Perù’s government has announced the launch of more than 30 public-private projects worth nearly $9 billion, aimed at boosting the economy hit by violent anti-government protests. The projects, involving road infrastructure, energy and sanitation, are set to start between this year and 2024, according to state investment promotion agency head Jose Salardi, speaking at an event with investors.
“The key is to regain trust,” Salardi said, adding that the government is streamlining processes, standardizing contracts and coordinating with the private sector.
Anti-government protests have gripped the country since the ouster of former president Pedro Castillo on December 7, with clashes between protesters and security forces leaving dozens dead. Private investment in Peru fell by 0.5% last year, while growing by 37.4% in 2021, according to data from the economy ministry.
At the same investor conference, Economy Minister Alex Contreras noted that protests hit the economy of the world’s second-largest copper producer in December and January, but early economic indicators show a recovery in February. “The goal is for private investment to increase by 3% this year,” Contreras told the conference, adding that “the need for a reactivation is urgent and it is not easy for an economy to recover from an attempted state”.
Peru’s economic growth stood at 2.68% at the end of 2022, a sharp decline from the 13.61% climb recorded the previous year. The International Monetary Fund recommended Peru in early February to implement a “targeted and temporary” fiscal stimulus given the collapse in economic activity.
Main sectors of economy
The mining sector is one of the strategic sectors at an economic level. Peru has the largest variety of minerals in the world with rich deposits of copper, silver, gold, lead, zinc, natural gas and petroleum. The sector represents the main source of income for the country with an important share of exports – in October 2020, mining exports reached 19.825 million dollars.
The Peruvian energy sector is distinguished from that of the main Latin American countries by one of the highest energy reserve ratios (in terms of total power/capacity) within the region, which makes it possible to guarantee cheaper generation costs and durable. The country is carrying out various projects in the field of energy sources such as hydroelectric and thermoelectric plants, the main ones being the project “Masificación del uso de gas natural para el centro y sur del Perú” with an investment of about 200 million dollars .
The construction sector is one of the most important and dynamic of the national economy. Its growth is due to the increase in household income, public-private investments and the improvement of financing conditions for the purchase of houses.
TRADE AND DOMESTIC CONSUMPTION
In recent years, the country’s economic growth has largely come from private spending. The retail channel has experienced significant growth with great investment potential in the field. E-commerce has experienced a strong development in the last 10 years. In 2009, Peru accounted for only 1.7% of e-commerce in the region while for the year 2019 the value increased to 5% reaching $4,000 million in sales, placing the country sixth in online sales in Latin America.
The agricultural sector grew by 3.4% in the last years due to the greater offer of products aimed at the foreign and domestic markets. The great biodiversity that characterizes Peru has allowed the development of various indigenous agricultural crops interesting for the international market, allowing the country to position itself as the first exporter in the world of quinoa, asparagus and bananas.
Taxation for businesses in Peru
Corporate legislation: Peruvian law recognizes as corporate forms the Anonymous Company, Limited Liability Commercial Company, Collective Company, Limited Liability Civil Company and Limited Partnership by Shares.
The (annual) income tax is levied on resident natural and legal persons for worldwide source income. For non-residents, as well as for permanent representations of non-resident natural or legal persons, the income tax affects only income from a Peruvian source. There is no treaty to avoid double international taxation. The tax rate is applied to the CIF value of the goods increased by the import duties, or the difference between the income obtained in the month for gambling operations and the expense constituted by the delivery of the prize. Furthermore, a specific system is envisaged determined by the payment of a fixed sum for each unit of measure sold or imported.
Fiscal year: January 1st – December 31st
Personal income tax: 22% on gross salary (pension system + health system).
Tax on business activities: 29.5%.
Value Added Tax (VAT): The Impuesto General a las Ventas (IGV) does not apply to exports of goods and services. The Peruvian state returns by negotiable credit note or check the IGV incorporated in the purchases of goods and services with the tax paid by the exporters. The general sales tax has a rate of 18% which applies to: the sale of movable property; Import of goods; Construction contracts; First sale of a property made by the builder; Provision of services carried out by persons domiciled in the country; Use of taxable services provided by non-domiciled persons.
There is also a selective consumption tax on sales and imports of goods specified by law, such as mineral water, soft drinks, liquor, cigarettes, kerosene, petrol and gambling operations.
Investing in Peru
According to estimates by the Ministerio de Economía y Finanzas, the Peruvian economy will grow at an annual average of 4.1% between 2022 and 2026.
As regards the main macroeconomic indicators, inflation is among the lowest in Latin American countries, while public debt is expected to reach 35.1% of GDP; considerably lower than that of emerging economies (63.1% of GDP) and the South American region (81.5% of GDP).
Despite the climate of uncertainty generated by the pandemic, Peru managed to maintain a stable rating and was able to provide a homogeneous response to counteract its negative effects on the national economy. The macroeconomic solidity achieved, thanks to years of fiscal prudence and an adequate monetary policy orientation, has allowed the country to maintain its stability and have sufficient resources to deal with the crisis.
The Peruvian development strategy is mainly based on an open and competitive economy. Peru currently boasts 32 bilateral treaties.
Conditions for the promotion of private investment
- non-discriminatory and equal treatment between peruvian and foreign companies
- free transfer of capital
- right to free competition
- guarantee of private property
- right to purchase shares of national companies
- right of access to internal and external financing
- right to transfer of royalties and profits
- right to carry out transactions in both national and international currencies without need for government approval on currency exchanges
Some tax advantages for investors
- fiscal stability agreements
- advanced vat recovery
- no restriction on interest deductibility (ppp)
- foreign currency accounting
SPECIAL ECONOMIC ZONES
- Zofratacna (Tacna)
- Zed Paita (Piura)
- Zed Ilo (Moquegua)
- Zed Matarani (Arequipa)
Tariff and tax suspension for the entry of machinery and equipment, raw materials and goods.
Exemption from income tax, vat and other national taxes.