Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
Using an Agent to Sell U.S. Products and Services
Peruvian law does not require the use of local distributors for private sector commercial sales. However, when selling to the government, it is recommended that U.S. companies contract and register a local agent (see “Selling to the Government” section). Exporters to Peru often find it advantageous to have a local representative to remain well-informed of the latest opportunities and developments within the company’s area of interest. The Commercial Service in Lima recommends companies be thorough when selecting an agent or representative in Peru. U.S. companies are encouraged to take advantage of U.S. Department of Commerce services by contacting the local U.S. Export Assistance Center (USEAC), located in most states (including Alaska and Hawaii) and in major cities throughout the United States. Such services include the Initial Market Check (IMC), which provides a general assessment of the viability of products in the Peruvian market, the Gold Key Service (GKS), which arranges meetings in-country with potential company representatives (agents or distributors), and the International Company Profile (ICP), which reports on the credit and business history of individual local companies. For detailed information, contact the U.S. Export Assistance Center serving your area.
Establishing an Office
It is essential for companies planning to operate in Peru to retain reputable legal counsel. Law firms are referred to as “Estudios” and attorneys as “Doctor” or “Doctora,” followed by their last name. An attorney should be proficient in matters concerning taxes on corporate and branch income, corporate residence, value-added taxes, income determination, capital gains, inter-company dividends/pricing, stock dividends, depreciation and depletion, net operating losses (tax losses) and payments to foreign affiliates. Other significant issues to consider include workers’ benefits, payroll and withholding taxes, municipal operating permits, intellectual property and labor laws that will impact the business when it starts operations. Many U.S. companies retain the local representative of their U.S.-based auditor. A partial list of local lawyers and/or tax and audit firms can be found below under “Local Professional Services.” Foreign corporations interested in doing business in Peru on a permanent basis must be formally incorporated and registered in the Peruvian Mercantile Registry (Registro Mercantil del Perú). There are two main types of business organizations that can be used for these purposes: branch offices and incorporated subsidiaries. Real estate may be acquired by any foreign entity without the need to establish a local office. It is only necessary to vest a local individual with sufficient powers to conduct and close the sale. Office spaces suitable for international companies have substantially increased in the last ten years within several districts of Lima. Rental prices for newly built offices showed an increase pre COVID-19 due to the establishment of numerous foreign companies’ operations in Peru but it is unclear how the trend will play out over the medium term. With quality housing built in Lima’s residential areas, as well as in cities outside of the capital, foreign managerial staff can easily relocate to Peru. Industrial space is scarce within and around Lima’s boundaries. As a result, new operations have established bases in areas south and east of Lima.
The franchise business model in Peru was highly impacted by the pandemic. According to Promperu (the Peruvian export promotion agency), in 2020 the sector grew only 3%. In Peru 75% of franchises are linked to the food and restaurant sector and 25% of these went bankrupt or closed due to COVID restrictions. Some experts estimate that the recovery of the franchise sector will take at least three years.
Although franchises in Peru are subject to general commercial law, general antitrust law, and Decisions 486, 608, and 291 of the Andean Community, there is no specific legislation governing franchising. According to Articles 162 through 164 of Decision 486, a written license agreement must be registered with the Peruvian Government’s Patents and Trademarks Office (INDECOPI). Prospective franchisers must be aware of a 30% income tax on royalties, 18% value added tax (IGV) (paid by the local company), and import tariffs dependent on the type of good. Countries that have signed double taxation agreements with Peru maintain separate regulations for royalties and income tax withholding (the United States is not included).
The Commercial Service holds an annual Franchise Summit organized in cooperation with the American Chamber of Commerce and GNF Worldwide to introduce U.S. franchises to the Peruvian market.
Direct marketing is well established in Peru’s service sector, particularly among financial institutions and seminar organizers. Direct marketing often includes hiring personnel or contracting a company for telemarketing and mailing campaigns. Databases for direct marketing are kept private by their owners and are therefore not readily available. Nevertheless, commercial information can be obtained through Peru’s Chambers of Commerce and trade associations. Catalog sales for consumer goods in Peru remain low due to consumer preference for in-store purchasing and the related assurances of product quality and warranties. Additionally, consumers find parcel delivery through Peru’s postal system unsatisfactory. Courier companies are taking advantage of this opportunity to promote their services (see Express Delivery, below).
Peruvian law allows for joint ventures and licensing agreements with a legally established local partner accountable for all legal matters. In particular, the textile manufacturing industry has attracted significant licensing and joint venture activity.
Consumers are often unsatisfied with parcel delivery through Peru’s postal system. Courier companies are capitalizing on this opportunity to promote their services, including express delivery, and they have implemented the advance clearance process, which has permitted the reduction of release times. The average time for the release of packages is two days, with a significant proportion released on the day of the aicraft arrival. Also, the PTPA explicitly addresses express delivery services. A number of express delivery companies service the Peruvian market:
- FedEx Express
- UPS Courier Service
- Skynet Worldwide Express
U.S. businesses considering exporting to or investing in Peru should perform due diligence on their potential clients, associates, or partners. As a first step, the International Company Profile (ICP) program of the U.S. Commercial Service can provide a background check on the reliability of potential clients or partners. The ICP report includes information on a company’s owners, year established, size, sales, financial information, and reputation in the market. The Commercial Service and the Economic Section of the U.S. Embassy in Peru are also available to provide commercial and economic briefings to U.S. businesspersons traveling to Peru.