18+ Pros and Cons of Doing Business in Peru (Explained)

Peru has one of Latin America’s world’s largest economies, taking into consideration the slower growth of 2.5 percent in 2017 behind 2016 (3.9 percent) and 2015 (3.26 percent) and below 2.8 percent, which is the official estimate provided by the Ministry of Economy and Finance. However, the growth should be 4 percent for 2018, according to IMF estimates. A rise in private sector investment, modernization, and development has guided its economic growth.

Peru provides a favorable, if complex, legal structure for direct capital and a friendly investment climate which is expressed in the World Bank Ease of Doing Business Survey, where Peru ranks 58th overall.

Benefits of Doing Business in PeruThe Drawbacks of Doing Business in Peru
Foreign Ownership is guaranteedTax Authorities are Scrutinised
Minimum Capital InvestmentNo Exemption from Taxes
Low Bank Account Beginning DepositsThe insolvency Rate is quite high
Legal Corporate IdentityCultural Problems
Visa Support is thereElectrical Problems

Advantages of Doing Business in Peru

  • The Abundance of Natural Resources

Peru is a country with rich natural resources and this inevitably creates opportunities not only for exporting products on a national scale but also for worldwide export. Peru has witnessed an average increase of 5.5 percent in the export of goods and services since 2000 due to favorable conditions in foreign trade.

Although raw resources make up a significant proportion of Peru’s exports, the country’s residents (both local and foreign) have become progressively aware of the potential to turn raw materials into intermediate or final high-quality products, thus generating additional start-up business prospects.

  • It is a Developing Country

In Peru, there are endless opportunities for new start-ups to deliver higher quality services and a wider variety of goods that are presently difficult to find in the region, or even inaccessible. It will stand to reason that, despite exports, the imports of Peru are primarily composed of final and intermediate products and about one-quarter of the total import value is derived from machinery imports. 

The country will inevitably begin to experience an invasion of products that are imported as demand for outside information and expertise increases and the population seeks a larger, high-quality range of products.

  • Warm International Relations

Good international relations are of vital importance to Peru’s growth, and indeed to every country’s economy. The arrival of new foreign markets and the signing of Free Trade Agreements ( FTAs) have enabled Peru to achieve a more competitive economy and broaden export trade.

Peru currently has FTAs signed with many countries, namely, Canada, Chile, China, the European Union, Mexico, Panama, the US, the MERCOSUR countries of Argentina, Brazil, Paraguay, and Uruguay.

Peru also profits from becoming a member of the Andean Group of Nations (CAN) alongside Bolivia, Colombia, and Ecuador, which has facilitated trade liberalization and reduced tax obligations between these areas. Each one of these trade deals and others that are still in effect is of great benefit to those seeking to do business in Peru and include trade between the related countries.

  • Considered as the Best Destination for Mining Activities

Referring to the mining sector; Peru has been named as the best mining investment destination in Latin America. This in turn generates demand for local start-ups, since a locally incorporated company, is widely used as a vehicle to handle a Peruvian mining project’s activities.

In the case of international mining investors, establishing a subsidiary company in Peru and then managing all local transactions through this legal entity is typical of a foreign holding firm.

The main concern of foreign investors and related stakeholders; within the mining sector or in fact any industry in Peru, is the need for this local business to be adequately assisted by qualified professionals and for these professionals to provide quality reporting to the global firms and shareholders for knowledge, tracking, and management.

Disadvantages of Doing Business in Peru

  • Incorporating a Business

Establishing a company takes about 27 days and seven procedures. The hardest processes are authorizing the incorporation certificate before a notary public and filing it electronically with the 8-day City Business Register and receiving a District Council municipal license that takes 15 days.

Typically the incorporation process takes a lot of time when the shareholders are from overseas.

  • Funding the business is not easy

Companies looking to do business and employ Peruvian employees need to be aware of all local payroll laws and how to keep up with the payroll cycles. Peru’s Length of Service Compensation (CTS) is a legal reward granted to employees for their time spent working for a company, made at retirement.

The CTS is deposited into the worker’s bank of choice biannually. Employers deposit 50 percent for the period worked from November to April in May and 50 percent for the period worked from May to October in November. If an organization fails to make CTS payment in a timely manner, interest will have to be paid, accrued from the due date before the payment is made.

  • Registration of Property is Difficult

Peru is ranked 61st by the World Bank for ease of managing building permits and 44th for registering a house. It takes 15 processes to comply with building permits and an incredible 188 days!

Other approvals include receiving a building license from the municipality which requires 45 days and receive a 50-day installation of the drinking water facility. Registering a property with only five steps is much more simple and takes 8 days.

  • Electricity Constraints

It takes a few months to obtain electricity in Peru and involves submitting an application to Luz del Sur and waiting for a development plan and budget which takes 17 days. This is accompanied by the signing of the supply contract and the waiting for Luz del Sur to complete its external works, which can take around 50 days.

  • Bribes

It’s important to preserve transparent, fair, and compliant business practices in a world where corruption is still a major problem. Last year there was a notorious case involving a large Brazilian construction firm that confessed to paying bribes in more than half of the Latin American countries, including Peru.

This not only caused laws to adjust but also had a direct impact on the local economy. Peruvian legislation also acknowledges the corporate criminal responsibility that relates to bribery, so corporations need to implement legitimate, open business practices that comply entirely with the legislation.

Similar Posts:

Was this article helpful?

Did you like this article? Why not share it: