Peruvian administrations since the 1990s have enacted various laws largely characterised by the promotion and protection of private property, business freedom, free competition, and private investment from both national and foreign investors in various productive sectors. The aforementioned legal framework is the current backbone of the relatively new Peruvian economic model, the social market economy. It is a model guaranteed by the constitution and based on recognition by the state of the coexistence of a diverse variety of properties and businesses.
Legality Principle
It should also be mentioned that the Peruvian tax regime is governed mainly by the Legality Principle, which establishes that no tax can be created, repealed or exempted without a law or other rule of similar rank, except for tariffs or other minor tributes, which can be created by a rule of inferior rank. Likewise, the labour regime in Peru has become more attractive during the last decades, having modified the old regime of absolute labour stability (in which a worker could keep his or her job indefinitely except for causes of dismissal mentioned in the law) to the regime of relative labour stability (in which the worker can be dismissed by the employer by a decision of the latter, provided that the worker is paid compensation).
In regards to foreign investment, the country has a protective legal framework, encouraged by the fact that there is no discrimination between accepting foreign and domestic investments, and both domestic and foreign currency can be used freely. Furthermore, legal Stability Agreements with the state can be drawn to guarantee investment protection in the face of regulatory changes that may be made over time which affect an investor’s business continuity.
In reference to public tenders and the acquisition of goods, works and services by the state, legislation on these topics has become more specialised after gaining experience, which has helped ensure that the interests of the state are favoured at all times. Conversely, acts of corruption are severely punished. For public tenders and acquisitions, the state works with the Office of the Comptroller of the Republic, an autonomous body whose mission is to monitor the proper use of state resources, and the State Procurement Supervisory Agency, which guarantees transparency at all stages of tenders and biddings.
Legislative Reform
It should be noted that, as of the elections held on April 10, 2016, the winning candidate and current President of Peru, Pedro Pablo Kuczynski, has initiated legislative reform that is oriented mainly towards the modernisation of the function of the state; the prevention of corrupt practices; and the inclusion of several new legislative institutions that allow for a closer relationship between the state and internal and external investment. Thus, 112 legislative decrees were promulgated in 2016 for structural reforms in the areas of corruption, terrorism, drug trafficking and money laundering crimes. This will streamline the investment process in preparation for the Pan American Games to be hosted in Lima in 2019; promote various mechanisms of joint participation between the state and private enterprise; reduce and eliminate several bureaucratic barriers; reduce the general sales tax; simplify tax payments; and help to enact new environmental and mining regulations.
In this context, the Kuczynski administration has worked diligently to offer more flexible legislation that is healthy and attractive to investors, and one that will generate short- and long-term benefits for the country’s population. The laws emphasise the simplification of state procedures, the fight against corruption at all levels of government, and the promotion of investment in infrastructure and sanitation works in all areas of the country – especially in regions that have been heavily affected by natural disasters.
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