E&Y Peru White Paper

8/13/2019 E&Y Peru White Paper

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Peru's Business &

Investment Guide

2010 / 2011

MachuPicchuCitadel.Photograph:CarlosSalalIntellectualProperty:PromPeru

Ministerio de Relaciones Exteriores


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Contacts Ernst & Young Peru

Advisory

Paulo PantigosoAdvisory Leader

Tel +51 1 411 4418

[email protected]

Alejandro MagditsTel +51 1 411 4453

[email protected]

Jorge AcostaTel +51 1 411 4437

[email protected]

Numa ArellanoTel +51 1 411 4428

[email protected]

Ciro BedoyaTel +51 1 411 4456

[email protected]

Rafael HuamnTel +51 1 411 4443

[email protected]

Jos Torres-LlosaTel +51 1 411 5055

[email protected]

Assurance

Juan ParedesAssurance Leader

Tel +51 1 411 4410

[email protected]

Marco Antonio ZaldvarTel +51 1 411 4450

[email protected]

Vctor BurgaTel +51 1 411 4419

[email protected]

Manuel DazTel +51 1 411 4403

[email protected]

Cristian EmmerichTel +51 1 411 4413

[email protected]

Moiss MarquinaTel + 51 1 411 7237

[email protected]

Fernando NezTel +51 1 411 4473

[email protected]

Wilfredo RubiosTel +51 1 411 4444

[email protected]

Carlos RuizTel +51 1 411 4402

[email protected]

Mireille SilvaTel + 51 1 411 4484

[email protected]

Vctor TanakaTel + 51 1 411 4408

[email protected]

Carlos ValdiviaTel + 51 1 411 4409

[email protected]

Tax

David de la TorreTax Leader

Tel +51 1 411 4471

[email protected]

Andrs ValleSouth America Tax Managing Partner

Tel +51 1 411 4440

[email protected]

Roberto CoresTel +51 1 411 4468

[email protected]

Humberto AsteteTel + 51 1 411 4477

[email protected]

Marcial GarcaTel +51 1 411 4424

[email protected]

Guillermo HidalgoTel + 51 1 411 4464

[email protected]

Elizabeth RosadoTel +51 1 411 4457

[email protected]

Mara Julia SenzTel + 51 1 411 4480

[email protected]

Fernando ToriTel +51 1 411 4479

[email protected]

Av. Vctor Andrs Belande 171

San Isidro - Lima 27, Peru

Phone: +51 1 411 4444

Fax: +51 1 411 4445

Jorge Medina MndezCountry Managing Partner

Tel +51 1 411 4411

[email protected]


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Peru's Business &Investment Guide

2010 / 2011


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In

troductio

n

Peru is one of the most important countries in Latin America.

Some of its diverse characteristics include a variety of climates, a

large territorial extension, important natural resources, people of

great skills and high academic standards and a solid economic and

industrial background. Peru is an excellent destination for foreign

investment.

This guide for business and investment is an aid for foreign investors

as it brings key information about major tax, legal, labor and business

setting-up in Peru. It also contains general information on how

to invest and make business in the country. Finally, it contains a

complete index of Peru's embassies and consulates abroad, as well as

many contacts of interest for the investor.


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1. Background information

1. Government

2. Geography

3. People

4. Currency

5. Economy

6. Investment grade

7. Investment promotion conditions

2. Setting up a business in Peru

1. Business corporations

2. Close corporations

3. Public limited corporations

4. Limited-liability companies

5. Branches

3. Taxes

1. Direct taxes

2. Excise taxes

3. Municipal taxes

4. Customs duties

5. Tax stability agreements

3

5

6

7

7

8

15

17

Contents

27

29

29

30

30

31

33

35

39

39

40

42


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4. Labor legislation

1. Job stability

2. Fringe benets

3. Expatriates

4. Immigration

5. Accounting standards

Appendixes

Stakeholders

1. Executive Ofce for Economic Promotion

2. ProInversion

3. PromPeru

Ernst & Young services for business andinvestments in Peru

Directory of Peruvian Embassies and Consulatesabroad

43

45

45

46

46

49

53

55

57

59

60

63

67


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Jorge Medina Mndez

Country Managing Partner

Ernst & Young Peru

Acknowledgments

We express our special thanks to the Peruvian Ministry of Foreign Affairs (MRE) and,

especially, to its Executive Ofce for Economic Promotion (OPE) for its assistance in

gathering the necessary information for this Guide.


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Background

information

1.

Red-headedparrot.Photograph:MichaelTweddlelIntellectualProperty:PromPeru


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5Peru's Business & Investment Guide


1. Government

Peru is a Constitutional democratic Republic with a multi-party system. Under

the current constitution of 1993, the President, who is the Head of the State and

Government, is elected for a ve year period and cannot run for an immediate re-

election. The President designates the Prime Minister and the rest of the Cabinet of

Ministers. There is a 120 member unicameral Congress elected for a ve-year term.

Bills may be proposed either by the Executive or by the Legislative branch, and they

become law after being passed through Congress and enacted by the President. The

Judiciary is an independent institution.

The Peruvian government is directly elected and voting is compulsory for all citizens

aged 18 to 70. In the recent democratic election of 2006, former president Alan Garca

was non-consecutively re-elected as President of the Republic. Peru has some of the

best macroeconomic indicators of the region with an expected Gross Domestic Product

(GDP) growth rate that is well above the Latin American average.

Government type Constitutional Republic

Legal system Based on civil law

Executive branch

Head of the State and Government: President Alan GarcaPrez (since July 2006)

Elections: Every ve years by popular vote (consecutivere-election is not permitted). Next elections: April 2011

The Cabinet is appointed by the President

Legislative branch

Unicameral Congress 120 seats Members elected by popular vote, for a ve-year term

Next presidential and legislative elections: April 2011

Judiciary Judges are appointed by the National Judicial Council

International relationships

Peru has several economic cooperation and free tradeagreements with different countries

The Peruvian Diplomatic Academy is internationallyrecognized as one of the best in Latin America

Member of the United Nations since 1945 and member ofthe Security Council in 2006 and 2007

In 1998, Peru joined the Asia-Pacic EconomicCooperation (APEC) and was the host of its 2008 summit. That same year, Peru was also host of the LAC-UE (Latin

American and the Caribbean - European Union) summit.

Country overview

Source: Peruvian Constitution / CIA - The World Factbook / UN / Ministry of Foreign Affairs


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Ernst & Young6

2. Geography

Peru is located on the west central coast of South America. It is bordered by the Pacic

Ocean to the west, by Chile to the south, by Bolivia and Brazil to the east, and by

Colombia and Ecuador to the north. With a total land area of 1,285,215.60 km2, Peru

is the third largest country in South America after Brazil and Argentina, and can bedivided geographically in three natural regions:

The Coast: a narrow desert strip with a maritime coastline 3,080 km long, accountsfor only 10.7% of Peru's territory, even when it contains approximately 63% of its

population. Lima, the political and nancial capital of the country, is located in this

region.

The Highlands (Sierra): the Andean Mountain range covers 31.8% of the territory andholds almost 28% of the country's population. This region contains the country's major

mineral deposits.

The Amazon Jungle (Selva): the largest region of Peru, occupies 57.5% of itsterritory, and is rich in petroleum and forestry resources.

Peru

29.4 millionUrban: 75.9%Rural: 24.1%

Population

1,285,215.60 km2Area

Spanish / Quechua / Aymara

Language

Nuevo Sol (S/.)S/.1 = US$ 0.35US$1 = S/. 2.824

Currency*

Freedom of religionMostly Roman Catholic

Religion

Varies from tropical in the Amazonregion to dry desert in the Coast;temperate to frigid in the Highlands

Climate

Gold, copper, silver, gas, petroleum,fish, phosphate, timber agricultural products.

Natural resources

* Exchange rate as of July 31, 2010

Source: BCRP / INEI


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3. People

The estimated population of Peru for 2010 is approximately 29.4 million, of which 9.1

million (almost 30%) live in Lima. The labor force is estimated to be around 16.4 million

people.

The main religion is Roman Catholicism and the main ofcial languages are Spanish and

Quechua. Aymara is also spoken in some parts of the southern Sierra Region. With respect

to the literacy rate, 92.9% aged 15 and over can read and write.

People overview

Population 29.4 million (forecast for 2010)

Age structure 0 - 14 years 29.1%15 - 64 years 65.2%

65 years and over 5.7%

Growth rate 1.22%

Birth rate 19.38 births per 1,000 population

Death rate 6.14 deaths per 1,000 population

Sex ratio At birth 1.005 male per female

Life expectancy at birth 73.1 years (forecast for 2005-2010)

4. Currency

The Peruvian ofcial currency is the Nuevo Sol (S/.). The country has a free-oating exchange rate regime where the government intervenes to avoid excessive

uctuations. As of July 31, 2010, banks bought US dollars at S/. 2.824 and sold them

at S/. 2.826. Parallel market exchange rates are similar.

There are no restrictions or limitations to either the number of bank accounts held in

foreign currency or to the remittance of funds abroad by individuals or legal entities.

Source: INEI / CIA Factbook


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5. Economy

Gross Domestic Product (GDP) US$ 127 billion (2009)

Net international reserves US$ 40.7 billion (as of August 24, 2010)

External debt US$ 31.3 billion (2009)

Investment 20.6% of the GDP (2009)

Unemployment rate 8.5% (2009)

Population below poverty line 34.8% (2009)

Main destination of Peruvian

exports

Brazil, Canada, Chile, China, Germany, Italy,Japan, Spain, Switzerland, United States andVenezuela

Main exports

Gold, copper, zinc, crude petroleum andby-products, coffee, potatoes, asparagus,paprika, organic banana, cacao, textiles andfish meal

Main countries of origin ofPeruvian imports

Argentina, Brazil, Chile, China, Ecuador,Mexico and United States

Main importsPetroleum and by-products, plastics, machinery,vehicles, iron and steel, wheat and paper

With 29.4 million habitants, Peru is a country with rich deposits of copper, silver, gold,

lead, zinc, natural gas and petroleum. Due to the weather and natural and cultural

variations along its natural regions, Peru is internationally recognized as a mega-

diverse country.

Peru's economy reects its varied geography. Its abundant resources are mainly

found in the Highlands, through its mineral deposits, and in its vast coastal waters

that has traditionally provided excellent shing. Despite the recent global crisis, the

administration has resisted tax spending pressures and used the accumulated savings

from rising commodity prices between 2006 and 2008 to invest in infrastructure, pay

down a portion of the public debt and increase the domestic assets.

Peru has achieved signicant advances in macroeconomic performance in recent

years with very dynamic GDP growth rates, stable currency exchange rate and low

ination. The country's impressive 9.8% development rate obtained in 2008 elevates

it among the fastest-growing economies in the region. This trend has been driven byrising international commodity prices for minerals and metals, investor-friendly market

policies and aggressive trade liberalization strategies. Although the rate fell to 0.9%

in 2009 due to the global crisis, Peru's economy has begun to recover and is ocially

expected to increase from 6.8% in 2010, and to 5.5% in 2011 (recently reestimated

by the BCRP to approximately 7.5% in 2010 and to 6% in 2011). The country's rapid

expansion has helped to reduce the national poverty rate in almost 15% in the last years

Source: BCRP / Apoyo Consultora / MEF / OIT


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to about 34.8% of its population in 2009.

The country's recent positive development performance has much to do with the

competent monetary and tax policy pursued over the last two decades, with falling

levels of public debt (from 37.8% of GDP in 2006 to 21% in 2009) and consistent

budget surpluses prior to the global downturn (2.4% of GDP in 2008). All this hasoccurred together with the liberalization of the goods and labor market, the opening

of the trade and foreign direct investment (FDI), and the maximization of the country's

revenues resulting from its rich natural resources. Peru also benets from strengths

such as the increasing size of its domestic market and the development of its nancial

sector.

Peru has signed Free Trade Agreements (FTAs) with the United States, China, Thailand,

Canada, Singapore and with the European Free Trade Association (EFTA) made up of

Switzerland, Iceland, Liechtenstein and Norway. It has also concluded negotiations with

the European Union. Finally, Peru has begun trade talks with Korea, Japan and other

countries. The FTA with the United States entered into force on February 1, 2009 andopened the way to greater trade and investment between the two economies. Peru's

main exports consists of gold, copper, zinc, textiles and sh meal; and its major trade

partners are the United States, China, Brazil and Chile.

Devaluation and ination

The annual ination rate for 2009 was 0.3 % (6.7 % in 2008). The annual devaluation

rate during 2009 was 2.9 % (revaluation of 6.5 % in 2008).

Devaluation and ination

*Estimate

Source: BCRP / Apoyo Consultora

Inflation Devaluation

20001999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*

1.52.5 2.5

-0.1

3.1

3.7 3.7

-1.9

4.5 1.1 3.9

-6.5-7.0

2.9

3.5

-1.10.3 0.3

0.5

11.1

-3.4

-0.7

-4.4

6.7

-15

-10

-5

0

5

10

15


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Ernst & Young10

Peru's main economic activities are agriculture, sheries, mining and manufactured

products. Of the latter, textile products stand out.

Peru's uneven geography has made it a mega-diverse country which is reected in agreat variety of eco-systems and, consequently, of ora and fauna.

Peru is the rst world producer of shmeal, fresh asparagus, paprika and organic

banana; the second world producer of artichoke and the sixth world producer of coffee.

In the mining industry, Peru is the rst world producer of silver, the second of zinc, the

third of copper, the fourth of lead and the fth of gold. Additionally, it possesses large

deposits of iron, phosphate, tin, manganese, oil and gas.

One of the most recent and potentially viable economic activities includes the use of

wood resources such as cedar, oak and mahogany.

The following map shows the main economic activities through out the different regions

in Peru.

Main economic activities by region

Petroleum

GoldAu

SilverAg

CopperCu

ZincZn

LeadPb

IronFe

Natural gas

Sugar refinery

C Cement plant

Oil refinery

Smeldering

Fish meal plant

Textile Industry

Chemical plant

Metal Industry

Metallurgical industry

Fisheries

Cabo Blanco

Talara

Pucallpa

La Oroya

Cusco

Cajamarca

Au

Ag

Zn

Pb

Pb

CuZn

Zn

Zn

Au

Ag

Ag

Cu

AuAg

AuAg

Iquitos

C

C

C

C

Trujillo

Ica

ArequipaPuno

Chimbote

Paramonga

C

Lima - Callao

Huacho - Chancay

Pisco Mollendo

Ilo

Pacasmayo

Chiclayo

Source: University of Texas - Perry Castaeda Library Map Collection


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GDP / Trade balance

The GDP at the end of year 2009 was of US$127 billion. Total FOB exports reached

US$26.8 billion, while total imports reached US$21 billion. The leading exports are

mining and shing products.

Peru's real GDP (in US$ billion)

*Estimate

Source: BCRP / Apoyo Consultora / MEF

Annual GDP variations

*Estimate

Source: BCRP

3.0

0.2

5.0

4.0

5.0

6.8

7.7

8.9

9.8

0.9

6.8

5.5

0.00

2.00

4.00

6.00

8.00

10.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201 0* 2011 *

0

20

40

60

80

100

120

140

160

53.3

2000

53.9

2001

56.8

2002

61.7

2003

69.7

2004

79.4

2005

92.3

2006

108

2007

128

2008

127

2009

134

2010*


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GDP by industryAnnual variation

2008 2009 2010* 2011*

Agriculture and livestock sector 7.2 2.3 2.7 3.6

Agriculture 7.4 0.9 1.4 3.5

Livestock 6.0 4.4 4.2 4.2

Fisheries 6.3 -7.9 0.3 0.4

Mining and hydrocarbons 7.6 0.6 2.8 3.8

Metal mining 7.3 -1.4 -0.7 3.1

Hydrocarbons 10.3 16.1 28.4 8.1

Manufacturing 9.1 -7.2 6.5 5.3

Raw materials processing 7.6 0.0 2.7 4.4

Non primary manufacturing 8.9 -8.5 7.3 5.5

Electricity and water 7.7 1.2 4.9 5.5

Construction 16.5 6.1 12.5 9.5

Commerce 13.0 -0.4 5.1 5.2

Other services 9.1 3.1 5.4 5.6

GDP 9.8 0.9 5.5 5.5

*Estimate, before recent reestimation to approximately 6.8% - 7.5% for 2010, and to 6% in 2011.

Source: MEF and BCRP

Peru's GDP by economic sector (2009)

Source: BCRP

Agriculture4.7%

Commerce

14.9%

Construction

6.2%

Electricity and water

2.0%

Hydrocarbons

0.6%

Taxes

9.4%

Manufacturing

of raw

materials2.8%

Non primary

manufacturing

11.4%

Other

services

39.2%

Mining

4.7%

Fisheries

0.4%

Livestock

2.4%


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Exports (in US$ billion)

*Estimate

Source: BCRP

6.9 7.0 7.7

9.0

12.8

17.3

23.8

27.826.8

33.431.5

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*

Exports by economic sector (2009)

Source: BCRP

7%

Oil and gas

Agriculture9%

Fisheries8%

Textile6%

Chemicals3% Metallurgy and

iron steel industry

2%Metal working1%

Wood and paper, andtheir manufactured products

1%

Non metallic minerals1%

Other1%

Mining61%


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-2.8 -2.6

-2.1

-1.6 -1.6

-1.1

-0.5

1.8

3.1

2.1

-2.1

-4.0

-3.0

-2.0

-

-1.0

1.0

2.0

3.0

4.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*

Evolution of the scal standing

(as GDP %)

*Estimate

Source: Ministry of Economy and Finance (MEF), Banco de la Nacin and Peruvian Tax Authority (SUNAT)

Gold

41.57%

Copper

36.27%

Zinc

7.49%

Lead

6.80%

Tin

2.90% Others

4.97%

Mining exports by product (2009)

Source: ProInversion


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6. Investment grade

In December 2009, Peru's credit rating was raised to investment grade by Moody's

Investors Services and matched similar moves made by Standard & Poor's and Fitch

Ratings in the previous years. Sound economic prospects, with estimated medium-termGDP growth rates of 6.8% for year 2010, is the key factor that supports the upgrade.

These robust development prospects are supported by rapidly increasing investment

levels and by the signicant decline in Peru's tax and external vulnerabilities. All this

is within a context of high and diversifying sources of growth with low ination and

strengthening macroeconomic fundamentals.

The upgrade to investment grade has brought Peru a great deal of positive attention

worldwide. More importantly, it has produced a positive impact on the local economy

and is currently boosting the stock market and the appreciation of the Peruvian

currency, the Nuevo Sol, in the short term. Nowadays, many multinational corporations

are watching the country with greater interest. The consequent improvement inemployment opportunities and the decrease in poverty should contribute to improve

the social welfare.

6,524 6,7106,840

7,877

9,123

10,795

13,891

16,764

19,905

17,451

19,026

0

5,000

10,000

15,000

20,000

25,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*

Tax Income increase

(in US$ million)

*Estimate

Source: Ministry of Economy and Finance (MEF), Banco de la Nacin and Peruvian Tax Authority (SUNAT)


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Source: Latin Focus Consensus Forecast

Estimated ination rates in Latin America

0 5 10 15 20 25 30 35

Venezuela

Argentina

Uruguay

Mexico

Paraguay

Brazil

Bolivia

Ecuador

Colombia

Chile

Peru

33.831.0

10.510.7

6.46.1

5.23.9

5.05.3

5.04.8

4.14.1

4.13.9

3.73.8

3.53.2

2.52.7

2010

2011

As shown in the chart below, a recent international survey indicates that Peru will have

one of the lowest ination levels of the region, with a projected ination rate of 2.5% in

2010 and 2.7% in 2011.

Peru's investment rating

Source: Standard & Poor's, Fitch Ratings and Moody's

Country

Chile

Mexico

Peru

Brazil

Colombia

Venezuela

Argentina

Bolivia

Ecuador

S&P

A+

BBB

BBB-

BBB-

BB+

BB-

B-

B-

CCC+

Fitch

A

BBB

BBB-

BBB-

BB+

B+

RD

B

CCC

Moodys

A1

Baa1

Baa3

Baa3

Ba1

B2

B3

B2

Caa3


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7. Investment promotion conditions

a. Foreign investment legislation and trends in Peru

Peru actively seeks to attract both foreign and domestic investment in all sectors

of the economy. It has therefore taken the necessary steps to establish a consistent

investment policy that eliminates the obstacles to foreign investment. As a result,

Peru is now considered to have one of the most open investment regimes in the

world.

Peru has adopted a legal framework for investments that offers automatic

investment authorization. Moreover, it has established the necessary economic

stability rules to protect private investors from arbitrary changes in the legal terms

and conditions of their ventures and to reduce government interference with

economic activities.

The Peruvian government guarantees foreign investors legal stability on income tax

and dividend distribution regulations. The foreign investors entitled to obtain this

tax and legal stability are those willing to invest in Peru at least for a two-year term;

to invest a minimum amount of US$10 million in the mining and/or hydrocarbon

sectors or of US$5 million in any other economic activity; or to acquire more than

50% of the shares of a privatized state-owned company.

Peruvian laws, regulations and practices do not discriminate between national and

foreign companies. Foreign investors receive a domestic treatment. There are no

restrictions to earnings' repatriation, international transfers of capital or currency

exchange practices. There are also no restrictions on the remittance of dividends,

Source: Latin Focus Consensus Forecast and Ministry of Economy and Finance (MEF)

Estimated Latin American GDP growth rates

Venezuela

Ecuador

Colombia

Bolivia

Uruguay

Mexico

Argentina

Paraguay

Chile

Peru

Brazil

-1 1 3 5 7

-1.2 1.1

1.6 2.3

2.7 3.6

3.83.6

3.93.8

3.93.4

4.23.2

4.64.1

4.6 5.3

6.8

5.64.5

2010

2011

5.5


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interests and royalties. Foreign currency may be used to purchase goods abroad

or to cover nancial obligations so long as the operator is in compliance with the

relevant Peruvian tax legislation.

b. Favorable legal framework for foreign investors

Peru offers a legal1framework that protects foreign investors' interests by offering

them:

An equal and non-discriminatory treatment

Unrestricted access to most economic sectors

Free capital transfer

Free competition Guarantee to private property (no expropriations or nationalizations)

Freedom to purchase domestic stocks

Freedom to access internal and external credit

Freedom to transfer royalties

To be under a network of investment agreements and under the membershipof the Investment Committee of the Organization for Economic CooperationDevelopment (OECD)

To be under the membership of the ICSID - International Centre forSettlement of Investment Disputes and MIGA Multilateral InvestmentGuaranty Agency (international arbitration institutions)

Foreign direct investment must be registered in the Agency for Promotion of PrivateInvestment (ProInversion).

Peru ranks rst in its region for best legal and regulatory

framework

Source: The Economist 2009

The Economist

66.7%Peru

61.1%

50%

Chile

Costa Rica

50%

47.2%

8.3%

5.6%

5.6%

Brazil

Mexico

Ecuador

Nicaragua

Venezuela

1 Constitutional Regulations Foreign Investment Bill, Executive order # 662, Private Investment Growth Frame Bill, Executive

order # 757, Public Construction of Infrastructure and Public Services Private Investment Promotion Bill, Consolidated Text (TUO)

approved under Supreme Executive order # 059-96-PCM. Extracted from ProInversion.


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Foreign investors may remit the net benets resulting from their registered

investments without any restrictions. In the same way, foreign investors may also

transfer their shares, property or participation rights, reduce their capital and

dissolve their companies.

The following table shows the Peruvian positioning in the favorable infrastructure

and macroeconomic investment climate index.

c. Ease of doing business in Peru

The following chart shows the most relevant indicators with respect to doing

business in Peru:

Business establishment

Construction permits handling

Indicators

Number of formal proceedings

Time (days)

Cost (as % of income per capita)

Number of procedures

Time (days)

Registry of properties

Number of formal proceedings

Time (days)

Cost (as % of propertys value)

Latin America

and CaribbeanPeru

9.0

41.0

24.5

21.0

205.0

4.0

14.0

3.3

9.5

61.7

36.6

16.7

225.0

6.8

70.4

5.9

Recognition of the favorable investment climate

Source: World Economic Forum, BenchmarkingNational Attractiveness for Private Investmentin LA Infrastructure 2007

Source: World Economic Forum, The FinancialDevelopment Report 2009

Position Country Points1 Peru 5.80

2 Colombia 5.60

3 Chile 5.50

4 Uruguay 4.80

5 El Salvador 4.60

6 Bolivia 4.50

7 Brazil 4.20

8 Dominic. Rep. 4.20

9 Mexico 4.10

10 Guatemala 4.00

11 Venezuela 3.20

12 Argentina 3.10

World Economic Forum

1 Peru 6.53

6 China 5.82

8 Switzerland 5.70

9 France 5.49

10 Netherlands 5.48

11 Mexico 5.43

17 Argentina 5.30

35 Brazil 4.78

39 Chile 4.66

41 Colombia 5.51

51 Venezuela 3.18

Position Country Points

Peru is top ranked in the region regardinggovernment preparation ininfrastructures private investment

Peru ranks top in the world regardingmacro-economic level

(it continues)


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Ernst & Young20

d. Promotion and reciprocal protection investment agreements

Foreign investors are protected against inconvertibility, expropriation, political

violence and other non-commercial risks through access to the multilateral and

bilateral conventions such as the Overseas Private Investment Corporation (OPIC)

and the Multilateral Investment Guaranty Agency (MIGA). Additionally, Peru has

joined the International Convention for Settlement of International Disputes (ICSID)

as an alternative to settle disputes between investors and the government. Finally, todate Peru has already signed 33 international investment agreements.

Indicators

Latin America

and CaribbeanPeru

Credit

Legal rights strength index (0-10)

Credit information scope index (0-6)Public records office coverage (0-10)

Private organizations coverage (0-10)

Investment protection

Transparency index grade (0-10)

Board of directors responsibility index (0-10)

Facility index for Shareholders trials (0-10)

Investment protection strength index (0-10)

Taxes

Number of taxes per year

Income tax (%)

Labor taxes and contributions (%)

Other taxes (%)

Total tax rate (as % over the earnings)

Frontier trade

Number of documents required for exports

Time to export (days)

Export cost (US$ per container)

Number of documents required for imports

Time to import (days)

Import cost (US$ per container)

Business closing

Time (days)

Cost (as % of the assets)

Recovery rate (cents per US$)

7.0

6.0

23.0

31.8

8.0

5.0

7.0

6.7

9.0

12.1

17.2

40.3

11.0

7.0

23.0

875.0

8.0

24.0

895.0

3.1

7.0

25.4

5.5

3.3

10.0

33.2

4.0

5.3

6.0

5.1

33.2

20.2

14.8

13.2

48.3

6.8

18.6

1,243.6

7.3

20.9

1,481.0

3.3

15.9

26.8

Source: World Bank - Doing Business 2010

(continuation)


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Investment agreements


Australia

China

Korea

Malaysia

Singapore

Thailand

Japan

Argentina

Bolivia

Chile

Colombia

Ecuador

ParaguayVenezuela

Cuba

El Salvador

Canada

United States

Germany

Belgium and LuxemburgDenmark

Spain

Finland

France

The Netherlands

Italy

Norway

Portugal

United Kingdom

Czech Republic

RomaniaSweden

Switzerland


Foreign investment by industry (2008)

Mining

21.0%

Communications

19.5%

Finance

15.3%

Industry

15.1%

Energy

13.8%

Trade

4.0%

Real Estate

2.8%

Services

2.6%

Petroleum

1.9%

Transport

1.6% Construction

1.0% Fisheries

0.9% Tourism

0.3%

Agriculture

0.2%


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*As of June of 2009


Foreign investment (in US$ million)

12,38813,173

14,18514,243

14,12514,061

15,50915,830

18,068

18,840

18,000

20,000

2 00 0 2 00 1 2 00 2 2 00 3 2 00 4 2 00 5 2 00 6 2 00 7 2 00 8 2 00 9*

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Private investment (in US$ million)

*Estimate

Source: BCRP / Apoyo Consultora

8,668 8,356 8,3959,221

10,545

12,285

15,117

19,478

27,296

26,731

22,385

0

5,000

10,000

15,000

20,000

25,000

30,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*


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e. Free trade agreements signed by Peru

The good performance of international relations is fundamental to a nation's

sustainable development. For that reason, the opening of new international markets

in the past decade has allowed Peru to obtain a greater dynamism in its economy.

This has been reected in the signing of Free Trade Agreements (FTAs) with manyindustrialized countries, which has resulted in an increase of port facilities and a

strong growth in national exports.

To date, Peru participates in several bilateral, regional and multilateral tradeagreements. The following list includes all the trade agreements already signedor to be signed by Peru, and a brief summary of the most important2.

Trade agreements signed or in current negotiation by Peru:

Multilateral agreements:

World Trade Organization WTO

Regional agreements: Asia-Pacific Economic Cooperation APEC Latin American Integration Association ALADI Andean Community of Nations CAN Bolivia, Colombia, Ecuador and Peru

Bilateral agreements (Free Trade Agreements): European Free Trade Agreement EFTA Switzerland, Iceland,

Liechtenstein and Norway Canada

China Korea United States Singapore Thailand

Agreements in current negotiation: Free Trade Area of the Americas ALCA Japan European Union

Free Trade Agreement Peru - China

China has shown the highest economic growth rate worldwide in the last twodecades (around 10% per year, on a sustained basis).

The signing of this agreement in April 2009 has given to Peru access to a marketof 1,300 million habitants, of which 350 million are high purchasing powerconsumers.

From 2002 to 2008, Peruvian exports to China registered an average annualgrowth of 38%. After the United States, China is the second largest Peruviantrading partner. The bilateral trade (without FTA) reached US$7.3 billion in 2008and is expected to increase to US$10 billion in the next two or three years withthe signing of this agreement. Peru's main exports to China include copper, ironore and zinc. In turn, China's main exports to Peru include machinery, cell phonesand high-tech products.

2Peruvian Ministry of Foreign Affairs (MRE) and ProInversion.


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In addition to increasing the bilateral trade, this FTA has the objective ofpromoting China's investment in Peru in sectors such as mining, electricity, wind,oil and gas power, and industrial fisheries; where infrastructure investment isrequired. The agreement covers a number of aspects that could stimulate almostall sectors of the Peruvian economy.

Agriculture is expected to be one of the most benefited sectors as more than 300Peruvian agricultural products such as paprika, asparagus or cowpea will enterChina without paying tariffs.

Free Trade Agreement Peru United States

The Andean Trade Promotion and Drug Eradication Act (ATPDEA), formerlyknown as the Andean Trade Preference Act, was enacted in 2002 and constituteda tariff exception regime unilaterally granted by United States to Bolivia,

Colombia, Ecuador and Peru.

The Trade Promotion Agreement (TPA) was signed with the United States inDecember 2005, ratified by the American Congress in December 2007 andentered into force in February 2009. It consolidates a temporary preferencetariff granted by the ATPDEA. The TPA explains the exports' dynamism in therecent years and consolidates the trade policy reforms enacted by Peru duringthe nineties.

The continued application of this law, complemented by the inclusion of certain

items in the tariff exemptions, culminated with the signing of this Free TradeAgreement.

Free Trade Agreement Peru European Union (EU)

The trade agreement with the EU is part of a commercial business strategy thatseeks to turn Peru into an exporting economy, developing a competitive exportsupply and promoting investment.

The EU is the second destination of our exports (as a group of countries) with a

share of 15.7%. In 2009, Peruvian exports to the EU reached US$4.19 billion.This region represents a market of great opportunities, with more than 490million people with the highest income per capita levels in the world.

Peru's preferential access to the EU market through the SGP Plus system hashad a significant impact on exports and job creation. However, this system haslimitations due to its unilaterality and temporary nature (expires December 31,2011).

Among its benefits in market access terms, it has represented an immediate

tariff relief of 99.3% on Peruvian exports to the EU. This tariff relief represents95% of agricultural tariff lines. As a result, Peru's main exporting products suchas asparagus, avocado, coffee, capsicum fruits and artichokes will enter theEuropean market duty-free.

The trade agreement does not only contemplate tariff reductions but it alsoincludes topics such as: rules of origin, intellectual property, services and


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incorporation of companies, government procurement and others. This helpsto improve the country risk rating, lower the cost of credit and consolidate thecapital market. The policy of opening up economic activities is consolidated andthe development of private investment is promoted.

Finally, another important benefit is the exemption of customs duties (drawback).For the first time in a trade agreement, the EU has accepted that the goodsincluded in this mechanism continue to be considered as originary, and as such,also enjoy the benefits of this agreement.

Economic Complementation Agreement (ACE) Peru MERCOSUR

This agreement aims to form a free trade area between Peru and the MERCOSURmembers (Brazil, Argentina, Paraguay and Uruguay) through the expansion anddiversification of commercial exchange, and the elimination of tariff and non

tariff restrictions that affect the reciprocal exchange of goods and services.

Andean Community of Nations (CAN)

Peru is a member of the CAN in agreements related to trading goods tariffexemptions; the liberalization of sub-regional service markets; communityrules concerning intellectual property; land, air and water transport;telecommunications and other trade topics.

Economic Complementation Agreement

This agreement was signed under the membership framework of the Latin-American Integration Association (ALADI) and gives special tariffs betweenits members. This consists of tax reductions as well as free access for certainproducts. New tariffs were included in June 2003. In December of the same year,the agreement was renewed and added new items to the free access list.

Free Trade Agreement Peru - Chile

This commercial agreement was signed in 2006 and entered in force in March2009. It restates and replaces the previous economic complementationagreement signed between Chile and Peru in 1998 including its annexes,protocols and other tools.

The agreement includes a timetable for gradual tariff reductions on goodsproduced by both countries with final exemption in 2016. To date, most of thegoods included in the agreement are already 100% free of tariffs.

This agreement also includes procedures for settlement of disputes between theinvestor and the state.

Asia Pacific Economic Cooperation (APEC)

Peru is a member of APEC since 1998. Its admission to this forum originated inits desire to strengthen existing economic links and increase economic relationswith a region that has shown the most dynamic economic growth in recent years.The APEC market represents nearly 50% of the world population and is expected


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to become a natural bridge between the industrialized Asian economies and theemerging Latin American economies.

World Trade Organization (WTO)

The WTO is a negotiating forum in which the rules about world trade governanceare discussed. Peru is a member of the WTO since its establishment in 1995.

Other trade agreements

Peru has also entered into other bilateral trade agreements with Germany,Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Cuba, Denmark,Ecuador, El Salvador, Spain, United States, Finland, France, Italy, Japan,Malaysia, Norway, The Netherlands, Paraguay, United Kingdom, CzechRepublic, China, Romania, Singapore, Sweden, Switzerland, Thailand, Belgium,Luxembourg and Venezuela.


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Setting up a business in

Peru

2.

ChulucansPottery.

Photograph:Joaqun

RubiolIntellectualProperty:PromPeru


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2. Setting up a business presence in Peru

There are different types of legal entities which investors can resort to in order to establish

businesses in Peru. The most commonly used by foreign investors are:

1. Business corporations

A minimum of two shareholders is required. Non-domiciled shareholders should appoint

a proxy to sign off the by-laws on their behalf. Funds in local and foreign currency for

the initial capital contribution should be deposited in a local bank.

Features:

Limited liability

Stockholders' liability is limited to the par value of the shares they hold.

Centralized management

Shareholders' meetings, board of directors and chief executive ofcer (general

manager).

Transfer of interest

The transfer of shares is free; nevertheless, in the case of close corporations the by-

laws may provide the right of rst refusal for the existing shareholders. Shareholders

may also agree to the transfer or the encumbrance of shares for a term no longer

than ten years, extendable.

Continuity

Death, illness, bankruptcy, retirement or resignation of any shareholder does not

cause the dissolution of the corporation.

2. Close corporations

Close corporations resemble limited-liability companies and must have a minimum of

two and a maximum of twenty shareholders. Shares cannot be registered in the Public

Registry of the Stock Market.

Features:

Limited liability

Stockholders' liability is limited to the par value of the shares they hold.

Management

Shareholders' meeting (resolutions may be adopted in lieu of a meeting) and chiefexecutive ofcer (general manager). The board of directors is optional.


The Law establishes a right of rst refusal for the existing shareholders in case of

transfer of shares; however, this right may be waived if agreed by the stockholders.


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3. Public limited corporations

Public corporations are intended basically for companies with a large number of

shareholders (more than 750 shareholders) or which have made a Public Offering

(Oferta Pblica de Venta). They have to be registered in the Public Registry of the Stock

Market.

Features:

Limited liability

Partners are not personally liable for the company's liabilities. Their liability is limited

to the value of their stock.


Shareholders' meetings, board of directors and chief executive ofcer (general

manager).

Supervision

Public limited corporations are subject to the supervision of the Peruvian Securities

and Exchange Commission (CONASEV).


Transfer of shares is totally free. No restrictions or limitations are permitted.

4. Limited-liability companies

A minimum of two and a maximum of twenty partners is required. Capital stock is

represented by participations, and a board of directors is not required. The setting-up

procedures are the same as those for corporations.

Features:

Limited liability

Partners are not personally liable for the company's liabilities. Their liability is limited

to the value of its participation.


Partners' meeting (resolutions may be adopted in lieu of a meeting) and chief

executive ofcer (general manager).


Transfer of partners' interest to third parties is subject to approval by the existing

partners (right of rst refusal is mandatory) and must be registered in the Public

Records Ofce.

Continuity

Death, illness, bankruptcy, retirement or resignation of any partner does not cause

the dissolution of the legal entity.


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2. Setting up a business presence in Peru

5. Branches

A parent company agreement is required to set up a branch in Peru, and it must be

certied by the Peruvian Consulate in the country of the home ofce and authenticated

by the Peruvian Ministry of Foreign Affairs (MRE), before it is put into the form of a

notarially recorded instrument and registered in Peru's Public Records Ofce. An ofcial

Certicate of Good Standing of the parent company is also required.


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Taxes3.

ChanChanCitadel.Photograph:WalterSilveralIntellectualProperty:PromPeru


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3. Taxes

The following shows the list of taxes according to their nature (direct, indirect and

municipal). Each is described in detail below.

Direct taxes Excise taxes Municipal taxes

Income Tax Value Added Tax Real estate Tax

Temporary Net Assets Tax Selective Consumption Tax Real estate transfer Tax

Tax on Financial

Transactions

Vehicle Property Tax

1. Direct taxes

a. Income Tax

Legal entities

Corporations incorporated in the country are subject to taxation in Peru on aworldwide income basis. Non domiciled corporations, branches and permanentestablishments of foreign companies that are located in Peru are only taxed onPeruvian source income.

The tax year ends on December 31, with no exceptions. Income tax returns forcorporations, branches and individuals should be generally filed by March 31 ofthe following year.

The corporate income tax rate is 30% and applied over the net income(after the deduction of expenses incurred in the generation of revenues ormaintenance of the source).

Taxpayers can select between the following two systems to obtain relief fortheir losses:

Losses can be carried forward for four consecutive years, beginning with thefirst subsequent year in which the losses arise; or,

Losses can be carried forward indefinitely, but with an annual limitequivalent to of the taxpayer's taxable income of each subsequent year

Loss carrybacks are not permitted.


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Income obtained by non-domiciled entities are subject to a withholding incometax, according to the following:

Revenues from activities performed partially in Peru and partially abroadby non-domiciled companies, including those obtained by their branches orpermanent establishments, are subject to the following effective tax rates:

Activities Percent of gross

revenue (%)

Effective tax

rate (%)

Air transport 1 0.3

Maritime transport 2 0.6

Aircraft lease 80 8.03

Vessel lease 60 6.04

Supply of transport

containers 15 4.5

Layoff of transport

containers80 24.0

Withholding tax rate on income of non-domiciled

3The withholding rate for these activities is 10%

4The withholding rate for these activities is 10%

(it continues)

Income Rate

Dividends and profit distribution to non-domiciled by domiciled

companies and branches, permanent establishments and agencies

of foreign companies

4.10%

Interest paid to non-domiciled, if certain requirements are met 4.99%

Interest paid to related parties or affiliated foreign lenders 30.00%

Technical assistance services used financially in Peru 15.00%

Royalties 30.00%

Capital gains deriving from the sale of securities (shares, bonds and

other securities issued by Peruvian entities) through the Lima

Stock Exchange

5.00%

Capital gains deriving from the sale of securities (shares, bonds

and other securities issued by Peruvian entities) outside the LimaStock Exchange (over the counter)

30.00%


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3. Taxes

Thin capitalization rules

Under these rules, interest paid by domiciled taxpayers to financially relatedor associated companies is not deductible in the portion that exceeds theresult of applying a coefficient (debt/equity ratio) equivalent to three times thetaxpayers' net equity at the end of the preceding year.

Transfer pricing rules

Transfer pricing rules are based on the arm's length principle as interpreted bythe OECD.

In Peru, however, these rules do not only apply to transactions betweenrelated parties (both domestic and cross-border) but also to transactions withcompanies resident in tax havens. Moreover, these rules must be considerednot only for Income Tax purposes but also for Value Added Tax and Excise Taxpurposes.

Individuals

Under the Peruvian income tax system, Peruvian citizens domiciled in Peruare subject to taxation on their worldwide income, regardless of the countryfrom which it derives, from which payments are made, or the currency in whichincome is received. By contrast, non domiciled individuals are only taxed inPeru on their Peruvian source income.

However, after residing in Peru for a period in excess of 183 days withinany twelve/month period, foreign nationals will be considered residents andtherefore taxed on a worldwide income basis.

An individual's status as domiciled or non-domiciled must be verified based onthe individual's condition at the beginning of the tax year. Any change duringthe tax year will affect the residence status as from the following year.

Tax rates for domiciled individuals in case of fourth and fifth bracket income,deriving from independent and dependent personal services, are determinedusing a three-bracket cumulative scale, as shown below:

(continuation)

Activities Percent of gross

revenue (%)

Effective tax

rate (%)

Insurance 7 2.1

International news agencies 10 3.0

Motion picture distribution 20 6.0

Television broadcasting

rights assignment20 6.0

Telecommunication services 5 1.5


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No deductions are allowed in arriving at the taxable income for salaries, wagesand other remuneration derived from independent and dependent personalservices with the exception of a deduction equivalent to 7 tax units (currentlyS/.25,200 to December 2010).

Since January 1, 2009, income obtained by domiciled individuals from thelease, sublease and assignment of goods (first bracket income), and also othercapital income deriving from the disposal of securities (shares, bonds, etc.)and movable property (second bracket) are levied with a rate of 5% and 6.25%,respectively.

b. Temporary Net Assets Tax (ITAN)

A so called Temporary Net Assets Tax (ITAN) equivalent to 0.4% is levied over

the value of total assets over S/.1,000,000, determined as of December 31 ofthe previous year. Companies in a pre-operational stage are excluded. The ITANpayments can be used as a tax credit to offset income tax liabilities (i.e. monthlyprepayments and the final income tax payment due when the annual tax return isfiled). A refund may be requested for any balance not used in the current year.

To avoid double taxation issues, subsidiaries and branches of foreign companiesmay elect to reverse the order of the tax credit so the Peruvian income tax iscreditable against the ITAN and not vice versa. In such a way, taxpayers might be

able to claim as foreign tax credit the Income Tax and not the ITAN.

c. Tax on nancial transactions and means of payments

A 0.05% tax is generally imposed on debits and credits in Peruvian bank accounts.

Any payment in excess of S/. 3,000 or US$1,000 must be made through thePeruvian banking system using the so-called Means of Payment, which includebank deposits, wire transfers, pay orders, credit and debit cards and non-negotiable checks.

Not using these methods of payment would mean that the corresponding costor expense of the payment cannot be recognized for income tax purposes. In

addition, any Value Added Tax (VAT) related to the acquisition of goods andservices cannot be used for tax credit.

Income tax rates for individuals

Scale Accumulated

progressive rate

Up to 27 tax units (tax unit is currently equivalent

to S/. 3,600)

15%

In excess of 27 and up to 54 tax units 21%

Any excess 30%


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3. Taxes

2. Excise taxes

a. Value Added Tax (VAT)

Taxable Base and application

Value Added Tax (VAT) is levied over the consumption of goods and services inPeru with a 19% tax rate.

The Value Added Tax follows the debit/credit system, under which the VATpaid upon acquisitions is offset against the VAT. The VAT that is not applied ascredit in a particular month should be applied in the following months until it isexhausted.

Early Recovery Regime

The companies that develop projects in which the preoperational stage is morethan two years, can request the early recovery of the VAT before starting theproduction stage. To do this, the company must entered into an investmentcontract with the Peruvian government through the pertinent ministry of thesector.

Definitive Recovery Regime

This regime applies to: (i) investors who owns mining concessions, and (ii)investors who have entered into agreements or service contracts accordingto the Hydrocarbons Act. In the first case, the beneficiary of the regime mustnot be in the production stage and should have entered into an ExplorationInvestment Agreement. In the second case, the investor must be in theexploration stage of such agreements.

b. Selective Consumption Tax

The tax applies to the consumption of specific goods, such as fuels, cigarettes,beers, liquors, soft drinks, among others. It is applied under 3 systems: (i)specific, which involves a fixed amount in local currency for each measurementunit; (ii) at the value, a percentage over the sale price; and (iii) sale price, apercentage over the suggested retail price.

3. Municipal taxes

a. Real Estate Tax

Real Estate tax is a municipal annual tax that is levied over the value of realproperty, on both, urban or rustic land. The tax considers the land, buildings, andfixed or permanent facilities.

The tax rate is a cumulative scale varying between 0.2% and 1.0%, depending on

the appraisal value of the property.

b. Real Estate Transfer Tax

Real Estate Transfer Tax is levied on the transfer of real property, including freetransfers, in any form or manner, including sales in which the ownership rightsare not transferred to the buyer until the total price is paid.


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The tax base is the agreed price, which cannot be lower than the value of theproperty for Real Estate Tax purposes. The tax rate is 3%.

c. Vehicle Property Tax

The Vehicle Property Tax is an annual tax, levied on the property of three year-old vehicles, cars, trucks and station wagons, manufactured within the country orimport. The 3 years are calculated from the first filing of the vehicle in the RealEstate Registry.

The tax base is determined by the original acquisition value, import or propertyentry. The applicable tax rate is 1%.

4. Customs duties

The importation of goods is subject to customs duties. The tariffs in force AdValorem are 0%, 9% and 17%.

Additionally, the importation of goods is levied with the Value Added Tax, as well asother taxes, such as Selective Consumption Tax, Antidumping Rights, CompensatoryRights, among others, depending on the type of goods imported.

For security and public health reasons, the importation of certain goods isrestricted. The application of taxes and custom duties is summarized as follows:

a. Drawback

The recovery of customs duties or drawback allows the production or exportcompanies to recover in whole or in part the customs duties that affectedthe importation of raw materials, inputs, intermediate products and parts orcomponents incorporated or consumed in the production of goods for export,provided that the CIF values of the imported good does not exceed 50% of theFOB value of exports.

The recovery rate applicable until June 2010 is equivalent to 8% of the FOB valueof the exported goods, with a maximum of the 50% of the production cost. As

from July 2010 the recovery rate applicable is equivalent to 6.5% of the FOBvalue of the exported goods, and as of 2011 will be equivalent to 5%.

b. Free Trade Zones

Free Trade Zone of Tacna - Zofratacna

The Free Trade Zone of Tacna Zofratacna was created by Law 27688 in

(a)The customs duties rate depends on the imported good

(b)The Value Added Tax can be used as tax credit by the importer

(c)Certain goods are also subject to the Consumption Selective Tax

Tax Rate Taxable Base

Customs duties (a) 0%, 9% and 17% CIF value

Value Added Tax (b) (c) 19.0% CIF + customs duties


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3. Taxes

2002, with the purpose of promoting investments in the south of the countrythrough the establishment of companies which performs the followingactivities: industry, agro-industry, manufacturing, assembly and storageservices, distribution, unpacking, packing, among others.

For this purpose, a tax exemption regime was enacted which includes IncomeTax, Value Added Tax, the Selective Consumption Tax, the Municipal PromotionTax, as well as other taxes, either from the central, regional or municipalgovernment, created or to be created, including those that require a specificexemption, provided that the activities are performed within such zone;notwithstanding that such transactions in other parts of the country will besubject to all taxes.

With respect to foreign goods imported to the zone, they may not be subjectto the payment of customs duties because Zofratacna is a special customszone. In the case that such goods are transferred to the Commercial Zone ofTacna, a unique special tariff will be paid; notwithstanding, if such goods are

sent anywhere else within Peruvian territory, all the taxes that are levied onimported goods must be paid.

This regime will be in force until 2022, with the exception of the Income Taxregime which will conclude on December 31, 2023.

Free Trade Zone of Puno - Zeedepuno

The free zone known as Zeedepuno was created by Law 28864. As well asZofratacna, Zeedepuno was established not only to provide tax benefits toforeign goods imported to the zone, but also includes a tax exemption regime

that includes Income Tax, Value Added Tax, the Selective Consumption Tax, aswell as other taxes, either from the central, regional or municipal government,created or to be created, including those that require a specific exemption,provided that the activities of industry, agro-industry, manufacturing, assemblyand storage services, distribution, unpacking, packing, among others, areperformed within said zone.

This regime will be in force until 2027, with the exception of the Income Taxregime, which will conclude on December 31, 2028.

Ceticos

In addition to the free trade zones, there are certain Exportation,Transformation, Industrial, Commercialization and Services Centers, known asCeticos, which are located at the ports of Ilo, Matarani and Paita, and in Loreto.

The Ceticos are geographical areas designed by law that are treated as specialprimary customs zones. In the Ceticos areas it is possible to provide repairand manufacturing services, as well as to modify, combine, transform, activelyenhance, distribute, store, manufacture, and produce goods, among otheractivities.

The entry into the country of goods consigned to Ceticos is not subject to

payment of import duties and taxes. However, the entry of goods from theCeticos to the rest of the country is subject to payment of import duties andtaxes.

With respect to other taxes, companies incorporated until 2012 in Ceticos inIlo, Matarani and Paita (located near the ports of the same name) with no lessthan 92% of their annual transactions from the export of the goods produced,


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will be exempt from Income Tax, Value Added Tax, Selective Consumption Tax,Municipal Promotion Tax, as well as all other taxes, until December 31, 2012.

Finally, regarding the Ceticos Loreto, it is important to mention that the termfor incorporation in this zone, as well as the tax exemption regime, is for 50years, as of May 24, 1998.

5. Tax stability agreements

The Private Investment Promotion Agency (ProInversion), on behalf of the Peruviangovernment, guarantees foreign investors legal and tax stability. To be eligible, aminimum of US$10 million must be invested in the mining and hydrocarbon sectors,or US$5 million in any other economic activity, or one must acquire 50% of shares ofa company participating in the privatization process.


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Labor legislation4.

LlachonPeninsula.

Photograph:Domingo

GiribaldilIntellectualProperty:PromPeru


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1. Job stability

In accordance with the Peruvian Constitution, employees are protected against

arbitrary dismissal.

This right, called job stability, is granted to employees who work for the same

employer for more than four hours per day, after a three month trial period. Once this

period is completed, employees are regarded as permanent and can only be dismissed

under circumstances concerned with their behavior at work or ability to carry out their

duties.

Employers may enter into employment contracts for an undetermined period of time

or for xed terms. Fixed term contracts are expressly foreseen by law and are basically

allowed for cases such as business expansion, production increments, temporary

labors, extraordinary circumstances and seasonal activities. These contracts must be

entered into in writing and notied to the labor authority.

In the event of unjustied dismissal, employees may demand a severance payment

equivalent to one and a half monthly salaries per year of service (under a non-term

working agreement); and, one monthly salary per pending month (under a xed term

working agreement). The maximum severance payment is twelve salaries. Alternatively,

employees can demand the restitution of their previous job.

The law allows collective dismissals under certain circumstances such as acts of God or

force majeure, nancial or technical streamlining, dissolution, bankruptcy or operating

downsizing without having to grant severance payments.

2. Fringe benets

Employers are required to provide the following benets to employees:

Family allowance equivalent to US approximatelyper month

One month paid vacation per year

One month salary bonus in July and in December

One month salary per year approximately as severance indemnity, which should bedeposited in advance with a bank elected by the employee Deposits are regarded as

final payments of the accrued liability

Profit sharing in cash, which is calculated on the employer's taxable income anddistributed among the employees The rates are , and depending on the

employer's activity This benefit does not apply to companies with less than

employees

All these benefits are deductible for income tax purposes

Employers can negotiate with employees earning a monthly salary higher thanUS$2,500 a total annual compensation, including all the benets described above,

except for prot sharing.


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3. Expatriates

Expatriates working in Peru and foreign corporations carrying out activities in Peru

are subject to Peruvian labor laws. As a general rule, foreign employees should not

exceed 20% of total personnel. Additionally, salaries paid to foreign employees should

not exceed 30% of total payroll cost. Such limits can be waived for professionals andspecialized technicians or management personnel of a new entrepreneurial activity or

in the case of a business reconversion.

No restrictions apply to foreign individuals working in Peru with a Peruvian immigrant

visa, individuals married to Peruvians or who have Peruvian children, parents or

siblings, and foreign investors with a permanent investment in Peru of at least 5 tax

units (approximately US$6,250).

Expatriates should register their employment contract with the labor authorities and

obtain a special non-immigrant resident visa. No additional work permit is needed.

4. Immigration

Expatriates can enter Peru under the following migratory qualications:

Visa Types of Visa Activities permitted

Tourist visa Temporary

This visa does not allow the

employee to perform paid

activities.

Business visa Temporary

This visa does not allow the

employee to perform activities

that can be considered a Peruvian

source income. This visa allows

expatriates to sign contracts.

Work visa ResidentThis visa allows the employee to

work in Peru.

Temporary work visa Temporary

This visa is granted to employees

of a foreign company. They

are required to submit to the

Migrations authority their service

contract and work assignment

letter, both legalized by the

Peruvian Consulate and approved

by the Ministry of Foreign Affairs.

Work visa for service

providers Resident Investment or independent work

Immigrant Resident No restrictions

As a general rule, income obtained for personal work or civil, commercial or any other

type of business carried out within Peruvian territory is considered to be a Peruvian


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source income. However, non-domiciled individuals entering the country temporarily

to perform the following activities are not taxed for revenues obtained in their home

country, since they are not considered a Peruvian source income:

Activities that precede a foreign investment or any other business

Supervision or control of an investment or business, ie gathering data orinformation, meeting public or private sector personnel, etc

Hiring local personnel; and

Signing agreements or similar documents

Any other remuneration an expatriate receives in cash or in kind, as a compensation

for work carried out within Peru, is considered to be a Peruvian source of income and,consequently, will be taxable.


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Accounting standards5.

OtuzcoWindows.

Photograph:LuisGamerolIntellectualProperty:PromPeru


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5. Accounting standards

The Peruvian Business Corporation Act establishes that the nancial statements of

companies incorporated in Peru must follow the Peruvian Generally Accepted Accounting

Principles (GAAPs) and other legal provisions on the matter. The National Accounting

Standards Board has established that Peruvian GAAPs are basically referred to the

accounting standards issued by the International Accounting Standards Board-IASB and the

specic provisions approved for particular businesses (banks, insurance companies, etc.).Likewise, on a complementary basis, the US GAAPs are applicable.

The National Accounting Standards Board, appointed by the Government, is responsible

for issuing accounting standards and methodologies that apply both to private business

and government entities. The Board generally adheres to the standards approved by the

accounting profession.

The accounting profession in Peru follows the accounting standards set forth by the

International Accounting Standards Board-IASB.

The Certied Public Accountants Association of Lima has the responsibility of studying and

introducing these standards into Peru. The National Accounting Standards Board approvesthese standards for their application.

The preparation of nancial information is subject to ruling issued by CONASEV. Such

ruling is closely related to the International Financial Reporting Standards (IFRS) and to the

International Auditing Guidelines issued by the International Federation of Accountants-IFAC.

CONASEV requires nancial information of companies that are registered before the Public

Registry of the Stock Market or the ones that quote their shares in the stock exchange.

There are some differences between Peruvian and US GAAPs. The differences usually

found in Peruvian companies are basically the same differences existing between the IFRS

and US GAAP.


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Appendixes

SunsetinHuanchaco.

Photograph:Carlos

SalalIntellectualProperty:PromPeru


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Stakeholders

NascaLines.

Photograph:HeinzPlenge

IntellectuallProperty:PromPeru


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Appendixes

1. Executive Ofce for Economic Promotion

The Executive Ofce for Economic Promotion is the Peruvian Ministry of Foreign Affairs

(MRE) organ in charge of encouraging and coordinating the promotion of trade, tourism

and investment. It is also in charge of relations with the domestic business sector. It

arranges policies and coordinates tasks with business unions and public and privateinstitutions engaged to international trade, investments and tourism.

Services offered by OPE

Trade promotion services

PCO

Commercial opportunities promotion

Exportable supply promotion

Support in the solution of commercial disputes

Information requirements to our foreign

commercial offices OCEX

Commercial intelligence studies

Support to commercial missions and to their

participation in foreign fairs

Support in the settlement of exporters'

commercial disputes

Execution of commercial events

Preparation of entrepreneurial agendas

Investment promotion services

PIN

Support to investor missions

Videoconferences

Investment information material diffusion

Participation in investment agreement

negotiations

Promotion of investment opportunities

Tourism promotion services

PTU

Promotion of tourism offer

Support to gastronomic events

Promotion of tourism material

Support to foreign tourism promotion fairs

Support to agents involved in tourism

promotion

Negotiation and promotion of tourism

agreements

Promotion of tourism information obtained

through our missions


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Contacts:

Jaime Pomareda

Ambassador

Executive Director of the Executive Office for Economic Promotion

Peruvian Ministry of Foreign AffairsTel: +51 1 204 3361

Fax: +51 1 204 3362

E-mail: [email protected]

Arturo Jarama

Minister

Director of Investment Promotion and Development Projects

Peruvian Ministry of Foreign Affairs

Executive Office for Economic Promotion

Tel: +51 1 204 3384

Fax: +51 1 204 3387


Cecilia Galarreta

Minister Counselor

Director of Trade Promotion



Tel: +51 1 204 3368

Fax: +51 1 204 3370


Ricardo Morote Canales

Minister Counselor

Commerce Promotion Director



Tel: +51 1 204 3391

Fax: +51 1 204 3393


Web page: www.rree.gob.pe

Address: Jr. Lampa 545, Piso 10 Lima 1

Tel: +51 1 204 3361 / +51 1 204 3365 (OPE)

+51 1 204 3369 (PCO)

+51 1 204 3385 (PIN)

+51 1 204 3392 (PTU)

Fax: +511 204 3362



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Appendixes

2. ProInversion

ProInversion is the Peruvian investment agency in charge of the promotion of business

opportunities with high growth and protability prospects in Peru. Its purpose is to

promote investment unrelated to the Peruvian government by private parties in order

to boost Peru's competitiveness and development and to improve the well being of thepopulation.

Likewise, its vision is to be considered by investors and by the population as an efcient

and strategically for the development of Peru's investments.

ProInversion provides information to potential investors regarding the incorporation of

a legal entity, identifying investment by industries, investment projects (granted and

pending), and other categories.

Objectives and guidelines: Promote investment, preferably in the regions and locations outside Lima

Prioritize the promotion of investment related to employment increase, national

competitiveness and exports, conciling national, regional and local interests

Improve the quality and increase the coverage of public services and of

infrastructure by means that encourage the participation of investment that is not

dependent on the Peruvian State

Promote a culture favorable to investment that is non-dependent on the Peruvianstate as a mean of growth and economic and social development

Develop mechanisms to attract investors and to attend to their needs

Promote the image of the country as a favorable place for domestic and foreign

investment

Contacts:

Web page: wwwproinversiongobpe

Address: Sede Principal Lima: Paseo de la Repblica N , piso ,

San Isidro Lima , Peru

Tel: +

Fax: +

E-mail: contact@proinversiongobpe

Ofces: Arequipa: Pasaje Beln N Vallecito, Arequipa, Peru

Tel: + / Tel / Fax: +

Piura: Av Chirichigno Mz A Lote , Urb San Eduardo, Piura, Peru

Tel / Fax: + / + / +


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3. PromPeru

PromPeru is a dependent entity of the Peruvian Ministry of Foreign Trade and Tourism

that is in charge of developing strategies to achieve an integrated and attractive image

of Peru. This image will allow the development of Peru as a privileged destiny for

tourism and investment. It is also in charge of the promotion of Peruvian exports.

Objectives and guidelines:

Design, coordinate, arrange and execute policies and actions with the objective of

promoting Peru's image internationally and to promote its exports

Manage and channel international technical and finance cooperation

Participate in the strategic planning of exports promotion, according to Executive

order #

Participate in the design, coordination and execution of the strategic planning of

promoting investment

Design, coordinate, arrange and execute policies and actions with the objective of

promoting tourism to Peru and promoting domestic tourism to Peruvians

Manage and channel international nancial and technical cooperation for the

promotion of tourism to Peru

Contacts:

Web page: wwwpromperugobpe

Address:

Sede Exportaciones y Secretara General: Av Repblica de Panam ,

San Isidro - Lima, Peru

Sede Turismo: Calle Uno Oeste , Edificio Mincetur, Pisos y , San Isidro -

Lima, Peru

Tel: + Sede Exportaciones y Secretara General

+ Sede Turismo

E-mail: webmaster@promperugobpe

Offices:

Amazonas: Jr Ortiz Arrieta - Amazonas, Peru

Tel: +

E-mail: iperuchachapoyas@promperugobpe

Ancash: Pasaje Atusparia, Of - Ancash, Peru

Tel: +

E-mail: iperuhuaraz@promperugobpe


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Appendixes

Macro Regin Suroeste - Arequipa, Moquegua y Tacna: Calle Palacio Viejo -

Arequipa, Peru

Tel: + / +

E-mail: opearequipa@promperugobpe

Ayacucho: Jirn de julio N , Of , Huamanga - Ayacucho, PeruTel: + / +

E-mail: ciayacucho@promperugobpe/centroinformacioncca@gmailcom

Cajamarca: Jr Beln S/N, Conjunto Monumental Beln - Cajamarca, Peru

Tel: +

E-mail: cicajamarca@promperugobpe

Callao: Aeropuerto Internacional Jorge Chvez Sala de Embarque Nacional,

Llegadas Nacionales e Internacionales y Zona Pblica- Callao, Peru

Tel: + E-mail: iperulimaapto@promperugobpe

Macro Regin Sureste - Cusco, Puno, Madre de Dios y Apurimac: Jirn Julio CTello

C-, Urb Santa Mnica - Cusco, Peru

Tel: + / +

E-mail: opecusco@promperugobpe

Hunuco: General Prado N - Hunuco, Peru

Tel: +

E-mail: cihuanuco@promperugobpe/camarahuanuco@perucamcom

Ica: Av Grau N - Ica, Peru

Tel: +

E-mail: ciica@promperugobpe

Macro Regin Centro - Junn, Ayacucho, Hunuco, Huancavelica y Pasco:

Av Giraldez N - Huancayo, Peru

Tel: +

E-mail: opejunin@promperugobpe

La Libertad: Jr Junn N - Trujillo, PeruTel: +

E-mail: cilalibertad@promperugobpe/exportacion@camaratruorgpe

Macro Regin Noroeste - Lambayeque, La Libertad y Cajamarca: Calle de Enero

N - Chiclayo, Peru

Tel: + /+

E-mail: opelambayeque@promperugobpe

Lima - Larcomar - Lima, Peru

Tel: + E-mail: iperularcomar@promperugobpe

Lima - San isidro: Jorge Basadre - Lima, Peru

Tel: + / +

E-mail: iperulima@promperugobpe


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Regin Oriente - Loreto, San Martn, Ucayali y Amazonas: Av Yavar N ,

Of - Iquitos, Peru

Tel: + / +

E-mail: opeloreto@promperugobpe

Madre de Dios: Jr Ica N - Puerto Maldonado, PeruTel: +

E-mail: cimadrededios@promperugobpe / iiapmd@iiaporgpe

Regin Norte - Piura y Tumbes: Jirn Ayacucho - Plaza de Armas - Piura, Peru

Tel: +

Puno: Jirn Ayacucho - Puno, Peru

Tel: +

E-mail: cipuno@promperugobpe

San Martn: Jr Manco Cpac N - Tarapoto, Peru

Tel: +

E-mail: cisanmartin@promperugobpe

Tacna : Av Alfonso Ugarte N - Tacna, Peru

Tel: +

E-mail: citacna@promperugobpe / camaratacna@perucamcom


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Ernst & Young services for

business and investments

in Peru

CanoeinginLuanahuana.

Photograph:An

balSolimanolIntellectualProperty:PromPeru


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Appendixes

The global net of Ernst & Young professionals will help nd nancial, strategic and

operational alternatives to improve your liquidity, nancial standing and performance.

We help you in the development of sustainable business in the short and long-term.

Main services

Assurance

Financial statements audit

Standards compliance assessments

IFRS implementations in the companies and country in which they operate

Debt emissions and circular offerings under the 144 A IPO rule

Actuarial calculations

Business advisory

New businesses implementation

Strategic planning

Project management

Profit Improvement

Revenue assurance

Improvement and redesign of processes and organizations

Cost reduction

Risk management

Performance management

Internal control and functions segregations

Internal audit Fraud prevention and investigation

Disputes settlement

Information technology internal audit

Information technology areas and projects management

Information technology security management

Internal and external regulations compliance advisory

Climate change & sustainability


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Tax advisory

Businesses establishment

Tax advisory

Customs and foreign trade Transfer prices

Tax compliance, including expatriates

Transactions

Financial, commercial, tax/legal, process and systems due diligence

Transactions structure

Mergers and acquisitions

Capital markets

Financial planning

Valuations


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Directory of Peruvian

Embassies and Consulates

abroad

MadredeDiosRiverintheManu.

Photograph:WalterSilveralIntellectualProperty:PromPeru


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Appendixes

Directory of Peruvian Embassies and Consulates abroad

Algeria

Algiers

Embassy

2 Et 4 Capitaine Salah Moghni-El Biar 16406,

Algiers, Algeria.

T: +213 0 2192 3854

F: +213 0 2192 3856

E: [email protected]

[email protected] (Consular Section)

Argentina

Buenos Aires

Embassy

Av. Del Libertador 1720, 1425 Buenos Aires,

Argentina.

T: +54 11 48022000

+54 11 48022438

Documents

E&Y Peru White Paper