PERU Trends and Developments Contributed by: Walter Aguirre, Aguirre Abogados & Asesores
tions with specialised legislation. In the absence of such a law, the general principles of contract law as set forth in the Peruvian Civil Code govern the relation - ship between franchisors and franchisees, grounded in good faith and freedom of contract as recognised in the Peruvian Constitution. Intellectual Property, Competition Law, Consumer Protection and Personal Data In a franchise business, two of the most valuable assets are the franchisor’s industrial property and their know-how, which must be duly protected by register - ing them with the National Institute for the Defense of Competition and the Protection of Intellectual Property ( Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual INDECOPI). This protection applies to all economic activities, indi - viduals and legal entities, whether domestic or foreign, and is upheld by the Peruvian Constitution. Industrial property rights protect invention patents, utility mod - els, industrial designs, trade secrets and trademarks for goods and services, among other things. With regard to competition law, despite their specific characteristics, franchise agreements are not consid - ered inherently restrictive or distortive of free compe - tition, nor are they regarded as per se generators of unfair competition. Accordingly, it is common practice to include robust provisions on confidentiality, non- compete and exclusivity, restrictions on online sales or direct product sales, exclusive supply arrangements and even pricing guidelines. Although consumer protection laws do not directly restrict franchise operations, franchisors and fran - chisees must bear in mind that end users of goods and services are fully entitled to seek protection under the Peruvian Consumer Protection and Defense Code. In addition, Personal Data Protection laws must be considered by both local and foreign investors, as franchise agreements generally involve the collection, processing and transfer of information, and often the cross-border flow of such information, which must be registered and reported to the competent authority. In this regard, it is important to note that penalties for violations of data protection regulations are quite significant. In 2024 alone, the National Authority for
the Protection of Personal Data ( Autoridad Nacional de Protección de Datos Personales ANPDP) imposed fines totalling over PEN13 million for breaches of the applicable legislation. Tax Considerations for Non-Resident Franchisors As a general rule, local franchisees are required to withhold income tax ( impuesto sobre la renta IR) on payments made to a franchisor that is not a resident in Peru. However, the applicable withholding rate will depend on the specific nature of the payment, among other factors such as the application of double taxa - tion agreements (DTAs) that Peru has entered into with countries such as Brazil, Canada, Chile, Mexico, Por - tugal and Switzerland, among others. In the case of royalty payments, the current withhold - ing rate for outbound payments is 30%. Termination of the Franchise Agreement In recent years, there has been a significant increase in disputes between franchisors and franchisees seeking to terminate franchise agreements due to inaccurate information provided at the outset of the relationship or breaches of contract by either party. Given the absence of a specific franchise law, the grounds and procedures for termination must be clearly set forth in the franchise agreement. Franchise System Due Diligence In light of the above, and the growing number of disputes between franchisors and franchisees, due diligence has become an indispensable tool for both parties in the franchising sector. For the franchisee, due diligence plays a critical role, as it provides a complete profile of the franchise system being considered for investment, as well as insights into the business model and any potential contingencies that may arise during the term of the agreement. The process begins by understanding the business, analysing the relevant industry and assessing the franchisor’s economic activity. Next, the specific regulatory framework applicable to the franchise sector must be identified, allowing the par - ties to define the key focus areas for conducting a thorough due diligence review. Without prejudice to the mandatory financial, operational and commercial
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