the Defense of Competition and Intellectual Property Protection (Indecopi). 12. Has Peru executed a Bilateral Investment Agreement? Peru has executed investment protection agreements which are currently in force, either in the form of Bilateral Investment Agreements or through an investment protection chapter contained in a Free Trade Agreement, with the following countries:

96 1. Argentina 2. Australia 3. Bolivia 4. Canada* 5. Chile* 6. Colombia 7. Cuba 8. Czech Republic 9. Denmark 10. Belgium- Luxembourg Economic Union 11. Ecuador 12. El Salvador 13. Finland 14. France 15. Germany 16. Iceland* 17. Italy 18. Japan* 19. Liechtenstein* 20. Malaysia 21. México* 22. Netherlands 23. Norway* 24. Panama* 25. Paraguay 26. Portugal 27. Republic of China 28. Republic of Korea* 29. Rumania 30. Singapore* 31. Spain 32. Sweden 33. Switzerland* 34. Thailand 35. United Kingdom 36. United States* 37. Venezuela The countries marked with an * have an investment chapter in the FTA. Peru has current Free Trade Agreements (FTAs) with: MERCOSUR (since January 2, 2006) United States of America (since February 1, 2009) Chile (since March 1, 2009) Canada (since August 1, 2009) Singapore (since August 1, 2009) China (since March 1, 2010) EFTA (Norway, Liechtenstein and Switzerland since July 1, Iceland since October 1, 2011) South Korea (since August 1, 2011) 92 Baker & McKenzie

97 Doing Business in Peru Iceland (since October 1, 2011) Thailand (since December 31, 2011) Mexico (since February 1, 2012) Japan (since March 01, /2012) Panama (since May 1, 2012) European Union (since March 1, 2013) The main areas included in the negotiations of the aforementioned Trade Agreements are Customs Affairs and Trade Facilitation; Technical Barriers to Trade; Sanitary and Phytosanitary Measures; Trade Defense; Services, Capital Establishment and Movements; Public Procurement; Intellectual Property; Competition; Dispute Settlement, Horizontal and Institutional Affairs; Trade and Sustainable Development; Technical Assistance and Capacity Building, among other trade issues. Trade Agreements will also be signed with Costa Rica, Guatemala and Venezuela. However, Trade Agreements with El Salvador, Honduras, Thailand and the Trans-Pacific Partnership Agreement (TPPA) are still under negotiation. 13. Are There any Double Taxation Agreements? Peru has signed agreements with Chile, Canada, Brazil, Spain, Mexico, Switzerland and the countries of the Andean Community, to avoid double taxation. The agreement entered into with Spain, Mexico and Switzerland are currently undergoing confirmation by the Congress of the Republic of Peru.

98 Baker & McKenzie has been global since inception. Being global is part of our DNA. Our difference is the way we think, work and behave we combine an instinctively global perspective with a genuinely multicultural approach, enabled by collaborative relationships and yielding practical, innovative advice. Serving our clients with more than 4,000 lawyers in over 40 countries, we have a deep understanding of the culture of business the world over and are able to bring the talent and experience needed to navigate complexity across practices and borders with ease Baker & McKenzie. All rights reserved. Estudio Echecopar is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional services organizations, reference to a partner means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an office means an office of any such law firm. This may qualify as Attorney Advertising requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.