Bank Financing

Last verified on Tuesday 9th May 2017

Peru

Jose Cúneo
Payet, Rey, Cauvi, Pérez Abogados
  1. 1.

    What are the most common forms of bank financing in your jurisdiction?

  2. The most common forms of bank financing in Peru are the following:

    • loans (for example, mid-term loans, syndicated loans, revolving credit facilities, bridge loans, among others), whether secured or unsecured;
    • leasing and leaseback operations; and
    • short-term commercial credit lines and factoring. 
  3. 2.

    Are any governmental or central bank registrations or approvals required for a foreign lender (being a lender not incorporated in your jurisdiction or operating through a branch or office outside of your jurisdiction) to lend to a borrower in your jurisdiction?

  4. No. Foreign lenders are free to provide loans to Peruvian borrowers.

    However, a foreign lender is forbidden from undertaking financial intermediation in Peru unless it sets up a local subsidiary or branch and obtains the applicable license from the Peruvian banking authority (the Superintendencia de Banca, Seguros y AFP). As a general rule, an entity will be deemed to be carrying out financial intermediation in Peru if it raises funds from the public within Peruvian territory (eg, by taking deposits or similar) in order to place them as loans or credits, or other forms of financial investments. 

  5. 3.

    Are there any foreign exchange provisions restricting, or governmental or central bank registrations or approvals required for, a borrower in your jurisdiction to contract debt obligations in a foreign currency or to remit funds abroad?

  6. Currently there are no foreign exchange provisions restricting a Peruvian borrower from contracting debt obligations in a foreign currency, and no governmental or central bank registrations or approvals are required to do so. In fact, article 1237 of the Peruvian Civil Code specifically establishes that debt obligations can be agreed in a foreign currency, except if prohibited by a special law. To this date there is no law forbidding the contracting of debt obligations in any particular currency.

    Note, however, that unless the parties have expressly agreed that the debtor must repay the debt obligation in the same foreign currency in which it was originally contracted such debtor may repay it in Peruvian soles at the exchange rate available at that time.

    Similarly, there are currently no legal restrictions for a Peruvian domiciled borrower to remit funds abroad. No prior registrations or approvals are required from the government or central bank to make such remittances.

    Notwithstanding the above, Peruvian banking institutions are subject to anti money laundering and anti terrorism financing regulations, pursuant to which such banking institutions may decide to reject either the receipt or remittance of funds if they consider that the transaction is suspicious. 

  7. 4.

    Are there any governmental or central bank registrations or approvals required for the prepayment of loans abroad?

  8. No, there are not.

  9. 5.

    Are any mandatory governmental or central bank deposits required to be made from loan proceeds?

  10. No, there are not. No portion of the funds disbursed under a loan facility, whether foreign or local, have to be mandatorily deposited in a governmental or central bank account. 

  11. 6.

    Describe any governmental measures that may be taken to declare a moratorium on the loan obligations of private companies.

  12. The Peruvian government cannot declare the moratorium of loan obligations of private companies.  

    Note that the enforceability of the obligations of a private company may be legally suspended if it has been declared in concurso under Peruvian insolvency regulations,whether at its own request or at the request of one or more of its creditors. 

  13. 7.

    Describe any environmental liabilities and any other areas of lender liability that may arise as a result of the activities of a borrower or the realisation of a security interest.

  14. The environmental liabilities that may arise as a consequence of the activities performed by a borrower will in no case be assumed or transferred to the local or foreign lenders that have provided financing to such borrower, even if the funds lent were used to finance the activities that generated the environmental liabilities. Indeed, under Peruvian law the person or entity that carries out an activity is liable for any environmental damage that such activity may cause, regardless of who has financed the activity.

    Regarding the effects of the realisation of a security interest, this will depend on the nature of such security interest. For instance, if the lenders hold a pledge over the shares of the company whose activities caused the environmental damage and such lenders decide, in case of enforcement of the security interest, to acquire the pledged shares, those lenders will indirectly assume the impact of any environmental liabilities faced by the company that borrowed the funds. If the shares are sold to a third party instead, lenders will not retain any exposure to the impact of the environmental liability.

    On the other hand, if the lenders hold a mortgage over immovable property or a pledge over movable goods or credit rights, lenders will not assume any environmental liabilities that may have been caused by borrower’s activities, whether the assets are sold to a third party or lenders acquire them in the context of an enforcement. The above will apply even if the environmental liability was caused by the pledged goods or the environmental damages have affected the mortgaged land (without prejudice of the loss of value that the property may experience due to the existing liability).

    Finally, please note that according to recent regulations issued by the Peruvian banking authority, lenders who provide financing for the development of projects that require environmental assessment studies or similar environmental certifications, have to necessarily include an evaluation of the projects’ social and environmental risks, as part of their ordinary credit approvals. 

  15. 8.

    Are interest payments or loan fees subject to a withholding tax?

  16. Interest payments made to Peruvian lenders are not subject to any withholding tax. Such interest payments will be part of the lender’s taxable income, which will be taxed with a 29.5 per cent corporate income tax rate at the end of the year, if the lender is a bank or corporate entity 

    On the other hand, payment of interests to foreign lenders will be subject to withholding tax at different rates:

    (i)  If the following conditions are met, the tax withholding for interests paid to foreign lenders will be of 4.99 per cent: (i) the funds disbursed under the credit facility are deposited in a Peruvian bank account; (ii) the interest rate (including commissions, expenses, costs, premiums and bonuses additional to the agreed interest paid to arrangers and other foreign agents) shall not exceed LIBOR+7; (iii) the lender and borrower are not related parties; and, (iv) the lender is not used as an intermediary only to conceal a transaction between related parties.

    For these purposes, the term “interests” also includes the expenses, commissions, premiums and any other additional amount to the agreed interest, of any kind, which is paid to the foreign lender.

    (ii)  The following concepts are also subject to tax at the rate of 4.99 per cent: (i) interests paid by Peruvian banks or financial entities on foreign credits; and, (ii) interests on bonds and other debentures issued by companies that are subject to the Peruvian Banking Law (banking and financial companies), provided the lender and borrower are not related parties.

    (iii) In all other cases (including loans between related parties or loans in which an intermediary is used only to conceal transactions with related parties, or loans that not fulfill with the condition of the deposit in a Peruvian bank account, or in the sum that exceeds LIBOR+7), the withholding tax rate will be of 30 per cent.

    Furthermore, payments made under bearer securities by Peruvian companies are subject to a withholding tax of 29.5 per cent on the paid or credited amounts.

    It is important to mention that, in case of loans received from foreign lenders, Peruvian borrowers may agree to pay interests free and clear of any withholding, in which case such borrowers will be agreeing to assume payment of the withholding tax on their own account. In this case, the Peruvian borrowers will be able to deduct the amount of the withholding tax from its taxable income. 

  17. 9.

    What other taxes or mandatory fees, for example, transaction, registration or documentary, apply to loan transactions?

  18. Interests paid by Peruvian borrowers on loans provided by Peruvian non-banking institutions are subject to value added tax (VAT) at rate of 18 per cent.

    VAT also levies the rendering of financial services (eg, loans) provided by foreign non-banking entities when those services are economically used within the country. The VAT rate is 18 per cent on the interest paid by the local borrower, who will be the taxpayer (ie, the foreign non-banking lender will not be liable for the VAT). The VAT paid by the local borrower will be a tax credit that can be offset against other borrower’s transactions for which VAT is payable.

    Interests on loans granted by Peruvian and foreign banking institutions are VAT exempt.

    A financial transactions tax (FTT) applies to any amounts deposited into or transferred out of local bank accounts at a rate of 0.005per cent, whatever the currency of the funds.

    There are no applicable mandatory fees, whether transaction, registration or documentary. Notwithstanding, if the loan is secured with Peruvian law security documents, the registration of the collateral in public registries – if required – will be subject to payment of notary public and registration fees. 

  19. 10.

    Are there different taxes applicable to loans repayable to lenders in your jurisdiction and loans repayable to lenders in a foreign jurisdiction?

  20. See questions 8 and 9. 

  21. 11.

    Is your country party to any double taxation treaties that reduce taxes payable by borrowers in respect of loan payments abroad?

  22. Yes, Peru has so far entered into comprehensive tax treaties with Brazil, Canada, Chile, Korea, Mexico, Portugal and Switzerland to avoid double taxation. Peru is also a member of the Andean Community (Colombia, Ecuador and Bolivia), which has adopted tax treaty rules under Decision 578 (Regime to avoid double taxation and prevent fiscal evasion).

    The referred tax treaties establish certain clauses regarding interests so as to reduce taxes payable in Peru (or to exempt taxes, in the case of Decision 578) with regards to loan payments abroad.

  23. 12.

    Do any financing structures receive favourable tax treatment, such as prepayments of exports?

  24. There are no special tax treatments for pre-payments or other forms of repayment of loans, other than the reduced tax rates described in question 8 applicable to foreign loans.

  25. 13.

    Describe any limitations on interest rates or the ability of lenders to charge default interest under loan agreements.

  26. According to section 9 of the Peruvian Banking Law, Peruvian banking and financial institutions are allowed to freely fix the compensatory and default interest rates they charge on loan granted to their clients (ie, it is based on free market). In our opinion, the above also applies to foreign banking and financial institutions that grant loans to local borrowers. Exceptionally, the Peruvian Central Bank (BCR) may impose maximum and minimum interest rates for the purpose of regulating the market.

    However, section 1243 of the Peruvian Civil Code establishes that loans granted by entities that are not banks or financial institutions are subject to maximum compensatory and default interest rates, which are fixed by the Peruvian Central Bank (BCR). Charging interests in excess of the maximums allowed is a felony under Peruvian law. 

  27. 14.

    Describe any restrictions that may apply to the choice of law, for example, whether a choice of New York or English law will be recognised and enforced in your jurisdiction.

  28. Under Peruvian laws, the parties to a contractual obligation may freely choose the applicable governing law and this applies also to loan agreements. Therefore, the choice of New York or English law to govern a loan is valid under Peruvian law. 

    The provisions of the chosen applicable law will only be disregarded if they are contrary to Peruvian international public order or good morals.

  29. 15.

    Describe generally the requirements for the enforceability of a foreign judgment in your jurisdiction in respect of an outstanding loan.

  30. Foreign judgments need to follow a judicial procedure called exequatur in order for them to be recognised in Peru. The conditions that need to be met in an exequatur procedure for a Peruvian court to recognise a foreign judgment are the following:

    •  the judgment must refer to matters that are not subject to exclusive jurisdiction of Peruvian courts. Obligations arising under loan agreements and other patrimonial obligations are not subject to exclusive Peruvian jurisdiction.

    • the court that issued the judgment must be competent to resolve the matter under its own private international law rules and under international rules on jurisdiction.

    • the defendant must have been duly served with process in accordance with the laws of the place where the court that issued the judgment sits, and must have been granted a reasonable opportunity to appear before the serving court and, in general, respected the defendants due process rights.

    • the judgment issued by the foreign court must have the status of res judicata in the jurisdiction where the foreign court sits.

    • there is no pending litigation in Peru between the same parties in connection with the same dispute, provided that the suit in Peru was initiated before the procedure that concluded with the issuance of the judgment.

    • the foreign judgment is not incompatible with another enforceable judgment in Peru, except if such foreign judgment was issued first. 

    • the foreign judgment is not contrary to Peruvian international public order or good morals.

    • the country where the court that issued the foreign judgments sits recognises and enforces Peruvian judgments on a regular basis without re-examination (ie, reciprocity principles).

    Note that the above applies as a general rule. However, different rules may apply if an international treaty exists between Peru and the country where the court that issued the foreign judgment sits, in which case the rules set forth in such treaties will apply.

  31. 16.

    Upon the closing of a loan, what procedural requirements (execution formalities, notarisation, registration, recordation or filing) should be observed to ensure that a loan agreement or related judgment is enforceable in your jurisdiction?

  32. No additional formalities are required under Peruvian law to be able to enforce a loan agreement that is subject to a foreign law and jurisdiction. 

  33. 17.

    Does a loan agreement in English need to be translated or locally registered to be enforceable in your jurisdiction?

  34. Yes, all documentation to be submitted to a Peruvian court in the context of an “exequatur” procedure needs to be officially translated into Spanish by an official public translator appointed by the Peruvian Foreign Affairs Ministry. 

  35. 18.

    Must a foreign bank be registered in your jurisdiction to enforce any rights under the applicable loan documentation?

  36. No, registration of the foreign bank in Peru is not required.

    However, note that in order to be served notices in relation to the “exequatur” procedure it is advisable for the foreign bank to appoint representatives in Peru who can receive any such notices. 

  37. 19.

    Are foreign lenders treated any differently from local lenders in enforcing loan documentation in the courts of your jurisdiction?

  38. No. Section 63 of the Peruvian Constitution establishes that foreign and local investments are subject to the same rules and requirements. Therefore, other than following the regular procedure to obtain recognition of a foreign judgment, no differential treatment will be given by Peruvian courts to foreign lenders.

  39. 20.

    Is consideration required for the enforceability of a contractual obligation or guarantee?

  40. No.

  41. 21.

    To enforce a loan in your jurisdiction, need the loan be evidenced by a promissory note or other form of título executivo?

  42. No, a promissory note or other título ejecutivo is not required to enforce a local or foreign loan in Peru. However, it may be advisable to issue a promissory note under Peruvian law – in addition to the loan agreement –  in order to have a document that could be directly enforced in Peru by means of a Proceso Unico de Ejecución, which is shorter and more expeditious than a regular procedure. 

  43. 22.

    To enforce a guarantee (aval) in your jurisdiction, is it necessary that the guarantee be evidenced by a guarantee agreement or other form of título executivo?

  44. A guarantee provided by a third party will need to be evidenced either in the same loan agreement or in a separate guarantee agreement in order for the guarantee to be enforceable in Peru.

    Alternatively, a third party could provide a guarantee directly in the promissory note issued in addition to the loan agreement. This will allow the lender to directly enforce the guarantee against the local guarantor, through the Proceso Unico de Ejecución.

  45. 23.

    Are there any restrictions on loans to multiple borrowers or on a guarantee in respect of a loan to an affiliated entity?

  46. No restrictions apply on loans to multiple borrowers, nor to guarantees in respect of a loan granted to an affiliated entity. Notwithstanding that, according to Banking Laws should be note that local banks are not authorised to grant guaranties for an undetermined period or amount, or secure a loan between third parties, except in the case that at least one party is considered a financial institution.

  47. 24.

    Can a party grant a secured or unsecured guarantee in respect of a loan to an unaffiliated third party?

  48. Yes, it is possible to grant in favour of an unaffiliated third party a secured or unsecured guarantee in respect to a loan or any other obligation. Note that in case of an insolvency of the borrower under Peruvian law, any guarantees provided by the third party will continue to be in full force and effect and the lender may enforce the guarantee regardless of the borrower’s insolvency. 

  49. 25.

    Is there a distinction between the granting of a security interest and the perfection of a security interest?

  50. Yes, there is. Although certain security interests are granted and perfected at the same moment, in cases were the security interest is established over assets that are registered in a Peruvian public registry (eg, a mortgage over land, a pledge over vehicles) or consists of a trust, such security interest will need to be registered in the relevant public registry. In the case of mortgages over land, the registration is required for them to be valid and effective, even among the parties. In all other cases, the registration will only be required for the security interest to be effective erga omnes (however, among the parties (lender and borrower) the security interest will be valid and enforceable as of the date of the execution of the relevant security documents). 

  51. 26.

    What is the most common form of granting and perfecting a security interest in moveable assets?

  52. There two common ways whereby a security interest may be granted and perfected over moveable assets: (i) by means of a pledge (garantía mobiliaria) under the provisions of law No. 28677 and (ii) by means of a trust structure, whereby the moveable assets are transferred to a trust as security for compliance of the loan obligation. In the case of the pledge, the security interest will be valid and effective among the parties upon execution of the pledge agreement, but will only be effective erga omnes once the pledge is registered. In the case of the trust, the transfer of the assets to the trust will be valid and effective among the parties upon execution of the trust agreement, but such transfer will only be effective erga omnes once the trust agreement is registered. 

  53. 27.

    What is the most common form of granting and perfecting a security interest in real estate?

  54. There are two common ways whereby a security interest may be granted and perfected over real estate: (i) by means of a mortgage under the provisions of the Peruvian Civil Code or other special laws (eg, the Peruvian mining law) and (ii) by means of a trust structure. As mentioned above, in the case of a mortgage, the security interest will only be valid and effective among the parties and third persons upon its registration in the relevant property registry. In the case of the trust, the transfer of the real estate property to the trust will be valid and effective among the parties upon execution of the trust agreement, but such transfer will only be effective erga omnes once the trust agreement is registered. 

  55. 28.

    What is the most common form of granting and perfecting a security interest in receivables and accounts?

  56. Our responses to section 26 are applicable. In addition, another important form of security interest is the assignments of credit rights of borrowers in favour of lenders. 

  57. 29.

    Does your jurisdiction recognise the transfer of assets to a trust for the benefit of a lender as a means of granting a security interest in such assets?

  58. Yes, it is a common structure used to secure loan agreements. Trust structures provide the additional benefit that by transferring the assets to a trust it makes them insolvency remote if the borrower goes bankrupt. 

  59. 30.

    Does your jurisdiction recognise the fiduciary transfer of assets (such as an alienação fiduciária) to a lender as a means of granting a security interest in such assets?

  60. No, it does not. Trust structures require a regulated entity to act as trustee in order for it to be a valid and effective security interest structure. 

  61. 31.

    Are there any types of asset that cannot be pledged as collateral under the laws of your jurisdiction?

  62. Yes, under Peruvian laws, public goods cannot be pledged as collateral. Also, as a general rule, licences and permits cannot be pledged as collateral. 

  63. 32.

    Describe any restrictions on enforcement of security. For example, any statutory regime that may stay the enforcement of the security or provide that enforcement is limited to public sale through the courts.

  64. Mortgages are the only form of security interest which enforcement can only be done by means of a public sale through the courts. All others allow enforcement by means of private mechanisms and procedures. Also in the case of mortgages, the creditor may not decide to acquire ownership of the real estate as payment of its debt (ie, the property has to be sold to third parties).

    If the borrower is subject to an insolvency proceeding under Peruvian law, the enforcement of any security interest granted by the borrower to its lenders will be stayed until the relevant creditors take a decision with respect to the future of the borrower (either to restructure it or liquidate it). 

  65. 33.

    Describe any other relevant legal considerations in connection with loans to a borrower in your jurisdiction.

  66. Not applicable. 

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Questions

  1. 1.

    What are the most common forms of bank financing in your jurisdiction?


  2. 2.

    Are any governmental or central bank registrations or approvals required for a foreign lender (being a lender not incorporated in your jurisdiction or operating through a branch or office outside of your jurisdiction) to lend to a borrower in your jurisdiction?


  3. 3.

    Are there any foreign exchange provisions restricting, or governmental or central bank registrations or approvals required for, a borrower in your jurisdiction to contract debt obligations in a foreign currency or to remit funds abroad?


  4. 4.

    Are there any governmental or central bank registrations or approvals required for the prepayment of loans abroad?


  5. 5.

    Are any mandatory governmental or central bank deposits required to be made from loan proceeds?


  6. 6.

    Describe any governmental measures that may be taken to declare a moratorium on the loan obligations of private companies.


  7. 7.

    Describe any environmental liabilities and any other areas of lender liability that may arise as a result of the activities of a borrower or the realisation of a security interest.


  8. 8.

    Are interest payments or loan fees subject to a withholding tax?


  9. 9.

    What other taxes or mandatory fees, for example, transaction, registration or documentary, apply to loan transactions?


  10. 10.

    Are there different taxes applicable to loans repayable to lenders in your jurisdiction and loans repayable to lenders in a foreign jurisdiction?


  11. 11.

    Is your country party to any double taxation treaties that reduce taxes payable by borrowers in respect of loan payments abroad?


  12. 12.

    Do any financing structures receive favourable tax treatment, such as prepayments of exports?


  13. 13.

    Describe any limitations on interest rates or the ability of lenders to charge default interest under loan agreements.


  14. 14.

    Describe any restrictions that may apply to the choice of law, for example, whether a choice of New York or English law will be recognised and enforced in your jurisdiction.


  15. 15.

    Describe generally the requirements for the enforceability of a foreign judgment in your jurisdiction in respect of an outstanding loan.


  16. 16.

    Upon the closing of a loan, what procedural requirements (execution formalities, notarisation, registration, recordation or filing) should be observed to ensure that a loan agreement or related judgment is enforceable in your jurisdiction?


  17. 17.

    Does a loan agreement in English need to be translated or locally registered to be enforceable in your jurisdiction?


  18. 18.

    Must a foreign bank be registered in your jurisdiction to enforce any rights under the applicable loan documentation?


  19. 19.

    Are foreign lenders treated any differently from local lenders in enforcing loan documentation in the courts of your jurisdiction?


  20. 20.

    Is consideration required for the enforceability of a contractual obligation or guarantee?


  21. 21.

    To enforce a loan in your jurisdiction, need the loan be evidenced by a promissory note or other form of título executivo?


  22. 22.

    To enforce a guarantee (aval) in your jurisdiction, is it necessary that the guarantee be evidenced by a guarantee agreement or other form of título executivo?


  23. 23.

    Are there any restrictions on loans to multiple borrowers or on a guarantee in respect of a loan to an affiliated entity?


  24. 24.

    Can a party grant a secured or unsecured guarantee in respect of a loan to an unaffiliated third party?


  25. 25.

    Is there a distinction between the granting of a security interest and the perfection of a security interest?


  26. 26.

    What is the most common form of granting and perfecting a security interest in moveable assets?


  27. 27.

    What is the most common form of granting and perfecting a security interest in real estate?


  28. 28.

    What is the most common form of granting and perfecting a security interest in receivables and accounts?


  29. 29.

    Does your jurisdiction recognise the transfer of assets to a trust for the benefit of a lender as a means of granting a security interest in such assets?


  30. 30.

    Does your jurisdiction recognise the fiduciary transfer of assets (such as an alienação fiduciária) to a lender as a means of granting a security interest in such assets?


  31. 31.

    Are there any types of asset that cannot be pledged as collateral under the laws of your jurisdiction?


  32. 32.

    Describe any restrictions on enforcement of security. For example, any statutory regime that may stay the enforcement of the security or provide that enforcement is limited to public sale through the courts.


  33. 33.

    Describe any other relevant legal considerations in connection with loans to a borrower in your jurisdiction.


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