Banking & Finance 2024 Comparisons

Recent economic cycles and regulatory changes have significantly influenced Peru’s loan market, shaping its trends and direction. During periods of economic growth, demand for loans increases due to higher consumer pressure, business spending and capital expenditures’ lending activity, increased competition among banks, and potentially lower interest rates. Conversely, during economic downturns, borrowing often declines as confidence drops, causing lenders to tighten credit conditions, raise interest rates, and be more selective in granting loans. High inflation impacts the real value of debt, prompting lenders to raise rates to mitigate risks, while central bank interest rate adjustments influence loan affordability and demand.

As examples, the consequences of the COVID-19 pandemic and the global increase in interest rates had huge impacts on Peru’s financial markets. Banks and other financial institutions slowed down their lending activities and avoided risks that were otherwise acceptable, making access to credit for certain companies very difficult. These companies then had to turn to other kinds of lenders, such as private debt funds.

Regulatory changes have also played a crucial role in shaping the loan market. Stricter financial regulations, such as higher capital requirements and detailed credit assessments aimed at stabilising the financial system, have had important impacts on lending practices. Enhanced consumer protection regulations have improved transparency and fairness in loan terms. Government support programmes during economic downturns, including loan guarantees and subsidised rates, have helped to stimulate borrowing. Efforts to increase financial inclusion through digital banking and microfinance have expanded credit access, while stricter anti-money laundering (AML) and know-your-customer (KYC) regulations have increased due diligence. Additionally, the rise of fintech companies has modernised the loan market by providing digital solutions, and there is a growing focus on sustainable finance, with loans increasingly tied to environmental, social and governance (ESG) criteria.

Global conflicts have a profound impact on Peru’s loan market, affecting its direction, terms and trends. Economic uncertainty from global conflicts often leads to volatility in the financial markets, causing banks in Peru to adopt cautious lending practices. This results in tighter credit conditions and more conservative lending strategies. Additionally, disruptions in international trade and investment due to conflicts can affect Peru’s economy, particularly industries reliant on global markets, thereby altering the demand for credit in those sectors.

This is particularly relevant in places such as Peru, where – as an exporter of mining and agricultural products and an importer of certain primary goods such as wheat or oil – the economy is dependent on foreign trade.

In terms of loan conditions, global conflicts can lead to increased borrowing costs in Peru as inflation and supply chain disruptions drive up interest rates. Lenders may also impose stricter terms, such as higher collateral requirements and more rigorous credit assessments, to manage the heightened risks. Trends in the loan market during conflicts include a shift towards safer investments and clients, increased demand for emergency financing to handle economic shocks, and a greater focus on resilience and diversification. This shift affects loan demand, with more financing directed towards projects that enhance stability and blue-chip corporate clients.

The high-yield market has significantly impacted financing trends in Peru by expanding access to capital and influencing loan terms and structures. With a banking system tightening their credit requirements, high-yield instruments, known for their higher interest rates due to increased risk, have provided Peruvian companies – especially those with lower credit ratings or in high-risk sectors – with more opportunities for funding. This has been crucial for business expansion and restructuring efforts during the economic downturn experienced in the last few years. Active participation in the high-yield market reflects a greater investor appetite for risk, which encourages companies to seek out these financing options and signals confidence in managing higher-risk investments.

In terms of financing terms and structures, high-yield market activity has led to increased borrowing costs, as higher interest rates reflect the greater risk involved. These instruments often come with more flexible terms, such as adjustable rates, extended maturities, or looser covenants, which provide borrowers with more operational freedom, but increase risk for lenders. The focus on high-yield investments has attracted a broader range of investors, including international investors, enhancing market liquidity and supporting targeted investments in high-growth, high-risk sectors. This environment has also spurred greater corporate activity, including mergers and acquisitions, as companies leverage high-yield debt for strategic growth and acquisitions.

Peru’s loan market has experienced significant growth due to the rise of alternative credit providers, including fintech companies and microfinance institutions. Fintech firms have introduced innovative lending solutions such as peer-to-peer lending and digital credit platforms, which offer more accessible credit options beyond traditional banking channels. Similarly, microfinance institutions have expanded their services to underserved populations, including small businesses and low-income individuals, and even part of Peru’s informal economy, thereby enhancing financial inclusion.

This growth has had a notable impact on financing terms and structures. Alternative credit providers often offer more flexible loan terms compared to traditional banks. These terms include quicker approval processes, adjustable interest rates, and diverse repayment schedules, which cater to a wide range of borrower needs. Such flexibility has made it easier for individuals and businesses to access credit tailored to their specific situations.

However, alternative credit providers typically charge higher interest rates, reflecting the greater risk associated with lending to underserved or higher-risk segments. The introduction of new loan structures, such as microloans and digital credit lines, has further diversified financing options. Additionally, the increased competition from these alternative providers has prompted traditional banks to improve their own services and offer more competitive rates and terms. Overall, the expansion of alternative credit providers has enhanced loan accessibility and flexibility while increasing market competition.

In Peru, banking and finance techniques are adapting to better serve both borrowers and investors through several advancements. The adoption of holding company (“HoldCo”) structures is on the rise, allowing businesses to manage multiple subsidiaries under a single parent company. This approach offers streamlined financing, improved tax management, and enhanced risk management. Additionally, the use of preferred equity is growing, providing investors with a higher claim on assets and earnings, often accompanied by fixed dividends. This type of equity enables companies to raise capital without diluting common equity and can be integrated with other financing forms to create tailored financial solutions.

Certainly, these structures are gaining space in the financing market due to the appearance of new and less risk-averse credit providers that are willing to work with structures that are not familiar to the banking system, probably riskier, but tailor-made for the needs of this group of otherwise unattended borrowers.

Technological advancements are also reshaping the financial landscape. Digital banking and fintech innovations are improving access to credit and simplifying loan processes through online platforms and mobile apps. Fintech firms leverage data analytics and AI to offer personalised loan solutions and make more informed credit decisions. Moreover, the exploration of blockchain technology and smart contracts is enhancing transparency and efficiency in financial transactions. Customised loan products and flexible terms are increasingly common, allowing financial institutions to cater to specific borrower needs, such as working capital or growth financing, and to adapt to individual financial situations.

In Peru, ESG and sustainability-linked lending are experiencing notable growth, reflecting a global trend towards sustainable finance. Financial institutions are increasingly integrating ESG criteria into their lending practices, offering products such as sustainability-linked loans and green bonds. This development aligns with both local and international regulatory frameworks designed to promote environmental and social responsibility.

Regulatory support for ESG initiatives is also on the rise, with Peruvian regulators, including the Central Reserve Bank of Peru (Banco Central de Reserva del Peru or BCRP), beginning to incorporate sustainability considerations into financial regulations. This regulatory shift encourages financial institutions to adopt ESG practices, thereby enhancing transparency and fostering a commitment to sustainable development.

Certain sectors in Peru are particularly active in adopting ESG and sustainability-linked financing. The renewable energy sector, including solar, wind, and hydroelectric projects, stands out as a major focus, reflecting Peru’s dedication to increasing its use of renewable energy and reducing carbon emissions. Green building and sustainable infrastructure projects are also receiving significant attention, aimed at improving energy efficiency and minimising environmental impact. Additionally, projects in agriculture and water management that promote sustainable practices are supported, as are corporate initiatives seeking to enhance overall ESG performance through sustainability-linked loans.

In Peru, it is necessary to differentiate between financial entities that are under the supervision of the Banking Superintendency and those outside that scope. Banks and some non-banking financial institutions (ie, financial leasing companies, factoring companies, mortgage companies, etc) are included in the first group; all others are in the second group. Those included in the latter do not need to be authorised by the Superintendency of Banking, Insurance and Private Pension Fund Administrators (Superintendencia de Banca, Seguros y AFP or SBS), although in some cases, the company can request to be registered with the SBS, in which case, it will assume certain reporting obligations.

The regulatory framework ensures that financial institutions under the supervision of the SBS comply with Peruvian laws and maintain financial stability and operational integrity.

Requirements for Banks

Authorisation from the SBS

• Licensing: Banks must secure a licence from the SBS, Peru’s financial regulator. This involves submitting a comprehensive application that includes information about the bank’s business model, capital structure, governance and operational plans.
• Capital requirements: Banks need to meet minimum capital requirements as defined by the SBS. This ensures they have adequate financial resources to manage their liabilities and support their lending activities.
• Regulatory compliance: Banks must comply with various regulations, including anti-money laundering (AML) and combating the financing of terrorism (CFT) laws. They are also required to implement effective risk management and internal control systems.

Operational procedures

• Financial reporting: Banks are required to regularly submit financial statements and reports to the SBS to demonstrate ongoing compliance with financial standards.
• Audits and inspections: The SBS conducts regular audits and inspections to monitor banks’ adherence to regulations and assess their financial health.

Requirements for Non-banking Financial Institutions Supervised by the SBS

Authorisation from the SBS or other relevant authorities

• Licensing: Non-banking financial institutions, including microfinance institutions (MFIs), must obtain authorisation from the SBS or other relevant regulatory bodies, depending on their specific activities. The licensing process involves submitting business plans, financial projections and compliance mechanisms.
• Capital and reserve requirements: Non-banks must meet certain capital and reserve requirements as set by the regulatory authority to ensure they can support their lending activities.

Compliance and reporting

• Regulatory compliance: Non-banks must adhere to regulations related to AML, CFT and consumer protection. They need to implement policies and procedures to comply with these regulations.
• Regular reporting: Non-banks must submit regular financial and operational reports to the relevant regulatory bodies. This includes financial statements, performance reports and compliance audits.

Operational standards

• Risk management: Non-banks must establish strong risk-management frameworks and internal controls to assess and manage credit and operational risks.
• Consumer protection: They must follow consumer protection regulations to ensure fair and transparent lending practices.

Common Procedures for Both Banks and Non-banks Supervised by the SBS

Application process

Both banks and non-banks must complete a rigorous application process to gain authorisation. This involves providing detailed documentation, undergoing background checks, and demonstrating financial stability.

Regulatory oversight

Authorised institutions are subject to ongoing regulatory oversight, including audits, inspections and compliance reviews, to ensure adherence to the laws and regulations.

All other financial entities not supervised by the SBS do not need to comply with all the above. It must be noted that a different tax regime applies to financial entities that are not under the SBS’s supervision. 

Foreign lenders are not restricted in any way from providing loans in Peru. However, if foreign lenders wish to operate in Peru, they must adhere to specific regulatory requirements and procedures.

Registration With the SBS

Foreign lenders need to register with the SBS if they wish to operate directly in Peru. This process involves submitting documentation to demonstrate compliance with international financial standards and local regulations.

Compliance With Local Laws

Foreign lenders must adhere to Peruvian financial regulations, including anti-money laundering (AML) and combating the financing of terrorism (CFT) laws.

Operational and Tax Regulations

Foreign loans are subject to Peruvian tax regulations. Foreign lenders might also need to establish a local representative office or appoint a local agent to facilitate operations and ensure adherence to local laws.

Cross-Border and Ongoing Compliance

Foreign lenders must ensure that loan agreements comply with Peruvian legal standards on interest rates, collateral and dispute resolution. They are required to submit periodic reports, undergo audits, and meet ongoing regulatory requirements to maintain compliance with Peruvian financial regulations.

Notwithstanding the above, foreign lenders may provide loans to Peruvian borrowers subject to local law, making all the necessary provisions to ensure collateral (located in Peru) and dispute resolution (regarding such collateral) is subject to Peruvian law.

In Peru, foreign lenders can receive security or guarantees over assets or rights located in Peru, but they must comply with local regulatory requirements and procedures. These include adhering to Peruvian laws governing collateral and security interests, which are designed to protect the rights of creditors and debtors. For security interests such as mortgages or pledges to be enforceable, they must be registered with the relevant Peruvian authorities. Ensuring that these registrations are properly completed is crucial in order for foreign lenders’ security interests to be legally recognised and enforced within the country.

To effectively manage these requirements, foreign lenders are advised to seek local legal and financial advice. Local expertise is essential for understanding and adhering to Peru’s regulatory framework for security interests and guarantees. Proper documentation and accurate filings with local authorities are necessary to ensure the enforceability of security interests. By following these procedures and seeking appropriate guidance, foreign lenders can ensure their security interests and guarantees are legally sound and effectively managed.

There are no restrictions, controls or other concerns regarding foreign currency exchange. Peru has a very friendly foreign investment environment that guarantees the use and disposition of foreign currency and the right to use the most favourable exchange rate available on the exchange market.

While there are no specific restrictions on the general use of loan proceeds or debt securities funds in Peru, there are specific regulations and requirements aimed at ensuring appropriate use and transparency.

Regarding loan proceeds, financial institutions require borrowers to specify the intended use of loan proceeds when applying for loans, ensuring the funds are used for lawful and approved purposes. In addition, certain sector-specific regulations and scrutiny apply to public infrastructure and environmentally sensitive projects, to ensure compliance with these sectors’ applicable laws.

Regarding public debt securities proceeds, companies must provide comprehensive disclosure regarding the use of proceeds when issuing debt securities, detailing how the funds will be utilised and ensuring alignment with disclosed plans. Furthermore, issuers must file necessary documentation with the Superintendency of the Stock Market (Superintendencia del Mercado de Valores or SMV) to inform investors about the use of proceeds and associated risks.

Proceeds must be used in compliance with Peruvian laws and cannot be allocated to illegal activities or in ways that contravene national regulations.

The concepts of agency and trust are recognised in Peru.

Agency

The concept of agency is well recognised under Peruvian law, specifically in the Civil Code. An agent acts on behalf of another party (the principal) and has authority to perform legal acts within the scope of their mandate. Agencies are commonly used in various business transactions, including commercial representation, contract negotiations, and real estate dealings. Agents must operate within the bounds of their authority and are often required to act in the best interests of the principal.

The use of agents in certain financing transactions, such as syndicated loans, is common practice.

Trust

Although trusts, as understood in common law jurisdictions, do not exist under Peruvian law, there is a similar fiduciary agreement called unfideicomiso. In such fiduciary arrangements, fiduciary relationships are created, where one party holds assets on behalf of another (including fiduciary bank accounts). These arrangements are governed by specific agreements (contratos de fideicomiso) and have a fiduciary agent (such as a bank or financial institution) that manages the assets on behalf of another party, according to specific terms outlined in the fiduciary agreement, giving those assets special protection from third parties.

The assets transferred under the agreement are independent of the assent of the trustor and the trustee, and can only be used for the purpose set forth in the fiduciary agreement (or as it is commonly called, “trust agreement”).

This kind of structure is very common in corporate financing and capital markets transactions as it has several advantages over other kinds of guarantees, such as: the assets transferred in fideicomiso are not considered to be part of the borrowers’ assets in the case of insolvency or bankruptcy; and the foreclosure of assets transferred in fideicomiso is subject to the rules set forth in the trust agreement without having to request foreclosure from a judge or even having a judge declare that a default has occurred (this is different to what happens with traditional securities as mortgages, where the lender needs to demand payment and foreclosure with the judiciary, a process that can take over two years).

In Peru, transferring loans and their associated security packages involves formal procedures to ensure proper documentation and legal recognition. The transfer of a loan is executed through an assignment agreement between the original lender and the new lender. This agreement must be documented and signed, and the borrower must be formally notified to direct future payments to the new lender. All relevant loan documentation, including the original agreement and any amendments, must be transferred to complete the process.

If the rights over the loan are being transferred, the securities are transferred automatically, unless agreed otherwise. However, it is common practice to have a specific assignment agreement for the guarantees granted. On the other hand, if the contractual position is being transferred, then (i) securities granted by the borrower are assigned automatically (although, again, it is common practice to execute specific assignments agreements), and (ii) securities granted by third parties need to be expressly assigned by such third party. In all cases, the assignment is usually registered with the Public Registry to ensure the new lender’s rights are recognised against third parties. In some cases, the process might involve novation, where the original loan agreement is replaced with a new one that includes the new lender.

Due diligence is crucial to verify the validity and enforceability of the transferred loan and security package, and it is advisable for the parties to seek legal advice to navigate these complex procedures effectively.

In Peru, borrowers and sponsors are allowed to repurchase their own debt, which can be a strategic move to manage finances or capitalise on favourable market conditions. However, this process must comply with specific legal and regulatory requirements. For publicly traded debt, the buyback must adhere to regulations set by the SMV, which include disclosure and reporting obligations. The terms of the debt agreement must be followed, and it may be necessary to obtain approval from existing lenders or bondholders.

The buyback process typically involves negotiating terms with creditors, which might include paying a premium or penalty. Additionally, the impact on cash flow and overall financial strategy must be carefully considered to ensure that the buyback aligns with the borrower’s or sponsor’s broader financial objectives and liquidity management plans.

In Peru, “certain funds” provisions in public acquisition finance transactions are designed to ensure that the acquiring party has secured the necessary financial resources to complete the transaction. These provisions typically require evidence of committed financing or letters of credit from financial institutions to confirm the acquirer’s ability to fulfil payment obligations. This mechanism is crucial for maintaining the integrity and smooth execution of the acquisition process, providing assurance to all parties involved.

Such provisions are standard in public acquisition finance transactions and reflect common practices seen globally. In Peru, both short-form and long-form documentation may be utilised depending on the transaction’s complexity. Short-form documentation is typically used for simpler deals, capturing essential terms, while long-form documentation is more detailed and suited for larger, more intricate transactions. Long-form agreements generally include comprehensive terms and conditions related to the financing arrangements and transaction details.

Recent legal and commercial developments in Peru have significantly impacted legal documentation, prompting necessary updates to reflect evolving regulations and market conditions.

Legal Developments

Changes in financial and securities regulations have led to updates in loan agreements and financing documentation. New compliance requirements, particularly concerning anti-money laundering (AML) and combating the financing of terrorism (CFT), have introduced more detailed due diligence and reporting provisions. Additionally, amendments to securities laws have necessitated revisions in public acquisition finance documents to meet new disclosure and transparency standards. Furthermore, the rising environmental, social and governance (ESG) focus has led to the incorporation of sustainability-linked provisions in financial agreements.

Commercial Developments

Economic fluctuations and market volatility have driven changes in loan covenants and risk management terms to better address current financial realities. The increase in debt restructuring activities has also led to updates in documentation to facilitate refinancing and support business continuity. Additionally, the growth of digital platforms has resulted in legal documentation adaptations to support electronic signatures and digital transaction processes.

Usury Laws

The Peruvian Civil Code prohibits usurious practices, making it illegal to charge excessively high interest rates (in excess of the maximum rates set by the Central Bank). However, these limits do not apply to corporate lending in the financial markets.

Interest Rate Caps

Specific limits apply to consumer and personal credit lower than approximately USD3,000. Above that limit, financial institutions can set rates freely.

Consumer Protection

Financial institutions must clearly disclose interest rates and any associated fees, ensuring transparency about the total cost of borrowing.

Compliance and Enforcement

The SBS monitors financial institutions to ensure adherence to interest rate regulations. Institutions charging above the legal limits may face penalties.

Legal Recourse

Borrowers who encounter excessively high rates can seek legal recourse or file a complaint with the SBS.

Market Practices

While regulatory caps set upper limits, actual interest rates vary based on factors like creditworthiness and loan type, with institutions required to stay within legal limits.

In Peru, specific rules and laws govern the disclosure of terms in financial contracts to ensure transparency and protect consumers. The Peruvian Civil Code and the Consumer Protection Law mandate that financial institutions provide clear and comprehensive information about the terms and conditions of financial products. This includes details on interest rates, fees and additional charges, to ensure that consumers fully understand the costs associated with borrowing or credit before entering into agreements.

The SBS oversees compliance with these disclosure requirements and ensures that financial institutions adhere to regulations by requiring them to disclose crucial details about loan agreements and credit contracts. This includes presenting information such as annual percentage rates (APR), total loan costs, and repayment schedules in a clear and accessible manner.

Consumers have the right to receive complete and understandable information about financial products, which allows them to make informed decisions and compare offers. Financial institutions must provide pre-contractual information, ensuring that all relevant details are disclosed before the consumer commits to a contract. This framework supports transparency and fairness in the financial sector, helping to protect consumer interests.

In Peru, payments of interest, and other payments made to lenders are generally subject to withholding tax. The specifics can vary depending on the nature of the payment and the status of the recipient. Here’s a summary of how withholding tax applies.

Interest Payments

Interest payments made to non-resident lenders are subject to a withholding tax in Peru. The standard withholding tax rate to foreign lenders is 4.99% over the interest, or 30% if the lender is a related party. This rate can vary if there is a tax treaty in place between Peru and the lender’s country of residence, which may reduce the withholding tax rate.

Principal Payments

Principal repayments, which refer to the repayment of the actual borrowed amount, are not typically subject to withholding tax in Peru. These payments are considered a return of capital rather than income.

Other Payments

Other payments, such as fees or charges related to loans, may also be subject to withholding tax. The applicable rates and rules depend on the specific nature of the payment and the relevant tax regulations.

It is important for lenders and borrowers to consider the impact of withholding tax when structuring financing arrangements and to consult with tax professionals to ensure compliance with Peruvian tax laws and any applicable international treaties.

When lenders provide loans to, or take security and guarantees from, companies incorporated in Peru, there are several tax-related factors to consider. Here is a simplified breakdown of the key taxes, duties, and charges that may come into play.

Withholding Tax on Interest Payments

When a Peruvian company pays interest to a foreign lender, the payment is subject to a withholding tax. This tax is deducted at the source before the payment is made to the lender. The standard rate is 4.99% on interest (or 30% if the lender and borrower are related parties), but this rate can be lower if there is a tax treaty between Peru and the lender’s country. These treaties can reduce the withholding tax rate to avoid double taxation.

Financial Transactions Tax

Peru imposes a small tax on certain financial transactions, including some related to loan activities. This is known as the financial transactions tax and is typically 0.005% of the transaction amount. It applies to money transfers between bank accounts, which could impact on some aspects of the loan transaction.

Value Added Tax (VAT)

VAT, which is 18% in Peru, usually applies to services, including financial services. So, if the lender provides additional services like financial consulting or advisory services, those services might be subject to VAT. However, the actual loan interest payments will not be subject to VAT as long as the lender is a local or foreign financial institution.

Local Taxes

Local governments might impose taxes or fees related to registering security interests or guarantees. For example, if the loan is secured by real estate, the property might be subject to property taxes. Additionally, there may be registration fees for recording the security interest with local authorities.

Corporate Tax Deductions

For the borrowing company, the interest paid on loans is usually deductible from its taxable income. This can reduce the company’s overall tax bill. However, this is subject to local tax laws and regulations, including transfer pricing rules which ensure that the terms of the loan are fair and consistent with market rates. Peru caps the deduction of net interest to an amount equal to 30% of EBITDA, which stands for “earnings before interest, taxes, depreciation and amortisation”. Any portion of net interest for which deduction is disallowed under this rule can be carried forward to the next tax year, such that in each following year it will be added to the net interest of the year and the cap will be applied to the result of such summation. However, this rule does not apply to taxpayers whose net income is equal to or less than 2,500 tax units, or insurance and banking companies, or other specific exceptions.

Transfer Pricing Rules

If the loan is between related parties (eg, between a parent company and a subsidiary), Peru’s transfer pricing rules apply. These rules require that the terms of the loan reflect what would be agreed upon between unrelated parties, to prevent tax manipulation.

In summary, while the main tax concern for lenders is the withholding tax on interest payments, there are other considerations such as local taxes, VAT on services, and transfer pricing rules. Understanding these factors helps ensure compliance and effective management of financial arrangements in Peru. For detailed guidance, consulting with a tax professional familiar with Peruvian tax law is advisable.

When engaging with foreign lenders or non-money centre banks in Peru, several tax considerations are important.

Withholding Tax

payments to foreign lenders are subject to a withholding tax of 4.99% (or 30% if the lender is a related party), though this rate can be reduced under tax treaties between Peru and the lender’s home country. To minimise withholding tax and benefit from reduced rates, it is crucial to review any applicable tax treaties and ensure all required documentation is provided.

Transfer Pricing Regulations

Transfer pricing regulations require that loan terms between related parties adhere to market standards to prevent tax manipulation. To comply, it is important to conduct a thorough transfer pricing analysis and maintain detailed documentation that demonstrates the arm’s length nature of the loan terms. This helps ensure that the loan is compliant with Peruvian regulations.

Local Tax Compliance and Reporting Requirements

Additionally, foreign lenders may face challenges with Peruvian tax compliance and reporting requirements. Engaging local tax experts can help to navigate these complexities, and regular audits can ensure accurate and timely tax filings. Local taxes and financial transaction taxes may also apply, so understanding these requirements and incorporating any related costs into loan agreements is essential. Staying informed about both local and international regulations, and seeking legal advice where necessary, will assist in managing these tax concerns effectively.

In Peru, various types of assets can be pledged as collateral for loans, and securing these assets involves specific formalities and perfection requirements. The following is a breakdown of the typical collateral types, forms of security, and related procedures.

Types of Collateral

• Real estate: properties, including land and buildings, are commonly used as collateral, typically secured through mortgages.
• Movable assets: assets such as machinery, equipment, vehicles and inventory can be pledged, usually through pledges or liens.
• Financial assets: stocks, bonds and other financial instruments can be pledged, often through security agreements or account pledges.
• Receivables: trade receivables and other accounts receivable can be secured via assignments.
• Accounts: regular accounts can be pledged.

Forms of Security

Security regularly takes one of these forms:

• Mortgage (hipoteca): this secures real estate and must be registered with the Public Registry of Real Estate to be effective against third parties.
• Pledge (garantía mobiliaria): this secures movable assets and accounts and generally requires registration with the relevant Public Registry or specialised registries.
• Trust agreement (fideicomiso): this is used for real estate, assets, receivables and accounts and it involves a written agreement, a trustee and registration with the Public Registry.
• Performance bond and/or guarantee letters: this involves a performance bond issued by a bank or a guarantee letter from the shareholders or a company of the economic group.

Formalities and Perfection Requirements

• Registration: mortgages, pledges and trusts (fideicomisos) must be officially recorded with the Public Registry of Real Estate and/or contracts, which involves notarising the public deeds and paying registration fees.
• Documentation: these agreements must clearly state the terms of the security, including collateral details and obligations. Notarisation or formalisation might be required.

Consequences of Non-compliance

If a security interest is not properly registered or perfected, it may not be enforceable against third parties, meaning the lender’s claim could be compromised in the event of default. Furthermore, security interests that are not registered or perfected may have lower priority compared to properly documented claims.

Timing and Costs

• Registration time: the duration for registration varies – real estate mortgages may take several weeks, whereas movable pledges could be processed more quickly.
• Costs: expenses include registration fees, notarial fees for documentation, and legal fees for preparing and reviewing agreements, which can vary depending on the collateral’s complexity and value.

In Peru, the legal framework does not specifically recognise the concept of a floating charge, as seen in jurisdictions like the UK. Instead, similar security interests over a company’s present and future assets can be achieved through different mechanisms. While the term “floating charge” is not used, Peruvian law allows for broad security interests through general security agreements and pledges.

One common approach is the use of general security agreements and pledges, which can cover a wide range of assets, including both current and future assets. These agreements must be documented in writing and registered to be effective. For movable assets, registration typically occurs with the Public Registry or other specialised registries, depending on the asset type.

For real estate, while traditional mortgages apply to specific properties, there are ways to structure mortgages to include future acquisitions of real estate. This requires precise documentation and registration with the Public Registry of Real Estate. Ensuring that all documentation is accurate, and registration is completed is crucial for enforcing these security interests and establishing their priority against other claims.

In Peru, entities are allowed to provide downstream, upstream and cross-stream guarantees, each with specific limitations.

Downstream Guarantees

Downstream guarantees, where a parent company supports its subsidiaries’ obligations, are permitted but should not impair the parent’s financial health. Proper documentation is crucial.

Upstream Guarantees

Upstream guarantees, provided by a subsidiary for its parent company, are allowed but must ensure the subsidiary’s financial stability and comply with corporate by-laws and shareholder agreements.

Cross-Stream Guarantees

Cross-stream guarantees involve one entity within a corporate group supporting another and must be transparent and not breach legal obligations.

Corporate governance rules require that such guarantees receive appropriate approval from the shareholders or board and align with internal policies. Financial health considerations mandate that guarantees should not undermine the guarantor’s stability, necessitating a thorough financial assessment.

In the context of an acquisition, whether a target company in Peru can grant guarantees, security or financial assistance for the acquisition of its own shares is governed by specific legal and regulatory restrictions.

Legal Restrictions

Under Peruvian corporate law, particularly the General Companies Law (Ley General de Sociedades), there are restrictions on a company’s ability to provide financial assistance for the purchase of its own shares. This generally includes prohibitions against a company using its own resources to finance or guarantee the acquisition of its shares by others. This rule is in place to prevent conflicts of interest and to protect the company’s financial stability.

Financial Assistance

Peruvian corporate law prohibits companies from giving financial assistance, such as loans or guarantees, to facilitate the acquisition of their own shares. This is intended to prevent practices that could undermine the financial integrity of the company or disadvantage minority shareholders.

In Peru, companies face several restrictions and requirements when granting security or guarantees, particularly in the context of acquisitions or significant transactions. Peruvian law generally restricts companies from providing financial assistance, such as loans or guarantees, for the acquisition of their own shares. This is to prevent any potential conflicts of interest and protect the financial stability of the company. Additionally, internal company by-laws may impose further limitations on granting security or guarantees, ensuring adherence to internal governance rules.

The costs associated with providing guarantees or security can be significant. Companies often incur legal and advisory fees, including those for legal counsel to draft and review agreements and for financial advisers to assess the financial implications. There are also costs related to regulatory compliance, such as preparing and submitting documentation to the authorities and conducting audits or reports as required.

Obtaining the necessary consents is a crucial part of the process. Shareholder approval is typically required, necessitating a general meeting to ensure that all significant decisions are made transparently and are in the best interests of the company. The board of directors must also pass a resolution authorising the granting of a security or guarantees, confirming that the action aligns with the company’s strategic and financial goals.

In some cases, additional approvals may be needed from regulatory bodies like the SMV, especially for publicly traded companies. While not always mandatory, consultation with works councils or employee representatives might be required if the guarantees or security arrangements could impact employee interests or if consultations are stipulated by collective bargaining agreements. Overall, companies must carefully navigate these restrictions, costs and consent requirements to ensure compliance and manage potential impacts effectively.

Finally, in most cases, securities are formalised by executing public deeds and registering the securities agreement in the applicable Public Registry, which can be costly as the amount charged will depend indirectly on the amount of the loan being guaranteed.

Releasing security interests involves several key steps to ensure proper discharge and notification.

Fulfilment of the Obligation

Firstly, the primary condition for releasing security is the fulfilment of the underlying obligation, such as repayment of a loan. The creditor verifies that all terms of the agreement have been met before proceeding with the release.

Formal Documentation

Next, formal documentation is required. This often includes a release agreement signed by both parties, which specifies that the security interest is being discharged. In addition, for certain securities, such as mortgages or registered liens, formal amendments or notices must be filed with public registries to update the status of the security.

Legal and Administrative Procedures

Legal and administrative procedures follow, which may involve updating public records or registries. For instance, if the security was registered with an authority or commercial registry, a release form or certificate must be submitted to formally remove the security interest from official records. In some cases, clearance certificates from relevant authorities may also be necessary.

Notification and Confirmation

Finally, notification and confirmation are essential. All relevant parties, including the debtor, creditor and any third parties with an interest in the security, should be informed of the release. The debtor may also receive a formal confirmation or receipt from the creditor, acknowledging that the security has been released and all obligations have been satisfied.

Priority of Competing Security Interests in Peru

Principle of priority

Competing security interests are generally governed by the principle of “first in time, first in right”, where the first security interest to be registered or perfected has priority over later ones.

Perfection and registration

To establish priority, security interests must be properly perfected and registered in the relevant public registries. The registration date determines the priority among competing interests.

Methods of Subordination

Contractual subordination

Lenders can use subordination agreements to determine the priority of their claims. These agreements specify which claims are senior or junior, typically with junior lenders agreeing to be repaid after senior lenders.

Subordination clauses

Loan agreements often include subordination clauses that outline the terms and conditions under which claims are subordinated. These must be clearly defined and agreed upon by all the parties involved.

Contractual Variations and Insolvency

Contractual variations

Lenders can negotiate and establish different priority arrangements through intercreditor agreements or subordination agreements. These contractual terms can vary from statutory priority rules.

Survival in insolvency

Contractual subordination provisions usually remain enforceable during insolvency. The agreed-upon priorities typically hold, although enforcement may be subject to the specifics of insolvency proceedings and legal requirements.

In Peru, if a security interest is duly registered in the corresponding Public Registry, no other security can be prime or take precedence over such registered security interest. Even in insolvency scenarios, this priority will be enforced and the creditor for whom the security was granted will benefit from the proceeds of liquidation of the security; provided that, in these scenarios (insolvency proceedings) securities over bank accounts and cash flows are released and other creditors can request judicial seizures of those bank accounts and cash flows.

One way to avoid this risk is by creating trusts (fideicomisos) instead of other kinds of in rem security (such as mortgages or pledges). As mentioned above, the assets transferred to the trust are no longer those of the borrower and, therefore, they are not part of the assets that will be considered to repay all creditors during an insolvency proceeding.

In Peru, a secured lender can enforce its collateral under certain conditions, primarily in cases of default or insolvency:

• default – enforcement occurs when the borrower fails to meet its payment obligations or breaches the terms of the loan agreement; and
• insolvency – in bankruptcy or insolvency situations, lenders may enforce collateral as part of the debt recovery process, subject to judicial oversight.

Methods of Enforcement

• Foreclosure: For mortgages, lenders can initiate foreclosure proceedings to sell the property and recover the debt. This process involves judicial action. For other collateral like machinery or inventory, lenders can sell the assets through public or private sales.
• Repossession: Lenders may repossess items such as vehicles or equipment following a default.
• Execution of guarantees: Lenders can claim payment from guarantors if the primary borrower defaults, following the terms set out in the guarantee agreement.
• Judicial actions: For disputed cases or when collateral is under judicial control, lenders may need to go through court processes.

Procedures and Restrictions

• Notification: Lenders must usually notify the borrower of default or intent to enforce before taking further action, allowing time for the borrower to address the issue.
• Court approval: Some enforcement actions, particularly involving real estate, require court approval or judicial procedures.
• Public auction: Selling collateral often requires a public auction to ensure fair market value, unless otherwise specified in the agreement.
• Priority of claims: During insolvency, enforcement is subject to the priority of claims. Secured creditors have priority over unsecured creditors, but statutory liens (eg, tax or labour) may take precedence.
• It must be noted that securities under a trust agreement (contrato de fideicomiso) will be foreclosed under the terms set forth in the corresponding agreement, as there is no mandatory procedure, as there is with mortgages.

Concerns and Considerations

• Legal compliance: Lenders must follow Peruvian laws regarding enforcement, including proper notification and procedural requirements.
• Debtor rights: Debtors have rights during enforcement, including the ability to contest actions or negotiate settlements.
• Market value: Ensuring collateral is sold at fair market value is important to avoid claims of improper handling or underpayment.
• Reputational risks: The way enforcement is carried out can affect the lender’s reputation and stakeholder relationships.

In Peru, the choice of foreign law, submission to foreign jurisdiction, and waiver of immunity in contracts are generally recognised and enforceable, with some key considerations.

• Choice of foreign law: Peruvian courts respect the selection of foreign law in contracts if it does not conflict with Peruvian public policy or mandatory laws. Foreign law cannot be chosen for the creation or foreclosure of securities over assets or rights located in Peru.
• Foreign jurisdiction: Agreements to submit disputes to foreign jurisdictions are usually upheld, provided the jurisdiction is competent and the agreement complies with Peruvian legal standards. Peruvian courts may enforce foreign judgments or arbitral awards based on international treaties.
• Waiver of immunity: Waivers of immunity are generally enforceable, allowing entities to agree to legal processes under foreign laws, although limitations may apply in the context of state or sovereign immunity.

Overall, for these provisions to be effective, they must be clearly stated in the contract and must align with Peruvian public policy and legal requirements.

In Peru, both foreign court judgments and arbitral awards can be enforced without a retrial of the case’s merits. For foreign court judgments, an exequatur process is required to confirm compliance with local standards, while arbitral awards are enforced based on international treaties like the New York Convention. In both cases, the review is limited to procedural and legal conformity rather than re-evaluating the merits of the case.

To ensure the legality, validity, enforceability or admissibility in evidence in Peru, it is not necessary that any document be filed or recorded with any court or other authority in Peru or that any stamp or similar tax be paid on or in respect thereof.

The enforceability and admissibility into evidence of any foreign document before the Peruvian courts and authorities may be subject to:

• providing an official translation, if the document is not in the Spanish language; and/or
• in the case of documents issued or certified by a public officer outside the Republic of Peru –
1. prior legalisation by an apostille before the competent authority in the country where it was issued, in cases of documents issued in countries that are party to the 1961 Hague Convention Abolishing the Requirements of Legislation of Foreign Public Documents; or
2. prior legalisation before the competent Peruvian consular authority and before the Ministry of Foreign Affairs of Peru, in the case of documents issued in countries that are not party to The Hague Apostille Convention.

For foreign lenders, enforcing rights under a loan or security agreement in Peru involves navigating local legal requirements, judicial procedures, political and economic risks, tax implications, debtor protections, and the enforcement of foreign judgments and arbitral awards. Awareness of these factors and careful contract drafting can help mitigate challenges and enhance the effectiveness of enforcement efforts.

Foreign lenders must ensure that their loan and security agreements comply with Peruvian legal requirements. This includes adherence to local regulations governing secured transactions, bankruptcy, and enforcement procedures. Foreign lenders must take into consideration that enforcement actions, such as foreclosure or repossession, may involve lengthy judicial processes. The efficiency and reliability of the local court system can affect the timeliness and effectiveness of enforcement. Furthermore, the choice of foreign law and jurisdiction in the contract must be clearly defined and compliant with Peruvian laws. Disputes over jurisdiction or applicable law may affect the enforcement process.

When insolvency proceedings begin in Peru, lenders face significant restrictions on their rights to enforce loans, securities or guarantees. A general stay is imposed, which prevents lenders from pursuing legal actions to collect debts or enforce security interests. This stay is designed to give the debtor a chance to reorganise its finances or, in liquidation scenarios, to ensure an equitable distribution of assets among creditors (pari passu principle). Consequently, lenders must wait until the court lifts the stay or grants permission to proceed with enforcement actions.

The insolvency court plays a crucial role in overseeing enforcement actions during insolvency. Lenders seeking to enforce their rights must obtain court approval, which is subject to scrutiny to ensure it aligns with the goals of the insolvency process. This often results in delays, as the court assesses whether the action supports preserving the debtor’s assets and treating all creditors fairly. Additionally, the insolvency proceedings prioritise claims, with secured creditors generally receiving payments before unsecured creditors, although specific priorities within secured claims can vary.

The insolvency process can also lead to alterations or invalidation of security interests. The insolvency court or administrator may challenge the validity of certain security interests, especially if they were established shortly before the insolvency filing (even after the commencement of the insolvency proceeding) or appear to unfairly favour specific creditors. Furthermore, debt restructuring is common during insolvency, potentially resulting in revised repayment terms or settlement plans that lenders may have to accept. Navigating these complexities requires lenders to adapt their strategies in response to the limitations imposed by insolvency proceedings.

In Peru, the order of payment to creditors during a company’s insolvency is structured according to the Peruvian Insolvency Law, which prioritises claims to ensure a fair distribution of the debtor’s assets. The payment hierarchy is as follows:

• Insolvency administration costs – First priority is given to the costs of managing the insolvency process. This includes expenses related to the administration of the insolvency, such as fees for the insolvency administrator, legal costs, and other judicial expenses necessary for the proceedings.
• Labour creditors and pension funds – These receive preference of payment because workers and their pensions are protected by the Peruvian Constitution and for this reason, the Peruvian insolvency system regulates the same protection. 
• Secured creditors – Next in line are secured creditors, who hold collateral or security interests over specific assets of the company. These creditors are paid from the proceeds of the liquidation of the assets that secure their claims. Secured creditors generally have priority over unsecured creditors, meaning they are paid before those without collateral. 
• Tax creditors – After secured creditors, certain claims are prioritised. These include unpaid taxes and social security contributions owed to the government.
• Unsecured creditors – Once secured and priority claims are settled, any remaining assets are distributed among unsecured creditors. These creditors do not have specific collateral backing their claims and are paid on a pro rata basis, proportionate to the amount of their claims.
• Shareholders – Lastly, if there are any remaining assets after all creditor claims have been satisfied, they are distributed to the company’s shareholders. Shareholders are last in the payment hierarchy and typically receive any residual assets only after all debts and obligations have been fulfilled.

In Peru, insolvency proceedings typically last between 18 and 36 months, although this timeline can be extended for more complex cases. The process includes filing the insolvency petition, assessing the company’s financial state, and either restructuring or liquidating the company’s assets. Complex cases involving large or multinational entities with extensive assets and liabilities may take longer due to the need for detailed evaluations and negotiations.

The recovery outcomes for creditors depend largely on the value and liquidity of the company’s assets. In cases where assets are valuable and can be easily liquidated, creditors are more likely to recover a significant portion of their claims. However, if the assets are illiquid or there are significant disputes, the recoveries may be lower. Typically, secured creditors recover a higher percentage of their claims compared to unsecured creditors.

While Peru’s insolvency framework aims to protect creditor interests and ensure an orderly process, the effectiveness of recoveries can vary. The actual amount recovered often reflects a percentage of the total claims and is influenced by asset conditions, the efficiency of the liquidation process, and the presence of secured creditors. Engaging legal and financial experts can help creditors navigate these proceedings and maximise their recoveries.

In Peru, companies facing financial difficulties can explore several options for restructuring or rescuing their business outside of formal insolvency proceedings. The following methods allow companies to address financial issues without going through the court system:

• Out-of-court restructuring – Companies can negotiate directly with creditors to reorganize their debts. This might involve extending repayment periods, reducing amounts owed, or changing interest rates. It requires co-operation from major creditors and often involves detailed negotiations and legal advice.
• Voluntary agreements – Companies may propose restructuring plans to creditors to modify debt terms, such as rescheduling payments or converting debt into equity. These agreements are made outside of court but may need formal documentation to be enforceable.
• Debt rescheduling and refinancing – Companies can re-negotiate existing debt terms or secure new loans to replace old debt. This can help manage cash flow and ease financial pressures.
• Mediation and arbitration – These methods involve third parties to help resolve disputes and facilitate restructuring agreements without formal insolvency. Mediation uses a neutral mediator, while arbitration involves a decision from an arbitrator.

Advantages and Considerations

These alternative approaches can be less disruptive and more flexible than formal insolvency. However, they depend on effective negotiations and creditor co-operation. Legal and financial expertise is often needed to ensure successful outcomes.

When a borrower, security provider, or guarantor becomes insolvent, lenders face several significant risks that can impact their ability to recover their loans or enforce their security interests.

Reduction in Recovery

One major risk is the potential reduction in the recovery from collateral. As insolvency proceeds, the value of the assets securing the loan may decline, often due to distressed sales or reduced asset values. The recovery amount can be further affected by the insolvency process, where the priority of claims dictates how much of the collateral value is available to satisfy different creditors.

Subordination of Claims

Another critical risk area is the subordination of claims. In insolvency, creditors are repaid according to a specific order, with secured creditors typically receiving priority over unsecured ones. However, if there are multiple layers of secured claims or subordinated debt, a lender might find their claim subordinated, potentially resulting in a lower recovery rate if the estate’s assets are insufficient. Additionally, enforcement of security interests can become challenging due to insolvency-related restrictions, such as automatic stays on legal actions, which can delay or complicate the recovery process.

Validity of Guarantees

The validity of guarantees is also a concern during insolvency. If insolvency affects a guarantor, the lender’s ability to claim against the guarantor might be compromised. Guarantees can be contested, particularly if they are found to be voidable or if the guarantor’s assets are inadequate to cover the guarantee. Furthermore, lenders might face potential preference claims where payments or transactions made before insolvency are reversed. This can impact the amount that lenders ultimately recover from the borrower (voidable transactions such as preferences or transactions at an undervalue).

Mitigation

To mitigate these risks, lenders should perform thorough due diligence before extending credit, to evaluate the borrower’s financial stability and the quality of collateral. Establishing clear and enforceable security agreements with priority rights is essential. Regular monitoring of the borrower’s financial condition can help in anticipating potential insolvency issues. Additionally, seeking legal advice can aid in navigating insolvency laws and procedures effectively, thereby improving the chances of recovering loans and securing interests.

In Peru, project finance activity has been robust, particularly in key industries that drive the country’s economic growth. The following is an overview of the current state of project finance in Peru and the industries most actively using this form of financing.

• Growing sector: Project finance in Peru has been growing steadily, driven by the need for large-scale infrastructure projects, energy developments, and resource extraction ventures. The financing model is favoured for its ability to allocate risk among various stakeholders and its reliance on cash flows generated by the projects themselves rather than the creditworthiness of the sponsors.
• Financial institutions and investors: Peruvian banks, international financial institutions and investment funds are actively involved in providing project finance. These entities are increasingly engaging in structured finance deals to support the development of major projects in the country.

Active Industries in Project Finance

Energy

Peru has seen significant investment in renewable energy projects, including wind, solar and hydroelectric power. The country’s commitment to increasing its renewable energy capacity and reducing carbon emissions has driven considerable project finance activity in this sector. Furthermore, there is also ongoing investment in conventional energy sources such as natural gas and oil, particularly for projects involving the development of infrastructure to support energy extraction and distribution.

Mining

Mining is a major industry in Peru, and project finance is crucial for the development of large-scale mining operations. Financing is often used to fund the construction of mining facilities, infrastructure and the equipment needed for mineral extraction and processing. Project finance supports exploration activities and the expansion of existing mining projects, facilitating the development of new mining assets and increasing production capacities.

Infrastructure

• Transportation: There is considerable project finance activity in the transportation sector, including the construction and upgrading of roads, bridges, railways and ports. These projects are essential for improving connectivity and supporting economic growth; and
• Urban development: Financing is also directed towards urban infrastructure projects such as public transportation systems, waste management facilities, and water supply systems.

Telecommunications

The telecommunications sector in Peru has seen project finance activity related to the expansion and modernisation of networks. This includes investments in expanding broadband coverage and improving telecommunications infrastructure to support growing demand.

Trends and Future Outlook

Government initiatives

The Peruvian government has been supportive of project finance through various initiatives, including public-private partnerships (PPPs) and regulatory frameworks designed to attract investment in infrastructure and energy sectors.

Economic impact

Project finance continues to play a critical role in supporting Peru’s economic development by enabling the construction of vital infrastructure and resource projects that drive growth and improve living standards.

Public-private partnership (PPP) transactions in Peru are governed by the following laws and related regulations, which provide a structured framework for collaboration between public and private entities:

• PPP Law (Legislative Decree No 1362) – This law provides the primary legal framework for PPPs in Peru, setting out the rules for public-private collaboration in infrastructure and public service projects. It covers various aspects, including project selection, contractual arrangements, risk allocation and dispute resolution.
• Regulation of PPPs (Supreme Decree No 240-2018-EF) – This regulation details the procedural aspects of implementing the PPP Law, including project preparation, procurement and contract management. It specifies the requirements for submitting PPP proposals, project evaluations, and the roles of public and private entities.
• Law on the Promotion of Investment in Infrastructure for Economic Growth (Law No 30327) – This law aims to streamline the investment process in infrastructure projects, including PPPs, by simplifying administrative procedures and providing legal certainty.

Key challenges include navigating bureaucratic approval processes, negotiating risk allocation, ensuring financial viability, complying with local regulations, addressing public opposition, managing complex contracts, and resolving disputes. Despite these challenges, the legislative framework aims to facilitate effective PPPs by providing legal certainty and streamlining procedures for infrastructure and public service projects.

In Peru, while local law generally governs project documents and local courts resolve disputes, there is flexibility for international projects. Parties can choose foreign laws (like English or New York law) and use international arbitration for dispute resolution, especially in private or cross-border transactions. However, such choices must not conflict with Peruvian regulations or public policy. For public contracts or certain regulated projects, Peruvian law and local courts are typically required. International arbitration is supported by Peru’s adherence to the New York Convention, allowing for the enforcement of arbitral awards.

Foreign entities can own real property and water rights in Peru, but there are restrictions, especially in strategic or sensitive areas. Foreign lenders can hold and enforce liens on such property, subject to local laws and procedures. Ensuring compliance with Peruvian regulations and obtaining the necessary approvals is essential for foreign entities involved in property or water rights transactions.

Foreign entities should conduct due diligence to comply with local regulations and obtain the necessary approvals. Special permits may be required for ownership or use in strategic or sensitive areas. Consulting local legal experts can help navigate Peru’s regulatory landscape.

When structuring a deal and determining the legal form of a project company in Peru, several key issues and regulations must be considered.

Legal Form of the Project Company

Types of entities

• Sociedad Anónima (SA): This is a common form for project companies, offering limited liability and the ability to raise capital through shares.
• Sociedad Comercial de Responsabilidad Limitada (SRL): Suitable for smaller projects, providing limited liability but with restrictions on the transfer of shares.
• Branch of a foreign company: Foreign entities may establish branches in Peru, which are subject to local regulations but maintain the legal status of the parent company.

Formation requirements

Establishing a project company requires registration with the Peruvian Public Registry, obtaining a tax identification number, and complying with local corporate governance rules.

Relevant Laws for Project Companies

Corporate law

This is governed by the General Companies Law (Law No 26887), which outlines the formation, management and dissolution of companies.

Tax law

This includes regulations on corporate tax obligations, VAT, and other fiscal responsibilities under the Peruvian Tax Code.

Labour law

This complies with employment regulations, including workers’ rights, contracts and social security contributions.

Restrictions on Foreign Investment

The Investment Promotion Law (Legislative Decrees No 662 and 757) promotes and protects foreign investments, providing guarantees and protections to foreign investors.

Central Bank Regulations

The monetary policies of the BCRP on interest rates and inflation can impact financing costs and investment returns.

Relevant Treaties

Bilateral investment treaties (BITs)

Peru has signed BITs with various countries to protect foreign investments and provide mechanisms for resolving disputes.

Free trade agreements (FTAs)

FTAs, such as those with the United States and the European Union, include provisions affecting trade and investment, including dispute resolution mechanisms and investment protections.

International conventions

Peru is a party to international conventions like the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which facilitates the enforcement of arbitral awards.

Typical financing sources and structures for project finance include:

• bank financing – senior loans, syndicated loans and revolving credit facilities;
• Export Credit Agency (ECA) financing – ECA-backed loans and political risk insurance;
• project bonds – revenue bonds and infrastructure bonds; and
• alternative financing – streaming and royalty financing, private equity funding, and commodity trader financing.

These options can be used individually or in combination, depending on the project’s needs, risk profile, and capital requirements.

In Peru, natural resources projects involve:

• Regulatory compliance: Adhering to mining and hydrocarbons laws, obtaining the necessary licences, and fulfilling export requirements.
• Environmental and social impact: Conducting EIAs, engaging with communities, and complying with environmental regulations.
• Investment protection: Utilising BITs and risk insurance for protection against political and economic risks.
• Taxation: Navigating resource-specific taxes and seeking fiscal stability assurances.

Understanding these factors is crucial for successful project planning and implementation in Peru’s natural resource sector.

In Peru, several key laws and regulatory bodies oversee environmental, health and safety, and community consultation aspects of projects.

Environmental Regulations

Environmental Impact Assessment (EIA) Law (Law No 27446)

This requires projects to conduct an EIA to assess and mitigate environmental impacts. Detailed procedures are outlined in the EIA Regulation (Supreme Decree No 019-2009-MINAM).

General Environmental Law (Law No 28611)

This provides a framework for environmental protection and sustainable development.

Regulatory body

The Ministry of Environment (Ministerio de Medio Ambiente or MINAM) manages environmental regulations, including EIA reviews and compliance monitoring.

Health and Safety Regulations

Occupational Safety and Health Law (Law No 29783)

This sets standards for workplace safety and health across all sectors.

Mining Safety Regulations (Supreme Decree No 040-2014-EM)

Specific to the mining sector, this addresses safety measures and risk management.

Regulatory bodies

• Ministry of Labour and Employment Promotion (Ministerio de Trabajo y Promoción del Empleo or MTPE): this enforces health and safety regulations and conducts inspections.
• National Superintendency of Labour Inspection (Superintendencia Nacional de Fiscalización Laboral or SUNAFIL): this monitors compliance with labour safety laws.

Community Consultation Regulations

Consultation Law (Law No 29785)

This law requires consultation with indigenous communities affected by projects, ensuring prior, free and informed consent.

Regulatory body

The Ministry of Culture (Ministerio de Cultura or MC) oversees the consultation process with indigenous peoples.