China is Peru's main trading partner, the largest destination of exports and the main source of imports for Peru. Peru is China's second largest investment destination in South America. The two countries have established a comprehensive strategic partnership and signed a free trade agreement. In the next five to 10 years, Peru will become another destination for Chinese enterprises going global. More Chinese companies will enter Peru and expand into the broader South American market through Peru. AllBright Law is actively exploring the legal service market in South America, providing reliable host country legal service resources and doing legal research on various host countries for Chinese enterprises going to South America, so as to provide legal protection for serving China's high-level opening-up and the "the Belt and Road" strategy. To this end, AllBright Law, together with Rodrigo, El í as &Medrano Law firms in Peru, launched this Series of Articles on Peru Business Environment, including Peru's going global, Peru's corporate structures, Peru's promotion of investment and legal stability, operational legal environment, business winding up and restructuring a business.

I. PROMOTION OF INVESTMENT AND LEGAL STABILITY

1. Legal Framework for Foreign Investment

Peru has a general legal regime that promotes and establishes guarantees for foreign investments. The most important principles governing foreign investment are the following:

• Foreign investment is entitled to the same treatment as domestic investments.
• Foreign investors may invest in any sector of the economy.
• The Government’s prior express authorization is not required.
• There are no exchange controls and the use, convertibility, and remittance of foreign currency is unrestricted

2. Stability Agreements for Investment Protection

Investors may benefit from Peru’s legal stability regime by entering into Legal Stability Agreements (CEJ), pursuant to which the Government guarantees the stability of the laws governing certain legal regimes and rights for a specific term.

Said Legal Stability Agreements (CEJ) have law status between the parties thereto. Therefore, the parties must abide by them and cannot amend them on a unilateral basis. Further, the Government may not unilaterally modify them by adopting a law or revoke them in any way other than the grounds for termination of the infringement provided for in the Legal Stability Agreement (CEJ) itself.

Legal Stability Agreements (CEJ) may be entered into at any time, provided the legal requirements are met. If an investment in the form of a contribution to a local company’s capital stock has been made before the execution of a Legal Stability Agreement (CEJ), said investment may be used to fulfill the investment commitment requirements for both the investor and the local company’s Legal Stability Agreements (CEJ), provided said agreements are entered into within the next twelve months after the registration of the capital stock increase in the local company’s accounting records.

Generally, the term of any Legal Stability Agreements (CEJ) is ten years, and the time period to comply with the pertinent investment agreement is two years. However, for companies entering into concession agreements by virtue of Legislative Order No. 1362, the term of Legal Stability Agreements (CEJ) of the recipient company and those of each investor may be the same as the concession agreement thereof. In such case, the time period to invest and comply with investment

requirements will be determined by the provisions in the pertinent concession agreement.

Requirements for Investors under the General Legal Stability Regime

Generally, among other requirements, investors are required to contribute to the capital stock of a local company within a term of two years and the total investment commitment shall be, at least, USD10 million for mining and hydrocarbon activities or USD5 million for all other activities.

Additionally, investment must be directed through the Peruvian financial system.

Requirements for Recipient Companies under the General Legal Stability Regime

Recipient companies may also enter into a Legal Stability Agreement (CEJ) with the Government if they receive investments from at least one investor meeting the requirements set forth by law.

Companies fulfilling this requirement may benefit from the stability of the employment and export promotion regimes. In addition, they can benefit from income tax regime stability, provided they meet any of the following requirements:

• The new investments exceed 50% of the company’s capital stock and reserves accounts, and are allocated to the expansion of its production capacity or to technological improvement; or
• The new investments entail the acquisition of more than 50% of the shares of a company that is directly or indirectly owned by the Government (as is the case in state-owned companies that are privatized)

Rights Guaranteed under Stability Agreements

• For foreign investors

Legal Stability Agreement’s guarantee, for the entire term of the agreement and in connection with the amount of the corresponding investment commitment, legal stability of the regulations governing the following regimes and rights:

- Income tax regime: Dividends and any other form of profit-sharing in profits to which foreign investors are entitled will not be affected by modifications or new taxes arising during the period of validity of the Legal Stability Agreement (CEJ).

- The right to free availability of foreign currency (only for foreign investors);

- The right to freely remit funds, profits, dividends and royalties abroad, without any limitations or restrictions (only for foreign investors);

- The right to use the best exchange rate available on the market;

- The right to non-discrimination.

• For recipient companies

Legal Stability Agreement’s guarantee, for the entire term of the agreement, legal stability of the regulations governing the following regimes and rights:

- Income Tax system (if at least one of the specific requirements is met): Throughout the term of the Legal Stability Agreement, amendments to the Income Tax regime will not be applicable to the titleholder of the Legal Stability Agreement (CEJ). Similarly, taxable income will be calculated based on the same rates, deductions and scale set forth in the legislation in effect at the time of executing the agreement. This protection exists regardless of whether said modifications prove favorable or not to the company;

- Employment system

- Export promotion system

Source: AllBright Law Offices

Contributor：Peru Rodrigo, Elías & Medrano Law Office

Chinese Translation: WANG Liang, E-mail: wangliang@allbrightlaw.com

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