Currently, no rule in Peru prohibits or restricts the granting of credit by persons not domiciled in the country. Accordingly, both the non-domiciled lender and the borrower have the flexibility to agree on the terms and conditions under which credit will be granted.

However, please note that there is an important difference between lending activities carried out by licensed banks and those carried out by any other entities or individuals (including foreign banks and multilateral development institutions not authorized by the SBS). This difference manifests itself in relation to interest rates. Any lending activities performed by individuals and entities not authorized by the SBS to carry out banking activities in Peru, pursuant to credit agreements under Peruvian law, are subject to an interest rate ceiling that is established by the Peruvian Central Bank. Entities licensed by the SBS to engage in banking activities may freely establish interest rates without any regulatory ceiling.

In credit agreements, the parties may agree on the choice of foreign laws. They may agree to refer to a foreign court or arbitration, whether local or international, to settle disputes between them.

With regard to income tax applicable to financing granted by legal persons not domiciled in Peru, the interest payable on foreign loans is subject to a withholding tax at a rate of 4.99%, as long as they comply with the requirements specified in the income tax law. In case of non-compliance with the requirements, or if economic ties exist between the parties, interest payments will be subject to a withholding tax rate of 30%.

For purposes of the Peruvian tax law, expenses, commissions, bonuses and any other additional amount paid to foreign beneficiaries beyond the interest agreed will be considered as interest.

In addition, interest payments to non-banking, non-financial or non-credit entities will be subject to VAT at a rate of 18%.

As for guarantees to ensure compliance with the obligations assumed by the borrower, the parties may agree on the creation of personal and real guarantees, such as sureties, endorsements, mortgages, securities, guarantees on cash flows, mortgages on infrastructure concessions, and letters of credit. It is also possible to provide more complex guarantees, as in the case of trusts.

Foreign investors can establish a bank, a branch or a representative office in Peru. Banks must be established under the form of a corporation or as branches of foreign banks.

Representative offices are established by foreign financial companies to do business with companies of a similar nature operating in Peru in order to facilitate foreign trade and provide foreign financing and other services. Representatives of financial companies cannot raise funds from the public or perform operations and provide services specific to their principal’s activity.

Foreign investors may establish an insurance company in Peru or designate an intermediary, insurance or reinsurance broker. Insurance companies must be organized under the form of a corporation and may freely determine the terms and conditions of insurance stipulated in their policies, fees and commissions.