Due to macroeconomic stability and a favourable trade environment, Peru offers attractive investment opportunities across a wide range of industries. However, despite advantages such as a robust financial system, the country faces ongoing challenges that can affect the ease of doing business.
Peru's economy has some of the greatest growth opportunities in the Latin American region. Despite the country experiencing a declining growth rate since 2021 that was exacerbated by the extended impact of COVID (13.6% followed by 2.7% in 2022 and 0.4% in 2023), the Ministry of Economy and Finance predicts a significant upturn of 2.9% in 2024.
Peru offers a favourable legal framework for foreign investment and a business-friendly environment characterised by prudent economic strategies (World Bank, 2023). Peru's main industries include mining, agribusiness, fishing, energy, tourism and the real estate sector.
Here are the top 10 challenges of doing business in Peru.
1. Starting a business
Starting a business in Peru is a bureaucratic process that, while relatively straightforward, requires some time to complete. Setting up a company takes around 27 days with seven individual processes. The most time-consuming procedures are signing the deed of incorporation before a notary public and filing it online with the Public Registry of Commerce and obtaining a municipal license from the District Council; these procedures take 8 days and 15 days respectively. When the company shareholders are from abroad, the incorporation process generally takes longer.
2. Employment and payroll
Companies that want to hire local workers when doing business in Peru must know the local payroll regulations and how to ensure compliance within the payroll cycles. The Compensation for Length of Service (CTS) is a legal benefit given to local employees for their time of employment and is made at the point of retirement. The CTS is deposited biannually into the employee's bank account of choice. Employers deposit 50% in May for the period worked from November to April, and 50% in November for the period worked from May to October. If a company does not submit the CTS payment on time, it will be required to pay interest accrued from the due date until the date the payment is made.
3. Construction permits & registering of property
Obtaining a construction permit takes 15 individual processes and 188 days to complete. Other registrations that companies must consider include obtaining a construction license from the municipality (licencia de obra para edificación nueva), which takes 45 days, and installing drinking water services, which takes 50 days.
Registering a property is far more straightforward with just five procedures and can be completed in eight days.
4. Electricity
Connecting to the electricity supply in Peru takes a couple of months and involves submitting an application to Luz del Sur. Once the application is submitted, companies must wait for a feasibility study and budget to be completed, a process that takes 17 days. Companies must then sign the supplier contract and await the completion of external works by Luz del Sur, which can take around 50 days.
5. Regulatory changes
Transfer pricing obligations in Peru are highly regulated, so operations involving multiple companies are likely to come under scrutiny from the Peruvian tax authorities. The changes include additional information required for all files as well as the current minimum requirement of personnel lists identifying those responsible for a company's management and administration. Having local support is essential to stay up to date with regulatory changes and ensure compliance.
6. Transparency
Maintaining open, honest and compliant business practices is important in a country where corruption continues to be a big issue. For example, in an infamous case in 2023, a large Brazilian construction company admitted to paying bribes in more than half the countries in Latin America, including Peru. This not only prompted a change in legislation, but also had a major impact on the local economy. Peruvian legislation now recognises the corporate criminal liability applicable to bribes, prompting companies to maintain legal and transparent business practices that are fully compliant with the law.
7. Protecting intellectual property
Court rulings and their enforcement are inconsistent in Peru. It is common to hear allegations of corruption and external interference in the judicial system. While the legal framework for protection of intellectual property (IP) has improved over the past ten years, unfortunately enforcement remains weak. Stricter penalties for IP theft have been brought into law, but they have yet to be implemented. There are also yet to be convictions and penalties for IP violations.
8. Paying taxes
The tax process in Peru involves nine payments per year that take up around 260 hours of labour. Profit and labour taxes are the primary ones and the corporate income tax rate in 2024 is 29.5%. All residents of Peru are taxed on income that they earn throughout the world, while non-residents are taxed only on income earned in Peru. For the purposes of taxation, a resident is a Peruvian national or a foreign national that has spent more than 183 days a year in the country.
VAT is charged on most for-sale goods, imported items and certain services. The VAT rate is 18% and this can make the cost of some imported items seem quite high. In light of this, locally produced goods provide greater value for money. Stamp duty is not payable in Peru on property purchases.
9. Cultural barriers
There are some of cultural considerations that companies should factor in when doing business in Peru, for example, the correct way to conduct handshakes. Handshakes are the most accepted greeting when being introduced to someone. It is common to touch the arm of the recipient with your left hand while shaking with the right, especially among men. Males and females being introduced usually greet each other with a kiss on one cheek. While this way of greeting is typical of urban city dwellers, the Andean people living outside of cities prefer a handshake and a hug. In conversations, it is best to speak softly with a respectful tone of voice; speaking loudly is considered disrespectful.
Although not recommended, if you are discussing politics, you should never engage in an ideological discussion. Any conversation about local or international politics should remain very superficial and avoid one's personal point of view. It's worth remembering that Peruvians are very proud of their heritage in cuisine and archaeology, especially historical Inca sites such as Machu Picchu and Cuzco.
10. Mining industry
Companies involved in the mining industry will face several unique challenges in Peru. The country is the second largest producer of copper and the upward price trend over the last year offers a significant advantage to investors (¢US$ / lb 444,884 as of May 2024).
However, in recent years, political turmoil and a lack of investment has gridlocked Peru's mining industry. There are currently seven projects valued at more than USD$50,000 million that have completely stalled, spurring government intervention.
As the development of the mining investment portfolio is vital for economic growth, the president of the Council of Ministers, Gustavo Adrianzén, confirmed that it is their intention to revive these projects, including the Tía María mine in the Arequipa region that has been hampered by community protests and environmental concerns.
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