Since the 1990s Peru has had a stable legal framework, guaranteed by the constitution, which serves as the backbone of the economic model that has sustained the country’s structural reforms during recent years. Peru currently has a corporate, tax, labour, private property, foreign investment and public bidding framework that is attractive to domestic and foreign private investments.
Furthermore, the modification of administrative legislation over time has modernised the state apparatus and streamlined operations.
However, the new government, led by President Pedro Pablo Kuczynski, has acknowledged that there is still a considerable gap in strategic sectors, leading the executive branch to focus its efforts on improving legislation for these areas.
The administration has promulgated a total of 112 legislative decrees that promote structural reforms and a new authority focused on infrastructure projects to rebuild the country following the natural disasters that occurred in early 2017.
Among these relevant new regulations is legislative decree 1352, which establishes a new set of obligations regarding compliance and anti-bribery practices. The reforms have not involved any relaxation by the authorities in terms of criminal offences and government control. On the contrary, the progressive promulgation of legislation to prevent crimes of corruption and increase the transparency of state expenditure has equalled the balance and allowed greater certainty and legal security for investment.
President Pedro Pablo Kuczynski’s administration has acknowledged the large gap that was denounced by previous governments in strategic sectors such as infrastructure, education and health. Thus, in pursuit of closing the gap, the national government has focused on legislation for various sectors since October 2016 that will pave the way for a greater modernisation of the state as a whole. For example, as a result of the coastal El Niño phenomenon that took place in early 2017, the state has created a Reconstruction Authority that is focusing on developing a plan to rebuild damaged public infrastructure in affected areas and ensuring it has all the necessary facilities to contract goods and services for this purpose.
The Reconstruction Authority is led by Pablo de la Flor, one of the most important promoters of the Work for Taxes mechanism. His new responsibility, assuming one of the biggest challenges in the recent history of Peru, could trigger this mechanism.
At the same time, the investment process has been streamlined in light of the Pan American Games that Peru will host in Lima in 2019. This event will require an investment in infrastructure of up to $1.8bn. An event such as this will be an open door for specialised foreign companies that have accomplished similar projects for the Olympic Games held in London or Rio de Janeiro. In this regard, the governments of Peru and the UK have reached an agreement to collaborate during all bidding processes that a project of this type requires.
Peruvian public administration and administrative law have improved markedly in recent decades. Formerly considered to have a slow and overly bureaucratic state apparatus, Peru has made important progress in streamlining its procedures by establishing a law that regulates the basic principles by which these procedures should be guided.
In fact, a single text of administrative procedures has been approved for each state entity for the purpose of not altering or creating additional procedures that would create more delays in obtaining necessary permits and licences.
Within the new government’s legislative package, several rules have been promulgated focusing on easing and further streamlining administrative procedures. Such improvements consist of limiting the power initially held by the public administration to avoid abuses against those administered; seeking to place those who record false information on a public list; reducing unnecessary paperwork; improving the response time of the public entity to user queries; increasing sanctions received by public servants who do not comply with their obligations and reject requests without due justification; and promoting greater use of computer and digital resources within the administrative procedures so that public entities can share information with each other, reducing cost and time taken.
Even though most of this new regulation will have positive effects on the Peruvian national government, an important concern remains. The main problem that both domestic and international companies face when contracting with the Peruvian state is that officials slow the signing of any binding document due to the individual responsibility that they have. Unlike in other countries, where responsibility is organic and not individual, Peruvian officials are constantly audited, and this slows public procedures. New regulation, instead of mitigating this problem, establishes new penalties for officials.
It is also important to note that the requirements for registering companies in the National Registry of Suppliers have been modified by legislative decree 1341, which changes the State Contracting Law that has been in force since April 2017.
Furthermore, this decree bans companies that have been involved in corruption or anti-bribery cases in other countries from contracting with the state.
There are two main taxes on the activities of companies that operate in the country: income tax and the general tax on sales. Income tax is annual and applicable on the income earned by taxpayers domiciled in the country, without taking into account the nationality of natural and legal persons. It also taxes taxpayers not domiciled in the country, but only with respect to their income from a Peruvian source.
In the case of businesses, income tax is applied on any gain or benefit derived from operations with third parties, as well as the differences in exchange rate and the result of exposure to inflation.
The general tax on sales seeks to tax the activities of the sale of goods in the country, the provision or use of services in the country, construction contracts, the importation of goods and the first sale of real estate construction companies.
There is tax reform currently in progress that is focused on the formalisation of economic groups that previously did not pay tax in the country, such as small companies with a limited number of employees and annual sales.
Various types of companies are regulated by Law No. 26887, the General Law of Societies, which is the main determinant in corporate matters in Peru. This law establishes four different types of companies: I. Corporation (Sociedad Anónima, SA)
• Its capital is represented by nominative shares, corresponding to monetary or non-monetary contributions by the shareholders; and
• The transfer of shares is free.
II. Closed Company (Sociedad Anónima Cerrada, SAC)
• It can be formed by, at most, 20 shareholders;
• It is governed by the General Meeting of Shareholders and Management – The Directory is optional;
• Shares are not subject to listing on the stock exchange and, therefore, the shares are not registered in the Public Registry of the Stock Market; and
• In the transfer of shares, there is a preferential acquisition right when they are intended to be transmitted to a third party other than shareholders.
III. Open Company (Sociedad Anónima Abierta, SAA)
• It is available for companies with a large number of shareholders (over 750), for which a Public Sale Offer has been made, which has convertible debentures and where 35% of its capital belongs to 175 or more shareholders;
• Shareholders with voting rights must unanimously decide to assume such denomination (that is, that of SAA);
• It is governed by the General Meeting of Shareholders, the Board of Directors and management;
• It must be compulsorily registered in the Register of Companies listed on the stock exchange, and is subject to supervision by the Superintendency of the Stock Market; and
• The transfer of shares is free and any kind of limitation to this freedom is legally prohibited.
IV. Limited Liability Company (Sociedad Limit- ada, SL)
• It can be formed by, at most, 20 partners;
• It is governed by the General Meeting of Partners and Manager;
• It is the only type of company that does not issue shares, but issues social shares (cumulative and indivisible); and
• The share capital is made up of the contributions of the partners. Likewise, they have preference for the acquisition of the shares. At the time of incorporation, not less than 25% of the total shares must have been paid. It is important to acknowledge that the SAC model is preferred among foreign investors because of the flexibility in choosing the management bodies, being able to choose between combining the General Meeting and the management with a Directory, or simply leaving the first two. A further benefit is that the transferability of shares is free between shareholders, but there is a preferential acquisition right in case the transfer is in favour of a third party. The shares of the SAC are not subject to listing on the stock exchange, so these companies are not subject to the control of any regulator.
It is also important to note some requirements that apply to any company incorporated in Peru:
• A minimum of two stakeholders are required for any type of company;
• The general manager must be Peruvian or have valid authorisation to live and work in the country;
• As a main principle of the corporate system in Peru, the stakeholders’ responsibility is limited to the amount of their stake in the share capital; and
• Except in the SAA model, there is no minimum amount for share capital.
Labour law was previously characterised by having a regime of absolute employment security, in which a worker could not be dismissed from his employment without justification unless he incurred a cause for dismissal established by law. Now, this law ensures a relatively stable regime in which the worker may be dismissed by his employer without justification, provided that the employer pays compensation as a result of the dismissal.
A number of labour reforms have been carried out in Peru, including new risk activities being included in the coverage of Supplementary Work Risk Insurance, and the use of signatures and other digital means related to labour documents. The following rules have been approved during 2017: Use of technologies for the substitution of phys- ical documents and signatures in labour matters: This has been established by legislative decree 1310, which regulates various changes to promote simplification in the issuance, remission and conservation of documents in labour matters, authorising for this purpose the use of digitalisation, and information and communication technologies for the replacement of physical documents and signatures. Among the main changes (for labour contracts, collective bargaining agreements, social benefits settlements, etc.) the handwritten signature of the employer or his agent may no longer be required, and digital or electronic signature may be used, as well as microforms, no longer requiring a prior agreement with the worker as previously stipulated.
Impediment to the right to organise is a crime involving deprivation of liberty: The government has imposed a penalty of imprisonment for two to five years against any person who, through violence or threat, forces another to join a trade union or prevents them from doing so.
Government promotes the right of citizenship to have access to labour decisions: Legislative decree 1342 seeks to facilitate access to the content of jurisdictional decisions at all levels. The objective is that citizens have access to the content of resolutions in all kinds of processes and also that they are understandable.
New regulation of the Labour Inspection System: By means of supreme decree 002-2017-TR, the new regulation of the Labour Inspection System has been issued, which seeks to guarantee the articulated operation of the various components of this system.
Amendment to the Collective Labour Relations Act: Through supreme decree 003-2017-TR the Collective Labour Relations Act is amended and incorporates new provisions on union leave, union dues and strike declarations.
Sanctions by the National Superintendence of Labour Inspection may be challenged before the Labour Inspection Court: New regulations for the Labour Inspection Court have been approved by supreme decree 004-2017-TR, which establishes that the court will resolve, through a review, the sanctioning procedures in matters of legal labour law.
According to the provisions of the constitution, property rights in Peru are inviolable and the state guarantees them, and no one can be deprived of property except for national or public security causes that are established in a law. In these cases, the state has to make a payment for compensation. Conversely, the law recognises various forms that a possessor of a property has to defend himself, including force, which can be used as long as it is used immediately after the property being affected and is proportional.
There is a public registry where the ownership of many properties can be registered, so that those that are not owners have proper information and owners are assured that their property rights will not be affected by third parties.
Foreign Investment Law
Peru has a protective legal framework for foreign investment, which encourages the absence of discrimination between foreign and domestic investments, allowing both national and international currencies to be used, as well as the possibility that legal stability agreements may be signed with the state in order to guarantee the protection of investments against regulatory changes that may be made over time and that could affect their business continuity.
Public Works For Taxes
This is a novel mechanism by which private enterprises can carry out the financing, execution, maintenance and contracting of the supervision of public investment projects declared as priorities by national, regional and local government entities, and even public universities. It should be noted that projects financed and executed through this mechanism can be paid by the public entities mentioned above with their resources, until 10 years after completion of the work.
The private company may, once the execution of the project is completed, recover the amount of the investment through the Certificate of Regional and Local Public Investment issued by the Ministry of Economy and Finance. These certificates may apply as credit for the payment of income tax, up to a maximum of 50% of said tax corresponding to the previous year. If the value of the work exceeds that percentage, the surplus may be used in the next fiscal year and so on for up to 10 years.
It should also be noted that the Ministry of Economy and Finance calculates every year the limit for the issuance of such certificates from all national, regional and local government entities, and public universities. The limit is composed of the sum of the transfers of the resources of the entity, of the two years before the year of calculation plus the projection of the transfers for the same.
For example, on the one hand, if a regional or local government has received funds from these resources in the last three years, its limit will be the sum of the amounts of those years. On the other hand, if regional and local governments signed agreements with a private company for the execution of works for taxes, this limit will experience a decrease in the amount corresponding to the public works that have been done under this mechanism. For a private company to evaluate the possibility of executing projects under this mechanism, it is important that the entity’s certificate issuance limit be sufficient to pay the amount invested by the private company that executes the projects.
Furthermore, ProInversión was founded to promote the mechanism as well as private national and foreign investment in the country through other mechanisms. It is a public agency that was created in 2002 through the merger of several state entities, and it has technical, functional, administrative, economic and financial autonomy.
Among its main functions is to implement the national policy for the promotion of private investment; formulate interventions and reformulate public investment projects that are not in execution; provision public infrastructure and the priority of public services; and promote the incorporation of private investment in public services and public infrastructure works, as well as in state assets, projects, companies and other state activities.
The State Contracting Law of Peru regulates a variety of mechanisms and selection procedures used by government entities in contracting for the acquisition of goods, the provision of services and the execution of works. It is important to note that the main differentiating factors between selection procedures can be classified according to the amount for which is to be contracted and the object of said process, which will depend on whether the process is related to goods, services or works as indicated above.
The public tendering process of the mechanisms mentioned above, the same that consists of several stages, is the following: register as a participant in the National Registry of Suppliers; formulation of consultations and observations of the tender documents; response to these consultations and observations; integration of the tender documents (which are the initial tender documents with the consultations and observations that have been answered); the presentation of proposals and their evaluation; and the granting of the award to the best offer and the subsequent signing of the contract with the state entity.
Pan American Games
Various rules have been promulgated to accelerate investment in sports infrastructure in the country. Among them is legislative decree 1248, which creates a legal framework that allows investment to be streamlined through selection processes with international organisations for the selection of consultants and those who will conduct the works of projects of public investment in infrastructure. Likewise, the mechanism of contracting from state to state is also authorised to manage the services necessary to carry out the Pan American Games that will be hosted in Lima in 2019.
Law 30556 – the National Reconstruction Law – has been promulgated, and is exceptional in the wake of the natural disasters that occurred in Peru in early 2017. This rule establishes and prioritises the elaboration of a reconstruction plan and infrastructure construction that serves public services that have been affected by the disasters. The law creates a Reconstruction Authority that will be in charge of ensuring that the reconstruction plan is carried out through works of infrastructure by private contractors, if necessary.
The government has promulgated various normative instruments for the prevention of crimes related to corruption and money laundering, including law 30424, which was amended by legislative decree 1352. This law is applicable to private law entities, non-registered associations, foundations and committees, non-governmental organisations, irregular societies, entities that manage an autonomous heritage and companies of the Peruvian State or mixed economy companies.
Legal persons are administratively responsible for various offences related to corruption and money laundering when they have been committed on their behalf or for their benefit, directly or indirectly by managers, directors, representatives or employees. The main company will be responsible and sanctioned whenever the natural persons of their subsidiaries have acted under their orders, authorisation or with their consent. Sanctions vary from fines to the dissolution of the same company.
The rule establishes that in order to be exempted from liability for the commission of the crimes mentioned above, the legal person must implement in its organisation – prior to the commission of the crime – a prevention model, which consists of measures of vigilance and control suitable to prevent the crimes or to significantly reduce the risk of their commission. It should be noted that this model of prevention must be adequate to what is established by law and other applicable Peruvian norms, and will be subject to evaluation and control by the Superintendence of the Securities Market, the entity that will evaluate its implementation.
Crimes Committed By Public Servants
undefined Several norms have been promulgated by the new government to prevent and combat crimes related to corruption. Under the present context, legislative decree 1243, or the Civil Death Law, was published. It establishes, as an additional penalty to imprisonment, the disqualification of the public official who committed the crime from holding any public function or office between five and 20 years, which may even become a permanent disqualification.
Protection Of Personal Data
Law 29733, the Law of Protection of Personal Data, is in force, and guarantees the right to the protection of personal data that is provided for in the constitution, so that said information that may be of a private nature is used in an appropriate manner by the companies or state entities that use the same and that the user’s prior consent is requested.
Consumer protection is guaranteed by the constitution and allows consumers to access goods and services that are suitable for their needs, and ensures that the suppliers of such goods and services avoid practices that are not favourable to consumers.
Information Technology Laws
There are various laws in Peru governing information security, digital signatures, electronic commerce and the contents of the internet for the vulnerable public.
Various penalties are established to sanction computer crimes, spam is regulated, and even software has been progressively implemented for certain administrative procedures and documents, such as electronic voting, electronic invoicing and an electronic system that provides information on the status of all tenders made by the government, and is able to filter by type of entity and tender.
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