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LEX MUNDI LEGAL GUIDE

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					                                                                     INDEX

ABOUT ESTUDIO OLAECHEA ................................................................................... 6

I. THE COUNTRY AT A GLANCE................................................................................ 8
  A. Geography ........................................................................................................................................ 8
  B. Demography .................................................................................................................................... 8
  C. Historical Summary........................................................................................................................ 9
  D. The Constitutional and Political System..............................................................................11


II. INVESTMENT. GENERAL CONSIDERATIONS ...................................................13
  A. Peruvian Economic History.......................................................................................................13
  B. Economic System..........................................................................................................................16
  C. Membership in Regional and Economic Trade Groups .................................................18
  D. Recent Economic Data ...............................................................................................................20
     1. Gross Domestic Product........................................................................................................20
     2. Inflation........................................................................................................................................21
     3. The Currency Exchange Markets........................................................................................21
     4. Peruvian External Debt ..........................................................................................................22
  E. Local Capital Markets...................................................................................................................23
  F. Privatizations Between 1991-2009.........................................................................................27
  G. Recent Major Direct Investments..........................................................................................30


III. TYPES OF MERCANTILE ORGANIZATIONS.....................................................33
  A. Corporation ....................................................................................................................................33
     1. Closely Held Corporation (S.A.C.).......................................................................................34
     2. Openly Held Corporation (S.A.A.) ......................................................................................34
        2.1 Right to Information Out of the Meeting ................................................................35
        2.2 Right for Requesting Meeting Call by the Shareholders ...................................35
        2.3 Right to Postpone a Shareholders’ Meeting ..........................................................35
        2.4 Right to Challenge Resolutions...................................................................................35
        2.5 Right to Suspend a Resolution ....................................................................................36
        2.6 Right to Withdraw ............................................................................................................36
     3. Standard Corporation ............................................................................................................37
     4. Capital Structure.......................................................................................................................37
     5. Corporate Bodies .....................................................................................................................38
        5.1 Shareholders’ General Meetings.................................................................................38
        5.2 The Board of Directors ....................................................................................................38
  B. Limited Liability Company ........................................................................................................39
  C. General Partnership.....................................................................................................................40
  D. Simple Limited Partnership......................................................................................................40
  E. Limited Partnership with Shares .............................................................................................41
  F. Civil Company ................................................................................................................................41
  G. Foreign Branch..............................................................................................................................42
  H. Association in Participation......................................................................................................42
  I. Consortium.......................................................................................................................................43
  J. Mergers and Spin-Offs.................................................................................................................43
      1. Mergers........................................................................................................................................43
      2. Spin-Offs......................................................................................................................................44


IV. OTHER TYPES OF BUSINESS ORGANIZATIONS.............................................45
  A. Financial Institutions...................................................................................................................45
     1. Banks.............................................................................................................................................45
     2. Finance Companies.................................................................................................................46
     3. Branches of Foreign Banks ...................................................................................................46
     4. Representative Offices of Foreign Banks ........................................................................47
     5. Investment Banks.....................................................................................................................47
     6. Leasing Companies .................................................................................................................48
     7. Factoring Companies .............................................................................................................48
     8. Bond and Guarantee Companies.......................................................................................48
     9. Trustee Services Companies................................................................................................48
     10. Real Estate Capitalization Companies ...........................................................................49
  B. Insurance Companies..................................................................................................................49
  C. The Private Pension Fund Administrators...........................................................................50


V. THE FOREIGN INVESTMENT REGIME................................................................50
  A. Peruvian Foreign Investment Laws .......................................................................................50
  B. Registration of Foreign Investment.......................................................................................52
  C. Restrictions of Foreign Investment........................................................................................52
  D. Currency Investments ................................................................................................................52
  E. Remittance of Capital, Dividends and Royalties ...............................................................53
  F. Legal Stability Agreements for Private Investments .......................................................53
  G. Guarantees to Foreign Investment .......................................................................................54
  H. Making and Liquidating Loans ...............................................................................................55


VI. CONSUMER PROTECTION MEASURES............................................................55
  A. Antitrust ...........................................................................................................................................55
     1. Scope ............................................................................................................................................55
     2. Administrative Proceeding ..................................................................................................57

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      3. Administrative Sanctions ......................................................................................................57
   B. Unfair Competition ......................................................................................................................58
      1. Scope ............................................................................................................................................58
      2. Administrative Proceeding ..................................................................................................59
      3. Sanctions.....................................................................................................................................60
   C. Consumer Protection..................................................................................................................61
      1. Scope ...........................................................................................................................................61
      2. Administrative Proceeding ..................................................................................................62
      3. Sanctions.....................................................................................................................................63
   D. Advertising .....................................................................................................................................64
      1. Scope ............................................................................................................................................64
      2. Administrative Proceeding ..................................................................................................65
      3. Sanctions....................................................................................................................................65


VII. TAX CONSIDERATIONS.....................................................................................65
   A. Income Tax......................................................................................................................................66
      1. Companies.................................................................................................................................66
         1. 1 Applicable Tax Rates ......................................................................................................67
         1.2 Treatment of Losses.........................................................................................................67
         1.3 Transfer Pricing Rules......................................................................................................68
         1.4 Territorial Rules..................................................................................................................69
         1.5 Tax Credits...........................................................................................................................69
         1.6 Tax Havens ..........................................................................................................................69
         1.7 Withholding Taxes ...........................................................................................................70
            a) Dividends..........................................................................................................................70
            b) Royalties............................................................................................................................71
            c) Interests .............................................................................................................................71
            d) Income Derived from the Lease of Ships and Aircraft.....................................72
            e) Technical Assistance.....................................................................................................72
            g) Other Income Generated by a Foreign Company ............................................72
            h) Income of an International Nature .........................................................................73
      2. Individuals...................................................................................................................................73
         2.1 Determination of the Taxable Base ...........................................................................73
         2.2 Deductions..........................................................................................................................74
         2.3 Exemptions .........................................................................................................................75
         2.4 Applicable Rates................................................................................................................75
         2.5 Treatment of Losses.........................................................................................................76
         2.6 Territorial Rules..................................................................................................................76
      3. Joint Ventures............................................................................................................................76
   B. General Sales Tax (IGV) ...............................................................................................................76


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   C. Anticipated Recovery Regime .................................................................................................77
   D. Excise Tax (ISC) ..............................................................................................................................77
   E. Financial Transactions Tax (ITF) ...............................................................................................78
   F. Temporary Tax on Net Assets (ITAN) .....................................................................................78
   G. Real Estate Property Tax ............................................................................................................79
   H. Other Matters. Tax Incentives & Tax Treaties.....................................................................79
      1. Regions with Special Tax Regimes ...................................................................................79
      2. Drawback ...................................................................................................................................79
      3. Tax Stability Agreements ......................................................................................................80
      4. Tax Treaties to Avoid Double Taxation............................................................................80
      5. Future conventions ................................................................................................................81


VIII. INTELLECTUAL PROPERTY RIGHTS ...............................................................81
   A. Property Rights..............................................................................................................................81
   B. Trademarks......................................................................................................................................82
   C. Patents..............................................................................................................................................83
   D. Copyright ........................................................................................................................................88
   E. Computer Software......................................................................................................................90
   F. Technology Transfer Agreements ..........................................................................................90
   G. E-Commerce...................................................................................................................................91


IX. LABOR AND IMMIGRATION LAWS ..................................................................91
   A. The Status of Labor Laws...........................................................................................................91
      1. Employee/Employer Labor Relations...............................................................................92
      2. Employees’ and Employers’ Contributions ....................................................................94
      3. Micro and Small Enterprises Labor’s Regime ...............................................................95
      4. Unions and Employer Relations .........................................................................................96
   B. Treatment of Foreign Employees ...........................................................................................97
      1. Andean Migrant Employee ..................................................................................................99
   C. Other Forms of Hiring .................................................................................................................99
      1. Labor Mediation .......................................................................................................................99
      2. Outsourcing ............................................................................................................................ 100


X. SECURITY INTERESTS ....................................................................................... 101
   A. General .......................................................................................................................................... 101
      1. Collateral over Chattels ...................................................................................................... 101
      2. Mortgage.................................................................................................................................. 103
      3. Antichresis ............................................................................................................................... 103
      4. Retention Right...................................................................................................................... 103
      5. Trusts ......................................................................................................................................... 104

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   B. Collaterals in a Bankruptcy Proceeding ........................................................................... 104
   C. Exercising Security Interests.................................................................................................. 104
      1. Collateral over Chattels....................................................................................................... 104
      2. Other Guaranties................................................................................................................... 105


XI. ENVIRONMENTAL LAW................................................................................... 106
   A. Regulatory Framework............................................................................................................ 106
      1. International Treaties .......................................................................................................... 106
      2. The Peruvian Constitution................................................................................................. 106
      3. The General Environmental Law..................................................................................... 107
   B. Competent Entities ................................................................................................................... 110
      1. The Ministry of Environment ............................................................................................ 110
      2. Other Competent Authorities Regarding Environmental Matters..................... 111


XII. THE FOREIGN TRADE REGIME ...................................................................... 112
   A. Imports .......................................................................................................................................... 112
   B. Exports ........................................................................................................................................... 113
   C. Free Trade Zones and CETICO’s ........................................................................................... 113


XIII. BANKRUPTCY LAW........................................................................................ 114
   A. Ordinary Proceeding................................................................................................................ 114
   B. Restructuring............................................................................................................................... 117
   C. Liquidation................................................................................................................................... 117
   D. Judicial Bankruptcy .................................................................................................................. 119


XIV. LEGAL PROTECTION FOR THE FOREIGN INVESTOR ............................... 119
   A. Contractual Choice of Law and Jurisdiction.................................................................... 119
   B. Enforcement of Foreign Judgments .................................................................................. 121
   C. Arbitration.................................................................................................................................... 121
   D. The Court System...................................................................................................................... 122




                                                                                                                                                    5
ABOUT ESTUDIO OLAECHEA

Founded in 1878, Estudio Olaechea is the oldest law firm in Peru and since that time
it has been one of the leading law firms in the country.

The firm is an independent full-service law firm, dedicated to providing legal services
to companies, financial institutions and individuals seeking the highest professional
standards in Peru.

The firm particularly enjoys national and international prominence in the areas of
finance, securities, public private partnerships (PPP), mergers and acquisitions and
general corporate work. The firm has assisted many important transnational
companies in establishing and performing their businesses according to the highest
legal standards. The firm has an independent correspondent relationship as the
Peruvian member firm of Lex Mundi, Club de Abogados, the International Network of
Boutique Law Firms (INBLF), Ius Laboris and The Interlex Group, all considered global
associations of independent law firms of the highest level.

In order to service the specialized needs of our corporate clients, financial institutions
and individuals in connection with their Peruvian activities, Estudio Olaechea has
organized practice groups which approach the legal practice with a team work
structure. The practice groups are comprised of partners and associates who are
highly experienced in the main practice areas of the firm, emphasizing its expertise in
dealing with current business trends in a globalized world economy.



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In this way, the firm assists companies and individuals interested in public private
partnerships and concessions, corporate mergers and acquisitions, divestitures,
including due diligence and legal auditing procedures, corporate restructuring and
bankruptcy. The firm’s attorneys represent buyers, sellers, investors, shareholders’
groups and financial advisers in structuring, negotiating and consummating complex
domestic and international business combinations and other commercial
transactions. Many of the representative transactions managed by Estudio Olaechea
are international in scope.

As a matter of policy, the firm encourages the strategy of combining legal and
business skills. Our professionals have worked, studied and/or lived abroad, and are
familiar with international business and legal working practices. Moreover, the firm
has long-standing and valued professional relationships with banks, financial
institutions and public sector authorities.

The main practice areas include Banking and Financing, Capital Markets, Competition
Law, Construction, Environmental Law, Energy Law, Intellectual Property,
International Law, Labor and Immigration, Litigation, Arbitration, M&A, Mining Law,
Taxation, Transportation and Communications, Oil and Gas Law.

The firm is equipped with state-of-the-art technology able to expeditiously handle all
requests from clients regarding case profess, expenses, fee status, billings, revenue
and accounting records in general. The firm keeps its technology up to date by
constant upgrading and modernization.

Finally, the firm has the biggest legal archive in Peru, accumulated since the firm’s
foundation in 1878. Its library is the most complete in civil law, containing more than
12,000 volumes and Official Gazettes published since Peruvian independence in
1821.




                                                                                  7
I. THE COUNTRY AT A GLANCE


A. Geography

Peru is the third largest country in South America after Brazil and Argentina with 1.28
million square kilometers. Situated in the north-west of South America, Peru is
bordered by Ecuador and Colombia to the north; Brazil and Bolivia to the east, Chile
to the south and the Pacific Ocean to the west with a coastline 2,500 kilometers long.
The country is roughly divided into three distinct regions separated lengthwise by
the Andean mountain range.

The coastal region is a baren strip of land 60 to 100 kilometers wide and cut
occasionally by shallow rivers creating fertile valleys, where it is grown with the aid of
irrigation systems, sugar cane, rice, cotton, asparagus, grapes, mangoes, etc. There is
also an important production of fish-meal of which Peru is one of the world’s leading
exporters. Temperatures are mild due to the Humboldt cold current and Peru
supports scarce rainfall.

The Andes separate the coastal desert to the west from the jungle or Amazon basin
to the east. The mountain highlands have heights ranging from 2,000 to 6,768 m.a.s.l.
Agriculture is sparse and difficult due to the geographical conditions. On the slopes
above the valleys, terraces have been built to grow potatoes, and autochthonous
graminae such as quinua, olluco, cañiwa. On the central and southern plateau’s
grasslands above 4,000 meters, one finds large herds of llamas, alpacas, vicuñas and
sheep. This was a densely populated area, though in the last 27 years there has been
a massive migration to the coast due to terrorism, though it is now reverting. This
region supports an important mining industry with copper, iron, zinc, lead, silver and
gold and generates one of the main sources of foreign exchange.

The jungle or Amazon basin is the largest region in Peru covering over 550,000
square kilometers of low-lying rain forest. Recently, gas and oil were discovered and
their exploitation begun.


B. Demography

Peru has a population of approximately 28 million. Almost 72.3% of the population
lives in the urban area and 34.8% in the rural area. The population growth is roughly
around 2.1% per year. 35% of the inhabitants are below 14 years, 55% being between
15 and 55 years.

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C. Historical Summary

Peru’s political history is confused and violent. Since its conquest by the Spaniards in
1535 the Inca Dynasty, founded by Manco Capac around 1200 which was a militarist
semi-feudal society, collapsed under the Spaniards. The Spanish established a system
of colonial rule that exacted tribute from the local population which caused much
friction between the conquerors and local inhabitants. A viceroyalty was established
in 1544 until 1821 when Peru gained its independence.

The first years of Peruvian independence were marked by internal turmoil between
the military and the landed aristocracy both competing for power. The first president
to exercise some real control was Marshall Ramon Castilla between 1845-1851 and
1855-1860. Under his presidency, the country was modernized and the “guano”
resources were exploited but the revenues from its exportation and borrowings were
quickly dilapidated.

The War of the Pacific (from 1879 to 1884) was declared by Chile to Peru and Bolivia
and was fought over the nitrate deposits on the south of Peru and Bolivia. The war
was won by Chile who annexed part of both countries. This was the prelude to
decades of political instability and the military took charge once more.

Towards the end of the century the economy was boosted by the exportation of
primary products and landowners reclaimed political control but these were ousted
by Augusto Leguia who governed for three periods (from 1908 to 1912 and from
1919 to 1929) until he was overthrown in 1929. During the 30’s a labor movement
emerged: APRA (Alianza Popular Revolucionaria Americana) led by Haya de la Torre
but was proscribed in 1931. In 1945 APRA supported Jose Luis Bustamante y Rivero
as president, though they were ousted and proscribed again in 1948 until 1956 when
it regained legitimacy and contended for the first time against Accion Popular led by
Fernando Belaunde. This election led APRA to shift from the political left to center-
right. Accion Popular took the role of radical reformer and APRA in order to counter
the threat of Accion Popular sought the backing of the Army and the elite. With their
support APRA won by a narrow margin electoral deadlock in the following election in
1962, which led to a period of military control but in 1963 Belaunde again was given
his chance and was elected president. Dissatisfaction over the economical and
reform program led to a left-wing military coup in 1968 conducted by General
Velasco. A radical reform was imposed until 1975 when he was replaced by General
Morales Bermudez who led the next five years dealing with the crisis caused by the


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overspending of his predecessor.

The 1980 elections were won again by Accion Popular with Belaunde as president
but economical difficulties, the threat of insurgents as Shining Path and the natural
disasters from the “El Niño” phenomenon defeated Accion Popular in the 1985
elections which were won for the first time by APRA by itself, now on the center-left
leadered by Alan Garcia. The next five years were spent on free-spending, suspension
of foreign credits when Peru was declared ineligible by the International Monetary
Fund, the World Bank and the International Development Bank and the government
ended submerged in a political and economic crisis. Inflation reached above 7,000%
per annum in 1989. During this period Shining Path, a marxist-leninist movement
which started in 1980 reached its peak with attacks in the rural areas of the Andes,
but later concentrated in Lima. The MRTA (Movimiento Revolucionario Tupac Amaru)
being regarded more as a criminal than as a terrorist organization also had its share
in subversive actions.

In 1990 Alberto Fujimori was elected president. Peru was living through one of the
worst crisis in its social, economic and political history. President Fujimori applied a
shock policy which at first resulted in a reduction in consumption and a cut-back in
production. Reforms were then implemented such as a vast program to restructure
the State, privatize State-owned enterprises, cut subsidies, open the market, fight tax
evasion, thus creating a clear neo-liberal policy. Fujimori also reinserted Peru in the
international financing system and Peru became eligible again for loans from the
World Bank and other Multilateral Agencies and Commercial Banks. Inflation began
to drop dramatically (less than 3% per annum) and the economic recuperation
began. This probably would not have been possible without the dismantling of
Shining Path and the MRTA, which was successfully achieved and also with attempts
to control the narcotics business, revenue which has financed terrorism. Fujimori was
reelected as president in 1995 in response to his successful economic reforms and to
his pacification strategy.

In the elections held in 2000, Fujimori was reelected again as president but the
elections were questioned for its impartiality. In October 2000, Fujimori resigned as
President of Peru and new elections were held without his participation. Alejandro
Toledo was elected president with more than 50% of the votes and in second place,
Alan Garcia with more than 45% of the votes. Toledo’s economic policy from 2001 to
2006 was successful, achieving 10.01% accumulated inflation, international reserves
of US$ 14.2 billion and an increase of GDP per capita from S/ 4,680 to S/. 5,185
Nuevos Soles (As of July 7, 2006 the exchange rate was S/ 3.23 Nuevos Soles per each
US$ Dollar).


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Presidential elections were held in April 2006 and Alan Garcia was elected again
president of Peru in second round with more than 53% of the votes. Ollanta Humala
obtained 46% of the votes. New presidential elections will be held in April 2011 for a
five-year term.


D. The Constitutional and Political System

The Political Constitution of Peru was approved by Congress, ratified by the vote of
Peruvians in a referendum held on October 31, 1993 and consequently promulgated
by the executive branch on December 29, 1993. Congress had been dissolved on
April 5, 1992, and a Constituent Congress was elected to approve the text of a new
Constitution to be submitted to a referendum. The new Constitution has the clear
objective of redefining the balance of powers established in the Constitution of 1979.

The Republic of Peru is democratic, social, independent and sovereign. The State is
not divisible and its government is unitary, representative and decentralized. The
government of Peru is organized according to the principle of separation of powers.
Peruvian government is divided into three separate and independent branches: the
Executive, the Legislative and the Judiciary. The Constitution defines the jurisdiction
of each branch, their members and the criteria for the selection of such members.

The executive branch comprises the President of the Republic and the Ministers of
State. The President is elected for a five-year term and can not be immediately
reelected. The president can only be reelected for a five-year term only after a
minimum constitutional term has elapsed. The legislative branch comprises the
National Congress which is unicameral with one hundred and twenty members
elected for the five-year presidential period. The judiciary arrives at independent
decisions for the resolutions of cases in disciplinary, economic, and administrative
issues. The judiciary has four levels: the supreme court, various superior courts, trial
judges and justices of peace. The judicial system is organized according to Peruvian
political divisions. The political organization of the country has been changed into
several regions in order to decentralize the country. The extent and distribution of a
decentralized government has been left to legislative mandate. Currently, measures
are being taken to this respect.

The Constitution deals with individual fundamental rights and liberties. Peruvians
have the same rights before the law, such as the right to property, to work, to inherit,
to participate in political, economic and social life, to profess a religion or belief, to


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security, to equal treatment regardless of sex, color, religion, language, opinion,
economic situation, etc. The Constitution protects these and other fundamental
rights through the Constitutional Tribunal who has jurisdiction over legal actions
looking forward to protecting the violation of a constitutional right by the authorities
or by another citizen such as the habeas corpus, amparo, habeas data and acción de
cumplimiento.

Political parties must register with the National Electoral Jury to be legally eligible to
run in an election. The Constitution vests the Jury with the responsibility for
overseeing and ensuring the integrity of the electoral process.

In the economic arena with the 1993 Constitution, the basic economic rule is the
establishment of a free social market economy where all controls have been
excluded, mainly exchange rate and price controls; unfair market practices are
prohibited. Business competition, unrestricted investment and free flow of capital by
national and foreign investors are permitted. The market is the agent in charge of
regulating the economic activity instead of the State. Areas previously reserved for
the State exploitation are being given to the private sector. A public private
partnership (PPP) and concession process is in effect to allow the private sector to
compete efficiently in a market economy to prevent former State companies to
continue incurring in huge losses because of their inefficiency. The State has been
reserved to devote its efforts to social services, security and regulatory measures. The
State monopoly over natural resources, previously threatened by arbitrary
expropriation has been abolished. Public services such as transportation, energy,
health, tourism, education and infrastructure can be given in concession to the
private sector.

In the judiciary area, the 1993 Constitution has established a Judicial Academy in
charge of preparing and educating the judges and prosecutors. The National Judicial
Council, integrated by members of different associations, is the authority responsible
for appointing judges. The purpose has been to give more autonomy from Congress
in appointing judges since it has no longer the right to ratify judges.

Conflicts of relations between the executive and legislative branches are treated in
the 1993 Constitution. The President of Peru can dissolve Congress if it twice does
not give a vote of confidence to the Cabinet. The President is obliged to call elections
within four months. The President cannot dissolve Congress within the last year of
his/her administration.




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II. INVESTMENT. GENERAL CONSIDERATIONS


A. Peruvian Economic History

The territory now occupied by Peru was first inhabited twenty thousand years ago by
bands of collectors and hunters that followed the track of the animals they hunted.
Cave paintings attest to their existence. The birth of civilization in Peru started with
the appearance of the Chavin culture in the second millenium before Christ. This
culture had as its main center Chavin de Huantar, which is the representation of the
architectural expression of a highly hierarchal society evolved far beyond agriculture,
hunting and fishing. Other cultures appeared such as Paracas which left testimonies
of the extraordinary development reached in the textile art and mummies with
trephined skulls. The Nazcas were distinguished for its ceramics and the ingeniuos
construction of aqueducts. The Mochicas were great architects, building their
temples in the shape of pyramids with sun-baked adobe bricks. The Tiahuanacos
were famous by its economy based on the breeding of llamas and alpacas and the
cultivation of high Andean altitude crops (potatoes and quinua). The Chimus were
excellent goldsmiths whose fabulous treasure is estimated to have been carried by
the Spaniards to Spain either directly from the temples or from the Incas who
subdued them.

These cultures and others not mentioned here were subdued by the Incas in 1438.
One century before the arrival of the Spaniards, the Incas started an explosive
expansion that enabled them to conquer successively the numerous ethnic and
regional groups scattered over the Andes. The Incas formed a huge empire which
extended from the South of Colombia and Ecuador to the North of Chile and
Northwest of Argentina. The social-economic Inca organization was socialist based
on the ayllu, consisting of families which were assigned a plot of land by the State for
self-subsistence and for paying taxes. It is important to mention that neither
ceramics, weaving nor metallurgy reached during the Inca’s period had the
refinement and development of past civilizations. However, the Incas were
outstanding in the art of civil engineering and architecture as can be seen in
Machupicchu and Cuzco.

The conquest represented a change in the Inca’s self-sufficient model to one of
inclusion in the world through the exportation of minerals. Commerce and mining
encouraged development of the first Hispanic cities. Commerce was mainly in food
and garments as a result of the Indian’s work and imports from Spain. The
monopolistic commerce between Spain and Peru through Panama and the Port of


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Callao in Lima was supplanted in importance by the Port of Buenos Aires. The
imports affected the agriculture and incipient local industry.

When Peru emancipated from Spain in the XIX century, the greater part of the
economic activity was transferred from the mountain to the coast. Great resources of
guano (fertilizer) were exploited generating the most important product to be
exported in the XIX century. Sugar, cotton, wool, silver and saltpeter (salitre) were
also exported. Notwithstanding the existence of this great source of income from
the guano for Peru, the economical growth during this period was not high. Great
part of the revenues were destined to the construction of a railway linking the coast
with the central mountains (the highest railway in the world), but this not being
enough Peru indebted itself externally. The industry could not develop adequately
due to the importation of goods with the guano revenues.

The end of the guano boom coincided with the war with Chile in 1879 and with the
boom of the sugar cane and cotton in the coast, causing a human polarization
between the urban coast and the central Andes. The Peruvian economy turned into a
coastal economy and the lands started to be concentrated into private large land
estates.

The sugar boom brought the need to hire a great quantity of workers which was
scarce in Peru due that natives from the mountains were averse to work in the coast.
Slaves were brought from Africa to work in the sugar factories until slavery was
abolished in 1854. The scarcity of manpower was also resolved by bringing 87,000
coolies from China between 1849 and 1874. In 1879, sugar commerce reached a
third of all Peruvian exportations. The coastal agriculture expanded to cotton
farming in Piura, Lima and Ica, subsisting until today.

In the first half of the XX century, mining recovered by foreign investment in this
sector, diversifying besides silver, into copper, lead and zinc. In the twenties
petroleum was found as a new exportation product. The first world war helped the
industry sector to recover with the immigration of European (basically from Italy,
England and France) and Japanese entrepreneurs.

In the fifties, mining reached its apex with the exploitation of copper, iron, silver, zinc
and lead. The coastal agriculture increased its exports of sugar and cotton; rice
production increased and in the jungle started the coffee production. During that
decade, production increased by an average of 8%. The State introduced
industrialization promotion policies which generated the migration from the country
side to the great cities. This industrial dynamism was particularly important in the


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chemical, metallurgy and paper sectors (they represented one third of the Peruvian
Industrial Product). In the decade of the sixties another one third of the industry
produced food and beverages and the rest was dominated by the textile industry
and metallurgical products. In all, in 1960 the industry produced one fourth of the
Gross National Product.

During the sixties till the end of the eighties, the State roll increased above all in the
expenditure of public works generating a financial crisis in the balance of payments
and the impossibility of maintaining a consumption level artificially high. A process
of agrarian reform began. The property structure was changed through a major
control and ownership by the State in all the economic sectors. The State applied an
ambitious plan of redistribution of income, reserving for the State the strategic
industries, controlling all agrarian commercialization and foreign trade, nationalizing
great part of foreign investments, including the participation of workers in the
management and revenues of private enterprises, and expropriating the lands of
land holders. However, industrial companies were not expropriated following the
advice of the Economic Commission for Latin America and the Caribbean (CEPAL) of
inside growth by protecting artificial and inefficient industries. To achieve the
participation of companies in the industrialization scheme, innumerable subsidies
and market restrictions were created. As a result of this policy, industrial enterprises
were inefficient in their production compared with the rest of the world. The tariff
structure was based on a protection scheme dominated by non-tariff measures and
tariff exemptions given to enterprises according to the priority assigned to each
industry and the localization of the industrial plant.

In 1983 the balance of payments registered the impact of the fall of all Peruvian
exports. This factor, united to the decrease of internal demand and the natural
disasters occasioned by the “El Niño” phenomenon, caused the fall of the GNP by
12.3% with respect to 1982. The government decided to restore the protectionist
policies of industrial products applying once more non-tariff barriers to imports. By
1988 all imports were subject to restrictions again. The national currency was
overvalued to increase internal consumption in the short term. Payment of external
debt was limited to only 10% of the exports value. The country’s international
reserves were exhausted and Peru reached a hyperinflation of about 7,000% per
annum, which caused that fiscal revenue was reduced to only 4% of GNP. Public
investment was reduced in extreme to only less than 1% of GNP. Peru turned into a
country closed to external credit and with scarce tax revenues, generating the
contraction of the State and the reversing into a deprived and black market society.

The socialist tendency of the last two decades was replaced by a neo-liberal


                                                                                    15
movement leadered by Alberto Fujimori who was elected president in 1990 and
reelected in 1995, by Alejandro Toledo elected in 2001 and by Alan Garcia, elected in
2006. The severe situation which they inherited was reverted as will be seen in the
following sections.


B. Economic System

Peru’s GDP grew 4.0% in 2003, 5.1% in 2004, 6.7% in 2005, 7.6% in 2006, 9.0% in
2007, 9.8% in 2008 and 0.9% in 2009. The growth in the economy is affected by the
“El Niño” phenomenon on average every 2 to 7 years. This phenomenon is an
alteration of the oceanographic and atmospheric climatic conditions, characterized
by an increase in the ocean’s temperature which generates disturbances in the rain
levels, causing a decrease in agriculture and fishing’s GDP.

The agricultural sector has always played a leading role in Peru, generating wealth,
employment and export earnings. It employs more than a third of the economically
active population. Peru is one of the most botanically and zoologically diverse
countries in the world. Within its borders it can count 84 of the 103 different micro-
climates classified by the World Bank. Its three distinct zones (coast, mountains and
jungle) favor particular products and methods of cultivation. The coast is especially
productive. Its rare climatic combination of relative aridity, sunshine and stable
temperature allows for year round cultivation of many different products (e.g.,
asparagus). The proximity of the agricultural lands to the transport infrastructure of
the coast makes exporting relatively easy and cheap to the seasonal markets of the
northern hemisphere. The mountains nature is against intensive production because
irrigation is more difficult and the land is further from infrastructure needed for
distribution. The jungle has at least two million hectares ready suitable for cultivation
but infrastructure is not already available.

The significant agricultural presence includes the production of rice, sugar cane,
corn, coffee, cotton, and potatoes. Other agricultural products include marigold
flowers, asparagus, sweet potatoes, vegetables specially tomatoes and onions, and
fruits such as mangoes and lemons.

The fishing sector prompted by Peru’s massive coastline is one of the country’s
greatest assets. There is a huge diversity in the fish stocks off the coast which has yet
to be developed and even the very well-established fishmeal industry shows
considerable scope for expansion. In 1997, the fishing sector developed under
anomalous conditions due to the “El Niño” phenomenon. Production in 1998


                                                                                   16
decreased 13.4% with respect to 1997. In 2001, the fishing sector decreased 11.1%
due to cold weather but increased 6.2% in 2002. Production in 2003 decreased 10.3%
with respect to 2002, increased 30.7% in 2004 with respect to 2003, 3.2% in 2005 with
respect to 2004, 2.4% in 2006 with respect to 2005, 6.9% in 2007 with respect to
2006, 6.3% in 2008 with respect to 2007 and (7.9) in 2009 with respect to 2008.
Fishmeal and fish oil production account for the great majority of Peru’s fishing
activity. The country ranks as one of the three largest fishmeal exporters in the world.
In 1991, Peru ranked number one. While the fishing industry accounts for less than
0.5% of GDP as of 2009, it has a greater proportional effect in exports. In 2009, total
exports amounted to approximately US$ 26.9 billion with fishing exports at US$ 1.7
billion accounting for around 6.3% of total exports.

Foreign investment is being actively encouraged in the mining sector during the last
decade. Mining provided for export earnings of about US$ 16.4 billion in 2009,
representing 61.0% of all export earnings and 79.5% of the total earned by traditional
exports. Peru produces six major metals: copper, zinc, lead, silver, gold and iron. Most
of the mines in Peru are polymetallic with several different ores in the same deposit.

In the past oil exports have made a significant contribution to export earnings. The
failure of the oil sector to perform was a result of insufficient foreign investment due
to appropriations of foreign companies by former governments. Export earnings
from oil production in 2009 were about US$ 1.9 billion, representing only 7.0% of
total exports.

A field that has been explored and is in production is the Camisea gas field located in
Ucayali to the north of Cuzco. This is the most important investment project for Peru.
Some of the benefits for Peru to be derived from this project include royalty
revenues, savings through lower power generation costs and improved energy
conditions in Peru.

The manufacturing sector’s non-traditional exports amounted US$ 6.6 billion in 2009.
Traditional export products (agricultural goods, minerals, fishmeal, etc) still account
for more than 76.5% of total exports. The main manufacturing industries are food
and drink, textiles, fish processing, chemicals, petroleum refining, metalworking and
cement. Textiles are a sector in which Peru has a competitive advantage because of
the large supply of high-grade wool mainly from alpacas and vicuñas. In 2009,
textiles were the second best performing non-traditional product, earning US$ 1.5
billion representing 24.2% of non-traditional exports.

During 1997, construction sector grew 18.9% mainly due to infrastructure works


                                                                                  17
oriented towards houses, commercial centers, hotels, offices, supermarkets,
rehabilitation of roads and the works to prevent damages from the Niño
phenomenon. In 2002, the construction sector increased by 7.7% after 3 consecutive
years of recession. In 2003, it increased by 4.5%, in 2004 by 4.7%, in 2005 by 8.4%, in
2006 by 14.8%, in 2007 by 16.6%, in 2008 by 16.5% and in 2009 by 6.1%.


C. Membership in Regional and Economic Trade Groups

Trade blocks are growing in significance as Peru’s trade partners, proving clear
evidence of the importance of regional organizations such as the Andean
Community of Nations and the Latin America Integration Association (ALADI). Peru’s
foreign trade is diversified and during the last years it has been constituted by
commercial relations with the Asian Pacific Economic Cooperation Association
(APEC), the North American Free Trade Commerce Treaty (NAFTA), the Latin America
Integration Association (ALADI), the European Union, the Andean Group, MERCOSUR,
among others.

Peru joined the General Agreement on Tariffs and Trade (GATT) in 1951. Under
Fujimori’s administration, the tariff system was liberalized and export subsidies were
eliminated. Thus, Peru is now consistent with the liberal principles and rules of GATT
which has been replaced by the World Trade Organization (WTO). Peru is a member
of this group.

Peru was a member of the Latin American Free Trade Association (LAFTA) created in
1960 for the establishment of a free trade zone in Latin America for a fixed term of 12
years. However, the Latin America Integration Association (ALADI), created in 1980
replaced LAFTA. Peru is currently a member of ALADI. This agreement was designed
to lift trade barriers between all Latin American countries and establish a common
Latin American market. Peru has signed several trade preference agreements (i.e., of
economic complementation as well as partial agreements) with ALADI member
countries.

Peru is also a member of the Andean Community of Nations (former Andean Pact)
since 1969. The countries’ intention was to undergo an economic integration that
would allow them to compete in equal conditions with bigger economies. As a first
step in this direction Bolivia, Colombia, Ecuador and Venezuela formed in 1993 an
Andean Free Trade Zone by eliminating their customs tariffs and opening their
markets to each other. In July 1997, after a 5 year suspension (during which Peru
signed bilateral agreements with the other member States), Peru became part of the


                                                                                 18
Andean Free Trade Zone by gradually deregulating its trade with the other member
countries. According to the schedule approved by Decision 414, Peru should open its
market to its Andean partners by 2005 (so far nearly 90% of this has been achieved).

Moreover, a Customs Union was established by the Andean Community since 1995
(Decision No. 370) when Bolivia, Venezuela, Colombia and Ecuador adopted a
common tariff to the import of goods from non-member countries. Although Peru
did not sign the agreement, under the Declaration of Santa Cruz de la Sierra of
January, 2002, it committed (with the other member countries) to adopt a new
common tariff.

In May, 1999, the presidents of the member states committed to finally establish the
Andean Common Market by no later than 2005. This involves a free movement of
goods, services, capitals and persons.

The Southern Common Market (MERCOSUR) was signed by four countries (Argentina,
Brazil, Uruguay and Paraguay) with the purpose of establishing a common market. In
2003, after several negotiations, Peru has been included in MERCOSUR as associated
state.

It should also be noted that on August 2002, the United States of America (USA)
Senate passed the Andean Trade Promotion and Drug Eradication Act (ATPDEA) that
grants preferential treatment to selected imports from Peru and other 3 members of
the Andean Community (Bolivia, Colombia and Ecuador) as part of an incentive
system to encourage legal trade as an alternative to drug production. The above
mentioned statute is in force until December 2008.

On January, 2009, the Free Trade Agreement (FTA-USA) with USA was enforced This
FTA-USA guarantees the permanence of the preferential treatment granted by the
ATPDEA and the elimination of non-tariff barriers between Peruvian and USA
markets.

Furthermore, Peru is an active member of the Asia-Pacific Economic Cooperation
Association (APEC) since 1998. The main purpose of this organization is to establish
free and open trade and investments among the country members reducing tariffs
and other trade barriers across the Asian-Pacific region.

Peru has also signed the agreements guaranteeing foreign investments against
commercial and non-commercial risks supervised by the Overseas Private Investment
Corporation (OPIC), the World Bank Multilateral Investment Guarantee Agency


                                                                              19
(MIGA) and the International Convention for the Settlement of Investment Disputes
(ICSID).

It is important to mention that Peru signed a Free Trade Agreement with Thailand
which will open the Asian market to Peruvian products. Also, since August 1, 2009
two new Free Trade Agreements are in force: with Canada and Singapore.

On April 2009, Peru entered into a Free Trade Agreement with China, which was
enforced on March 1, 2010. This FTA-China is an important opportunity to access the
Chinese market within a transparent and fixed regulation that will benefit the
Peruvian interests.

The negotiations between Peru and the European Union in order to sign a free trade
agreement are concluded. The final text must be approved by the European
Parliament and the Peruvian Congress. If it is approved it is expected that it will be
enforced on 2012. This free trade agreement will open the European market for
Peruvian products and will promote the opportunities of trade and investments.

Currently, Peru is carrying out negotiations with Japan and Korea in order to sign free
trade agreements with them.


D. Recent Economic Data

1. Gross Domestic Product

Peru registered a phenomenal GDP growth rate of 12.9% in 1994, the highest in the
world. This increase was not an isolated issue but part of a favorable tendency. In
fact, between 1993 and 1996, the Peruvian economy grew a total of 32.4%, the
highest rate in Latin America.

Great part of this evolution in the production has been a result of the positive impact
of the reorganization of the economy mentioned in all along Section II. Growth is also
explained, among others, by the increase of foreign direct investment and exports,
the latter accumulating growth rates higher than that for the GDP since the economy
stabilized. In fact, while exports were about US$ 5.9 billion by 1996, at the end of
2009 they reached US$ 26.9 billion; an increase of more than 456% in thirteen years.
However, imports have also grown significantly during the periods mentioned due to
an increase in the demand for capital goods and intermediate goods. Imports were
about US$ 7.9 billion by 1996 and at the end of 2009 they reached US$ 21.0 billion,


                                                                                 20
an increase of 265% in thirteen years. GDP grew a modest 2.5% in 1996, and 6.9% in
1997, decreasing to (0.7%) in 1998, 0.9% in 1999, 3.0% in 2000, 0.2% in 2001, 5.0% in
2002, 4.0% in 2003, 5.0% in 2004, 6.8% in 2005, 7.7% in 2006, 8.9% in 2007, 9.8% in
2008 and 0.9% in 2009 during a year whereby most economies were affected by the
financial crisis of 2008.

2. Inflation

Peru has achieved a significant economic recovery during the 90’s. Annual inflation
has been reduced from more than 7,000% in 1990, to 139.2% in 1991, 56.7% in 1992,
39.5% in 1993, 15.4% in 1994, 10.2% in 1995, 11.8% in 1996, 6.5% in 1997, 6.0% in
1998, 3.7% in 1999, 3.7% in 2000, (0.1%) in 2001, 1.5% in 2002, 2.5% in 2003, 3.5% in
2004, 1.5% in 2005, 1.1% in 2006, 3.9% in 2007 and 6.7% in 2008. During 2009,
inflation was up to 0.3%.

Peru’s success in fighting against inflation has been a result of its strong undertaking
with the International Monetary Fund in maintaining the fiscal and monetary
discipline. The fiscal deficit decreased from 6.5% of GDP in 1990 to 2.5% of GDP in
2001, 2.5% of GDP in 2002, 1.7% of GDP in 2003, 1.0% of GDP in 2004 and 0.3% of
GDP in 2005. A surplus was generated from 2006 to 2008: 2.0% of GDP in 2006, 3.1%
of GDP in 2007, and 2.1% of GDP in 2008. A fiscal deficit of 1.9% of GDP was
generated in 2009. These goals have been possible thanks to a significant
improvement in fiscal collections and a relative conservative policy in public
spending.



3. The Currency Exchange Markets

Currently, Peru’s currency exchange market is determined by supply and demand.
The Peruvian Central Bank intervenes on a reduced basis only to stabilize the
Peruvian currency’s rate of devaluation or overvaluation against the US$ dollar or to
avoid short term speculative movements of the exchange rate. It is worth to mention
that the Net International Reserves amount to more than US$ 33 billion by 2009.
Investors are free to exchange local currency for foreign currency at market prices,
and no governmental authorization is required for foreign exchange transactions.
The local currency is the Nuevo Sol and as of December, 2009, one US$ dollar was
equivalent to S/. 2.88 Nuevos Soles. The exchange rate is based on a floating rate.

Moreover, there are no restrictions on the flow of capital. Investors are allowed to use
foreign currency to purchase foreign goods and cover financial obligations.


                                                                                  21
Individuals and companies may maintain bank accounts in foreign currency whether
these are current accounts, saving accounts, term deposits, etc. either in local or
foreign banks.



4. Peruvian External Debt

During President Garcia’s term (1985-1990) Peru was declared ineligible for
International Monetary Fund (IMF) lending and in 1987 was placed on non-accrual
status, regarded as a bad debtor by the World Bank. The government had unilaterally
decided not to pay the external debt but with only 10% of export earnings. In 1989
the Inter-American Development Bank (IDB) also declared Peru as a non-accrual
country.

President Fujimori took office in 1990 when for almost a decade Peru had stopped
paying its external debts and past due interests to its international creditors and had
no access to international financial markets. Peru’s outstanding debt by 1990 was
about US$ 20 billion. The external debt represented nearly 500% of Peru’s yearly
export earnings and about half its Gross Domestic Product.

Payment of past due interests to multilateral agencies, bilateral creditors and
commercial banks was critical for becoming eligible for new loans. Once standing
interests were paid, Peru became fully eligible for lending and disbursement, and has
since then negotiated fresh loans to support reforms in agriculture, energy, health,
education and sanitation, among others.

After Peru improved its relations with multilateral agencies and supplier creditors, it
was then possible to resume significant negotiations with the London Club
composed of commercial banks participating in the Bank Advisory Committee under
Citibank’s conduction. As of March 1997, Peru finalized the restructuring of its debt
with the closing of the Brady Plan. The Brady Plan exchanged debt amounting to US$
10.6 billion for a new nominal value of US$ 4.9 billion. This debt carried the longest
standing interests estimated at over 150% of principal. (Principal amounted to US$
4.2 billion and arrears to US$ 6.4 billion).

The reduction of debt obtained with the Brady Plan has brought benefits such as a
reduction in Peru’s country risk, which brings lower interest rates for nationals
outside Peru, access to international credit, more dynamism in the capital markets
and a better management of Peruvian international reserves’ returns.



                                                                                 22
In February 2002, the Government of Peru returned to the international capital
markets after 74 years of absence with the issuance of sovereign bonds.

As of the end of 2009, public debt amounted to US$ 33.8 billion, representing 26.6%
of GDP compared to 24.0%% of GDP in 2008. This increase was due to more
placements of sovereign and global bonds during 2009. Some of these placements
were destined to prepay the debt with member countries of Club de Paris.

Rating agency Standard and Poor’s raised Peru’s credit rating to investment grade in
2008.

On May 13, 2009, Fitch Ratings ratified the investment grade for Peru for its long term
debt in foreign currency (-BBB) and in local currency (BBB). Bonds in foreign currency
were maintained at BBB. The macroeconomic fundamentals behind these ratings are
Peru’s robust fiscal position, its external solvency and its high liquidity in foreign
exchange.

On December 2009, the international agency Moody’s granted the investment grade
to debt issued by Peru in foreign exchange. The qualification was improved to Baa3
or moderate risk, which permits more access to international financing. Moody’s
decision to raise Peru’s qualification responded to an increase in the country’s
capacity to better absorb external shocks and confirmed implicitly the good
performance of Peru to face the recent financial crisis and the economic recession.


E. Local Capital Markets

Currently, there is only one stock exchange in Peru: the Lima Stock Exchange (LSE).
Prior to the 90’s, the LSE was relatively underdeveloped and little used. Subsidized
interest rates and high levels of inflation encouraged borrowers to use the credit
market rather than seek equity finance. The volume of stock market activity, both
primary and secondary, as a proportion of GDP, dropped from about 13% in 1979 to
5% in the late 80’s. As of 1997, this volume increased to 27% of GDP.

In 1992, the LSE was ranked as the second most profitable exchange in the world
with a growth rate of 123.7% in US Dollar terms. During years 1993 and 1994, the LSE
grew 89.7% and 51.2% in US Dollar terms, respectively. By 1997 the total stock
market capitalization of the LSE stood at US$ 17.4 billion.

However, as a result of the complex domestic scene and the volatile international


                                                                                 23
setting, the LSE lost part of the gains it achieved during the late nineties.
Nevertheless, during years 2002 and 2003 the LSE achieved favorable results in the
stock market price indexes. During year 2006, the LSE was the most profitable
exchange in the world resulting in a 186.92% yield in US Dollars terms.

Although Peru was prepared and therefore not affected like other economies, the
2008-2009 financial global crisis had a negative impact in the Peruvian capital
markets too.

In 2008 the GDP growth rate was 9.8%, placing us among the countries that grew the
most in that period, which was given in 8 consecutive years of growth. In 2009, when
most of the countries decreased in economic terms because of the global crisis, Peru
registered a GDP growth rate of 0.9%.

Until April 2010, the market capitalization was US$ 110.37 billion, in contrast to the
US$ 107.33 billion with which 2009 closed. The market capitalization for 2008 was
US$ 57.23 billion. This amount represented a decrease from a constant growth of US$
108.22 billion in 2007 and US$ 60.20 billion in 2006. The stock market capitalization
had been growing steadily achieving US$ 36.2 billion in 2005, US$20.11 billion in
2004, US$ 16.08 billion in 2003, US$ 12.6 billion in 2002, US$ 10.9 billion in 2001 and
US$ 10.5 billion in year 2000.

At the end of year 2009, the LSE had 254 listed companies, compared to the 257 and
245 companies listed in 2008 and 2007, respectively.

The traded volume in the LSE in year 2008 was US$ 7.9 billion, decreasing from US$
12.4 billion in 2007, year in which there was a significant increase from the US$ 6.3
billion and US$ 3.6 billion traded in 2006 and 2005, respectively. It should be noted
that Over the Counter trading was deactivated in September 1999, and gradually
debt instruments were listed on the stock exchange session mechanism. The traded
volume in the LSE until April 2010 was of US$ 1.6 billion, as opposed to the US$ 5.7
billion reached on 2009.

Since the 90’s several stock market reforms have been designed to increase the
efficiency of the capital markets and to boost trading activity. The key changes were
contained in the Securities Market Act passed under Legislative Decree No. 755 of
November 1991, which was later replaced by Legislative Decree No. 861 of October
1996. Several amendments to the Securities Market Act were passed since October
1996. Thus, in June 2002 the mentioned statute was updated by Supreme Decree No.
093-2002-EF.


                                                                                 24
The Peruvian capital market is regulated and monitored by the National Supervisory
Commission for Businesses and Securities (CONASEV), an agency similar to the
United States Securities and Exchange Commission (SEC). Once equity and/or debt
securities are registered in the Securities Market Public Registry of CONASEV, the
issuer has an ongoing obligation to disclose all material information and its financial
results to CONASEV and to the LSE. All listed companies must disclose its financial
statements to CONASEV and to the LSE quarterly and annually.

An application (Registration Statement) to register an initial public offering must be
filed with CONASEV. The Registration Statement must contain information regarding
the issuer’s legal status, its financial health and the scope of its activities, and must
also include the type of security and offering mechanism to be used. If bonds are to
be offered, then the prospectus must describe the collateral (if any) backing the issue
and give a proper outline of the rights and obligations of future bondholders. Shares
not registered with CONASEV may not be traded or listed on the stock exchange. It
has recently been enacted a special and more flexible regime applicable to offerings
addressed to accredited investors.

Stockbroker firms must be registered with CONASEV and must have a minimum
paid-in-capital of approximately US$ 438.580.00 1. As of today, there are 23 brokerage
firms registered with CONASEV. These firms charge a commission ranging from 0.3%
to 1%. In addition, the stock exchange levies 0.0825% on transactions, 0.0075% for a
guaranty fund, and 0.005% for a liquidation fund; CONASEV a further 0.05% and the
Institution for Compensation and Liquidation of Securities (CAVALI ICLV), the clearing
and settlement institution in Lima, with 0.065%. A sales tax of 19% (VAT) is then
charged on the total commissions.

The Securities Market Act (the “Act”) contains provisions regarding tender offers. Also
a special regulation was passed to rule the tender offer processes. Therefore, in Peru
it is mandatory to make a Public Tender Offer (“OPA”) whenever there is an onerous
transfer of a number of shares with voting rights, convertible bonds, subscription
rights, or other securities which may confer the right to subscribe or to acquire shares
with voting rights, which will grant the acquiror a significant stake in the target
corporation.

Significant stake is defined as any direct or indirect beneficial ownership of 25% or
more of the voting shares of a publicly traded corporation. It is also considered as

1   Considering an exchange rate equivalent to S/. 2.80 per US dollar.


                                                                                   25
significant stake (i) the power to exercise the voting rights of shares representing
25% or more of a listed corporation (without having a direct or indirect beneficial
ownership) or (ii) the acquisition of any amount of voting shares or the power to
exercise political rights of shares which enables a person (individual or entity) to (a)
remove or appoint the majority of the board of directors or (b) amend the bylaws of
the corporation.

If a person (individual or entity) acquires or reaches a beneficial ownership of 25% or
more of the voting shares of a listed corporation then an OPA must be made. An OPA
must also be made if it is acquired a beneficial ownership of 50% or more or 60% or
more of the voting shares of a listed corporation.

The Act also regulates the establishment of mutual funds which are subject to some
diversification criteria. Accordingly, mutual funds are restricted to invest in: (i) no
more than 15% of the total equity in a single company, (ii) no more than 15% of the
total debt in a single company, (iii) no more than 15% of the total assets of a mutual
fund may be invested in equity or debt securities issued by a single company, (iv) no
more than 30% of the total assets of a mutual fund may be invested in equity or debt
securities issued by the same economic group. The funds must have secured at least
50 registered holders in order to obtain CONASEV’s approval, though no single
holder is allowed to hold more than 10% of the net worth.

As of June 2010, (i) the operative mutual funds’ administrated patrimony came up to
US$ 5.12 billion, increasing from the US$ 4.86 billion reached on 2009, (ii) the number
of participants came up to 268,312, increasing the 263,031, 196,072 and 275,126
reached on 2009, 2008 and 2007, respectively, (iii) there are 51 operative mutual
funds as of December 2009 opposed to the 49 and 39 existing as of December of
2008 and 2007, respectively.

In the past few bonds were issued in the Peruvian capital market. They were issued
basically by State bodies such as those issued by the Development Financial
Corporation (COFIDE) and some on behalf of leasing companies. The law exempted
the interest and income on leasing company bonds from income tax. Securities’
regulations allow debt to be issued in US Dollars or Peruvian Nuevos Soles and
interest payments to be linked to a variety of references (such as the UIT -tax unit-,
GDP growth rates, etc.).

Corporate bond issues have started to increase in the Peruvian market since 1993
when the 37% tax on interest income was repealed. Interest earned on bond issues
is now income tax exempted provided the bonds are listed and issued by a Peruvian


                                                                                  26
corporation. The only entities which are subject to income tax on interest of bonds
are banks and financial institutions.

The level of market activity in the local fixed income market (i.e., debt securities) has
increased from US$ 13 million in 1990 to approximately US$ 1.44 billion in 2008.
While in 2009 it decreased to US$ 1.06 billion, as of April 2010 it has already reached
the amount of US$ 237 million. On the other hand, trading in equity securities
increased from US$ 1.19 billion in 2002 to approximately US$ 5.11 billion in 2008.
This amount decreased in 2009 to US$ 4 billion. As of April 2010, it has reached the
amount of US$ 987 million.

Trading on the LSE takes place from 9.00 am. to 2.00 pm, Monday through Friday,
and is conducted electronically in two simultaneous sessions: floor session (‘Rueda
de Bolsa’) and over the counter session (OTC) (‘Mercado Abierto’). During 1997, 56%
was traded on the floor session and 44% on OTC session.

Instruments traded on the floor session include letters of credit, promissory notes,
bank bills, bills of exchange, certificates of deposit, commercial papers and bonds.


F. Privatizations Between 1991-2009

Peru has taken aggressive steps to privatize State owned enterprises since 1991. As
of 2009, the flow of private investment reached the amount of US$ 23.8 billion.

List of Main Peruvian Companies Pendant of Privatization

The main companies and projects which are pendant of privatization by the Peruvian
government are the following:



                                                                                     ESTIMATED
        SECTOR                        PROJECT                           TYPE        INVESTMENT
                                                                                      US$ MM

 Agriculture         Majes – Sihuas II –Concession for Hydric   Concession              344
                     and Irrigation Reinforcement Sigûas
 Agriculture         Sale of lands (1,000 hás)                  Sale of Land        To be defined

 Agriculture         Chavimochic Proyect Fase I – Third Stage   Irrigation System       265


 Capital Market      Etevensa / EDEGEL                          Sale of Shares       Subject to
                                                                                      Auction




                                                                                           27
                                                                                          ESTIMATED
       SECTOR                              PROJECT                             TYPE      INVESTMENT
                                                                                           US$ MM

Capital Market            Inmobiliaria Milenia S.A.                    Sale of Shares     Subject to
                                                                                           Auction
Tourism                   Kuelap Gondola                               Tourism               10.6.
                                                                       Transportation
                                                                       System (Cable
                                                                       Railway)
Tourism                   San Lorenzo Island Project                   Urban Project      1000 (Initial
                                                                                           Estimate)
Road Networks             Del Sol Highway (Sullana – Guayaquil         N.A.              To be defined
                          Stretch)
Road Networks             Achamanqui- Tingo Highway (Amazonas)         N.A.              To be defined

Road Networks             IRSA-CENTRO Highway, Stretch 2               N.A.                    70
                                                                       (25 years)
Road Networks             Panamericana Sur (Ica – border with Chile)   N.A.              To be defined

Transport                 New Port Terminal in San Martín (Pisco)      Concession            107.8
Infrastructure                                                         (Max. 30 years)
Transport                 New Port Terminal in Ilo                     Concession          88.9 (In a
Infrastructure                                                         (Max. 30 years)   medium term)
Transport                 New Port Terminal in Salaverry               Concession        To be defined
Infrastructure                                                         (Max. 30 years)
Transport                 New Port Terminal in Iquitos                 N.A                    14.4
Infrastructure
Transport                 New Port Terminal in Pucallpa                Concession              16
Infrastructure                                                         (Max. 30 years)
Transport                 New Port Terminal in Yurimaguas – New        Concession              39
Infrastructure            Reform
Transport                 New Port Terminal in San Juan de Marcona     Concession             133
Infrastructure
Transport                 Shipping Terminal of Concentrated            N.A.                 120.30
Infrastructure (Private   Minerals in the Terminal Port of Callao
Investment)
Fluvial Routes            Fluvial Routes Navigability (First Stage:    N.A.              To be defined
                          Fluvial route Yurimaguas – Iquitos)
Road Networks             Railroad Huancayo – Huancavelica             Concession              11
                                                                       (15 years)
Road Networks             Train Cajamarca – Bayovar                    N.A.              To be defined

Road Networks             Electric System of Massive Transportation    Concession        To be defined
                          from Lima to Callao, Linea 1                 (30 years)
Transport                 Regional Airports (Second package:           Concession             237
Infrastructure            Andahuaylas, Arequipa, Ayacucho, Juliaca,    (25 years)
                          Puerto Maldonado and Tacna)
Transport                 Cusco International Airport                  N.A.              To be defined
Infrastructure
Telecommunications        Implementation of rural broadband            Concession              12
                          Juliaca – Puerto Maldonado (before San
                          Gaban Project)



                                                                                                 28
                                                                                           ESTIMATED
         SECTOR                         PROJECT                            TYPE           INVESTMENT
                                                                                            US$ MM

Telecommunications    Broadband for the development of the         N.A.                        8.3
                      valleys of the rivers Apurimac and Ene
                      (VRAE)and Camisea Lurin
Telecommunications    Integrated Telecommunication System          N.A.                        7.2
                      Buenos Aires – Chancaque, Piura Region
Telecommunications    C-Band 1900 MHz (National Level)             Concession                 14.5

Energy                Transmission Line SGT 500 Kv Chilca –        Concession             To be defined
                      Marcota - Montalvo                           (30 years)
Energy                Transmission Line Tintaya- Socabaya 220       Concession                 80
                      Kv and associated substations                (30 years)
Energy                Transmission Line Talara- Piura 220 Kv –     Concession                  16
                      reinforcement of the North System            (30 years)
Energy                Transmission Line Macchupicchu –             Concession             To be defined
                      Abancay-Cotaruse of 220 Kv                   (30 years)
Energy                Transmission Line Trujillo Chiclayo of 500   N.A.                   To be defined
                      Kv and associated substations
Energy                Santa Teresa’s Hydroelectric Central         Concession                 150

Energy                Cold Reserve of Generation                   Concession (20 years       200
                                                                   plus the
                                                                   construction period)
Hydrocarbons          Gasoduct to Chimbote                         N.A.                      13000

Hydrocarbons          Natural Gas Distribution System in           N.A.                   To be defined
                      Ayacucho, Junin and Ancash
Hydrocarbons          Natural Gas Distribution System in the       N.A.                   To be defined
                      cities of Quillabamba, Cusco, Puno,
                      Arequipa. Moquegua and Tacna
Mining                Huayday Ambara Project                       N.A.                   To be defined
Mining                Michiquillay – Remanentes Project            N.A.                   To be defined
Mining                Bayobar Remanentes – Samueras Project        N.A.                        30
Mining                Arena Seca Prospect                          N.A.                   To be defined
Mining                IPEN assets                                  N.A.                   To be defined
Real Estate           Cuartel San Martin – Second Auction          N.A.                    Subject of
                                                                                            Auction
Real Estate           Cuartel Lobitos                              N.A.                    Subject of
                                                                                            Auction
Sanitation (Private   Wastewater Treatment Plant and               Concession                 145
Investment)           Submarine Transmitter La Chira               (25 years)
Agrarian sugar        Sale of Agroindustrial Tuman S.A.A.’s        Sale of Shares          Subject of
refinery              Shares                                                                Auction
Agrarian sugar        Sale of Cayalti’s Shares                     Sale of Shares          Subject of
refinery                                                                                    Auction
Agrarian sugar        Sale of Pomalca’s Shares                     Sale of Shares          Subject of
refinery                                                                                    Auction
Penitentiary          Penitenciary Establishment Concession in     Concession             To be defined
Establishment         Lima                                         (25 years)




                                                                                                 29
G. Recent Major Direct Investments

As of December 31, 2009, the total amount of direct foreign investment registered at
the local Private Investment Promotion Agency (“ProInversion”) is about US$ 18.84
billion compared to US$ 18.07 billion as of December 31, 2008, US$ 15.8 as of
December 31, 2007 and US$ 15.47 billion as of December 31, 2006. These amounts
do not include investment projects, loans, merchandise valuation or other assets not
assigned to the local company’s equity.

In late 2009, Spain, the United States of America, South Africa, Chile and Switzerland
constitute the main sources of investment for Peru making up 60% of the foreign
investment, while Spain and the United States of America originate by themselves
36.7% of the accrued foreign investment.

In 2008, the main sectors where foreign investment has been made is
telecommunications (22.27%), mining (20.81%), industrial (16.23%), finance (15.41%)
and energy (9.93%). On the other hand, in 2009 were mining (21%),
telecommunications (20%), industrial (15%), finance (15%), energy (14%) and others
(15%).

The most important foreign investment of the last years was the one made by
Telefónica de España in 1994, which bought most of the shares of Compañía Peruana
de Teléfonos (CPT) and Empresa Nacional de Telecomunicaciones (ENTEL). The
amount invested was US$ 2 billion of which US$ 1.4 billion were used to buy the
shares from the State and US$ 600 million were used as capital contribution for the
development of the company. In the telecommunications sector, there have been
some additional significant transactions, such as –among others– the purchase of the
mobile operations of BellSouth Peru in 2004 by Telefónica and America Movil Peru’s
acquisition in 2005 of 100% of the operations of TIM Peru which was controlled by
telecom Italia Mobile S.p.A. America Movil operates in Peru through its brand ‘Claro’.
As of today, the development of this sector is boosted with an aggressive concession
program that mainly seeks to expand the phone coverage in rural areas.

Foreign investment has also been significant in the energy sector. State-owned
holding in energy companies were sold and others assets were granted in
concession to the private sector. In February 2000, the Camisea Gas development
was awarded to Pluspetrol-Hunt-SK Consortium, and Techint-Pluspetrol-Hunt
Pipeline Company of Peru-SK Corporation, L’Enterprise Nationale Sonatrach-Graña y
Montero Consortium was awarded the distribution stage in October 2000. In April
2001, the Peruvian Government granted in concession the electric transmission lines


                                                                                30
“La Oroya-Carhuamayo-Paragsha – Derivación Antamina and Aguaytía-Pucallpa” in
favor of “Interconexión Eléctrica S.A. E.S.P. and Transelca S.A. E.S.P.”. Both of them are
Colombians. In December 2001, PSEG acquired Electroandes, through Transamerica
Energy and PSEG Americas. In June 2002, the electric transmission systems of ETECEN
and ETESUR were granted in a 30-year concession to Colombian firm “Interconexión
Eléctrica S.A.”, which offered US$ 241.58 million and a projected investment of US$
10.5 million. On the other hand, ENERSUR was awarded with the use contract of
Yuncan (Contract for Use of Assets) offering US$ 205 million. The Yuncan project
consists on the construction of a hydroelectric plant with 130 MW installed power,
including the installation of 3 generators of 44.5 MW each to produce 901 Gwh per
year. The construction of 50 km. of Transmission Lines is also required for
interconnection to the National Electric System.

The energy sector is presented as a sector with a promising development
considering the large hydroelectric potential of our country and the possibility to
develop natural gas reserves. In this scenario, currently there are proposals of
companies interested in investing in projects involving amounts exceeding US$ 20
billion, which include Electrobras, OAS, Endesa, Inkia and SK.

In the mining sector several important State-owned companies have been sold to
foreign investors. Worth to mention is the sale of Hierro Peru to the Chinese
company Shougang Corp. for US$ 120 million; the Quellaveco copper deposit to the
Chilean company Mantos Blancos for US$ 12 million; the Cajamarquilla zinc refinery
to Cominco Ltd. and Marubeni for US$ 193 million; the Ilo refinery to Southern Peru
Copper Corporation for US$ 66.6 million; and, the Tintaya mining company to Global
Magma Ltd. and Magma Copper for US$ 246.9 million. As of September 16, 1998, the
Canadian consortium Noranda-Teck-Rio Algom has signed an investment agreement
with the government to invest US$ 2.2 billion in the former State-owned Antamina
mining concern during the following three years, besides the US$ 300 million already
invested in it for exploration. On March 15, 2005, Brazilian Companhia Vale do Doce
was awarded with the right to exploit the phosphates mining concession of Bayóvar,
in the Northern Province of Piura. Brazilian group Gerdau acquired a majority interest
in SiderPerú as part of a privatization process. Recently, the Peruvian Government
gave in concession the Michiquillay mining project to Anglo American Services
within an international public bid process; Compañía Minera Milpo acquired a
majority stake of mining company Atacocha; Iberian Minerals acquired Compañía
Minera Condestable from Trafigura. During 2009, investments for more than US$ 30
billion for the next few years were announced, which may include the ones from
Chinalco, Grupo Mexico, Xstrata, Shougang, among others.



                                                                                    31
In the financial sector, the main capital contributions have been made by (i) Banco
Bilbao Vizcaya from Spain for the purchase of Banco Continental for US$ 256 million;
(ii) Banco Santander S.A. from Spain for US$ 97 million for the purchase of two local
banks; (iii) International Financial Holding for the purchase of Interbank for U$ 51
million; (iv) Banque Sudameris from Italy for the purchase of Banco de Lima for US$
100 million and then for the purchase of Banco Wiese; and (v) Scotiabank from
Canada for the purchase of Banco Wiese Sudameris, Banco del Trabajo and Profuturo
AFP. Pension fund Prima AFP acquired AFP Union Vida from Santander group. Banks
such as HSBC and Deutsche Bank decided to enter the Peruvian market as greenfield.

The mergers and acquisitions activity in the country have stand out in the last years;
a clear example is set by the acquisition of Colombian brewery Bavaria by SABMiller
pursuant to which the latter acquired the control of Peru’s largest brewery Union de
Cervecerías Peruanas Backus y Johnston S.A.A. and its subsidiaries. Within the same
brewery sector, Ransa Comercial acquired 30% of Compañía Cervecera Ambev Peru’s
holding company. Additionally, grupo Gloria acquired a majority stake in sugar
company Empresa Agroindustrial Casa Grande, and many acquisitions have occurred
in the fishing industry, such as the purchase of Grupo Sindicato Pesquero del Perú
(SIPESA) by Tecnológica de Alimentos (Tasa) for US$ 130 million. In addition, on late
2007 Chilean Cencosud acquired Supermercados Wong S.A.; Citibank sold its interest
in Profuturo AFP; Rank Group acquired Alcoa’s packaging business; Mexican
company Sigma Alimentos acquired Peruvian Braedt S.A.; Central Parking System
sold its 70% interest in its Peruvian subsidiary to Grupo Delosi; 3M del Peru S.A.
acquired 100% of the common stock of Peruvian firm Abrasivos S.A, among many
other M&A deals.

During the last years Peru has attracted many new investments such as Grupo Slim
(América Móvil), Enap, Votorantim, Scotiabank, Latina Holding, China Fishery Group,
Ashmore, Parque Arauco and consolidation of others such as Telefonica, Freeport –
McMoran Copper & Gold, Phelps Dodge, Xstrata, among others. Likewise, new
companies entered the market as greenfield: Ambev, HSBC Bank, Deutsche Bank and
Grupo Gea. Companies such as Sumitomo, Odebrecht, Andrade Gutierrez, Repsol,
Pluspetrol, which are already established in Peru, increased their investments in our
country.

Finally, it is worth to mention that the major investors making some capital
movements through contributions or acquisitions of shares during the period 2008-
2009 were Cencosud Internacional Limitada (Chile), Endesa Latinoamericana S.A.
(Spain), Golds Field Corona BVI LMI (UK), SN Power Perú PTE. Ltd. (Singapore),
Compañía Minera Latino – América (CMLA) (Chile), Perenco Ltd. (France), Gerdau S.A.


                                                                                32
(Brazil), Anglo American PLC (UK), Invercable S.A. (Chile) and Asa Iberoamérica S.L.
(Spain).


III. TYPES OF MERCANTILE ORGANIZATIONS

There are different structures that foreign investors may use according to their needs
as investment vehicles in Peru. They range from setting up any of the six different
types of companies or a foreign branch to forming two types of joint ventures:
association in participation or a consortium.

Peruvian Corporate law provides for several forms of corporate organizations,
according to Law No. 26887, General Companies’ Law, which came into effect on
January 1, 1998. The most widely adopted forms are the Corporation (Sociedad
Anónima) and the Limited Liability Company (Sociedad Comercial de
Responsabilidad Limitada). Besides these two, the Corporations Law recognizes the
existence of the General Partnership (Sociedad Colectiva), Simple Limited Partnership
(Sociedad en Comandita Simple), Limited Partnership with Shares (Sociedad en
Comandita por Acciones) and the Civil Company (Sociedad Civil).


A. Corporation


A corporation must have at least two shareholders which can be natural and/or
juridical persons. The duration can be for a fixed or indefinite term. Each shareholder
has a limited liability up to the amount of his/her contribution. Shareholders are
liable only to the extent that the share capital for which they have subscribed
remains unpaid. There is no minimum capital requirement to the formation of a
corporation.

Incorporation of the company may be done by simultaneous or successive
subscription of shares. Simultaneous subscription occurs when the incorporators
subscribe themselves all the share capital. Successive subscription occurs when the
promoters offer the shares to the public. At least twenty five percent of each share
must be effectively paid up.

The corporation can take three forms: Closely Held Corporation, Publicly Held
Corporation or a Standard Corporation. The latter results when the corporation does
not comply with any of the requirements established for the Closely or Openly Held
Corporation.



                                                                                 33
1. Closely Held Corporation (S.A.C.)

The Closely Held Corporation must be composed of no more than twenty
shareholders. Their shares of stock cannot be registered in the Securities Market
Public Registry, and thus cannot be listed on the stock exchange. The establishment
of a board of directors is optional, and the shareholders have the right of first refusal
to acquire shares of stockholders who wish to transfer their shares. This right of first
refusal may be eliminated if it is expressly agreed to in the bylaws. Moreover, specific
causes for exclusion of stockholders can be established.

2. Openly Held Corporation (S.A.A.)

The Openly Held Corporation will be considered as such if any of the following
requirements occur:

•   The corporation has made a public offer of its shares or of liabilities convertible
    into shares;
•   Has more than seven hundred and fifty shareholders;
•   More than thirty five percent of its capital is held by one hundred and seventy
    five shareholders or more, taking into consideration that none of them hold (i)
    more than 5% of the capital stock or (ii) shareholders individually do not hold two
    for one thousand of the capital stock;
•   The corporation is incorporated as openly held; or
•   All the shareholders with voting rights unanimously resolve to become an Openly
    Held Corporation.

The articles of incorporation and bylaws cannot contain clauses restricting the free
transferability of shares or any type of restriction to stock negotiation, nor clauses
giving a shareholder or corporation preferential right to acquire shares when these
are transferred.

This corporation should have all its shares registered with the Stock Market Public
Registry. The National Supervisory Commission for Business and Securities
(CONASEV) is the government agency in charge of supervising and controlling the
publicly held corporations. CONASEV has the following powers:

• Demand the conversion to Publicly Held Corporation and the registration of its
  shares in the Capital Market Public Registry, when corresponding;
• Demand the conversion of the Publicly Held Corporation to another type of
  corporation;


                                                                                   34
• Require the presentation of financial information and any other related information
  at the request of shareholders representing five percent of the subscribed capital;
• Call the shareholders’ general meeting or a special meeting when the corporation
  fails to call them on the opportunities established by the law or by the bylaws.
• Run the Capital Market Public Registry and determine its organization and
  functioning upon the base of the principles of free access to information and
  administrative simplification;
• Determine the punible violations of the law, and therefore establish the
  corresponding sanctions.

The minority shareholders’ rights in an Openly Held Corporation are the following:

2.1 Right to Information Out of the Meeting

The Openly Held Corporation must provide the information required by
shareholders, out of the meeting, representing no less than 5% of the paid-in capital,
provided it is not dealing with reserved matters or matters whose disclosure may
damage the corporation.

2.2 Right for Requesting Meeting Call by the Shareholders

The Openly Held Corporation requires 5% of the subscribed shares with voting rights
to request the call of the Shareholders’ Meeting.

2.3 Right to Postpone a Shareholders’ Meeting

At the request of the shareholders representing 25% of the subscribed shares with
voting rights, the Shareholders’ Meeting shall be postponed for a single time, at least
for three but no longer than five days without issuing a new notice, in order to
discuss and vote on matters in which they consider not to have enough information.

2.4 Right to Challenge Resolutions

The resolutions of the Shareholders’ Meeting that contravene the Corporate Law, the
bylaws or the articles of incorporation or which damage, directly or indirectly, in
benefit of one or several shareholders, the corporate interests, may be judicially
challenged. The agreements that incur the grounds for annulment established in the
Corporate Law or the Civil Code may also be challenged in accordance with the
terms and forms established in the Corporate Law. There is no requirement of a
percentage in order to exercise this right. The challenge may be brought by the


                                                                                 35
shareholders that may have put on record their opposition to the resolution in the
Shareholders’ Meeting, by the absent shareholders or by those unlawfully deprived
of their voting rights. The challenge right expires two months after the date the
resolution has been adopted if the shareholder was present at the meeting; after
three months if the shareholder was absent; and when concerning resolutions to be
recorded in the minutes, within the next month following their registration. This right
is also granted in the Standard Corporation and in the Closely Held Corporation.

2.5 Right to Suspend a Resolution

At the request of shareholders representing more than 20% of the fully subscribed
capital, a judge may order a precautionary measure for the suspension of the
challenged resolution. The judge shall order that the claimants provide a
counterprecaution compensation for the damages that may be caused by the
suspension. This right is also granted in the Standard Corporation and in the Closely
Held Corporation.

2.6 Right to Withdraw

Right to withdraw occurs when the Openly Held Corporation decides to retire its
shares or obligations from the Stock Market Public Registry. This fact makes it loose
its condition of Openly Held Corporation and must convert to another type of
corporation. Shareholders who did not vote in favor of the resolution, have the right
to withdraw.

Moreover, in order to effectively protect the rights of the minority shareholders, the
corporation should publish the following information in the Official Gazette as well
as in the corporation’s web page, within 60 days of the Shareholder’s Meeting:

   1. The total number of unclaimed shares and its total value;
   2. The total number of uncharged and demandable dividends;
   3. The place where the detailed lists are, and the place and hour in which the
      minority shareholders can claim their shares and charge their dividends; and,
   4. The list of shareholders that have not claimed their shares and profits.

For those corporations that are in a process of liquidation or bankruptcy, the
announcement of the place where all the mentioned information is found and the
hour of attention, is required.




                                                                                 36
3. Standard Corporation

Corporations that do not comply with the requirements to be publicly held or
privately held are considered to be standard corporations, regulated by the general
clauses established to all corporations in Law No. 26887.

4. Capital Structure

The Corporation may issue different types of shares. The difference among them
could be constituted by the rights granted to their holders, the obligations assumed
or by both of them. All stocks of the same class will have the same rights and
obligations.

The Corporation may issue non-voting stocks whether it is a Standard, Closely or
Openly Held Corporation. Non-voting stocks are not computed to determine the
quorum necessary to hold shareholders’ general meetings. This type of stocks
confers the holder the quality as shareholder with the following rights:

    •   Participate in the distribution of profits and net worth resulting from
        liquidation before any common stockholder;
    •   Be informed at least every semester about the Corporation’s activities and
        management;
    •   Oppose those agreements damaging their rights;
    •   Withdraw the Corporation in cases established by the law or the bylaws.

Moreover, in case of capital increase, shareholders can:

   1. Subscribe voting stocks pro rata when the shareholders’ general meeting
      agrees to increase the capital only through the creation of stocks with voting
      rights;
   2. Subscribe pro rata stocks with voting rights and with the necessary number
      to maintain his/her participation in the capital, in case the shareholders’
      general meeting agrees that the increase includes the creation of non-voting
      stocks, but in an insufficient number, so that the holders of these stocks
      maintain their participation in the capital; and,
   3. Subscribe pro rata non-voting stocks in cases of capital increase where the
      shareholders’ general meeting is not limited to the creation of stocks with
      voting rights or in cases where the general meeting agrees to increase the
      capital only through the creation of non-voting stocks; and


                                                                              37
   4. Subscribe liabilities or other convertible securities or with the right to be
      converted into stocks, applying the rules set forth in the above numerals.

5. Corporate Bodies

The administration and management of a corporation are carried out by the
Shareholders’ General Meetings and by the Board of Directors’ Meetings.

5.1 Shareholders’ General Meetings

The Shareholders’ General Meeting is the primary corporate body and it is composed
of all the corporation’s stockholders. All shareholders, present, absent or dissident are
submitted to the resolutions adopted by the General Meeting. The meeting can be
called by the Board of Directors, the management or by twenty percent of the
subscribed shares with voting rights. The law permits celebration of universal
meetings when all subscribed shares with voting rights are present and unanimously
agree to celebrate the meeting.

The Mandatory Meeting should meet at least once a year within the following three
months of the corporation’s fiscal year. The issues discussed include approval of the
financial statements, allocation of profits, election of members to the Board of
Directors and compensations, designation of external auditors and any other issue
required by the bylaws or expressly stated in the call.

Likewise, the general meeting is competent to remove the board of directors and
name its successors, modify the bylaws, increase or decrease the capital, issue bonds,
agree on the sale of assets when its value exceeds fifty percent of the corporation’s
capital, order investigations and special audits, agree on the transformation, merger,
spin-off, reorganization and dissolution of the corporation and resolve about its
liquidation.

5.2 The Board of Directors

The Board of Directors is elected by the Shareholders’ General Meeting. The bylaws
will establish the minimum, maximum or a fixed number of directors which will not
be less than three. Likewise, the bylaws determine their term of office which cannot
be less than one year nor more than three years. Reelection is permitted. The
Shareholders’ General Meeting can remove the directors at any time without a
specific cause. The position is personal unless the bylaws permit directors to be
represented by others. A director is not required to be a shareholder and/or a


                                                                                   38
resident to be elected director. However, the bylaws may establish this. The position
may only be held by natural persons, thus no corporation may be elected member of
the board of directors.

Under the new law, corporations are obliged to constitute their board of directors
with the representation of the minority (cumulative vote). In this sense, the law states
that each share has as many votes as there are members of the board to be elected. It
could happen that minority shareholders result obtaining a greater participation in
the board of directors, with respect to the percentage of capital that they hold.

The Board of Directors’ quorum is 50 percent plus one. However, the bylaws may
establish a higher quorum but may never request the total assistance of all board
members. Decisions are adopted by majority of the attending directors, but the
bylaws can establish a higher requirement.

The General Companies’ Law does not establish any particular requirement for the
board of directors in an Openly Held Corporation.


B. Limited Liability Company


The Limited Liability Company has its capital divided into ownership rights of equal
value, which are accumulative and indivisible and cannot be represented by shares
of stocks. The total number of partners cannot be more than twenty. Partners are not
personally liable for the company’s obligations.

As with corporations, there is no minimum capital required. However, twenty five per
cent of each ownership right must be paid-in before registering the incorporation at
the Commercial Registry.

Company agreements will be achieved by the will of partners representing the
majority of capital. The bylaws can establish the way and manner these accords can
be reached. However, a general meeting is mandatory when requested by partners
representing at least twenty percent of the paid-in capital.

Management of the company is performed by one or more managers who may or
may not be partners, elected by the partners. Managers are prohibited to be involved
on their own behalf or on behalf of third parties in the same type of business as the
company. No board of directors is required.




                                                                                  39
Transferability of ownership rights to heirs in case of death of a partner could be
restricted by the bylaws in favor of the other partners to acquire them. Partners’
ownership rights are not freely transferable to third parties. He/she must first offer
his/her interests to the other partners who have preemptive rights to purchase the
ownership rights. In case none of the partners exercise this right, the company can
purchase and amortize them, resulting in a reduction of capital. If none of this
occurs, then the partner may freely transfer his/her interests to third parties.


C. General Partnership


The general partnership is a business organization where its partners are severally
and completely liable for the obligations and debts of the company. This form of
business organization is rarely used by foreign investors. The general partnership has
a fixed term of duration. However, its duration may be extended with the consent of
all partners. Likewise, any amendment to partnership agreements should be
approved by all partners and registered in the commercial registry. Transferability of
partnership interests must be approved by all partners.

Unless stipulated otherwise, the company’s accords are adopted by a majority of
votes, computed in terms of persons. If the accords are to be adopted in terms of the
capital held, the partnership agreement should establish the vote that corresponds
to each partner. In case any partner has more than half of the votes, it is necessary to
also have the vote of the partner who contributes personal services.


D. Simple Limited Partnership


This type of business organization is formed by one or more active partners who are
liable in an unlimited and joint manner for obligations incurred by the partnership
and one or more non-active partners whose liability is limited to the payment of their
respective contribution to the capital. These contributions cannot be represented by
shares of stocks or any other type of security. Unless agreed otherwise, non-active
partners cannot participate in the administration of the business.

To transfer contributions pertaining to active partners, it is required the unanimous
consent of active partners and fifty percent plus one of the votes corresponding to
non-active partners computed per capital investment. To transfer contributions of
non-active partners it is necessary the agreement of fifty percent plus one of the
votes computed by persons (active partners) and fifty percent plus one of the votes


                                                                                  40
computed by capital (non-active partners).


E. Limited Partnership with Shares


This type of business organization also has active and non-active partners with the
same economic responsibilities as the Simple Limited Partnership. The difference
relies on the fact that all the capital stock must be divided into shares. The active
partners are in charge of the company’s administration. However, non-active
partners can assume the administration in which case he/she acquires the quality of
active partner.

Shares belonging to active partners cannot be transferred without the consent of all
of the active partners and fifty percent plus one of non-active partners, computed
per capital for both types of partners. Shares of non-active partners are freely
transferable unless the partnership agreement establishes clauses limiting it.


F. Civil Company


Civil companies are created by professionals, generally in the service area, exercising
a jointly economic purpose. There are two types of civil companies: (1) Ordinary Civil
Company and (2) Limited Liability Civil Company. In the first, partners are personally
liable for the company’s obligations, unless stated otherwise. In the latter, partners
are not personally liable and there may not be more than thirty members. In both
cases, the capital should be paid in the act of incorporation. Ownership rights cannot
be incorporated as securities or shares of stocks.

Transferability of ownership rights should be agreed by all partners and requires
signature before a notary public and registration in the Commercial Registry. Profits
or losses are divided among the partners if stated in the Partnership Agreement.
Otherwise, it is divided in proportion to their contribution. Those contributing
services rather than capital can be partners. His/her contribution is valued as the
average of contributions made by the capitalist partners, unless stated otherwise.

Partnership meeting is the highest authority of the company. Decisions are reached
by majority vote per capital unless stipulated to be per persons in the Partnership
Agreement. Amendments to a Partnership Agreement require the partners’
unanimous vote.




                                                                                 41
G. Foreign Branch


A foreign branch of a corporation incorporated and domiciled abroad can be
established in Peru by public deed which must be registered at the Commercial
Registry. The public deed must contain at least the following: (1) a document
certifying that the main office in its country of origin is currently in force and neither
the bylaws nor the articles of incorporation contain any restriction on establishing a
foreign branch; (2) a copy of the bylaws or the partnership agreement; and, (3) the
agreement by the competent corporate body to establish a foreign branch, which
must state the capital assigned to the foreign branch, the declaration that their
activities in the foreign country are included within its corporate purposes, the
domicile of the foreign branch, the designation of at least one permanent legal
representative in the foreign country, the proxy conferred to him/her, and its
submission to Peruvian laws.


H. Association in Participation


This type of business consists of a written contractual agreement between a
managing partner (asociante) and a contributing partner (asociado). This agreement
can be executed by two or more natural and/or juridical persons for the purpose of
executing a particular business or project. The agreement is not subject to
registration before the Commercial Registry.

The managing partner agrees to grant the contributing partner a participation in the
results or profits of one or more businesses of his/her own in exchange for a
determinate contribution (money, property and/or services) to the enterprise or
project by the contributing partner. The managing partner acts on his/her own name
and the association in participation has no legal name. Management of the business
enterprise is solely performed by the managing partner who is the only person
responsible to third parties.

Unless stated otherwise, the contributing partner participates in the losses in the
same percentage as he/she participates in the profits. In any case, losses cannot
exceed the amount of his/her contribution.

The managing partner cannot include in his/her business third parties without the
written consent of the contributing partner.


                                                                                    42
The assets contributed by the contributing partner are presumed to belong to the
managing partner unless these assets are recorded in the Commercial Registry under
the name of the contributing partner.


I. Consortium


A Consortium is an agreement by which two or more persons actively and directly
participate in a specific project or enterprise to obtain economic benefits. Each party
maintains its own autonomy. Each member performs the activities entrusted to them
by the Consortium or assumed by them. When doing so, he/she must coordinate
his/her activities with the other members of the Consortium according to the
procedures and mechanisms established in the agreement.

The assets contributed to the Consortium remain in the property of each member
contributor. The joint acquisition of assets will be ruled under the joint ownership
regime.

Each member of the Consortium is individually responsible against third parties for
its activities within the Consortium. Any rights or liabilities and responsibilities
assumed by him/her is taken at his/her own risk.

In case the Consortium enters into an agreement with third parties, the responsibility
is solidary among the consortium members, unless stated otherwise in the
agreement or by law.

The Consortium Agreement must establish the participation of each member in the
profits and losses. Otherwise, participation will be understood to be in equal parts for
each member.


J. Mergers and Spin-Offs


1. Mergers

There are two different types of mergers provided for in the Company’s General Law:
(i) Merger by integration which implies that two or more companies integrate into
the merging company creating a new company; and, (ii) Merger by absorption
whereby one or more companies are incorporated into the surviving company. As


                                                                                  43
mentioned in (i) the former(s) is(are) dissolved but not liquidated.

In its initial phase, the merger procedure involves the elaboration of a Merger
Agreement Project, which is prepared by the companies to be involved in the merger
and should be approved by the board of directors or the company’s administration
of each company by majority vote. The merger must then be approved by the
Shareholders’ Meeting or Assembly of each of the companies involved. The call to
the Shareholders’ Meeting or to the Assembly must be published in the official
gazette with at least ten days prior to the meeting. Each company involved in the
merger should show the following documents to its shareholders, partners,
bondholders and other creditors: (i) the merger agreement project; (ii) the latest
financial statements audited; (iii) the shareholders’ agreement and bylaw of the
merging company; and (iv) the relation of the main shareholders, directors and
administrators of each of the companies involved in the merger.

In order for the merger to be legally valid it must be registered in the Public Registry.
Registration of the merger produces the extinction of the companies absorbed or
integrated. The merger agreement gives the shareholder or partner the right to
withdraw. The creditor of any of the participating companies in the merger has the
right to file his/her opposition to the merger.



2. Spin-Offs

Spin-off entails the transfer of part or all of a company’s assets to one or more
companies already in existence or formed for this purpose. If all the company’s assets
are transferred, the company will be extinguished. If only part of the assets is
transferred the spun-off company is not extinguished but must reduce its capital.
Rights and obligations of the spin-off company will be distributed proportionately by
the company(ies) receiving the assets. To spin-off a company, it is necessary to
comply with the same requisites established by law or by the bylaw to modify the
shareholders’ agreement or the bylaw. Spin-off transactions are subject to similar
rules applied to mergers, among others, the right of the shareholders to withdraw,
the right of creditors to oppose the spin-off, the registration of the spin-off before
the Public Registry and a spin-off agreement project.




                                                                                   44
IV. OTHER TYPES OF BUSINESS ORGANIZATIONS


A. Financial Institutions

Financial institutions are regulated by Law No. 26702 of December 9, 1996, the
General Law for the Financial and Insurance Systems and Organic Law for the
Banking and Insurance Superintendency. National and foreign banks are treated
equally. Foreign investors may either establish a bank or a branch, or appoint a
representative. The scope of action for financial institutions has been widened to
even permit them to act as multiple banks exercising different functions by creating
subsidiaries for leasing, mutual funds, brokerage, financial companies and
warehouses. The role of the State in the financial system has been limited to
supervision and setting monetary policies. Currently, all State banks have been
privatized except for Banco de la Nación (BN), which collects taxes for the
government, pays public employees’ salaries and benefits and represents the
government before international credit contracts. BN is a large bank with agencies all
over the country.

The Peruvian Central Reserve Bank establishes the monetary policy. The Banking and
Insurance and Private Pension Fund Administrator Superintendency (SBS) is the
government agency in charge of authorizing and supervising the activities of banks,
finance companies, insurance companies listed below (approvals of organization and
incorporation, controls and inspections, authorizations of special transactions,
auditing of operations, replacement of directors and managers, among others) and
private pension fund administrators. The SBS can interpret the law, issue regulations
and impose sanctions, including the closing and dissolution of companies under its
supervision. All the financial institutions must be incorporated as corporations
(Sociedad Anónima).

1. Banks

The bank must have at least a minimum of two shareholders and their shares must
be listed in the Lima Stock Exchange. Preferred stocks are permitted with or with
non-voting rights. Also, banks are subject to a minimum capital (at present
approximately US$ 7.2 million), which is adjusted quarterly according to inflation.

According to Law No. 26702, a bank is an institution whose main business consists of
receiving money from the public on deposit or under any other contractual mode,
and using such money, its own capital and that obtained from other sources of


                                                                                45
financing to grant loans under different modes, or apply them to operations subject
to market risks.

Banks may make all type of financial transactions, including acquisitions of securities,
purchase and sale of gold and precious metals, leasing operations, act as trustees
where trusts involve investment management, issuance of bonds and debentures,
financial advisory services, management of mutual funds (only through a subsidiary),
brokerage activities, underwriting and warehousing (only through a subsidiary). In
terms of real estate, banks can only acquire them for using them in their banking
activities (i.e., agencies). The law establishes that personal property and real estate
acquired or received as part of payment of a debt by third parties must be sold by the
bank within one year. If not sold during this term, then the bank is obliged to
constitute a reserve for the amount in books of the personal property and real estate
not sold.

2. Finance Companies

A finance company may perform activities similar to those of banks but cannot hold
current accounts or deposits payable on demand. Banks and finance companies are
treated the same in terms of incorporation and operation but finance companies’
paid-in capital requirement is lower. Finance companies are institutions which obtain
resources from the public and which specialty consists on facilitating the placements
of primary securities’ issues, operating with bearer securities and rendering advisory
services of financial nature.

3. Branches of Foreign Banks

Foreign banks can establish branches in Peru after complying with the requirements
established by the SBS. This process takes less time than the one required for
establishing a bank. Nevertheless, the foreign branch will participate from the same
benefits and obligations as any Peruvian financial company. To accomplish its
purpose, the foreign bank must pay the minimum capital required to establish a
branch and appoint a permanent legal representative vested with full powers to bind
it in any matters concerning the development of its operations. The powers granted
to the permanent legal representative have to be enough to represent the company
in the development of its activities. Branches of foreign banks are not obliged to
have a board of directors in Peru being enough to appoint personnel vested with full
powers.

Once all the legal requirements are fulfilled, the SBS issues a resolution which


                                                                                   46
enables the branch of the foreign bank to initiate operations.

4. Representative Offices of Foreign Banks

Foreign banks may have representative offices in Peru to maintain business relations
with local banks and with potential clients for credit loans.



Before the SBS issues an authorization for the representative office, it evaluates the
technical and moral adequacy of the individual or legal entity acting as
representative, as well as the economic solvency of the represented bank.

Representative offices of foreign banks only have permission to:

       a.     Promote their representative’s services among other similar companies
              that have current operations with international trading and external
              financial purposes;

       b.     Promote their representative’s financing offers among companies
              interested in buying or selling assets in international markets;

       c.     Promote their representative’s services among credit or external
              potential capital clients.

Representatives of financial companies from abroad shall be prohibited from:

       a. Carrying out transactions or offering services that are activities proper of
          their principal office;

       b. Receiving deposits or placing them directly in the country; and,

       c. Directly offering or placing within the country foreign securities and other
          negotiable instruments.

5. Investment Banks

Investment banks are corporations whose purpose is to promote investment in
general, both in the country and abroad, whether as direct investors or as
intermediaries between investors and entrepreneurs confronting capital
requirements. Pursuant to Law No. 26702, they cannot receive deposits from the


                                                                                 47
public, make loans or grant contingent credits, and therefore, do not have credit
portfolios.

6. Leasing Companies

Leasing companies are institutions specializing in the acquisition of personal
property and real estate to be assigned for the use of a natural or juridical person in
return for the payment of a periodic rent and with the option to buy such property
for a predetermined value.

7. Factoring Companies

Factoring companies are institutions specializing in the acquisition of invoices
approved by payer, securities and generally any commercial paper representing
debt.

8. Bond and Guarantee Companies

These are institutions specializing in granting bonds to guarantee natural or juridical
persons to other companies in the financial system or foreign companies in
operations connected with foreign trade.

9. Trustee Services Companies

Trustee companies specialize in acting as fiduciaries in the management of
autonomous trustee equity or in the performance of trusteeships of any nature.

Trusteeship is a juridical relationship whereby the trustor transfers property under
trust to another person, called the fiduciary, for the setting up of a trust property
subject to compliance with a specific end in favor of a trustor or a third party called
the fiduciary. Such trust property is separate from the property of the fiduciary,
trustor, or trustee or in due case, the recipient of any remaining property.

The use of this institution is restricted; they cannot be used to modify the inheritance
law since our Civil Code forbids imposing conditions and restrictions on the
inheritance share corresponding to heirs (ascendants, descendants and surviving
spouse).




                                                                                  48
10. Real Estate Capitalization Companies

Real estate capitalization companies are those which are engaged in the purchase
and/or building of real estate, and with respect to this, enter into separate real estate
capitalization contracts with others, giving the investor the corresponding real estate
unit on deposit. Such contracts include the investor’s right to the option to acquire
the real estate unit by paying for it in cash at any time. Such companies may enter
into passive contracts for the pre-financing of real estate and issue mortgage
certificates. This type of companies may not make loans.




B. Insurance Companies

Law No. 26702 does not distinguish between national and foreign investors in the
insurance sector. Thus, there is no discrimination against foreign investors whether
they participate in the capital of a company established by national investors or
decide to establish their own company. The Banking and Insurance Superintendency
(SBS) is the agency in charge of authorizing the incorporation of insurance
companies and supervising their operations. The SBS is vested with the power to
impose sanctions and even the closing and liquidation of insurance companies.

Foreign investors may opt to establish a company or appoint an intermediary or
broker of insurance or reinsurance. In case they decide to be incorporated in Peru, a
minimum capital is required. Brokers must be authorized by the SBS.

Insurance companies may only be established as corporations, with a minimum of
two shareholders. To incorporate an insurance company, prior SBS authorization is
required.

Also, the law establishes the freedom to enter into insurance contracts in the country
and abroad. Thus, natural and juridical persons can enter into insurance contracts
with companies not established in Peru. In this case, the agreement must be
performed directly and formalized abroad, since the law forbids to contract or
intermediate within the territory of Peru without the SBS approval.




                                                                                   49
C. The Private Pension Fund Administrators


The Private Pension Fund System was created by Decree Law No. 25897 of December
6, 1992. This law establishes the basic rules for the creation and operation of the
Private Pension Fund Administrators (hereinafter AFP’s).

AFP’s are organized corporations that operate under the General Companies’ Law,
the Pensions’ Law and its regulations. The Superintendency of Banking and Insurance
and AFP (SBS), which is the legal entity that supervises the AFP’s, must authorize the
incorporation of an AFP. All AFP’s must have the following characteristics: i) Have at
least five (5) shareholders not related directly or indirectly; ii) Their exclusive purpose
is to administer a pension fund and to provide the benefits established by law; iii) The
AFP acts as an administrator of the fund. Both the administrator and the fund have
separate assets and liabilities and must keep different accounting; and iv) Its shares
must be quoted in The Lima Stock Exchange.

The private pension system operates on a defined contribution basis where each
affiliate’s contribution is credited to an individual account. The contributions are part
of an investment fund, which is administered by the AFP. All investment income
belongs to the fund. Retirement benefits are determined by the balance in the
employee’s individual account at the time of retirement, which can be used to
purchase an annuity from an insurance company or an AFP, or to finance a
retirement plan. The affiliation to the Private Pension System offers retirement, death
and disability benefits.



V. THE FOREIGN INVESTMENT REGIME


A. Peruvian Foreign Investment Laws

Peru’s foreign investment regime is governed by Legislative Decree No. 662 (The
Foreign Investment Promotion Law) and Legislative Decree No. 757 (Framework Law
for Private Investment) published on September 9, 1991 and November 13, 1991,
respectively. Both laws are regulated by Supreme Decree No. 162-92-EF of October
12, 1992.

Legislative Decree No. 662 creates mechanisms to guarantee foreign investors tax
and legal stability, availability of foreign currency and non-discriminatory treatment


                                                                                     50
between national and foreign investors, to stimulate flows of foreign capital.

Legislative Decree No. 757 contains provisions required for growth of private
investment in all economic sectors, including the elimination of all legal and
administrative barriers and distortions that block economic development and restrict
free private initiative, leaving competition to the companies in the private sector.
This law also establishes basic provisions regarding taxes, protecting investors from
arbitrary changes.

Foreign investment is defined as investment coming from abroad and may be carried
out in any economic activity that generates income. It may take any of the following
ways:

        •   Contributions made by foreign individuals or entities to the capital of a
            new or already existing company, in freely convertible currency or in
            physical or tangible goods.

        •   Investments in national currency that has the right of being repatriated.

        •   Conversion of private foreign debt into equity.

        •   Reinvestment of profits made in accordance with current laws.

        •   Acquisition of assets located in Peru.

        •   Intangible technological contributions such as trademarks, industrial
            models, technical assistance and technical know-how, patented or not,
            which may be classified as physical goods, technical documents and
            instructions.

        •   Investments in securities, negotiable instruments or bank certificates in
            foreign or domestic currency.

        •   Resources for joint-venture agreements or similar contracts, which grants
            the foreign investor participation in the productive capacity of a
            company, without involving capital contributions.

        •   Any other type of foreign investment that contributes to the country’s
            development.



                                                                                  51
With the exception mentioned in subparagraph C) below, all economic activities are
open to foreign investment with no restriction on the participation of foreign
investors.

Foreign investors’ rights are the following: (i) have the same rights as national
investors; (ii) may acquire shares, equity interests or property rights from national
investors; (iii) remittance in foreign currency of the entire amount of their profits after
deducting the corresponding taxes. Dividends received by foreign investors are
subject to a 4.1% withholding tax; (iv) may remit the entire capital in foreign
currency; (v) no government authorization is required in any of the cases mentioned
in (i) to (iv). Remittances of foreign currency should be made through the Peruvian
banking system; and, (vi) have access to short, medium and long term internal credit
without limits.


B. Registration of Foreign Investment

Capital contributions must be channeled through the Peruvian banking system.
Foreign investments to be made in the country are automatically authorized. Once
made, they shall be registered with ProInversion, which will issue a certificate of
registration reflecting the amount invested. ProInversion is also the agency in charge
of matters relating to the signing of stability agreements.


C. Restrictions of Foreign Investment

Participation of foreign investment in any sector has no prohibitions, except for some
specific activities and for the restriction established in the Political Constitution.
Article 71 of the Peruvian Constitution states that foreign investors cannot acquire or
posses, by any means, mines, land, water, forests, fuel or energy sources, directly or
indirectly, within 50 kilometers of the national border.


D. Currency Investments

Investments in foreign currency do not require any previous official authorization.
There is complete freedom to hold and dispose of foreign currency in Peru and its
value is set by market supply and demand.




                                                                                     52
E. Remittance of Capital, Dividends and Royalties

Foreign investors do not need any type of authorization to transfer abroad funds
from capital, profits, dividends and royalties. These funds can be transferred in freely
convertible currency after taxes are paid.

Dividends and any other form of allocation of profits are levied with taxes. A rate of
4.1% will be applied, except for domiciled entities. On the other hand, royalties are
subject to a withholding tax rate of 30%.


F. Legal Stability Agreements for Private Investments

National and foreign investors may sign legal stability agreements with the
government -through ProInversion - to maintain in effect certain legal provisions in
force at the time the investment is made. The legal stability is granted for 10 years.
Legal provisions that could be frozen include tax laws, free access to foreign
exchange and the right to non-discriminatory treatment between investors in
companies on the basis of national or foreign participation.

To enjoy the benefits mentioned above, investors should be committed to
alternatively: (i) make capital contributions for no less than US$ 5,000,000; or, (ii)
make capital contributions for no less than US$ 10,000,000 provided such investment
is made in mining or hydrocarbons industries.

The above investments can be made in cash, contributions to the capital stock of a
company already incorporated or to be incorporated in Peru, capitalization of debt,
capitalization of resources with remittance rights. The investment must be made by
the same investor.

Local companies receiving foreign investment can also enjoy tax stability, but only
with respect to income tax, provided the amount of foreign investment is greater
than 50% of the paid-in capital and reserves of the receiving company and the
investment is for expanding the productivity capacity or for technological
improvement. The tax stability agreement may also be signed when dealing with
privatization of more than 50% of the stock of a State-owned company. The recipient
company could also obtain stability on the employee contractual system and special
promotion treatment.


                                                                                  53
G. Guarantees to Foreign Investment

Investors are authorized to contract insurance within Peru and abroad, in order to
protect their investments from commercial and non-commercial risks. The
government offers investors a coverage to protect their investments through the
World Bank Multilateral Investment Guarantee Agency (MIGA); agreement ratified by
the Peruvian Congress on April 2, 1991. MIGA secures investments against non-
commercial risks related to issues such as money transfers, expropriation, war and
civil disturbances, or in case of violation of agreements signed with the investors.
MIGA also offers advice services to improve the image of signatory countries to
attract investments.

On the other hand, Peru has subscribed a financing agreement with the United
States of America over the incentives for the investments that permit the «Overseas
Private Investment Corporation» (OPIC) to issue insurance, coinsurances or
guaranties to open investments of the United States of America in Peru. The OPIC
promotes the development through financial arrangements totally or partially
supported by the government of the United States of America.

After months of negotiations Peru has also signed a Free Trade Agreement with the
United States of America that entered into force on January 1, 2009. This agreement
includes matters such as services trade, electronic trade, governmental purchases,
promotion and protection to investments, protection of intellectual property rights,
compliance with labor and environmental legal provisions, settlement of disputes,
among others. Similar agreements were signed with Singapore, Canada, China and
Chile. Nowadays, Peru is negotiating Free Trade Agreements with Korea, Japan and
the European Union.

Likewise, Peru has signed bilateral investment agreements with countries such as
United States of America, Korea, Switzerland, Thailand, Bolivia, United Kingdom of
Great Britain, France, Paraguay, Singapore, Czech Republic, Colombia, Canada,
Sweden, Italy, Rumania, Chile, Cuba, Ecuador, China, Japan, Argentina, Spain,
Portugal, Denmark, Netherlands, Germany, Norway, Finland, Malaysia, El Salvador,
Australia, Venezuela and the Economic Union formed by Belgium and Luxembourg.

Peru has also signed the World Bank International Convention on the International
Center for Settlement of Investment Disputes between States and Nationals of other
States (ICSID). This is an international center created to solve investment


                                                                              54
controversies.


H. Making and Liquidating Loans

Foreign exchange transactions are free and there are no restrictions for entering into
loans in foreign currencies. The disbursement is made in the currency agreed upon,
and the borrower is not obliged to convert the foreign loan into local currency. Loans
made by foreign banks and financial institutions to borrowers are not subject to any
authorization or registration requirements nor they have to be deposited for a fixed
term with the Peruvian Central Bank or any other government agency before being
released to the borrower. Payment of interest and repayment of the loan’s principal
may be made without restrictions and does not require any authorization.

Peruvian legislation does not establish any differences in local banks making loans to
Peruvian or foreign resident investors. Both are treated the same.

Interests paid by debtors unrelated to non-domiciled creditors are subject to a
withholding tax rate of 4.99% provided several requirements are met. Otherwise, a
withholding tax rate of 30% will apply.

On the other hand, interests payable by domiciled banks and financial entities for
using their credit lines abroad are subject to a withholding tax rate of 1%.

Finally, interests generated from promotional loans provided directly by
international organisms or foreign government institutions through foreign financial
intermediaries or suppliers, are exempted from income tax until December 31, 2011.



VI. CONSUMER PROTECTION MEASURES


A. Antitrust

Legislative Decree No. 1034 published on June 25, 2008 and in force since July 25,
2008, establishes the antitrust regulations in Peru.

1. Scope

The antitrust law defines certain practices that are considered an infringement of the


                                                                                55
economic order. There are three types of infringement: (i) abuse of a dominant
position in the market, which includes the unjustified refusal to fill product purchase
orders, discriminatory pricing and clauses that fix prices; (ii) horizontal collusive
practice, which contemplates any form of collusion among competitors in order to
restrict competition among them. Specific cases of horizontal collusive practice
include, among others, the fixing of prices and production conditions, supply,
demand and commercialization conditions by companies that are current or
potential competitors; agreements to restrict production, distribution, and technical
and technological development; agreements that seek to apportion markets or the
assignment of part of the production market; concerted discrimination in prices or
terms; and, the use of clauses that fix prices or oblige to acquire from an specific
provider; and, (iii) vertical collusive practice, which contemplates the cases of abuse
of a dominant position and horizontal collusive practice.

As well, the Competition Authority should sanction as “per se” illegal conducts,
horizontal agreements between competitors (at least one with a dominant position)
that are not complementary nor accessory to other legal agreements, and that: (a) fix
prices or other commercial conditions; (b) limit production or sales; (c) divide the
market (clients, suppliers, geographical zones); and, (d) establish abstentions or
postures in tenders or other type of public contracting or acquisition in the Peruvian
legislation, as well as public auctions.

It is important to note that Peruvian legislation allows having a dominant position
and it does not imply any kind of restrictive act for having it. Such behavior will be
sanctioned when a leader company abuses of such dominant position, damaging
other agents and obtaining benefits that could be impossible to reach without it.

The Competition Authority will apply to other conducts not mentioned above, the
“Rule of Reason” and will analyze whether the advantages obtained by a company on
the market are a consequence of a superior efficiency in the use of resources or the
result of penalized practices. For it, the efficiency will be defined according to the
well being that the practice can or cannot generate in the consumers. This allows the
parties to defend themselves, demonstrating that their conducts do not generate
detrimental effects to the market, and therefore, to the consumers.

It is important to mention that cases specified in the law for both types of
infringement are merely illustrative and the government can consider as antitrust
practices other cases with equivalent effect. It is only sufficient to prove that the case
has an equivalent effect to other cases stated in the law. For the antitrust to be
violated, there must exist either (i), (ii) or (iii). Therefore, a monopoly can exist in the
economy without committing a violation of the antitrust legislation.

                                                                                      56
 In contrast with other countries, Peruvian antitrust law has not established control
laws to approve mergers and acquisitions or any other form of corporate grouping,
with some exceptions. By Law No. 26876, published on November 19, 1997, the
Commission for Free Competition (hereinafter the Commission) of the National
Institute for the Defense of Competition and Protection of Intellectual Property
(hereinafter INDECOPI) must previously approve cases of mergers and acquisitions
between companies rendering electricity services within the same interconnected
system. Mergers and acquisitions control does also exist in other activities such as for
openly held corporations, mutual funds, securities’ brokers, banking and insurance
companies, among others.

2. Administrative Proceeding

The Technical Secretariat has the authority to investigate any irregularity against the
antitrust law and initiate administrative proceedings. The proceeding can be filed by
the Technical Secretariat or by any interested party in which the Technical Secretariat
decides to admit or not the denouncement. The authority to decide the existence of
a restrictive conduct and to impose the corresponding sanction on the proceedings,
in turn, is the Commission which is an autonomous entity linked to INDECOPI. The
Commission’s decision may be appealed to the Competition Defense Court of
INDECOPI (hereinafter the Court) which is a court of last administrative resort. The
Court’s decision may be judicially appealed through a procedure initiated at the
superior court through the administrative contentious procedure, which may in turn
be reviewed by the supreme court of justice as last and definitive instance.

3. Administrative Sanctions

During the proceedings, the Technical Secretariat may suggest the Commission to
impose on the infringer precautionary measures seeking to halt the infringement. If
the infringer does not comply with the preventive measures, he/she will be subject
to a fine of not less than twenty-five (25) UIT (approximately US$ 30,000) or greater
than a hundred and twenty-five (125) UIT (approximately US$ 150,800). In case the
infringer insists in not complying, the Commission can increase twice the last fine,
but should not be more than a thousand (1,000) UIT (approximately US$ 1,207,000).
The imposed fines do not limit the Commission’s faculty to impose, at the end of the
proceeding, a different sanction.

The amount of the fine will be established according to the gravity of the violation. In
the event of a minor infringement, the Commission may impose the infringers to pay


                                                                                  57
a fine of not more than 500 UIT (approximately US$ 603,000) as long as the fine does
not exceed 8% of the sales or gross income perceived by the infringer during the
previous fiscal year. If the infringement is serious, the Commission may impose a fine
of not more than 1,000 UIT (approximately US$ 1’207,000) as long as the fine does
not exceed 10% of the sales or gross income perceived during the previous fiscal
year. If the infringement is extremely serious, the Commission may impose a fine of
more than 1,000 UIT (approximately US$ 1’207,000) as long as the fine does not
exceed 12% of the sales or gross income perceived during the previous fiscal year.

If the infringer is a professional college, a trade union of companies or an economic
agent that had initiated their activities after January 1st of the previous fiscal year, the
Commission may impose a fine of more than 1,000 UIT (approximately US$
1’207,000).

If the infringer is a company, a business association which has not been incorporated
pursuant to formal legal requirements, an autonomous patrimony or an entity, the
Commission may impose a fine of not more than 100 UIT (approximately US$
121,000) to each legal representative or to the persons who conform the
management or administration organ, according to their responsibility in the
committed infraction.


B. Unfair Competition

1. Scope

Peruvian legislation is oriented to prevent and sanction any act of unfair trade
practice or deceptive act in the usual course of business, thus enhancing an
appropriate environment for investments. This regulation applies to any act that is
contrary to honest commercial practices, no matter the sector or economic activity in
which it is performed, including acts of publicity, whether carried out by any natural
person or legal entity.


The Repression of Unfair Competition Law, Legislative Decree No. 1044, rules those
acts of unfair trade practice. It applies to any act of unfair competition that produces
its effects in any given part or the entire national territory, even if these effects have
their origin abroad.


Any method or practice in the conduct of usual trade or commerce, whether carried
out in full consciousness of its unfairness or not, that is contrary to honest


                                                                                      58
commercial practices and good faith shall be considered unfair and therefore, an
unlawful and prohibited act. It is not necessary to prove full conscience or awareness
of the realization of the above mentioned act. The Administrative Authority will
determine the true nature of acts under investigation applying the principle of
primacy of reality.

Among others, the following acts are considered unfair: those deceptive acts causing
likelihood of confusion or misunderstanding; defamatory, false and misleading
representations or conduct that deceives the public into believing that the business
name, reputation or goodwill of one person is that of another; imitating a
competitor’s product, package, or trademark in circumstances where the consumer
might be misled; false affirmations made in the course of trade that are capable of
discrediting a competitor’s business, goods, or industrial or commercial activity;
establish unsuitable and inappropriate comparisons; violate industrial or trade
secrets; and any other fraudulent, deceptive or dishonest trade practice which by its
nature or aim could be considered similar or be assimilated to those prohibited by
the Repression of Unfair Competition Law.

For an act to be considered of unfair competition, it will suffice to inflict potential and
illicit harm to competitors, consumers or public order.



2. Administrative Proceeding

Claims for infringement are cognizable by the Commission of Control of Unfair
Competition of the National Institute for the Defense of Free Competition and
Protection of Intellectual Property INDECOPI (hereinafter the Commission) on first
instance. The Commission will rule on the lawfulness of any unfair commercial act or
practice. The second and last administrative instance is the Competition Defense and
Intellectual Property Protection Court of INDECOPI (hereinafter the Court).

The administrative proceedings can begin ex officio (i) under request of the Technical
Secretary of the Commission or (ii) under formal request of a party. In this last case,
the Technical Secretary will hold the right of action and plaintiffs will be considered
as collaborators in the proceedings. The Technical Secretary can undertake previous
actions in order to identify reasonable evidence of acts of unfair competition before
initiating proceedings. These previous actions shall take place in a period no longer
than thirty (30) working days, upon the date when the complaint was filed.

Administrative proceedings may begin at any time, when the unfair competition act


                                                                                     59
is taking place, when under threat that this may happen and even when its effects
have already stopped.

The right of action for unfair competition prescribes five (5) years following the last
practice of unfair act.

An appeal will proceed against (i) the final ruling or (ii) the ruling which impedes
continuing with the proceeding or cause lack of defense issued by the Commission,
the same which will have to be resolved by the Court. The term to submit the
aforesaid appeal is of ten (10) working days.

Also, it is possible to file an appeal recourse against the ruling by which the
Commission orders or denies an injunction. The term to submit the aforesaid appeal
is of five (5) working days.

With the Court’s order, the parties will have all their right to initiate the
administrative contentious proceeding before the judicial power.

The term to start the administrative contentious proceeding is of three months (3)
upon the date when the ruling finishing the instance was notified.

Rulings issued by the Court will be immediately executed, without prejudice that the
interested party could take any further actions granted by law. The execution of a
ruling issued by INDECOPI will be suspended only by an order of the supreme court
of the judicial power.

3. Sanctions

The Law provides that any act of unfair competition may be sanctioned by granting
admonitions or administrative penalties up to 700 UIT (approximately US$ 912,500).

Without prejudice, the Commission as well as the Court can also order disciplinary
measures in order to reestablish fair competition. These can be:

   •   Order necessary measures to revert the effects that the contravention could
       have caused;
   •   Cease the infringing acts or forbear them of happening;
   •   Seizure and/or destruction of all goods, labels, containers and any material
       used to infringe the law;
   •   Temporary closing-down of the establishment;


                                                                                 60
   •   Rectification of any misleading, inaccurate or false information;
   •   Order customs’ officials to take precautionary measures so to prevent any
       infringing goods from entering the country;
   •   Publication of the guilty verdict.


C. Consumer Protection

1. Scope

The Consumer Protection Law, Legislative Decree No. 716 (hereinafter the Law), the
Complementary Law for the Consumer Protection System (Legislative Decree No.
1045) and the Supreme Decree Nº 006-2009 PCM, apply to all consumer relations
undergone in national territory. Under this scope, all relationships between
individual consumers and the businesses that sell those goods and services, whether
carried out by any natural person or legal entity, that is any private or public legal
entity; have to comply with this Law.

This Law protects solely those final consumers. It is important to note that a “final
consumer” is one who, as a natural person, not in the line of a professional or
industrial activity, acquires, uses or enjoys any product or service. Also, and as an
exception, those micro entrepreneurs who can prove the existence of an asymmetric
information relation with their suppliers will be considered as final consumers.

Pursuant to this Law, suppliers are responsible, among others, for the following:



   •   To supply safe goods and services that must correspond with the description
       and advertising labeled and have reasonably foreseeable conditions of use
       and durability. Goods must be fit and of satisfactory quality. In summary, the
       Law states that certain terms are implied in every transaction for the transfer
       of goods.

   •   To provide consumers with relevant, clear and comprehensive information. In
       this sense, all information on national goods shall be offered in Spanish. When
       considering foreign goods, information related to warranty conditions,
       instructions, warnings and risks, as well as safety procedures in case of injury,
       shall also be in Spanish.

   •   The sale’s price of goods and services shall be offered in national currency


                                                                                    61
       (Nuevos Soles) and will include the Value Added Tax (VAT). If the price tag is in
       a foreign currency, it shall have to be affixed as well in national currency in
       equal lettering and conditions. Should there exist a difference in price
       contingent on the means of payment, this circumstance has to be explicitly
       stated. Consumers will not be charged with any additional cost if this precise
       information is not clearly specified.

The Law establishes that all consumers must receive any necessary and relevant
information; should not be discriminated in any foreseeable way and are entitled to
indemnification for damages, if the implied conditions are breached.

2. Administrative Proceeding

Claims for infringement are cognizable by the Commission for Consumer Protection
(hereinafter the Commission) of INDECOPI. The Commission will rule on the
lawfulness of any act that contravenes a prescribed provision of the Law.

The time limit to file a formal complaint is two (2) years after the date on which the
alleged contravention occurred.

When consumers consider that their rights have been breached, they have two
alternative ways to obtain legal protection:

   •   Report to the Citizens Service Office of INDECOPI. The aforesaid service is free
       and seeks to promote settlement out of Court. Should parties involved be
       unable to reach an agreement or if INDECOPI ex officio decides so, a formal
       administrative proceeding may be initiated.

   •   To make a formal complaint before the Technical Secretary of the
       Commission.

Any complaint may be filed directly by the consumer or his/her assignee, as well as
by a Consumers Association.

The Commission or the Technical Secretary of the Commission, in this case due to
inform the Commission and only under special considerations, may initiate ex officio
the proceedings provided for in the Law.

An appeal will proceed against the final ruling issued by the Commission, the same
which will have to be resolved by the Court of INDECOPI. This appeal will also


                                                                                  62
proceed against rulings imposing penalties or rulings ordering any temporary or
permanent injunction. The term to submit the aforesaid appeal is of five (5) working
days.

With the Court’s order, the parties will have all their right to initiate the
administrative contentious proceeding before the judicial power.

The term to start the administrative contentious proceeding is of three (3) months
upon the date when the ruling finishing the instance was notified.

Rulings issued by the Court will be immediately executed, without prejudice that the
interested party could take any further actions granted by law. The execution of a
ruling issued by INDECOPI will be suspended only by an order of the supreme court
of the judicial power.

3. Sanctions

The Law provides that the Commission may grant admonitions or an administrative
penalty up to 300 UIT (approximately US$ 391,000) to any supplier that is found to
have committed an illicit act. Without prejudice, the Commission or the Court can
order the necessary measures to revert the effects that the contravention could have
caused.

Some of these measures are as follows:

   •   Closing the business for a maximum period of time of sixty (60) days;
   •   Seizure and destruction of goods;
   •   The publication of rectifying or informative advertises subdued to the
       Commission’s specifications;
   •   Reimbursement of the price paid;
   •   Replacement and repairing of the goods;
   •   Any other means that the Commission may consider suitable to reverse the
       effects caused by the infringement act or to prevent any future harm.

The administrative actions and corrective measures above detailed in the Law may
be enforced without considering the compensations and criminal penalties that
could take place.




                                                                              63
D. Advertising

1. Scope

In Peru, commercial advertising for goods and services is also ruled by the Repression
of Unfair Competition Law, Legislative Decree No. 1044.

These standards will be applied in any sector or economic activity, regardless of the
fact that the recipient of the message is a final consumer, a broker or a goods and
services supplier.

The advertising rules protect the value it has as a mechanism of information and as
an element that allows for a smooth market functioning. Publicity allows
entrepreneurs to exercise their right to free speech and is a vehicle for private
initiative as long as it does not incur in acts of unfair competition.

In this regard, commercial advertising is recognized as any type of communication
that has the purpose or effect of promoting, directly or indirectly, the purchase of
goods or contracting of services, by attracting or deflecting consumer preferences.
Political propaganda or institutional publicity, the latter understood as one that aims
at promoting behaviors of social relevance, are not considered commercial
advertising.

The natural or legal person who is an advertiser is liable if the infringement relates to
a feature inherent in the announced product.

On the other hand, being advertising a professional service, there is a jointly and
several liability between the advertiser and the advertising agency, or whoever has
produced the ad, when advertising does not belong to the characteristics of the
product advertised.

The media will also be responsible if they commit an offense linked to the
dissemination standards because they are able to exert control over what is
published. These rules are the governing conditions of transmission of some ads and
can refer to the schedule or to the media.

The advertisements’ audit, in all cases, can only take place after these are
disseminated.



                                                                                   64
2. Administrative Proceeding

The only agency responsible for verifying compliance with the rules of advertising is
the Commission of Control of Unfair Competition at INDECOPI (hereinafter referred
to the Commission).

All State agencies are unable to apply sanctions in the field of commercial advertising
and must report to the Commission the violations of the advertising rules known in
the area of their competence, so that the Commission proceeds to impose the
sanctions that legally correspond. Any sanction ordered by a State agency that
violates this provision is void.

The administrative proceedings before the aforesaid Commission are ruled by the
Repression of Unfair Competition Law. Proceedings are the same as for Unfair
Competition (see above).

3. Sanctions

If during the administrative proceeding the Court or the Commission concludes that
an act contrary to the publicity rules has been committed, they may apply an
admonition sanction or a fine up to 700 UIT (approximately US$ 912,500) without
prejudice that the Commission orders the cessation of advertisements and/or
publicity rectification.



As above mentioned, the Commission is entitled to order, as complementary
measure, the publication of an amendment advertisement in order to correct the
residual dissemination effect that the misleading information through the
advertisement could have caused in the market. Therefore, its application will only
correspond in the cases where its diffusion is suitable to correct the distortion that
the misleading information would have originated in the market.



VII. TAX CONSIDERATIONS

The Peruvian tax system is regulated by several statutes.

Article 74 of the Peruvian Constitution of 1993 has established that all taxes have to
be created, modified, or eliminated by Law (or Legislative Decree when the

                                                                                 65
corresponding powers have been delegated by the Legislative Branch to the
Executive Branch). This premise is also applicable to tax exemptions and establishes
the principles applicable to the tax law.

The Tax Code is the main statute (law) which includes the principles that will guide
the application of taxes, as well as the provisions about the nature of taxes, the
faculties of the Tax Administration, the Tax Court, tax proceedings and penalties.

The most important taxes levying individual investors and companies are the
following: (i) Income Tax; (ii) Value Added Tax; (iii) Excise Tax; (iv) Customs Duties; (v)
Real Estate Property Tax; (vi) Financial Transactions Tax; (vii) Temporary Tax on Net
Assets; and (viii) Social Security Contributions.

In Peru, specific tax measures are in force in order to promote private investments in
several economic activities, such as mining, oil and gas, agriculture and generation of
electricity energy by means of hydro-power and other renewable resources.

Also, there are some benefits referred to the advanced recovery of the Value Added
Tax Credit and facilities for the payment of Customs Duties for those companies
involved in exploration, development and/or exploitation of natural resources.


A. Income Tax

1. Companies

Peruvian resident business entities (companies, partnerships and any other form
used to conduct business, resident partnerships, limited liability companies, taxable
foundations and associations, as well as joint ventures keeping independent
accounting from that of the venturers) will be subject to taxation on their worldwide
income. All of them will be subject to the same tax treatment.

The results of their overseas transactions will be compensated and then added to
their domestic source net income, but only if they result in a net income (losses from
tax havens cannot be compensated with foreign source income). Net losses from a
foreign source cannot be offset with domestic source net income for income tax
purposes.

Non-resident business entities, on the other hand, are levied on their Peruvian source
income only. Likewise, branches and other permanent establishments of non-


                                                                                     66
resident entities are taxed on their Peruvian source income only. The Peruvian
Income Tax Law establishes rules in order to determine whether the benefits
obtained qualify as Peruvian source income.



1.1 Applicable Tax Rates

Income tax is applied on a five-category basis.

Income obtained by resident business entities is considered as third category income
and is generally subject to a 30% tax rate.

In order to obtain the net income of domiciled business entities all the expenses
incurred in its procurement, as well as those necessary for the maintenance of its
source, may be deducted from the business entity’s gross income, unless expressly
prohibited by law.

Some expenses that may not be deducted from the gross income are the following:

-   Personal expenses;
-   Income Taxes;
-   Fines and any other tax sanctions;
-   Certain donations;
-   Amounts invested in the acquisition of goods or permanent improvements;
-   Provisions or reserves whose deduction is not admitted by Law;
-   Amortization of intellectual property and other intangible assets of unlimited
    lifetime;
-   Commissions originated abroad for the purchase or sale of goods, in the part that
    exceeds the amount normally paid in the country in which they originate;
-   General Sales and Excise Taxes levying gratuitous transfer of property;
-   Expenses supported by invoices that do not fulfill the formal requirements stated
    in the Invoices Regulations;
-   Expenses incurred in some operations connected with tax havens;
-   Payments that are not carried out through one of the authorized mechanisms of
    the Financial Transactions Tax Law.

1.2 Treatment of Losses

Resident business entities may compensate their Peruvian source net losses by using
one of the following systems:


                                                                               67
-   Carrying forward the total Peruvian source net loss obtained in a tax year for 4
    years, by applying these losses on a year-by-year basis to income obtained during
    the aforementioned term. Once this period is completed, the possibility of
    compensating the remaining losses with profits is lost.

-   Carrying forward the total Peruvian source net loss obtained in a tax year by
    applying it on a year-by-year basis to 50% of the net income obtained during the
    immediately subsequent tax years. Under this system losses may be carried
    forward for an indefinite period.

Under both systems, the exempt income will be considered in order to determine the
compensable net loss.

If the taxpayer does not choose one of the above-mentioned systems, the Tax
Administration will apply the first system described.



1.3 Transfer Pricing Rules

The Tax Administration may adjust the price agreed to by the parties so that it
reflects the market price (i.e. meets the arm’s length standard), regardless of whether
the parties are related to or located in tax havens.

However, special transfer pricing rules are applicable in the case of transactions
involving related parties or executed towards or from tax haven countries, where
values assigned by the parties caused a lesser tax to be paid in Peru.

In any case, transfer pricing rules are applicable in the following situations: (i)
international transactions where two or more jurisdictions are involved; (ii) domestic
transactions where at least one of the parties is not levied or exempt from tax, is
subject to a beneficial tax regime or has executed a tax stabilization agreement; or
(iii) domestic transactions in which at least one of the parties had tax losses within
the previous 6 fiscal years.

According to Peruvian legislation, the market price shall be determined by one of the
following methods: the compared uncontrolled price method (CUP), resale price
method, cost plus method, profit split method, residual profit split method or the
transactional net margin method; whichever is considered the most appropriate to
reflect the arm’s length value.


                                                                                 68
The Income Tax Law establishes the rules applicable for the execution of Advance
Price Agreements (APA) with the Tax Administration.

Additionally, taxpayers must comply with the following formal obligations related
with the transfer pricing rules.



1.4 Territorial Rules

For taxation purposes, business entities are deemed Peruvian residents if they have
been incorporated in the country. They are levied on their worldwide income.

Non-resident business entities, on the other hand, are levied only on their Peruvian
source income. Likewise, branches and other permanent establishments of non-
resident entities established in Peru are taxed on their Peruvian source income only;
although they qualify as resident business entities for tax effects.



1.5 Tax Credits

In order to avoid international double taxation, resident companies may credit
against the Peruvian Income Tax the amounts levied by the source country. However,
the amount that can be credited is subject to certain statutory limitations.



1.6 Tax Havens

A country or territory is considered a tax haven (countries or territories with very low
or none taxation) when (i) it is included in the Peruvian list of tax havens, or (ii) if the
effective Income Tax rate in that country or territory is 0% or is below 50% of what
the effective tax rate would have been in Peru for similar income, and it presents at
least one of the following characteristics:

   i.   It is not willing to provide information regarding the taxpayers benefited with
        the very low or none taxation regimes.

  ii.   A special regime which includes tax benefits or advantages exists in the
        country or territory which is only applicable to non-resident taxpayers and
        excludes resident taxpayers.



                                                                                      69
 iii.   Taxpayers benefited from the very low or none taxation and are prohibited of
        operating in the local market of the said country or territory.

 iv.    The country or territory presents itself or is perceived by others as a tax haven.

Currently, 43 countries or territories are included in the list of tax havens: Alderney,
Andorra, Anguilla, Antigua and Barbuda, Dutch Antilles, Aruba, Bahamas, Bahrain,
Barbados, Belize, Bermuda, Cyprus, Dominica, Guernsey, Gibraltar, Grenada, Hong
Kong, Man Island, Cayman Islands, Cook Islands, Marshall Islands, Turks and Caicos,
British Virgin Islands, American Virgin Islands, Jersey, Labuan, Liberia, Liechtenstein,
Luxembourg, Madeira, Maldives, Monaco, Montserrat, Nauru, Niue, Panama, West
Samoa, Saint Kitts and Nevis, Saint Vincent and the Grenadines, Saint Lucia,
Seychelles, Tonga and Vanuatu.

Additionally, in application of paragraph m) of article 44º of the Income Tax Law,
expenses incurred in by a Peruvian resident entity in operations with an entity
established in a tax haven, will not be deductible in order to determine the net
income subject to the Peruvian Income Tax. Notwithstanding, expenses related to
the following operations will be deductible: (i) loans; (ii) insurances and reinsurances;
(iii) assignment of ships and airships; (iv) transport from Peru to a foreign country and
from a foreign country to Peru; and, (v) right of passage through the Panama Canal.
Said expenses will be deductible provided that the price or retribution paid is the
same as the one that would have been agreed by independent parties in comparable
transactions.



1.7 Withholding Taxes

        a) Dividends

        A 4.1% withholding tax will be applicable on dividends payable to individuals
        (resident or non-resident) or non-resident entities. Thus, dividends payable to
        resident entities are tax-exempt until they are subsequently distributed to
        individuals or non-resident entities.

        The Income Tax law establishes cases in which is understood that there is a
        distribution of dividends or other ways in which a Peruvian business resident
        entity can transfer funds to a non-resident taxpayer.




                                                                                    70
b) Royalties

Non-resident entities will be subject to a 30% withholding tax on royalties.

For Income Tax effects, royalties are defined as the retribution in
consideration of the use, or the privilege of using brands, designs or models,
plans, secret processes or formulas, author rights on literary, artistic or
scientific work; as well as any retribution paid for the assignment of software
or any information related to industrial, commercial or scientific experience.

Additionally, it is understood that information related to industrial,
commercial or scientific experience means the transmission of knowledge,
secrets or not, of a technical, economic, financial or other character, referred
to commercial or industrial activities, regardless of the relation that the
knowledge transmitted has with the generation of income of the recipients of
such knowledge and the use they make of it.

c) Interests

Interests from financing granted by non-resident entities will be subject to a
withholding tax rate of 4.99%, provided:

-   No relationship exists between the foreign creditor and the debtor
    domiciled in Peru. Additionally, an affidavit certifying that the transaction
    is not part of the operations between related entities must be filed before
    the Peruvian Tax Administration (i.e. that it is not a back-to-back loan).

-   In the event of cash payment, foreign currency must be paid in through
    the Peruvian Financial System.

-   The purpose of the foreign loan must be related to the corporate business
    or the levied activity, and to refinancing such activities.

-   Credit must not accrue an annual interest PRIME-plus 6 (U.S.A. and
    Canada) or LIBOR-plus 7 (others) rates. Only the surplus of said rate shall
    be subject to a 30% tax rate.

Otherwise, a withholding tax rate of 30% will apply. Interests derived from
loans between related parties will also be levied with a 30% withholding tax


                                                                           71
rate.

Interests payable to non-resident entities by resident banks and financial
companies as a result of the usage in the country of their credit lines abroad
are subject to a withholding tax rate of 1%.

Interests generated from promotional loans provided either directly or
through foreign intermediaries by international organisms or foreign
government’s agencies, are exempted from Income Tax until December 31,
2011.

d) Income Derived from the Lease of Ships and Aircraft

Income derived from the lease of ships and aircraft is subject to a withholding
tax rate of 10%.

e) Technical Assistance

Income derived from services that qualify as “technical assistance” will be
levied with a withholding tax rate of 15% provided that the following are filed
before the Peruvian Tax Administration: (i) an affidavit issued by the non
resident entity stating that it will render technical assistance services and will
account for the income; and, (ii) a report issued by an auditing firm with
international prestige certifying that the technical assistance has been
effectively rendered.

f) Income Derived from the Transfer of Securities

Income derived from the transfer of securities within the country (securities
registered in the Stock Market Public Registry and negotiated through a
centralized negotiation mechanism in Peru), is subject to a withholding tax
rate of 5%.


g) Other Income Generated by a Foreign Company

As a general rule, Peruvian source income obtained by non-resident entities is
subject to a withholding tax rate of 30%.

Notwithstanding, in order to determine the domestic source net income
obtained by non domiciled companies as a consequence of the transfer of


                                                                            72
       goods, titles or rights, the cost incurred in their acquisition and improvement,
       if any, may be deducted provided certain requirements are met. In order to
       make said deduction, non-resident entities should obtain a certification by
       the Tax Administration. Likewise, in regard to the exploitation of goods that
       can suffer deterioration, an amount equal to 20% of the sum paid or credited
       may also be deducted.

       Finally, as a general rule, services rendered abroad are not subject to
       withholding taxes in Peru. However, non-resident business entities which
       render services, such as technical assistance services, will be subject to a 15%
       withholding tax (provided several requirements are met), irrespective on
       where the service is rendered. Also, digital services used in Peru are subject to
       a 30% withholding tax irrespective on where they are rendered. Likewise, in
       the case of interests, dividends and pensions, these will be deemed to be
       Peruvian source income when the payer is a domiciled taxpayer.


       h) Income of an International Nature

       Due to their international nature, several activities performed by non-resident
       entities and their permanent establishments are deemed to generate
       different percentages of Peruvian source net income. Thus, the effective tax
       rate is obtained in those cases by applying the corresponding withholding tax
       rate to the percentage of said income considered of a Peruvian source.


2. Individuals

Resident individuals are taxed on their worldwide income. Non-resident individuals
are subject to taxation only on their Peruvian source income. Foreign individuals will
be regarded as non-resident unless they stay in the country for more than 183 days
within a period of 12 months.



2.1 Determination of the Taxable Base

Peruvian source income obtained by domiciled individuals may fall into the
following categories:




                                                                                  73
           Category                                Type of Income
                                  Income produced by leasing operations.
              First
                                  Example: income from leasing.
                                  Income from other capitals (except dividends).
            Second
                                  Example: capital gains.
                                  Income from independent labor.
             Fourth               Example: income from independent work
                                  rendered.
                                  Income from dependent labor and independent
              Fifth               work expressly stated by law.
                                  Example: income obtained as a factory worker
                                  (employee).



The taxable base is determined by deducting from the gross income of each of the
above mentioned categories the percentages established by the Income Tax Law
(see below).



2.2 Deductions

Resident individuals are only allowed the following flat deductions:

                 Category                               Type of Income
             Capital Income                20% of total gross income obtained.
   (includes first and second category
                  income)
                                           20% of total gross income, with a limit of
                 Fourth                    24 UIT (Tax Reference Unit).
                                           For year 2010, 1 UIT equals to S/. 3,600
                                           (US$1,277.00, approximately).



The results obtained by resident individuals on their overseas transactions will be
offset, and then, only if the result is a net income, the same will be added to their
work net income (income from fourth and fifth categories).

Net losses from a foreign source cannot be compensated with domestic source net


                                                                                 74
income for Income Tax purposes.

2.3 Exemptions

A 7 UIT deduction can be applied to the Work Income (which is the sum of fourth and
fifth category incomes).

2.4 Applicable Rates

Income from individuals is classified into two categories: Capital Net Income (income
from first and second categories) and Work Net Income (income from fourth and fifth
categories and the foreign source income).

The annual net income from first category is subject to a 6.25% rate.

The annual net income from second category (not including dividends) from the sale
of securities (among others, shares or participations representative of the capital), is
subject to a 6.25% rate. Other income from second category will be subject to a
6.25% withholding tax rate.

The annual work net income of resident individuals is subject to the following
progressive cumulative scale:



              Work Net Income                             Rate
              Up to 27 UIT                                15%
              More than 27 and up to 54 UIT               21%
              Over 54 UIT                                 30%


As a general rule, income obtained by non-resident individuals is subject to a 30%
withholding tax.



The capital gain obtained by non-resident individuals from the transfer of securities
within the country is subject to a withholding tax rate of 5%.



Dividends paid to resident, non-resident individuals and non-resident business
entities will be subject to a 4.1% withholding tax rate.



                                                                                  75
2.5 Treatment of Losses

No losses can be deducted or carried forward by individuals.

Exceptionally, losses derived from the transfer of securities can be offset with the
annual net income obtained from the transfer of those securities.

2.6 Territorial Rules

Resident individuals are levied on their worldwide source income, while non-resident
individuals are levied on their Peruvian source income only.



3. Joint Ventures

As a general rule, a joint venture that keeps independent accounting is considered
by the Peruvian Income Tax Law as taxpayer and, therefore, is levied as an
independent business entity rather than treated as a pass-through entity.

If the joint venture does not keep independent accounting; or if it is deemed to last
less than one year, the contracting parties (not the joint venture) will be levied
directly on their income related to the joint venture (i.e. pass-through entity).


B. General Sales Tax (IGV)


The Peruvian General Sales Tax (value added tax) levies:

-   the sale of goods in the country;
-   the rendering or utilization of services in the country;
-   construction contracts;
-   the first sale of real estate property performed by the constructor; and,
-   the importation of goods.

The current IGV rate is 19%.

Although the tax will be applied on each level of the commercialization chain, it is
designed to transfer to the final consumer its economic burden.

In order to assess the corresponding IGV Tax due, the taxpayer will have to deduct
from the monthly gross tax the IGV Tax credit.


                                                                                76
C. Anticipated Recovery Regime


The General Sales Tax Anticipated Recovery Regime (hereinafter, the Regime) grants
the devolution of the IGV that taxed the import and/or local acquisition of goods or
services in the pre-productive stage of a project, which will be later used in the
execution of the projects which have been previously established in the Investment
Contracts entered into with the Peruvian State.

The intention of the Regime is to allow individuals or business entities to benefit
from it, provided that a substantive investment is made in any economic sector of
the economy, which generates taxable income (business income only).

In order to benefit from the Regime, the following must be complied with:

(i) Enter into an Investment Contract with the Peruvian State, for the performance of
    investments in any economic sector, which will produce income subject to the
    Income Tax (business income only). This investment has to be superior to
    US$5,000,000.00 (Five million and 00/100 dollars), not including the
    corresponding IGV.

(ii) The project to be developed requires having a pre-productive period of 2 or more
     years, since the start of the investments’ chronogram contained in the
     Investment Contract.

(iii) Obtain a Supreme Resolution issued by the Ministry of Economy and Finance and
      the Ministry in charge of the sector in which the investment is made, which
      qualifies the applicant as a beneficiary of the Regime.

Additionally, to obtain the benefit it is necessary to fulfill certain requirements.
Likewise the regime has special features that must be observed.


D. Excise Tax (ISC)


The Excise Tax is applied on the sale of fuels (gas, gas-oils and diesel), alcoholic
beverages, vehicles, soft drinks (including mineral water), cigarettes and tobacco, as
well as gambling, lottery games, raffles and other related activities. Tax rates are
variable and for some items this tax is applied by charging a fix amount per unit sold.


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E. Financial Transactions Tax (ITF)

In order to maintain the right to deduct the corresponding expenses, credits, etc,
taxpayers must use certain “authorized payment mechanisms” (basically instruments
pertaining to the Peruvian banking system) in transactions above US$1,000.00.

In addition, a temporary Financial Transactions Tax (ITF) has been created to levy a
series of financial transactions made through the Peruvian banking system,
irrespective of the amount. The ITF paid may be credited against the corporate
Income Tax.

During 2010, the rate is 0.05%.


F. Temporary Tax on Net Assets (ITAN)

 This tax levies the value of a company’s Net Assets as of December 31 of the
foregoing year. Certain assets may be deducted in order to determine the taxable
base.

The tax applies to taxpayers generating corporate income that are subject to the
General Income Tax Regime (which also include branches, agencies and other
permanent establishments of foreign entities). The statute establishes certain cases
in which the taxpayer will be exempt.

The following scale will be applicable to the tax base in order to determine the tax
due:



                        Years         Rates        Net Assets
                    2009-onwards      0.4%          Excess of
                                                S/. 1,000,000.00
                                                (approx.
                                                US$354,610)




The tax paid may be credited against the income tax. The taxpayer may request its
refund in case of tax losses or a minor tax assessed under the general regime rules,
provided certain conditions are complied.



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G. Real Estate Property Tax


The Real Estate Property Tax is a local tax applied on the total value of real estate
property owned by a person or an entity within a local jurisdiction. The tax base is
determined on the value of the real estate property declared by the owner. The
corresponding rates are applied according to the following cumulative progressive
scale:

                     Scale                        Rate

                      Up to 15 UIT                0.2%
                      From 15 UIT to 60 UIT       0.6%
                      More than 60 UIT            1.0%




H. Other Matters. Tax Incentives & Tax Treaties

1. Regions with Special Tax Regimes

Peruvian tax regulations have established special regimes for investment and
industries in specific regions of the country. In this sense, Supreme Decree No.112-
97-EF regulates these zones, called CETICOS, where it is possible to import goods tax-
free in order to transform them. However, the sale of those goods to other zones is
levied with normal taxes.

Law No. 27037 (Law for the Promotion of Investment in the Amazon Region),
published in the Official Gazette on December 30, 1998, regulates a special tax
regime for companies located in this Peruvian region, which includes lower tax rates
for special activities in that area.

2. Drawback

Peru offers drawback incentives, which allows the partial or total restitution of
Customs Duties that levied the import of goods either contained in exported goods
or consumed during their production, provided certain conditions are met.

In addition, exporters can also obtain a refund for the IGV that levied the purchase of
goods or services used in the production of the exported goods.



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3. Tax Stability Agreements

Income tax stability agreements may be executed with the State. Said agreements
help investors to reduce political risk by “freezing” the basic rules and regulations
(including certain tax rules) in force at the moment of its execution. They may not be
unilaterally modified by the State, thus allowing the investors to foresee the rules
that will govern their investment during a reasonable term.

4. Tax Treaties to Avoid Double Taxation

Peru has entered into Double Taxation Avoidance Agreements (hereinafter, DTAA)
with Chile, Canada (both in force since 2004) and Brazil (in force since 2010).
According to said agreements, all the Peruvian source business profits obtained by a
Chilean, Canadian or Brazilian resident entity can only be taxed in Chile, Canada or
Brazil, correspondingly, unless said entities construe a permanent establishment in
Peru.

Nonetheless, interests, dividends and royalties have reduced withholding rates. In
the case of the three DTAA, said rates are 10% or 15% for dividends (in this case, the
lower Peruvian Income Tax Law rate of 4.1% will apply), 15% for interests (in this case,
the lower Peruvian Income Tax Law rate of 4.99% will apply provided that the
requirements are complied with and the loan is not carried out between related
parties) and 15% for royalties. Notwithstanding, said income (interests, dividends and
royalties) will also be subject to taxation in Chile, Canada or Brazil, accordingly, being
that the Income Tax paid in Peru could be used as tax credit.

Additionally, Peru has signed DTAA with Spain, which is still pending of ratification.

Peru is also a party in Decision No. 578 of the Community of Andean Nations, which
regulates the regime to avoid double taxation and prevent fiscal evasion between
the members of said organization (Bolivia, Ecuador, Colombia and Peru).

Finally, Supreme Decree Nº 090-2008-EF, enacted on July 4th 2008, establishes the
obligation to require the presentation of a Residency Certificate to apply for the
Double Taxation Treaties subscribed by Peru. It also regulates the issuance of the
Residency Certificate by the Peruvian Tax Administration.




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5. Future conventions

Negotiations for the execution of DTAA are currently undergoing with the technical
commissions of Sweden, Switzerland, Italy, Thailand, France and the United
Kingdom.




VIII. INTELLECTUAL PROPERTY RIGHTS


A. Property Rights

Peru is signatory to the Paris Convention for the Protection of Industrial Property, the
Bern Convention, the Lisbon Agreement, the Convention establishing the World
Intellectual Property Organization (WIPO), the Geneva Convention, the Inter-
American Convention for Trademark and Commercial Protection, the Trade Related
Aspects of Intellectual Property Rights Agreement (TRIPs), the Agreement
establishing the World Trade Organization (WTO), the Patent Cooperation Treaty
(PCT), among others.

In order to comply with the Free Trade Agreement signed between USA and Peru,
some changes have been introduced in Peruvian legislation. Regarding intellectual
property, fundamentals are preserved; new rulings are only on complementary
aspects. As Peru is also a member of the Andean Community, intellectual property
will be ruled by Decision No. 486 and by Legislative Decree No. 1075, which approves
complementary dispositions to Decision 486. As with the previous Industrial Property
Law, Decision No. 486 covers patents of invention, certificates of protection, utility
models, industrial designs, industrial secrets, layout-designs of integrated circuits,
trademarks, licensing and assignment of trademarks, trade names, advertising
slogans, appellations of origin, among others.

Peru has also become party to the Patent Cooperation Treaty (PCT) by means of
ratification on January 10th, 2009 and it is in force as of June 6th 2009.

The National Institute for the Defense of Competition and Protection of Intellectual
Property (hereinafter INDECOPI) is the national office in charge of intellectual
property rights.




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B. Trademarks

Protection of a trademark in Peru is subject to its registration by filing an application
before the Distinctive Signs Administration at INDECOPI. Usually, registration process
takes approximately four (4) months if oppositions are not filed. Unregistered
trademarks, with the only exception of well-known distinctive signs, have no
protection no matter its use. International registered trademarks may be registered
by third parties in Peru. However, the right holder of a well-known distinctive sign
may hold up third parties from registering the trademark.

Likewise, under Decision No. 486, a registration application may be opposed if the
trademark is identical, or substantially similar to another trademark already
registered or filed for registration in any Andean Community country in the same
class or a related one. Opposition can also be held if the application is for a trademark
that is likely to lead to confusion or mistaken association to the consumer even
though it is not identical or considerably similar.

However, parties in a proceeding are able to agree to the coexistence of identical or
similar trademarks, provided INDECOPI considers that such coexistence does not
affect the consumers’ general interest.

The Industrial Property Law establishes that national and foreign owners of
trademarks are subject to equal treatment. Any advantage, favor, privilege, or
immunity granted to a member of the Andean Community shall be accorded to the
nationals of all other members of the World Trade Organization or of the Paris
Convention. The law does not distinguish between individuals or corporations.

Any person who has duly filed an application for a trademark, in another member
country of the Andean Community or in countries that are members of the Paris
Convention, or with a national, regional, or international authority to which Peru is
linked by a treaty establishing an analogous right of priority, shall confer on the
applicant or the applicant’s assignee the right of priority for a non-extendible period
of six months.

An applicant claiming priority, granted in any international treaty or agreement to
which Peru is linked, should comply with the specified deadlines in the treaty or
agreement he/she invokes.



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If the application meets the formal conditions established by INDECOPI, the
Distinctive Signs Administration shall order its publication. Within a period of thirty
(30) working days following the publication date, any person having a legitimate
interest may for one time only, file a valid opposition that could result in the
invalidation of the trademark registration. Reckless oppositions shall be sanctioned
with a fine of up to 50 UIT (approximately US$ 65,000).

The trademark applicant will have a thirty (30) working day period following the
notification, to discharge any claim or file the required documentation.

The Distinctive Signs Administration shall, at the request of any of the parties, grant
for one time only, a period of thirty (30) additional days to provide evidence
supporting its allegations.

At the expiration of this period, the Distinctive Signs Administration shall proceed to
grant or refuse the trademark registration and inform the parties of its decision.

Registration of the trademark protects the holder to use it exclusively for ten (10)
years and may be renewed for successive ten-year periods. Renewal shall not require
proof of trademark use and shall be granted automatically on the same terms as the
original registration. However, a registration can be cancelled for unjustified non-use
during an uninterrupted period of at least three (3) years immediately before the
start of the cancellation proceeding. The Distinctive Signs Administration shall
request the owner/s of the trademark in question to assert their arguments and
submit the proof they deem convenient should there be any challenge by a third
party.


C. Patents

Peru is now a Contracting State for the International Patent Cooperation Union (PCT),
which provides cooperation for the filing, searching and examination of applications
for the protection of inventions and for rendering special technical services
internationally. It can also be for the grant of an inventor’s certificate, a utility
certificate, or a utility model, rather than a patent.

Any dispute between two or more Contracting States concerning the interpretation
or application of this Treaty or the Regulations, not settled by negotiation, may, by
any one of the States concerned, be brought before the International Court of Justice
by application in conformity with the Statute of the Court, unless the States


                                                                                 83
concerned agree on some other method of settlement.

The PCT system consists of a unified application procedure for a patent among the
Contracting States, therefore enabling the applicant to avoid having to begin a
different process in each State in which protection for the invention is desired.
Hence, any application filed under this Treaty will be considered an “international
application”. Any resident or national of a Contracting State may file an international
application. In Peru, it will be the INDECOPI who will finally grant or deny the patent
following the prescribed national procedures. The concepts of residence and
nationality and the application of those concepts are defined in the Regulations.

It is important to note that an applicant, whether a natural person or not, who is a
national and resides in Peru will have a 90% reduction of the international filing fee,
the supplementary search and handling fee (international preliminary examination).

The PCT procedures consider two steps: an international and a national one. The
international stage comprises: an international application, an international search
and, if asked for an international preliminary examination. The national stage
comprises all due proceedings as stated by INDECOPI to grant the patent.

The international application shall be filed, at the option of the applicant: with the
national Office of or acting for the Contracting State of which the applicant is a
resident, with the national Office of or acting for the Contracting State of which the
applicant is a national, or irrespective of the Contracting State of which the applicant
is a resident or national, with the International Bureau.

The international application shall be in the prescribed language accepted by the
receiving Office which is both: a language accepted by the International Searching
Authority and a language of publication; it will comply with the prescribed physical
requirements as well as the prescribed requirement of unity of invention and be
subject to the payment of the prescribed fees as well as any other indication required
for a national application. It shall contain at least the following elements: an
indication that it is intended as an international application, the designation of the
Contracting State or States in which protection for the invention is desired
("designated States"), the name of the inventor, a description and one or more
claims. It may also contain a declaration claiming the priority of one or more early
applications filed in or for any country party to the Paris Convention for the
Protection of Industrial Property or in or for any Member of the World Trade
Organization that is not party to that Convention.



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Where, an international application is received by a national Office on behalf of the
International Bureau as receiving Office, that national Office shall promptly transmit
it to the International Bureau. Such transmittal may be subjected by the national
Office to the payment of a fee, for its own benefit, equal to the transmittal fee
charged by that Office under. The international application so transmitted shall be
considered to have been received by the International Bureau as receiving Office on
the date of receipt of the international application by that national Office, that is, the
INDECOPI.

Any international application fulfilling the requirements listed in the PCT shall be
equivalent to a regular national filing within the meaning of the Paris Convention for
the Protection of Industrial Property. If the receiving Office, that is, the INDECOPI
determines that, at the time of receipt of the papers purporting to be an
international application, the physical requirements were fulfilled, it shall accord as
the international filing date the date of receipt of the international application.

Each international application shall be the subject of International Search and an
International Search Report as well as a written opinion that shall be carried out by
an International Searching Authority which may be either the INDECOPI or an
intergovernmental organization. The objective of the international search is to
discover relevant prior art made on the basis of the claims, with due regard to the
description and the drawings. Relevant prior art shall consist of everything which has
been made available to the public anywhere in the world by means of written
disclosure (including drawings and other illustrations) and which is capable of being
of assistance in determining that the claimed invention is or is not new and that it
does or does not involve an inventive step. The international search shall cover all
those technical fields, and shall be carried out on the basis of all those search files,
which may contain material pertinent to the invention. In so far as possible and
reasonable, the international search shall cover the entire subject matter to which
the claims are directed or to which they might reasonably be expected to be directed
after they have been amended. It may also contain indications to the requirement of
unity of invention. The written opinion will refer to whether the claimed invention
appears to be novel, involve an inventive step and is industrially applicable and
whether the international application complies with the requirements of the Treaty
and its Regulations in so far as checked by the International Searching Authority. The
written opinion shall contain a notification informing the applicant that, if a demand
for international preliminary examination is made, the written opinion shall be
considered to be a written opinion of the International Preliminary Examining
Authority in which case the applicant is invited to submit to that Authority, within
the time limit (between two (2) to three (3) months) a written reply together, where


                                                                                    85
appropriate, with amendments.

This international search report and the opinion shall, as soon as it has been
established, be transmitted by the International Searching Authority to the applicant
and the International Bureau. The applicant shall be entitled to one opportunity to
amend the claims, within two months from the date of transmittal of the said report
or 16 months from the priority date, whichever time limit expires later. Amendments
shall be filed directly with the International Bureau.

The International Bureau and the International Searching Authorities shall not allow
access by any person or authority to the international application before the
international publication of that application, unless requested or authorized by the
applicant.

The international application, together with the international search report, shall be
communicated to each designated Office, unless the designated Office waives such
requirement in its entirety or in part.

The International Bureau shall publish international applications and search reports
promptly after the expiration of 18 months from the priority date of that application
in the PCT Gazette as well as the claims and its modifications. As of the date of
publication it will be part of the state of the art. The applicant may ask the
International Bureau to publish his/her international application any time before the
expiration of the time limit. There shall be no international publication if the
international application is withdrawn or is considered withdrawn before the
technical preparations for publication have been completed.

On the demand of the applicant, his/her international application shall be the subject
of an international preliminary examination by the International Preliminary
Examining Authority subject to the payment of the prescribed fees. This application
has the effect of postponing the national stage in as much as thirty (30) months from
the priority date. The demand for international preliminary examination shall be
made separately from the international application. A demand may be made at any
time prior to the expiration of whichever of the following periods expires later: three
months from the date of transmittal to the applicant of the international search
report and of the written opinion or 22 months from the priority date.

The objective of the international preliminary examination is to formulate a
preliminary and non-binding opinion on the questions whether the claimed
invention appears to be novel, to involve an inventive step and to be industrially


                                                                                 86
applicable. Thus enabling the applicant to better asses the possibilities of being
granted a patent in the designated States without incurring in the expenses involved
in this process. The applicant shall have a right to amend the claims, the description
and the drawings before the international preliminary examination report is
established. The amendment shall not go beyond the disclosure in the international
application as filed.

The granting of a patent will follow the regular national legislation. Patents for
inventions can be granted in Peru, whether for goods or processes in all areas of
technology that are new, have an inventive level and are industrially applicable. The
government grants the patent holder the exclusive right to exploit the invention
within its territory.

The first application for an invention patent that has been filed in another member
country of the Andean Community or in countries that are members of the Paris
Convention, or with a national, regional, or international authority to which Peru is
linked by a treaty establishing an analogous right of priority, shall confer on the
applicant or the applicant’s assignee the right of priority. In order to qualify for that
right, an application claiming priority must be filed within the following non-
extendible periods to be counted as from the filing date of the applications whose
priority is claimed: one (1) year for patents on inventions and utility models and six
(6) months to register industrial designs.

The protection granted by the patent will have a term of twenty (20) years, as from
the filing date of the corresponding application with the Inventions and New
Technologies Administration at INDECOPI. Once it is over, the patent shall assume a
public nature. It is not possible to grant more than one patent for the same
invention.

To publish the patent application, it is submitted to the Inventions and New
Technologies Administration with the inventor’s petition, which includes among
others, the data identifying the applicant or person filing the application, a full and
clear description of the invention and the proof of payment of the prescribed fees.
Assuming the inventor complies with all the legal requirements, the Inventions and
New Technologies Administration will officially publish a summary of the application
within eighteen (18) months. It is then that any international application will become
public. Thus, the application will be kept secret for that time. Within a period of sixty
(60) days following the date of publication, any person with a legitimate interest
may, for one time only, submit valid reasons for contesting the patentability of the
invention An extended sixty (60) day period may be granted, upon request. The


                                                                                   87
patent applicant will have sixty (60) days following the notification to discharge any
claim or file the required documentation. An extended sixty (60) day period may be
granted. If the findings of the final examination are favorable, the patent shall be
granted. The applicant shall request an examination be made of the patentability of
the invention within six months after publication of the application, regardless of
whether or not any objections have been filed. Reckless oppositions shall be
sanctioned with a fine of up to 50 UIT (approximately US$ 65,000)

The patent holder is obliged to exploit the patented invention in any member
country of the Andean Community, either directly or through any authorized person.
To maintain patents in force, it is necessary to pay annuities from the third year after
the filing date. These annuities must be paid during the entire time the patent is in
effect.

Under Decision No. 486, compulsory licensing may apply if the patent is not
exploited or is not sufficiently exploited within three (3) years from the date the
patent is granted or within four (4) years from its filing date, whichever is longer.
Compulsory licenses are not exclusive and may also be granted to assure free
competition in the market to avoid practices of unfair competition. The licensee must
pay the patent holder adequate compensation.

Following the declaration by a Member Country of the existence of public interest,
emergency or national security and only for so long as those considerations exist, the
patent may be subject to compulsory licensing at any time. The grant of a
compulsory license for reasons of public interest, emergency or national security
shall not reduce the right of the patent owner to continue exploiting it.




D. Copyright

Copyright is regulated by Decision No. 351 of the Andean Community and by
Legislative Decree No. 822 (The Copyright Law) and its modifications introduced by
Legislative Decree No. 1076 pursuant to which copyright protection is available for
books, pamphlets, magazines, lectures, addresses, speeches, didactic explanations,
musical composition, cinematographic works, dramatic works, choreographic art,
mimed works, audio-visual work, work of applied art and work of fine art, rough
drafts, drawings, sculptures, lithographs, prints, architectural works, photographs,
illustrations, maps, plans, plastic work relating to geography, topography,
architecture or the sciences, slogans and phrases, computer software, journalistic


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articles, press reports, editorials, comments, translations and adaptations, among
others.


Protection is given to the author regardless nationality, domicile, or the place of
publication or disclosure. Registration of the copyright is optional in Peru and not
essential for its protection. Registration shall be merely declaratory, according to the
Bern Convention and shall not in itself confer rights. It serves as a means of publicity
and priority. However, registration is recommended in order to secure the copyright
for litigation purposes and therefore enforceable against third parties.


The Copyright Administration of INDECOPI is the competent national authority in
charge of registering any copyright. It also has the power to dictate precautionary
measures, such as confiscations and inspections, and to impose sanctions.


The law recognizes the author of the work as the original holder of the exclusive
rights over it. These rights can be opposed against third parties. A person or a
corporation is allowed to own the copyright to a work.

Copyrights for translations can exist even though the original work belongs to the
public domain. However, translations do not give any exclusive right over the
original work. Thus, the translator cannot prevent the publication of any other
translation of the same original work unless the new version is derived from its own.

In Peru, copyrights are protected during the author’s life time and seventy (70) years
after his/her death. Once this time elapses, the work belongs to the public domain.

Copyright can be enforced by an infringement action in administrative proceedings
or by a criminal action if the facts are considered a crime. With regard to the
administrative proceedings, the penalties for breach include:

   •   A warning;
   •   A fine of up to 180 UIT (approximately US$ 234,000);
   •   Temporary closure of the business for 90 days;
   •   Seizure and destruction of the goods as well as destruction of the means used
       to produce the infringement goods;
   •   Withdraw of all infringement goods from the market and distribution
       channels;
   •   Permanent closure of the business;
   •   Publication of the guilty verdict and notification of interested parties at the
       infringer’s expense.

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Criminal courts can impose fines and imprisonment for several years to anyone
committing a criminal act against copyrights. The withholding income tax applicable
to royalties derived from copyrights is in the order of 30%, including for non-
domiciled taxpayers.


E. Computer Software

Computer software is regulated by Legislative Decree No. 822 and Decision No. 351
of the Andean Community. These regulations provide mainly for the protection of
software as copyright. The law does not give a different treatment to software
developed abroad or in Peru.

Computer programs are protected on the same terms as literary works. Economic
rights expire after seventy (70) years counted from the first publication date. The
protection of software does not depend on registration, and the author needs not to
register it. However, as with copyrights, it is advisable to register it at INDECOPI for
litigation purposes.


F. Technology Transfer Agreements

Technology transfer agreements, licenses for the use of patents, trademarks and
other foreign copyrights, technical assistance, basic and detail engineering and
franchises may be signed without any prior authorization from a government
agency. However, this kind of agreement, which includes payment of royalties, has to
be submitted to registration by INDECOPI.

Agreements shall include clauses that identify the parties, expressly mentioning their
domiciles and nationalities, description of the technology transferred, value assigned
to each element of the contract as well as its duration. Agreement conditions can be
freely negotiated, although INDECOPI will not register technology transfer
agreements containing clauses prohibiting or limiting any type of exportation to
Andean Community countries of products manufactured.

These agreements give the right to remit royalties or stipulated payments abroad in
strong currency and through the banking system, after tax deduction. No
government authorization is required to forward royalties or payments.




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G. E-Commerce


Electronic signatures are regulated by the following Laws:

The Digital Signatures and Certificates Law enacted in year 2000, which regulates
the use of electronic signatures and grants them the same legal validity and
effectiveness as a manuscript signature.

The Regulations of the Digital Signatures and Certificates Law enacted in year 2002,
which establishes that INDECOPI is the competent administrative authority. This law
also regulates the use of electronic signatures, as well as, granting digital signatures
the same legal validity and effectiveness as a manual signature.

Regarding Commercial Distance Promotions, Legislative Decree No. 1045 has created
a registry where consumers who do not want to receive Commercial Distance
Promotions must be registered. In that sense, all suppliers that use call centers,
telephone call systems, text messages or e-mails in order to sell its products and/or
services must exclude all the telephone numbers and/or e-mails registered in the
abovementioned list.

The Anti-spam Law enacted in year 2005, which establishes that a sender of an
advertising e-mail must indicate that fact in the e-mail subject. Otherwise, he/she
may be subject to a fine.




IX. LABOR AND IMMIGRATION LAWS


A. The Status of Labor Laws

The Employment Law approved by Legislative Decree No. 728 of March 27, 1997
regulates the relationship between individual employees and employers. The Labor
Relations Law, enacted by Supreme Decree No. 010-2003-TR of October 5, 2003
regulates unions, collective labor negotiations and strikes. Legislative Decree No. 689
of November 11, 1991 regulates the specific conditions for contracting foreign
employees.




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1. Employee/Employer Labor Relations

According to labor legislation, employers may sign with employees non fixed-term or
fixed-term agreements. As a general rule, labor agreements are under non fixed-term
agreements and have no formalities.

Labor agreements with different benefits than the legal ones should be in writing to
reflect the terms and conditions agreed by the parties that are different than the
ones established by the law. Also, labor agreements that have a fixed-term must be
reported to the Administrative Labor Authority.

Fixed-term agreements could be renewed several times but the aggregate term
could not exceed five (5) years. The term depends on the type of agreement.
Employees hired under fixed-term labor contracts must enjoy the same benefits and
rights as the employees hired under non fixed-term labor contracts.

Employees are entitled at least to a twenty four (24) hour rest each working week,
preferably on Sundays. In Peru, the maximum working week is forty eight (48) hours.
Employer may establish an atypical working week. The excess hours worked, in
addition to the working week, shall be considered as overtime and shall be paid with
surtax that cannot be less than twenty five percent (25%) per hour, calculated over
the ordinary remuneration received for the first two additional hours and with an
increase of thirty five percent (35%) rate for the additional hours. Employees and
employers may voluntarily agree on extra hours. Employers can establish alternative
or cumulative working regimes due to production requirements.

The minimum monthly wage in Peru is about US$ 190. Employees are entitled to
severance payments when working more than four (4) hours a day.

On May and November of each year, employers must deposit as many twelfths of the
applicable remuneration earned by the employees in the months of April and
October, respectively, based on the number of full months worked. Fractions of a
month must be deposited in thirtieths. Applicable remuneration is defined as basic
remuneration plus any amount earned by the employees in cash or in kind as a
consideration for their work, provided it is freely available. There are specific rules to
pay and deposit the severance payment.

Employees have the right to receive two (2) bonuses per year; one for Independence
Day and the other for Christmas. Bonuses must be paid on the 15 of July and


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December, respectively. The amount of the bonus consists of the basic remuneration
amount plus any other amount fixed and permanently earned by the employee and
which is freely available. If the employee has worked less than six (6) months for the
employer, he/she will receive a bonus in proportion to the number of months
worked.

Employees of companies developing activities that generate income of third
category and subject to the private activities’ system, with twenty (20) or more
workers/employees, will share the company’s profits according to the percentages
set forth by law. Thus, employees working for mining receive 8%, fishing 10%,
industrial 10%, telecommunications 10%, commercial 8% and other activities 5%.

Employees are entitled to thirty (30) calendar day’s vacation for each full year of
service with one employer and provided they worked at least four (4) hours per day.
To deserve vacations, employees working six (6) days a week must have actually
worked two hundred and sixty (260) days a year. Employees working five (5) days a
week must have worked two hundred and ten (210) days a year. For computing
working days, any of the following cases is also considered as such: (i) employees
who work at least four (4) hours a day; (ii) employees who work on his/her day off
regardless of the effective number of hours worked; (iii) four (4) or more extra hours
worked in a day; (iv) the first sixty (60) days of absence within each year of service
due to common disease, occupational accidents or work-related illness; and (v) other
cases established by law.

Peruvian Constitution recognizes the protection of the employee against arbitrary
dismissal. Said protection applies once the trial period is finished, and if the
employee worked at least four (4) hours per day.

According to our legislation, it is considered as trial period, the first three (3) months
counted from the hiring date. Nevertheless, the trial period may be extended to six
(6) months if the employee is qualified and to one (1) year if he/she holds a
managerial or executive position. Once the employee has passed the trial period, he
/she may not be fired unless fair reason, stated in the law. Consequently, the
employee who is unfairly dismissed has the right to receive a special indemnity. This
one is equivalent to one and a half monthly remuneration per each year of service, in
case of non fixed-term agreements, and one and a half monthly remuneration per
each month remaining until the end of the agreement in case of fixed-term
agreements. In both cases, the indemnity could not be higher than twelve (12)
monthly remunerations.



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2. Employees’ and Employers’ Contributions

Both the employee and the employer make different contributions for the
employees’ benefit.

Pension Fund. If the employee is in the private pension system (in an AFP) the
employer must discount the employee the rate of approximately 12.5% from his/her
monthly remuneration. In case the employee works for the public system the rate is
13%. Foreigners that leave Peru could transfer abroad the funds accumulated in the
private system.

Income Tax. Income tax is discounted to the employee. The retention will be done
during the year. The employer withholds every month approximately eight percent
(8%) of the annual income tax. For such effects, a projection should be made of the
annual remuneration that the employee will receive deducting an amount
corresponding to S/. 25, 200 for year 2010.

To the difference obtained, the following rates will be applied:

   •   If the difference is less or equal to S/. 97,200                 15%
   •   If the difference is higher than S/.97,200 and
       less than S/.194,400                                             21%
   •   If the difference is higher than S/.194, 400                     30%

Once the rate is applied over the difference, the result of the annual tax will be
obtained, which is divided among the months of the year.

Social Security (EsSalud). Employers are obliged to register their employees in the
national health system and must pay for it the equivalent to nine percent (9%) from
the monthly remuneration of each employee.

Private Health System (EPS). It is possible for employees to be affiliated to a Private
Health Company (EPS) that is complimentary to the service provided by ESSalud. In
this case, the employer must pay the cost of the service to the EPS and could pay
6.75% of the monthly salary to ESSalud.

Taking into consideration the above mentioned, the structure of the monthly costs
for the company that hires an employee will be the following:



                                                                                 94
                                        EMPLOYER                        EMPLOYEE
     Remuneration                          100%
     ESSalud                                 9%
     Vacations                             8.33%
     Bonuses                              16.66%
     Severance Payment                11.66% (approx.)
     (CTS)
     Income Tax                                                     According to scale
     AFP                                                             12.5% (approx.)



3. Micro and Small Enterprises Labor’s Regime:

Legislative Decree No. 1086 of June 28, 2008 establishes a special labor regime
applicable for micro enterprises and small enterprises in order to promote the
development of these types of companies and battle against the informal economy.

Consequently, our labor legislation considers as micro enterprise, when it has
between one (1) and ten (10) employees/workers and has an annual sale that does
not exceed one hundred and fifty (150) Tax Reference Units (UIT) (approximately US$
190,000).

On the other hand, according to labor legislation, small enterprises have between
one (1) and one hundred (100) employees/workers and annual sales that do not
exceed one thousand and seven hundred (1,700) UIT (approximately US$ 2, 154,000).

Employees who work in these types of enterprises are entitled to the following labor
benefits: i) vacations for fifteen (15) days per full year of service; ii) two (2) bonuses,
which must be paid on July 15 and December 15, respectively. The amount of these
bonuses is equivalent to fifteen (15) days of remuneration per each year of service; iii)
severance payment (CTS), which must be deposited by the employer in the months
of April and October of each year. This benefit is equivalent to fifteen (15) days of
remuneration per each year of service, with a maximum of ninety (90) days of
remuneration.

Consequently, the enterprises that are considered as micro or small enterprises,
according to the above, can choose a special labor regime, that has less labor costs,
as per the following table:



                                                                                     95
                                          EMPLOYER              EMPLOYEE
        Remuneration                         100%
        Vacations                           4.165%
        Bonuses                              8.33%
        Severance Payment (CTS)          5.83% (approx.)




In addition, said Law establishes special regulations regarding social security,
pension fund, income tax, and indemnity in case of arbitrary dismissal of these
enterprises’ employees, which is equivalent to ten (10) days of remuneration per
each year of service with a maximum of ninety (90) days of remuneration in case of
micro enterprises, and twenty (20) days of remuneration per each year of service with
a maximum of one hundred and twenty (120) days of remuneration in case of small
enterprises.

4. Unions and Employer Relations

Peru is a member of the International Labor Organization (ILO). Employees can
constitute different types of unions. Unions can be of four types: (i) Business Unions,
formed by employees of different professions, occupations or specialties, working for
the same employer; (ii) Activity Unions, formed by employees of diverse professions,
specialties or occupations working for two or more businesses in the same activity;
(iii) Labor Unions, formed by employees of diverse enterprises that perform the same
occupation, profession or specialty; and (iv) Various Occupation Unions, formed by
employees of diverse professions, occupations or specialties working for several or
different enterprises, when in a specific place, province or region the number of
employees are less than the minimum necessary to constitute unions of other type.

Affiliation to a union is voluntary. To be a member of the union, employees must
work in the enterprise, activity, profession or occupation that corresponds to each
type of union. Managers and executive employees are not allowed to be part of
unions, unless the bylaws establish otherwise. Also, to become a member of a union,
the employee must not be affiliated to another union.

Unions represent employees in collective labor negotiations with employers. The
collective bargaining agreement reached prevails over individual labor contracts.
This agreement is for one (1) year unless the parties agree otherwise. If no
agreement is reached between the union and employer, parties may request the


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Labor Department to call for a conciliatory meeting. If no conciliation is achieved,
parties may request for arbitration. The arbitration authority, who can be a person or
an arbitration panel, can only decide about the position of the union or the employer
and may not suggest solutions different from those proposed by the parties.
However, the union maintains its right to opt for a strike and not for the arbitrage.

A strike is considered legal if it occurs in defense of labor rights established in the
law, and if more than fifty percent (50%) of the employees agree with it. Also, in order
to be considered legal, the collective bargaining process should have not been
submitted to arbitration.


B. Treatment of Foreign Employees

Foreign people who enter Peru to carry out various activities are subject to different
immigration classifications. Each classification has a different type of visa. Legislative
Decree No. 689 establishes the regulation of foreigners. Peruvian law recognizes the
following immigration classifications, among others:

Tourist. Foreign nationals who come to Peru without planning to establish a
residence and who cannot carry out any activities for profit or remuneration will
receive a temporary visa. This visa permits him/her to stay in the country for up to
one hundred and eighty three (183) days, non extendable.

Business. Foreigners are allowed to come to Peru without planning to establish
residence. Foreigners are not permitted to receive income from Peruvian source, but
are allowed to sign contracts and settlement agreements. He/she will receive a
temporary visa and may remain in the country for up to one hundred and eighty
three (183) days, non extendable.

Employee. The foreigner who comes into the country to perform labor activities
provided his/her labor agreement has been previously approved by the Labor
Ministry, may receive a resident visa and stay in the country for the term of the
employment agreement.

Independent. The foreigner who obtains a resident visa as independent may stay
indefinitely in the country. There are three (3) types of this visa: i) Investor: for the
foreigner who comes to Peru in order to make investments; ii) bondholder: for the
foreigner who comes to Peru to live from his/her income (at least, US$ 1,000
monthly); and iii) Professional: for the foreigner who comes to Peru to practice


                                                                                    97
his/her profession independently.

Immigrant. Foreign nationals who come to Peru with the intention of permanently
residing and carrying out his/her activities may obtain a resident visa and remain
indefinitely.

Cooperating. Those people whom the Peruvian government, through the Ministry
of Foreign Affairs have this quality under international treaties, conventions or
international agreements of cooperation, governmental or non-governmental, and
are governed by those international instruments and special provisions.

Business ABTC. The foreigner who comes into the country without planning to
establish a residence and using the Asia-Pacific Economic Cooperation’s Business
Travel Card (APEC Business Travel Card) stamped by the Ministry of Foreign Affairs.
They are allowed to sign agreements or transactions. They cannot perform any
remunerated or lucrative activity nor receive any Peruvian income source, except
expenses as director of companies domiciled in Peru or fees as lecturers or
international consultants concerning a service agreement that does not exceed thirty
(30) days within a period of twelve (12) months.

 Foreigners wishing to work in Peru are subject to the procedures for hiring
foreigners established in Legislative Decree No. 689 of November 5, 1991.

National and foreign companies can hire foreign personnel who enjoy the same
rights and obligations as Peruvian employees, unless certain limitations as stated
below. The labor agreement must be in writing and approved by the respective
Administrative Labor Authority. The agreement term cannot exceed three (3) years,
although it is possible to renew the contract subsequently for terms not greater than
three (3) years. There are some restrictions to hiring foreign personnel:

    a. Foreign employees could not be more than twenty percent (20%) of all the
       personnel registered in the company ’s payroll;
    b. Foreign employees may not receive remuneration exceeding thirty percent
       (30%) of the entire payroll of wages and salaries.

However, these restrictions are not applied for the following foreigners: (i) foreigners
who have a Peruvian spouse, ascendants, descendants or siblings; (ii) foreigners
holding an immigrant visa; (iii) foreigners where his/her country of origin has
executed labor reciprocity or double nationality agreements with Peru; (iv) personnel
belonging to foreign companies dedicated to transport, terrestrial, aerial or aquatic


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international service with flag and foreign registration; (v) foreign personnel working
for multinational service companies or banks; (vi) foreign personnel providing
services in Peru by virtue of bilateral or multilateral accords with the Government of
Peru; (vii) foreign investors, provided that during the term of the contract, he/she
maintains a permanent investment of not less than five (5) UIT (approximately US$
6,340); and, (viii) artists, sportsmen and in general those participating in public events
within Peru, during a maximum period of three (3) months per year.

Likewise, these two restrictions stated above can be waived by employers, in the
following cases: (i) when the personnel involved are professionals or specialized
technicians; (ii) when the personnel holds a management position in a new business
activity or a restructured business; (iii) when the personnel are teachers for private
schools or colleges; (iv) when the personnel belongs to the public sector or private
companies that have signed agreements with agencies, institutions or firms in the
public sector; and, (v) any other cases established by law.

1. Andean Migrant Employee

Decision No. 545 referred to "Andean Instrument of Labor Migration", establishes
that nationals of Ecuador, Colombia, Peru and Bolivia are allowed to work with a
labor agreement in any of the Andean Community member countries (CAN).

This proceeding is easier than the one required for hiring other types of foreigners.
The Andean migrant employees must be registered with the Labor Ministry. The
labor agreement may be non-term.

Consequently, the Labor Ministry will issue in favor of the employee a “Migrant
Employee Andean Certificate”.

The Andean migrant employee will be considered as a national employee.


C. Other Forms of Hiring

1. Labor Mediation

Companies are entitled to hire services’ companies or workers’ cooperatives in order
for these to provide them with their employees. These services’ companies or
cooperatives have as sole purpose the rendering of services through labor
mediation.


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Labor mediation companies cannot be hired to render services which will imply the
execution of activities related to the main purpose of the user company. They may
only provide the following activities and services:

Specific Activity: Defined as secondary or supporting activity, that is not related with
the main activity of the company and demands a high level of technical, scientific or
qualified knowledge such as maintenance, accounting, legal, etc. The hiring of this
kind of activity has no limitation regarding the number of personnel that can be
hired under this way, neither the term of the agreement.

Complimentary Activity: Defined as secondary or supporting activity and which is
not related with the main activity of the company such as the surveillance, security,
maintenance, mailing and cleanness. The hiring of this kind of activity has no
limitation regarding the number of personnel that can be hired under this way as
well as the term of the agreement.

Temporary Services: Defined as the services of occasional nature or substitution for
short term of time; such as the substitution of an employee during his/her vacations.
Employees of outsourcing companies may not exceed twenty percent (20%) of all
the personnel of the user company and the maximum term for hiring is six (6)
months in a period of one (1) year.

User companies are not related with the employees that provide services through
labor mediation companies.

Services’ companies or cooperatives’ employees, have the same rights and benefits
as the user company’s employees. However, if the service company does not comply
with its labor obligations as employer, the user company will be held jointly liable for
the payment of such debt for the time the employees rendered their services.

2. Outsourcing

According to Law No. 29245 referred to the “Law that regulates outsourcing
services”, outsourcing means hiring companies to develop specialized activities.
These companies must assume the services rendered by their own account and risk,
have their own financial, technical and material resources, respond for the results of
their activities, and guarantee that their employees work under their exclusive
subordination.



                                                                                  100
However, in order to be under the scope of this legislation, outsourcing services must
be carried out with the continuous displacement of the workers/employees.

In other terms, the displacement of the workers is continuous when: i) the
displacement occurs in a term that exceeds one third (1/3) of the working days that,
according to the agreement, must be worked; and ii) exceeds four hundred and
twenty (420) hours or fifty two (52) effective working days, consecutives or not, in the
same semester.

The main company that hires the work or services of the assigned personnel from the
outsourcing company, is held jointly liable with this one for the payment of the labor
benefits and social security obligations accrued during the time the employee was
assigned.




X. SECURITY INTERESTS


A. General

Under Peruvian law the basic security interests are: the collateral over chattel,
mortgage, antichresis, retention right and trust. The first two are the most widely
used. The main characteristic of interest securities in Peru is that they are collateral to
an underlying obligation and do not have an independent existence.



1. Collateral over Chattels

The collateral over chattels is regulated under Law No. 28677, which entered into
force on May, 2006. The idea behind this law is to protect the credit rather than the
debtor or the creditor. It is quite an innovative law since it gives the parties a wide
margin to regulate the incorporation and extension of the collateral.

This collateral guarantees all kind of obligations, current or future, determined or
determinable, subject or not to a modality and it can be granted with or without
dispossession of the chattel.

Open collateral over chattels can be incorporated to guarantee own or third parties’
obligations.

                                                                                    101
During the duration of the collateral, the guarantor of the collateral may incorporate
collateral over chattel of second and posterior ranks over the same chattel, giving
notarial notice to the guaranteed creditor of the first collateral.

The non-compliance of the guaranteed obligation grants the guaranteed creditor the
right to acquire the possession of the chattel, and, if pertinent, to retain the chattel
affected by the collateral. The guaranteed creditor will have the right to sell said
chattel for the payment of the guaranteed obligation.

Collateral over chattels may be incorporated over present or future credits. The
collateral over chattels is incorporated through a constitutive act of law which must
be in writing and, recorded in the proper Registry in order to be defended against
third parties. It is allowed for a third party to incorporate collateral over chattels
without the consent of the debtor.

Collateral over chattels can be incorporated in the following cases:

   1. Over chattels belonging to third parties, before the guarantor acquires the
      property of said good.
   2. Over a future chattel, before it exists.
   3. To ensure the compliance of future or eventual obligations.

In the aforementioned cases, the characteristic of being a future chattel or a chattel
belonging to a third party or the character of being future or eventual of the
guaranteed obligation must be stated in the collateral’s constitutive act of law.

The efficacy of the pre incorporated collateral over chattels is subject to the following
rules:

   1. In the case of a chattel belonging to a third party, the guarantor must acquire
      the property of said chattel.
   2. In the case of a future chattel, the efficacy is subject to the existence of the
      chattel.
   3. In the case of a future or eventual obligation, the efficacy is subject to the
      actual contract of the obligation.

This collateral must be recorded in the proper Registry in order to be defended
against to third parties. Once the collateral acquires its efficacy, the effects of the
collateral are dated back to the registration date.


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2. Mortgage

Real estate property can be mortgaged. Mortgages must be executed before a public
notary who issues a public deed. Perfection of the collateral requires its filing in the
Real Estate Property Registry in the jurisdiction where the property is located. If there
is a breach of the underlying obligation, the secured party may commence a
summary proceeding for the foreclosure of the property and collect on the debt from
the proceeds of the sale.



3. Antichresis

By the antichresis figure, real estate property is given to the secured party, who may
use it and take the profits in payment of the debt or the interest thereon. This
collateral is formalized through public deed, which must include the agreed income
of the real estate property. The obligation secured does not have to be related to the
real estate property. There is no circumstance under which the creditor will become
able to acquire the granted good.



4. Retention Right

By the retention right, a creditor has the right to hold the debtor’s property, whether
it is chattel or a real property, on a temporary basis, if the underlying obligation is not
adequately guaranteed. In order to collect temporarily on the debt the secured party
may attach the debtor’s assets and demand foreclosure. The right of retention
disappears as soon as the debt is paid or when the latter is duly guaranteed.

The retention right cannot be executed among assets which are destined for deposit
purposes or for delivery to another person at the time they are received.

The retention right can be executed either judicially or extra judicially. Whenever the
retention right is executed extra judicially, it means that the creditor will not give
back the asset to its debtor until the underlying obligation is duly fulfilled. The
retention right is judicially invoked by filing a exception which opposes to the
debtor’s action destined to accomplish the recovery of the asset. In such a case, the
judge could authorize the substitution of the retention right for a sufficient
guarantee.



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5. Trusts

The trustor transfers property under trust to another person, called the fiduciary, for
the setting up of a trust property subject to compliance with a specific end in favor of
a trustor or a third party called the trustee.


B. Collaterals in a Bankruptcy Proceeding

 If the debtor is under a bankruptcy proceeding, the collaterals are paid only after
labor claims and alimony obligations have been covered. If the proceeds from the
sale of assets are not enough to repay all creditors completely, the debtor will
continue to be liable for the balance due, which will be paid off by selling any goods
subject to attachment that he/she may subsequently acquire until his/her debt is
declared completely paid.


C. Exercising Security Interests

1. Collateral over Chattels

The law of collateral over chattels, Law No. 28677 has elaborated a mechanism of
extra-judicial sale of chattels affected by a guarantee. It is considered invalid any sale
agreed by the parties for less than two thirds of the chattel’s value or of its
commercial value at the time the sale was produced. A judicial procedure is not
necessary to perform the sale.

Also, this law established that it is valid the agreement in which the creditor adjudges
the chattel’s property in payment. Whenever the other party has not fulfilled its
obligations, the creditor communicates the debtor and its representative the
decision of adjudicating the chattel’s property.

When the guaranteed obligation becomes executable, the guaranteed creditor can
proceed to sell the chattel affected by the collateral in the terms established in the
constitutive act of law or in the following way:

A specific and irrevocable power of representation will be granted in the act of law
constitutive of the collateral to sell and formalize the property transfer of the chattel
affected by the collateral. The guaranteed creditor is not allowed to be the


                                                                                   104
representative. The representation power is recorded in the proper Registry.

 The sale’s price of the chattel affected by the collateral must be of at least two thirds
of the value agreed by the parties, or if a price was not agreed, it will be the two
thirds of the commercial value of the movable at the time of the sale.

Once the noncompliance of the debtor is produced, the creditor must leave evidence
of it through a notarial letter addressed to the debtor and the representative and, in
its case, to the guarantor. The guaranteed creditor can proceed to sell the movable
affected by the collateral after three working days following the date the notarial
letter is received by the debtor.

It is permitted the pact by which the guaranteed creditor can adjudicate to
himself/herself the property of the movable affected by the collateral.




2. Other Guaranties

The Code of Civil Procedure governs the enforcement of any type of guaranties
regulated in section V of the Civil Code which includes the mortgage, anthicresis and
retention right.

The enforcement of the guarantee is related to the collection of a debt due to the
default of the debtor. Only in the case that the credit has no execution instrument or
it is not valid for some reason, the creditor must file an ordinary action to obtain a
court decision. In the other cases, the Code of Civil Procedure contemplates a specific
proceeding for the execution of guarantees.

The intention of the guarantee execution proceeding is to auction the guaranteed
assets belonging to the debtor to satisfy the creditor’s claim. The process involves
the auctioning of the collateral assets of the debtor and if these assets are not sold
the creditor could proceed to adjudicate the guaranteed assets in his/her favor,
except for the antichresis and the retention right. Once the execution proceeding has
been opened, the debtor will be summoned to pay the amount claimed within 3
days. If the debtor does not pay, the court will seize the assets used as collateral to
cover payment of the principal debt, interests, costs and legal fees.

The assets attached will be appraised by an expert appointed for this purpose, unless
the parties have agreed on the value of the assets to be auctioned. The judge will set


                                                                                   105
a date and time for the auction to take place. If the assets are not sold in the first
auction based on the appraised value, then a second auction will be held and the
assets attached will be offered at a price that will arise after discounting a 15% of the
price established for the first auction which is the appraised value. If a third auction
shall be held, the assets will be offered at a price that will arise after making another
discount of 15% over the last offered price. However, if at this third auction, no
bidders come up, the party that requested the execution of the assets given in
guarantee will be able to acquire the assets directly at the offered price of the last
auction.

The proceeds obtained will be used to cover the creditor’s claim. However, if these
assets are not enough to pay the creditor’s claim, the creditor may proceed to attach
other assets of the debtor by initiating the executive proceeding according to the
Code of Civil Procedure.




XI. ENVIRONMENTAL LAW


A. Regulatory Framework


1. International Treaties


In connection to agreements or international treaties related to environmental
matters, the most important that Peru has subscribed are the United Nations
Conference on Environment and Development held in Rio de Janeiro in 1992
(Legislative Resolution No. 26181), the Montreal Protocol on Substances that
Deplete the Ozone Layer of 1993 (Law Decree No. 26178), and the Kyoto
Protocol (Legislative Resolution No. 27824). These international treaties
defend the sustainable development principle in accordance with the
Peruvian Constitution.

2. The Peruvian Constitution


The legal obligations in Peru related to the environmental protection are
regulated through all regulatory levels, starting by the ones prescribed in the
Peruvian Constitution.


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Chapter II of the Peruvian Constitution is specifically devoted to the
Environment and Natural Resources. Among others, the constitutional
commands are the following:

           • With regard to the environment, the Constitution orders that
             the Government of Peru provides the national policy of the
             environment; the promotion of sustainable use of natural
             resources, the preservation of biological diversity, the
             preservation of the protected natural areas and the sustainable
             development of the Amazon region.
           • With regard to the natural resources, the Constitution grants
             the Government sovereignty over its use. The conditions of
             natural resources use and concession to private parties should
             be regulated by law.

               In the same sense of the Peruvian Constitution commands, the
               use or usufruct of natural resources by private parties or by
               State-owned companies under private regime should be duly
               authorized by the competent Governmental agency (e.g.
               National Water Authority: water rights; Ministry of Energy and
               Mines: mining concessions).

3. The General Environmental Law


3.1 Environmental Policy

Law No. 28611, the General Environmental Law, published on October 15,
2005, is the general framework through which the Peruvian State establishes
the national policy on environmental matters. Thus, the Peruvian State
determines the basic guidelines, goals and strategies to lead governmental
agencies and private sector on environmental matters.

3.2 Principles of Environmental Law

In its preliminary chapter, the General Environmental Law takes some of the
principles over which the National Environmental Policy should be designed;
the interpretation of environmental regulations and the behavior by


                                                                       107
authorities and citizens in environmental matters. Most of such principles are
similar to the ones regulated in the United Nations Conference on
Environment and Development held in Rio de Janeiro in 1992. Therefore, the
General Environmental Law includes the sustainable development preventive
principle, the precautionary principle, the internalization of environmental
costs principle, and the assessment of liability and compensation principle. On
the other hand, it is worth to mention that the General Environmental Law
grants authority to any person to sue those that cause or contribute to cause
an environmental damage.

3.3 Environmental Management Instruments

The General Environmental Law also regulates the basis of the environmental
management instruments, as a way to perform the national environmental
policy. Among the environmental management instruments we could remark
the following: Environmental Impact Studies, Environmental Adequacy
Program, Environmental Closing Plans, Environmental Quality Standards and
Maximum Permitted Limits. It should be also mentioned that the General
Environmental Law points out the importance of an appropriate access to
environmental information and citizen participation.

Following please find a brief description of each of the quoted environmental
management instruments:

   • Environmental Impact Studies: In order to begin new activities that
     could cause negative environmental impacts, it is required a report on
     such impacts. The details of such report will depend on the levels of
     impact produced by such activity. Over certain impact level it would be
     required the filing of an Environmental Impact Study (EIA), or a Semi-
     Detailed Environmental Impact Study (EIAsd), which should be
     approved by the competent authorities prior to initiating the aforesaid
     activity. The main objective of the reports on environmental impacts is
     to identify the damages that would be caused to the environment and
     to determine the measures to avoid or reduce such damages to
     tolerable levels. The report will also be used to inform the community
     about the impact of the corresponding project, and the community will
     be able to give its opinion.


                                                                         108
   This is developed with further details in the Law No. 27446, Law of the
   National System of Evaluation of Environmental Impact. This law
   establishes that in order to be allowed to initiate activities that could
   produce significant environmental impacts; it is necessary to previously
   count with an Environmental Certification. Said Certification is
   requested to the competent authority (the competence will depend on
   the economy sector in which the project is inserted) enclosing the
   corresponding instrument of environmental management for its
   approval (e.g., Environmental Impact Study), which, at least, should
   contain the following:

      − A description of the proposed action and the antecedents of the
        potential affected areas;
      − The description of the negative environmental impacts in all the
        stages of the project;
      − The strategy of the environmental management, including:
        Management Plan, Contingencies’ Plan, Compensation Plan, and
        Closing Plan;
      − Citizens’ Participation Plan;
      − Follow-up, Surveillance and Control Plans;
      − The economic valuation of the Environmental Impact;
      − Executive Summary.

• Adaptation and Environmental Management Program (PAMA): For
  those cases in which the environmental provision is issued after the
  beginning of the corresponding economic activity that produces
  environmental impacts contained by the aforesaid rule, the competent
  environmental authority shall approve a PAMA. In short, this rule
  pursues the adequacy of the corresponding economic activity to those
  new environmental obligations.

• Closing Plans: Peruvian environmental regulations also include
  obligations to develop closing plans with the purpose of implementing
  them during the execution of the project, at the time of terminating the
  project and after the termination of the project, pursuing to reduce the
  negative impacts that such activity could produce during its lifetime of

                                                                      109
      operations.

   • Maximum-Permitted Limits (LMP) and Environmental Quality
     Standards (ECA): While the LMP is referred to those physical, chemical
     or biological parameters, corresponding to an effluent, which in case of
     exceeding could cause damages to the environment or health; the ECA
     is referred to the level of concentration of certain physical, chemical or
     biological elements that a receiving body could accept and if exceeding
     could cause damages to the environment or health.

      Both the LMP and the ECA are determined by the Ministry of
      Environment, and are taken into account by the competent authority to
      approve the EIA, PAMA or Closing Plans.


3.4 Non-compliance of Environmental Obligations

The General Environmental Law provides that any party that does not comply
with the provisions established by law regarding the environmental
protection will be subject to administrative sanctions. Those sanctions may be
fines, temporary closings, suspension of permits or seizure of goods, among
others.

In addition to the corresponding administrative sanctions, the infringer of an
environmental obligation should also be responsible for the compensation of
damages and can be subject to a criminal punishment. The Peruvian Criminal
Code of 1991 has a specific chapter referred to crimes against environment
and natural resources.


B. Competent Entities


1. The Ministry of Environment


As part of the policy to improve the most recent rules on environmental
matters, assumed by our country due to the negative impact produced by the
worldwide climate changes and the necessity of promoting the sustainable
development, the Government decided to create the Ministry of Environment

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through Legislative Decree No. 1013, enacted in May, 2008. Other important
cause that motivated the creation of this Ministry was the Free Trade
Agreement that Peru subscribed recently with the United States of America
and other similar agreements that are being negotiated with several other
countries.

The Ministry of Environment has the faculty of executing and supervising the
fulfillment of the national policy for environmental matters. In this sense, said
Ministry is in charge of the development of the national action plan on
environmental matters and its agenda, the management of the national plan
of evaluation of the environmental impact, the establishment of the
maximum-permitted limits and of the environmental quality standards.



2. Other Competent Authorities Regarding Environmental Matters


Depending on the activity to be developed, specific environmental
regulations will apply. However, such special regulations should always be
within the parameters established in the aforesaid General Environmental
Law.

Approval of Environmental Management Instruments: Currently, the
environmental management instruments as the EIA, PAMA or Closing Plans
are not approved by any entity that belongs to the Ministry of Environment
competence. Instead, the approval of such management instruments are still
under the competence of the Ministry linked to the specific economic sector
to which the captioned activity belongs (i.e., Ministry of Energy and Mines,
Ministry of Housing, Construction and Drainage, etc.).

Supervision of Compliance with Environmental Management Instruments:
Regulatory entities, as the Supervising Agency of the Investment in Energy
and Mines (OSINERGMIN) —which does not belong to the Ministry of
Environment competence—, are the ones that at present supervise the
fulfillment of the environmental obligations contained in the instruments of
environmental management mentioned above. However, currently is planned
that the supervision in the case of OSINERGMIN, will be transferred soon to the
Agency of Environmental Evaluation and Fiscalization (OEFA), entity that


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belongs to the Ministry of Environment competence.




XII. THE FOREIGN TRADE REGIME

Legislative Decree No. 668, enacted on September 1991, constitutes the legal
framework of Peru’s foreign trade system.

The New General Customs Law (NGCL), approved by Legislative Decree No. 1053,
entered into force totally on April 26th 2010.

The aforementioned Law, as well as the previous General Customs Law approved by
Legislative Decree No. 809, maintains among its dispositions the free import and
export of all kind of goods (with some exceptions due to cultural, environmental and
security reasons) and the elimination of any prior governmental authorization,
prohibition, control, public and private registration requirements and other non-tariff
restrictions.

The principal purpose of the NGCL is to speed up the customs’ procedures as a result
of the implementation of the Free Trade Agreement signed between Peru and the
United States of America. In this sense, the NGCL establishes, among others
dispositions, facilities for the early custom’s clearance of goods, fast delivery
consignments and the presentation of global or specific guarantees to ensure the
payment of customs’ duties prior to the numbering of the goods declaration.


A. Imports

Currently, the import of goods is subject to the following taxes:

•   CIF-ad-valorem duties, with rates varying from 0%, 9% and 17%, depending on
    the type of goods imported. Peru has signed bilateral agreements with several
    Latin American countries establishing different tariffs and even zero-tariffs.

•   The General Sales Tax, with a rate of 19%.

•   The Excise Tax, with rates ranging from 0% to 50%, is applicable to a reduced
    number of products, such as cigarettes, liquor, some automobiles, etc.



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Other duties and charges may levy the import of goods (specific duties, antidumping
duties, insurance, dispatch services, etc), depending on their nature.


B. Exports

Exports are not levied by taxes. Moreover, regarding the export of manufactured
products, companies have the right to request reimbursement of customs’ duties
paid on the import of goods contained/consumed in the production of exported
goods, through the drawback mechanism. This reimbursement is granted at a rate
equivalent to 6.5% of the FOB value of the exported good since July 1st until
December 31st 2010, and 5% starting on January 1st 2011.

No prior authorizations, licenses or other administrative procedures are required to
export, although there are certain goods that might not be exported due to cultural
or national security reasons, or in order to avoid the extinction of native species.


C. Free Trade Zones and CETICO’s


In March 2002, the Peruvian Congress enacted Law No. 27688 creating a Free Trade
Zone in the department of Tacna (which borders with Chile). All goods entering this
zone will be considered to be outside Peruvian territory for customs purposes, and
will be subject to a special tax regime.

On the other hand, the Government has created the Centers for Exports,
Transformation, Industry, Commerce and Services (CETICO’s) in order to develop a
manufacturing and services industry in certain strategic areas of the country.
CETICO’s are considered as Primary Customs Zones with special treatment and,
therefore, no customs tax, income tax, value added tax (VAT) or other taxes will be
applied in these areas.

Goods entering these zones from other parts of the country will be considered
exported (giving to the exporter the right to use the mechanism of drawback and the
refund of VAT credit related to the exportation, if such is the case).

Likewise, goods produced in CETICO’s can be admitted in the country subject to the
payment of the corresponding customs duties.

Currently, CETICO’s have been established in the following geographically strategic


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zones: Paita, Ilo, Matarani, Tacna and Loreto.




XIII. BANKRUPTCY LAW

Bankruptcy proceedings are regulated by the General Insolvency System Law
(referred to as the “Law”), which came into effect by Law No. 27809 of August 8, 2002.
Legislative Decree No. 1050 introduced amendments in said Law. The new
mechanism established in the law has prevented the closing down of many
companies declared insolvent by the Commission of Bankruptcy Procedures of the
National Institution for the Protection of Free Competition and Intellectual Property
(hereinafter referred to as the Commission), providing alternatives to bankruptcy
such as companies’ restructuring. Notwithstanding, the amendments introduced to
the “Law”, include the change of concept regarding the Law’s objective, stating that
the interest protected by the “Law”, is the “collection or recuperation of the credit
through the regulation of an insolvency proceeding which promotes the efficient
assignment of the resources of the company, in order to provide the patrimony of
the debtor the maximum possible value”.

The law establishes that creditors or the debtor have/has two options to choose: (i)
restructuring of the company; (ii) liquidation of the company. The law does not
permit any creditor to claim directly the bankruptcy of a company. Bankruptcy will
only be declared if the creditor chooses to liquidate the company and the assets sold
are not enough to pay all the company’s debts.


A. Ordinary Proceeding

The initiation of an ordinary proceeding is a prerequisite to opt for the restructuring
or liquidation of the company. The request can only be filed by the creditors or by
the debtor before the Commission.

Ordinary proceedings can be filed by unpaid creditors whose claims are more than
thirty days overdue and represent more than 50 UIT (approximately, US$60,300.00).
Bear in mind that since the issuance of Urgency Decree Nº 061-2009, in force since
May 28 of 2009, the “related creditors” would not be able to request the initiation of
such proceeding against the debtor.

Likewise, the debtor whether it is a natural or legal entity, can request the initiation


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of an ordinary proceeding by certifying losses of more than one third of his/her net
worth.

The opening of an ordinary proceeding requested by unpaid creditors, will be
evaluated by the Commission. Hence, for that purpose, the Commission will verify
the existence of the credit invoked and request several information to the debtor,
such as its financial statements and a detailed report of all its obligations,
establishing the identity and residence of each creditor, with the specific amounts
owed and the expiration date of each credit, among others.

The debtor would have the right to reply, choosing one of the following possibilities:

   1. Paying the credit that originated the debtor’s summons.
   2. Offering to pay creditors the whole amount owed, up to the date of its
      response, in which case the creditors would have to give its acceptance
      within the term of ten days, as silence means the acceptance of this payment
      offer.
   3. Denying the existence, amount or possibility of execution of the credit
      claimed by creditors.
   4. Accepting the authority’s finding.

If the debtor decides for the first option above mentioned or offers to pay its creditor
and the latter accepts, the Commission will declare the creditor’s request of opening
an ordinary proceeding not granted and the administrative proceeding concluded,
prior the confirmation of the actual payment of the debt, in the first case. The
ordinary proceeding will be also declared not granted if the opposition of the debtor
is declared grounded.

The ordinary proceeding will be declared dully installed if:

   1. Creditors reject the payment offer of the debtor.
   2. The debtor’s opposition turns out to be contrary to law, groundless or not
      admitted to procedure.
   3. The debtor recognizes the amount of the credit owed to the creditors and
      accepts the authority finding.
   4. The debtor does not make a pronouncement within a twenty days’ term since
      he/she was notified in order to appear in the proceeding.

Once the Commission rules granting the opening of the ordinary proceeding, this is
published on the Official Gazette “El Peruano” and turns public to every creditor.


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From that moment, all the debtor’s obligations turn unenforceable. Guaranties are
also unenforceable, unless they were granted by a third party (different than the
debtor).

Creditors (other than the one which started the ordinary proceeding) would be
granted a term to submit their writs of credits’ recognition in order to not lose their
right to participate in the creditors’ meetings, by which the destiny of the company is
decided.

The creditors’ meeting has the power to decide the company’s fate by replacing the
shareholders’ meeting during the term of the proceeding. The creditors’ meeting
has to prove the existence, origin, ownership and amount of the claims. Two
possibilities arise once the creditors’ meeting is installed: The debtor could be either
liquidated or restructured.

If the debtor is to be liquidated, the law establishes the following preference order
for the payment of credits: (1) labor credits and social benefits; (2) alimony credits;
(3) credits secured with debtor’s assets; (4) tax-related credits, including credits of the
Social Health Security - ESSALUD; and (5) any other credit, such as simple claims or
non guaranteed credits.

For the first creditors’ meeting call, quorum should be more than 66.6% of the credits
that have been recognized by the Commission. For the second creditors’ meeting
call, the quorum should be composed by the recognized creditors who assisted to
the meeting. Once a quorum is reached, the creditors’ meeting duty is to decide the
fate of the company. If after the two dates pointed out in the call the meeting has not
been installed, the Commission will arrange within a ten day term, after being
requested by any party, that the petitioner of the proceeding initiation or any other
interested person involved with the proceeding orders the publication of a new call.
The creditor’s meeting has two options: (i) decide the continuance of the debtor’s
activities, in which case the company will enter into a net worth restructuring
process; (ii) decide to shut down the debtor’s operations, in which case the company
will enter into a dissolution and liquidation process, with the exception of non-
attachable assets. The above alternatives must be adopted in the fist call by a
favorable vote of creditors representing more than 66.66% of the claims allowed by
the Commission against the insolvent company. In the second call they will need the
favorable vote of creditors representing more than 66.6% of the present claims.

Besides the ordinary proceeding, there is a simpler proceeding called preventive
proceeding which could be filed only by the debtor with the purpose of rescheduling


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the debtor’s obligations through a global refinance agreement with the majority of
its creditors. If such agreement fails to be approved, the debtor could be taken into
an ordinary proceeding, whenever the decision comes from more than 50% of the
creditors which participated in the creditors’ meeting and disapproved the referred
global refinance agreement.


B. Restructuring

Restructuring occurs when the creditors’ meeting decides to continue with the
debtor’s activities. The debtor will enter into a patrimonial restructuring regime for
the term established in the corresponding restructuring plan. This term cannot
surpass the date established to cancel all the liabilities according to the payment
schedule included in the restructuring plan.

The creditors’ meeting will decide which management regime is convenient,
choosing among the following alternatives: (i) the company will continue to be
managed by the former administration; (ii) the company will be managed by a
manager duly registered before the Commission; or (iii) choose a combined
management with members of former administration and new managers (natural or
legal entities) elected by the creditors’ meeting.

The Commission will opt for the dissolution and liquidation if the creditors’ meeting
does not meet, does not decide on the future of the debtor or does not agree on the
restructuring plan or the liquidation agreement, depending on the case.

The restructuring plan has to be approved by the creditors’ meeting. The
restructuring plan must be approved within 60 days after the decision to restructure
the company has been taken. The plan must include mechanisms for putting the
company in economic and financial order and for paying its debts. While the plan is
being executed, the company’s assets are legally protected against actions that
creditors may bring individually. The restructuring process concludes after the
payment of all the claims against the debtor has been demonstrated. Evidenced the
conclusion of the process, the Commission will lift the company’s insolvency status,
in which case the functions of the creditors’ meeting cease.

C. Liquidation

If the creditor’s meeting chooses to carry out the dissolution and liquidation of the
company, it will not be able to continue with the activities included in its line of


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business unless the liquidation agreement has been subscribed. In case of non
compliance with this requirement, the company will be fined. Nevertheless, the
creditors’ meeting can agree the continuance of the activities only if they have
chosen to carry out those activities simultaneously to the liquidation process, as this
modality will make assets more liquid. This kind of liquidation must be done in no
more than a six month term.

A liquidation agreement must be signed in case the creditors’ meeting decides for
the dissolution and liquidation of the company. The liquidation agreement must
appoint a liquidator registered before the Commission. The following effects derive
from the dissolution and liquidation decision:

   1. Creation of an indivisible state between the debtor and its creditors, which
      includes all the assets and liabilities of the first one, even though those
      liabilities do not have an expired term.
   2. Directors, managers and other executives cease in their functions of
      managing the goods of the insolvent. The liquidator assumes management.
   3. The liquidator appointed by the creditors’ meeting assumes management
      and legal representation of the debtor.
   4. All payment obligations of the debtor will be demandable, regardless of their
      expiration date.

All remission agreements will come into effect in relation to the total amount of
creditors, excluding the ones excepted by law. In the first call, these agreements
must be approved by a favorable vote of the creditors representing more than 66.6%
of the claims allowed by the Commission against the insolvent company. In the
second call, these agreements will need the favorable vote of creditors representing
more than 66.6% of the present claims.

The liquidator has the following attributions and faculties, among others: i) proceed
to protect the interests of the insolvent in the assets; (ii) dispose personal property
and real estate, amounts due, rights, and securities belonging to the insolvent; (iii)
provisionally continue running the business of the insolvent; (iv) terminate the
employment contracts; (v) subscribe all the necessary agreements, settle and carry
on all the strictly necessary credit operations to cover the expenses and liabilities
originated in the liquidation, always informing these activities to the creditors’
meeting; and, (vi) request the release of all the liens and encumbrances over the
assets of the debtor.

The liquidator is obligated to pay the claims duly recognized by INDECOPI for market


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exit until the insolvent’s net worth covers them. If after paying, the net worth is not
enough to cover all the claims, the liquidator will demand the judicial bankruptcy of
the insolvent.


D. Judicial Bankruptcy

The judge will declare the judicial bankruptcy of the insolvent and the extinction of
the company after verifying the extinction of the net worth to cover all claims. The
liquidator’s functions end with the registration of the enterprise’s extinction in the
corresponding registry.



XIV. LEGAL PROTECTION FOR THE FOREIGN INVESTOR


A. Contractual Choice of Law and Jurisdiction

Contractual choice of law and jurisdiction is regulated under the basic principles of
private international law incorporated in the Civil Code of 1984. Parties can agree on
the applicable law, provided the foreign law is compatible with the international
public policy and morality. All rights acquired under a foreign legal regime are
recognized in Peru as long as these do not contravene international public policy and
morality.

If the parties do not specify the applicable law in contractual obligations, these are
governed by the law of the country where the obligation has to be executed.
However, if contractual obligations have to be performed in different countries, then
the applicable law is that of the place where the principal obligation takes place. If no
principal contractual obligation can be determined, the applicable law is that of the
place of the contract’s formalization.

 Juridical persons are subject to the law of the country where they are formed.
Juridical persons formed abroad are recognized as such in Peru and can exercise
their rights and actions within the territory of Peru. To execute in the country actions
included in their corporate purposes, they must follow the regulations established in
the Peruvian laws. The capacity recognized to foreign juridical persons cannot
exceed those given by Peruvian law to national juridical persons.

In Peru, the applicable law for natural persons is the law of the country where a


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person is domiciled. The change of domicile does not limit the capacity acquired
based on the applicable law in the former domicile.

Constitution, content and extinction of rights in rem over property is governed by
the law of the place where the property is situated, at the moment the right in rem is
constituted. The goods in traffic are considered to be situated in the place of its final
destiny. Likewise, constitution, transfer and extinction of rights in rem over transport
means (ships, aircrafts) subject to a registration regime, are governed by the law of
the country where the transport mean is registered.

The Civil Code provides that Peruvian courts have jurisdiction to know actions
against persons domiciled in the national territory. However, Peruvian courts have
jurisdiction to know actions with pecuniary effects brought against persons
domiciled abroad in the following cases:

       When the actions are related to rights in rem on assets situated in Peru. In
       case of real estate, Peruvian jurisdiction is exclusive.

       When the actions are related to obligations that have to be executed in
       Peruvian territory or derive from contracts celebrated or facts performed in
       Peruvian territory. Jurisdiction is exclusive in case of civil actions derived from
       criminal acts or faults perpetrated in Peru.

       When the parties, expressly or tacitly, elect Peruvian jurisdiction. A person
       becomes a party to a suit if he/she tacitly submits himself/herself to a
       jurisdiction without making any reserve.

The election of a foreign forum to know judicial processes derived from actions with
pecuniary content will be recognized by Peruvian authorities as long as these are not
based on issues of exclusive Peruvian jurisdiction, do not constitute abuse of process
or are against Peruvian public policy.

Peruvian courts are vested with exclusive jurisdiction to hear all insolvency
proceedings relating to debtors domiciled in Peru. If the debtor is domiciled abroad,
there is jurisdiction with respect to the assets situated in Peru.

Peruvian forum will decline its jurisdiction if the parties have agreed to submit to
arbitration an issue of facultative Peruvian jurisdiction, unless the arbitration
agreement has contemplated the eventual submission to Peruvian forum.



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Peruvian forum lacks jurisdiction to know actions related to rights in rem on real
estate situated abroad. Likewise, it lacks jurisdiction when parties have agreed to
submit the dispute to a foreign jurisdiction.


B. Enforcement of Foreign Judgments

Foreign judgments may be enforced in Peru. The existence of reciprocity is presumed
between the country of origin of such judgment and Peru, unless proven otherwise
based on treaties signed between the country parties. If no treaty exists with the
foreign country that originated the judgment, the foreign judgment has the same
force as Peruvian judgments in the foreign country.

Foreign judgments have to be recognized in order to be enforceable in Peru. For
that, the Superior Court is in charge of verifying the following: (i) the foreign
judgment must not resolve issues of exclusive Peruvian jurisdiction; (ii) the foreign
judgment has to be rendered by a competent forum; (iii) the defendant must be
properly summoned; (iv) the judgment must be res judicata according to the laws of
the place of the process; (v) there should not be a pendant judgment in Peru
between the parties involved and related to the same purpose; (vi) the foreign
judgment should not be incompatible with other judgment previously dictated in
Peru; and, (vii) the foreign judgment must not be contrary to public policy and
morality.


C. Arbitration

Legislative Decree No. 1071 of June 28, 2008, known as the New Arbitration Law, has
established all aspects related to arbitral process within the territory of Peru. This law
also treats the recognition and enforcement of foreign arbitral awards in Peru.

Almost all disputes can be subject to arbitration, except for some controversies such
as criminal law, family and public interest matters, industrial property, bankruptcy
proceedings, etc. Once the parties have agreed an arbitration agreement, a Peruvian
court can no longer rule the matter.

The arbitration agreement may be related to disputes which have already arisen as
well as those that may arise in the future. The arbitral agreement must be in writing,
whether as a clause inserted in a particular contract or as a separate agreement. If
there is no previous agreement, it is understood that the arbitral agreement is


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formalized in writing once the parties participate in an arbitral proceeding without
objecting the arbitrators’ competence.

The matters that an arbitration agreement should contemplate, include among
others, the number of arbitrators, the procedure to appoint them, the language to be
used in the arbitration, the applicable law, the dispute to be arbitrated, etc.

The arbitration proceeding can be of two types: conscience arbitration and law
arbitration. The main difference between them is that in the first case the arbitrator
resolves according to his/her loyal knowledge and understanding, while in the
second, the arbitrator bases his/her resolution on the law in force. Also, for
conscience arbitration the arbitrator can be any natural person, national or foreigner,
whereas for law arbitration, the arbitrator must necessarily be an attorney.

The arbitration proceeding is the one elected by the parties. Otherwise, if the parties
refer to an arbitration center, the rules of such association are applicable. The parties
are also free to agree on the place of arbitration but in the absence of such an
agreement, the site will be determined by the arbitration center or the arbitrators.
Unless stated otherwise, the arbitration tribunal will operate with the concurrence of
the majority of the arbitrators appointed. Resolutions and the award should count
necessarily with the vote of the majority of the arbitrators. The president of the
arbitration tribunal has diriment vote.

The award has the authority of res judicata and the parties are obliged to comply
with its resolution, once notified. The enforcement of an award is made through a
district court and follows the same procedure as in the case of a judgment.

Against the award, only one remedy is admissible: The remedy of annulment
recourse (before the Judiciary).

The annulment recourse must be made before the commercial superior court of the
jurisdiction where the arbitration took place. Against what is resolved by the superior
court, the cassation recourse proceeds, only when the award was declared totally or
partially null and void.


D. The Court System

Besides a constitutional tribunal, which is in charge of controlling the
constitutionality of the laws, the Peruvian judicial system consists of the following


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courts and judges:

    1. The Supreme Court, which has jurisdiction over the entire nation.
    2. 29 superior courts, one in each department of Peru. An exception is the
       Department of Lima (more than 1).
    3. Lower courts organized according to different specializations;
    4. Judges of Peace.
    5. Judges of Peace, located in rural areas.

According to the Constitution, supreme and superior magistrates will be appointed
by the National Judicial Council, with no intervention from the legislative and
executive branches in order to maintain the independence of the judicial power.

The Peruvian justice system guarantees the double instance. Generally, most of the
civil and commercial trials are solved by the lower courts and the parties can appeal
to the superior court. Finally, the parties could file a cassation recourse before the
supreme court.

The reasons for presenting a cassation resource are: (i) for requesting an adequate
application of the law, and (ii) for not having followed the judicial precedent without
support.




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