The franchise market in Peru has experienced significant growth over the past 20 years. However, it was one of the sectors most severely affected by the COVID-19 pandemic, experiencing a critical downturn for a couple of years. Beginning in 2023, the franchise sector started to recover strongly, particularly in industries such as technology, education and healthcare. There has been an increase in investment in low-cost franchises not only in the capital city, Lima, but also in the provinces, with smaller-scale formats and more modest infrastructure requirements. Moreover, the expansion of the retail sector, along with the construction and renovation of a significant number of shopping centres across the country, has further boosted the franchise market over the past two years.

According to the Peruvian Chamber of Franchises, there are currently more than 500 franchise systems operating in Peru, with approximately 50% being foreign franchises and 50% domestic franchises. With regard to domestic franchises, more than 60% are in the gastronomy and restaurant sector. However, in recent years, there has been a notable increase in franchise activity in other areas such as healthcare, beauty, education and technology.

Peru does not have a specific “Franchise Law” that expressly governs this type of business model. Instead, franchise agreements govern the relationship between the parties and are subject to the provisions of the Peruvian Civil Code.

According to Section 1353 of the Peruvian Civil Code, agreements that are not expressly named or regulated – such as franchise agreements – are subject to the general rules set forth in the first section of Book VII of the Peruvian Civil Code.

In line with the foregoing, and in the absence of a legal provision expressly regulating franchises, the Peruvian legal system does not provide a statutory definition of “franchise agreement”.

Nevertheless, based on widely accepted legal doctrine, a franchise agreement may be defined as follows: “A franchise agreement is an agreement whereby a franchisor grants a franchisee the right to reproduce, within a specified territory and with the franchisor’s technical assistance, a system previously developed by the franchisor. This system is distinguished by the use of the franchisor’s registered trade marks”.

Under current Peruvian law, there is no specific legal obligation requiring the franchisor to disclose business-related information. Notwithstanding the foregoing, based on general principles of contract law and the express duty of good faith established in Section 1362 of the Peruvian Civil Code, all agreements must be negotiated, executed and performed in accordance with good faith and the common intention of the parties.

Accordingly, this principle imposes a duty on both the franchisor and the franchisee to disclose relevant information to the other party at every stage of the franchise approval process.

If the aggrieved party can demonstrate that it has suffered any damage resulting from a lack of good faith in respect of the disclosure of information, it may file a claim for compensation against the other party. Furthermore, if the aggrieved party proves that it was misled due to the other party’s failure to disclose material information it possessed, such failure may be grounds for annulment of the agreement, according to Section 201 of the Peruvian Civil Code.

Notwithstanding the foregoing, it must be noted that litigation before Peruvian civil courts is time-consuming, and it takes many years to obtain a final decision. 

Since the duty of disclosure is not expressly regulated under Peruvian law, there are no formally recognised exceptions to such duty.

The franchise agreement may be drafted in any language agreed upon by the parties. Peruvian legislation does not expressly prohibit the use of foreign languages in this context. Nonetheless, it is recommended that the agreement be drafted and executed in a language understood by both the franchisor and the franchisee. In practice, franchise agreements are usually executed in either Spanish or English.

Under the current legal framework, there is no specific obligation to register a franchise agreement. Notwithstanding the foregoing, if the franchise agreement involves a licence to use the franchisor’s intellectual property in favour of the franchisee, it is highly recommended that such intellectual property be previously registered in the franchisor’s name with the competent authority, namely the National Institute for the Defense of Competition and the Protection of Intellectual Property (Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual; INDECOPI).

Regarding the registration process and related formalities, see 3.1 Mandatory Registration.

As noted previously, there are no consequences for failing to register the franchise agreement, as no requirement to do so currently exists. However, in the case of industrial property rights (trade marks, patents, industrial designs, trade secrets, trade names, etc) belonging to the franchisor, registration with INDECOPI is necessary to ensure protection that is enforceable against third parties.

Applicable Peruvian law does not require any demonstration of prior business profitability as a prerequisite to operating a franchise. However, from a commercial standpoint, this is clearly a fundamental factor that any prospective franchisee should evaluate carefully.

The term or duration of a franchise agreement is freely determined by the parties and generally depends on the nature of the business, the investment recovery period and the expected profitability. Based on the authors’ experience, franchise terms typically range from five to seven years, depending on these factors.

There is no statutory obligation to renew a franchise agreement or provide any form of compensation upon non-renewal. However, the parties may agree in advance to the conditions under which the agreement may be renewed. Otherwise, the franchise agreement will automatically expire upon completion of its term.

In addition to termination upon expiration of the term or mutual agreement between the parties, Section 1430 of the Peruvian Civil Code permits the establishment of express termination or early termination grounds for franchise agreements. This type of clause is known as an “express termination clause” and becomes applicable upon the mere occurrence of the specific circumstance defined in the agreement, together with the effective notice to the other party of the termination of the agreement. Such clauses are commonly accompanied by the imposition of penalties.

It is strongly recommended that the franchise agreement explicitly provide that non-compete and confidentiality obligations will remain in effect following termination, in order to protect the franchisor’s business model.

Under the applicable legal framework, it is advisable and common to include broad non-compete clauses in the franchise agreement in order to safeguard the franchisor’s rights and protect the integrity of its business model. There are no specific restrictions.

However, the following legal provisions should be taken into account to ensure proper enforcement of the franchise agreement.

• Legislative Decree (Decreto Legislativo) No 1034: prohibits and penalises anticompetitive conduct with the objective of promoting market efficiency and consumer welfare. This legal provision regulates and prohibits abuse of dominant market position, as well as horizontal and vertical collusive practices.
• Legislative Decree (Decreto Legislativo) No 1044: prohibits and penalises any act or conduct constituting unfair competition that may actually or potentially distort or impede the proper functioning of the competitive process. This includes acts such as deception, confusion, undue exploitation of another’s reputation, disparagement, misappropriation of trade secrets, business sabotage and false advertising, among others.

Additionally, it is important to highlight Law No 31112, the Act on Prior Control of Business Concentration Operations, which, since 2021, has established a prior approval regime for business concentration transactions with the aim of promoting effective competition and economic efficiency in markets for the benefit of consumers. Under certain circumstances, this regulation will apply to business concentration transactions that produce effects in Peru, including mergers, asset acquisitions, the formation of a new economic entity or the execution of a joint venture agreement or any “other similar contractual arrangement” that entails the acquisition of control over one or more economic agents. Although uncommon, a franchise agreement could potentially be subject to this law and therefore require prior authorisation.

Exclusive territories are permitted, and it is essential that the franchisor clearly define the specific territory in which the franchise agreement will be in effect. Franchise agreements in Peru often include an express prohibition to operate a business that directly or indirectly competes with the franchised business. Furthermore, the franchisor may validly enforce such a prohibition even after the expiration of the agreement.

Similar to what was described in 6.2 Exclusive Territories and Competing Businesses, it is possible to establish valid and exclusive obligations for the franchisee to acquire from the franchisor certain goods, services or technology related to the delivery or distribution of the franchisor’s offerings. These obligations may be incorporated into the franchise agreement itself or included in annexes and/or supplementary agreements.

It is common practice for the franchisor to reserve certain sales channels, including direct and online channels. It is strongly recommended that such reservations be explicitly included in the franchise agreement to avoid disputes of any kind between the parties. Likewise, the consumer protection implications arising from the reservation of sales channels must be taken into consideration given that, under the Consumer Protection and Defense Code, both the franchisor and the franchisee could be deemed liable suppliers before the consumer.

Peruvian law does not currently include specific regulation on vertical agreement block exemptions.

Pursuant to Section 2095 of the Peruvian Civil Code, the franchisor may validly choose to have the franchise agreement governed by foreign law. There is no requirement that the agreement be governed by or interpreted in accordance with Peruvian law.

As noted in 7.1 Possibility of a Franchisor Stipulating Non-Local Law, with regard to the choice of governing law applicable to the contractual relationship between the franchisor and the franchisee, Peruvian law does not impose any additional requirements beyond the existence of a valid agreement between the parties.

However, registration and other actions relating to the franchisor’s industrial property rights must be carried out in accordance with the applicable local laws, as well as regional regulations such as Decision No 486 (Common Regime on Industrial Property of the Andean Community), which sets forth binding rules for the protection of industrial property applicable to all member countries, including Peru.

Where the franchise agreement is governed by Peruvian law, the parties are free to determine its content.

Section 1354 of the Peruvian Civil Code provides that parties may freely determine the content of their agreements, provided such content does not contravene mandatory legal provisions. There is no statutory “blacklist” of prohibited contractual clauses.

With respect to the enforcement of foreign judgments in Peru (exequatur), Section 2106 of the Peruvian Civil Code expressly allows foreign judgments to be enforced in the country, provided certain conditions are met.

In addition, pursuant to Section 74 of the Arbitration Act (Legislative Decree No 1071), a foreign arbitral award is defined as one rendered outside of Peruvian territory. Such awards will be recognised and enforced in Peru in accordance with the following instruments:

• the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, adopted in New York on 10 June 1958;
• the Inter-American Convention on International Commercial Arbitration, adopted in Panama on 30 January 1975; or
• any other treaty on the recognition and enforcement of arbitral awards to which Peru is a party.

Unless the parties agree otherwise, the most favourable treaty for the party seeking recognition and enforcement of a foreign arbitral award shall apply. It is worth noting that the process for enforcing foreign judgments and arbitral awards in Peru may be prolonged due to judicial delays and court backlog.

There are no restrictions in Peruvian law on payments made under a franchise agreement for initial franchise fees, royalties or services. Likewise, there are no restrictions on making payments in foreign currency, or on the amount of royalties payable.

Under Peru’s current Income Tax Act, non-resident taxpayers are subject to tax only on income derived from Peruvian sources. Accordingly, as a general rule, there is an obligation to withhold the applicable tax on behalf of a non-resident franchisor in connection with the payment of the initial franchise fees, royalties and services. The applicable withholding tax rate on royalties paid to a non-resident franchisor is currently 30%. These payments may be deducted by the franchisee in accordance with applicable tax regulations.

The exact withholding rate will depend on the specific nature of the income and whether any of the double taxation agreements (DTAs) entered into by Peru are applicable. Peru currently has DTAs in force with Brazil, Canada, Chile, Mexico, Portugal and Switzerland, among other countries. Therefore, carrying out a case-specific tax analysis to determine the applicable treatment is strongly recommended.

Pursuant to current Peruvian legislation, it is permissible to enter into obligations denominated in foreign currency, and the terms set forth in the franchise agreement in this regard are valid and enforceable. It is important to note that no foreign exchange controls are currently in effect in the country.

Peruvian law does not impose any formal execution requirements on the franchisor or the franchisee in relation to a franchise agreement. Nonetheless, to lend greater formality and legal certainty to the transaction in the event of a potential dispute, it is recommended that, at a minimum, the parties’ signatures on the franchise agreement be notarised and/or that the agreement be formalised as a public deed. The use of witnesses is not required.

Pursuant to the provisions of Law No 27269, electronic signatures are granted the same legal validity and enforceability as handwritten signatures, which means that the use of electronic signatures is permitted when executing a franchise agreement. However, it is worth noting that, at present, the use of electronic signatures for this type of transaction is still not widespread. Therefore, the authors continue to recommend the use of handwritten signatures, as well as the notarisation of the parties’ signatures before a notary public and/or the formalisation of the franchise agreement as a public deed.

There are no stamp duties in Peru.