Legal stability agreements:

Another example of how Peru embraces foreign investments


Read our article in the Cayman Financial Review Magazine, eversion 

Leftist Ollanta Humala was recently voted
president of Peru for the next five years.

This information was splashed across the media implying a
paradigm shift in conducting Peruvian economy and, in particular, a shift in
treatment of mining and natural-gas investments1. Despite of that, Investors should be
confident that their assets and investments will continue to be respected and
protected by a well established legal framework.

 This article addresses one of the many examples
in which Peru’s legal regime adequately protects the legitimate expectations
and interests of investors, whether national or international, in terms of stability
and security.  

The general policy
framework for the promotion of foreign investment in Peru has improved greatly
in recent years, a trend that is backed by the provisions of the 1993
Constitution2 and important legal reforms3. According to Forbes, Peru’s
record of attracting foreign investment has been strong: In 1997, the stock of
FDI totalled $7.4 billion, in contrast, twelve years later, in 2009,
investments totalled $18.8 billion4

The dark days of the
1980’s of government economic and finance failures are certainly behind us.
Despite the world’s financial markets crisis, Peru has ridden out the storm
with an economy that continues to grow annually by around 8 per cent, according
to the International Monetary Fund. See Figure 1 

Growth Rate (%)

Moreover, the
increasing tendency in mineral prices, such as gold, copper and silver has
contributed to reactivate the Peruvian economy by attracting capitals to invest
on the world’s second largest copper exporter and one of the most stable economies
in the region with better investor protection system, after Colombia and Puerto

In addition to Spain, the UK and the US7, it is expected that Brazil becomes the top foreign
investor in Peru in the upcoming years as a result of the construction of three
highways from Brazil across Peru to the Pacific Ocean, which will certainly
open up large parts of both countries. Also, Peru’s APEC membership and its
free trade agreements with the US, China, Japan and South Korea, among others,
are already attracting Brazilian investors who want to export their products to
those markets, duty free.  

For over 20 years, the
Peruvian government has consistently worked to establish a clear, stable,
efficient and service-oriented environment that welcomes investors into most
economic activities without discrimination and provides full guarantees on the
return of the 100 per cent of invested capital, the resulting profits and other
charges related with the investment process.  

The most important
three pieces of legislation are: the General Law for Private Investment
Development (Legislative Decree Number 757)8, the Foreign Investment Law
(Legislative Decree Number 662)9 and the Guarantees Regime for Private
Investments Law (Supreme Decree No. 162-92-EF)10

Article 6 under
Supreme Decree Nº 162-92-EF authorises foreign investors to carry out any
economic activity of their choice to the extent this activity is not defined by
the law as a crime and provided they comply with all constitutional precepts,
laws and treaties. Not included in this consideration are activities in
reserved natural protected areas and manufacturing of war weapons, pursuant to
Article 6 of Legislative Decree Nº 757. Few activities are closed to foreign
investment. Participation in the media, air and land transportation, and
private security and surveillance are reserved exclusively to Peruvian
investors or require a majority share of Peruvian investors. 

Article 7 under
Legislative Decree Nº 662 establishes that foreign investors may send their
entire investment capital and earnings, including revenues from stock,
participation or rights’ sales; capital reductions; partial or total
liquidation of companies; and the entire dividends or proven net earnings from
their investments, as well as their earnings from the use or enjoyment of
assets physically located in Peru and registered before the national authorised
agency, for which they will be allowed to use freely convertible currency
without any prior authorisation from any central or decentralised government
organisation or authority, the regional governments or the municipal
governments, after paying the corresponding taxes. 

Articles 2, 7 and 9 of
the Legislative Decree 662 provide a mechanism through which the Peruvian
state, represented by PROINVERSION,11 the national authorised organisation for
dealing with investment matters, assures investors and companies12 where they make their investments: (i) Income
Tax System Stability, in place at the time when the agreement was signed; as
well as, (ii) the stability of the regime of free disposition of foreign
currency exchange and transfer of such profits, dividends and royalties as may
accrue from the foreign capital. Legal stability will be effective for 10 years
for industries other than mining, and 15 years for investments made in mining. 

These agreements can
be entered into between the National Commission of Investments and Foreign
Technologies (CONITE) and enterprises participating in the privatisation and
concession process as well as the companies involved therein provided that they
have met the investment requirements. 

Under the conditions
investors must make money contributions either to the capital stock of already
constituted company or to be constituted ones under Peruvian law, through the
National Financial System or sign an agreement to make a venture capital
investment with a third party for an amount not under 2 to 10 million US
dollars in the mining and hydrocarbon industry, and not under 2 to 5 million US
dollars in other sectors. These money contributions have to be made within two
years after subscription of the Legal Stability Agreement13.  

It is also noteworthy
mentioning, that under Article 62 of the Peruvian Constitution Legal Stability
Agreements are considered “contracts-law”; hence, contract provisions shall not
be modified legislatively. In other words, they may not be changed unilaterally
by the state without the other party’s consent. 

The mechanism has
proven success for investors. Thus, over 766 legal stability agreements have
been entered into, the two most recent being with the Colombian finance company
LEASING BANCOLOMBIA SA on 29 April, 2011 and on 19 May, 2011, with the Spanish
banking giant Santander14.  

In the international
field, Peru is fully involved in the Multilateral Investment Guarantees Agency
of the World Bank since 1991, and has entered into over 28 bilateral agreements
with countries of Europe, Asia and America, ensuring investors’ rights
protection and ownership rights guarantees, mainly of the mining and financial sectors.
Likewise, in December 1992, Peru concluded the Financial Agreement on
Incentives to Investments with the US by virtue of which Overseas Private
Investment Corporation is issuing insurances, re-insurances or guarantees to
cover American investments in Peru. 

In summary, even after the global financial and economic crisis, Peru
has not slowed down its pace of development and is known for a great country
for investment. It offers an adequate and well established legal and regulatory
infrastructure to support an attractive and enabling investment environment. 



  1. (last visited June 9, 2011).
  2. Article 58 of the Peruvian Constitution states: “Private enterprise is free and is practices within a social market economy …”
  3. Araoz M, Bonifaz J., Casas C. and Gonzalez F. “Factores Limitantes de la Inversion Extranjera en el Peru”. Universidad del Pacifico, 2001. P. 47.
  4. (last visited June 1, 2011). Moreover, according to PROINVERSION as of December 31, 2010, the amount of direct foreign investment in Peru totaled US$ 20,781 million, which represents an increased of US$ 1,363.5 million compared to the year 2009. (Last visited May 30, 2011)
  5. (last visited June 10, 2011).
  6. (last visited 30 May, 2011).
  7. Spain, the UK and the US represent 57.5 per cent of the total of foreign investments received in Peru (last visited May 30, 2011).
  8. Published in the Official Gazette “El Peruano” on November 13, 1991.
  9. Published in the Official Gazette “El Peruano” on August 29, 1991.
  10. Published in the Official Gazette “El Peruano” on October 12, 1992.
  11. PROINVERSION is the national competent entity devoted to foreign investment in Peru. It was created by Supreme Decree Nº 27-2002-PCM. It is in charge of proposing and executing national policy on foreign investment, centralising promotion activities carried out by public entities, providing advisory services to investors, and registering foreign direct investment flows. Website: 
  12. Pursuant to Article 5 of Legislative Decree Nº 757, the Peruvian State allows establishing companies to perform any of the economic activities, and under any of the types of organization, authorized by Peruvian law.
  13. (Law No. 27342, 27343 and 27391 of 2000).
  14. (last visited June 10, 2011).


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Maria Maldonado-Adrian

Maria graduated in law from the Universidad Catolica Andrés Bello in Caracas, Venezuela in 2003 and gained her masters in laws from the University of Illinois in 2007 where she also gained her Juris Doctor (JD) in 2009.

Maria A. Maldonado-Adrian
Professor of Law
Universidad Catolica San Pablo
Law School. Urb
Campiña Paisajista S/N
Quinta Vivanco – Barrio de San Lázaro

T: +51 54 605630 anexo 304
E: [email protected] 

Adolfo Zegarra

Adolfo is also a senior associate and head of the Corporate Legal Department for Muñiz, Ramírez, Pérez-Taiman & Olaya. He graduated in law (1998) and earned a masters degree in Corporate Law (1999-2001) from Universidad Católica de Santa María, Arequipa.

Adolfo M. Zegarra
Professor of Law
Universidad Catolica San Pablo
Law School. Urb.
Campiña Paisajista S/N
Quinta Vivanco – Barrio de San Lázaro

T: +51 54 605630 anexo 304
E: [email protected]