Wealth Management Services

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Tracy Magnus Payne
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1 Wealth Management Services Peruvian legal and regulatory framework April, 2011

2 Ricardo Haaker 2

3 Peru at a Glance Population (million): 29,885,340 Area (km 2 ): 1,285,216 Per capita income (USD): 5,010 Official languages: Spanish and Quechua Religion: Roman Catholic 83.1% Life Expectancy: 71 years. Source: INEI (National Institute of Statistics and Information). 3

4 Peru at a Glance F 2012 F Nominal GDP (USD bn) Exports (USD bn) Imports (USD bn) GDP per capita (USD) 4,516 5,010 5,424 5,920 Government debt (% of GDP) Unemployment (%) FX rate (PEN/USD) Real GDP Growth (YoY %) *Source: DB Global Markets Research 4

5 The Peruvian gross domestic product has grown to its fastest rate reaching 9.5% up to the third quarter of The growth for the whole 2010 was 8.8%, one of the stronger rates in the world, and the fastest growing economy in the Americas. The estimated growth of the GDP for the 2011 is 7.0% according to financial entities and nonfinancial companies, while economic analysts place such variable in 7.1%. Inflation in 2006 was the lowest in Latin America at only 1.8%, but increased in 2007 as oil and commodity prices rose. In 2008 inflation was 5.8% and decreased to 2.9% and 1.7% in 2009 and 2010 respectively. For 2012 and 2013 the expectation of inflation is placed between 2.5% and 2.6%. Out of all the currencies of the Latin American region, the PEN was the most stable during The exchange rate as of December is 2.81 soles to the US dollar, and 3.73 to the euro. Main exports are copper, gold, zinc, textiles and fish meal; its major trade partners are United States, China, Brazil and Chile. Trade is expected to increase further after implementation of a free trade agreement with the United States (2006) and China (2009). Source BCR Others 1% Petroleum and derivatives 9% Non traditionals 21% Inputs 49% Exports 2010 Fishing 5% Agriculture 3% Imports 2010 Mining 61% Capital goods 31% Others 1% Consumer goods 19% 5

6 Peruvian Macroeconomic Stability Classification of Investment Grade : Latin-American Comparison Country S&P Fitch Moody s Chile A+ A A1 México BBB BBB Baa1 Perú BBB- BBB- Baa3 Brasil BB+ BB+ Ba1 Colombia BB+ BB+ B2 Venezuela BB- BB+ B2 Argentina B- RD B3 Bolivia B- B B2 Ecuador CCC+ CCC Caa3 Source: Standard & Poor s, Fitch Ratings and Moody s 6

7 Favorable Climate for Investment Peru offers a favorable legal frame for foreign investment: Non discriminatory treatment: the foreign investor receives the same treatment than the national investor. Free competition. Free transfer of capitals. Guarantee to the private property. Free access to internal and external credit. 7

8 Wealth Management Services Regulatory scope applicable to Wealth Management Services granted by offshore companies for Peruvian domiciled individuals (hereinafter, the Domiciled Individuals, including: (a) Private Banking; (b) Investment Management and Financial Planning; and (c) Trust Services. Peruvian inheritance legal framework that impact in the incorporation of Offshore Trusts and Private Interest Foundations, with assets or funds belonging to Domiciled Individuals. Tax Implications applicable to Domiciled Individuals when investing abroad. 8

9 Private Banking The Banking Law does not contain any specific regulation regarding offshore Private Banking activities, nor the Peruvian Banking Regulator Superintendencia de Banca, Seguros y AFP- (hereinafter, the SBS ) has issued specific rules regarding such services. Pursuant to article 11º of the Banking Law, a previous authorization from the SBS will be required in order to: (i) receive or obtain habitually- money from third parties and place said resources in form of credits; or (ii) issuing announcements or publications in which the performance of activities indicated in point (i) above is suggested. 9

10 Private Banking An offshore company will only be allowed to receive funds from Domiciled Individuals abroad as far as such persons approach directly the offshore company without means of publicity performed in Peru. In order to avoid sanctions when prospecting banking clients in Peru, executives from the offshore company should have personal meetings only for purposes of referring such company and should not open accounts or hand out materials which suggest to open accounts or receive deposits. 10

11 Investment Management and Financial Planning Investment Management and Financial Planning may be performed in Peru by an offshore company and other entities not subject to the Peruvian Securities and Exchange Commission CONASEV (hereinafter, CONASEV ) regulation. It is important to consider that the promotion or offering of securities (hereinafter, the Securities ) may qualify as a public offer (hereinafter, Public Offer ) under Peruvian Regulation and consequently, generating an operation under CONASEV supervision. 11

12 Investment Management and Financial Planning Definitions: (i) Securities: Financial instruments freely transferable and massively issued that grants its holder credit ownership or property rights, or rights to participate in the equity or in the profits of the issuer. (ii) Public Offer: Invitation, sufficiently publicized, that one or more persons address to the public in general -or to a certain segment of said public- in connection with the placement, acquisition or disposition of Securities. Public offers are supervised by CONASEV. 12

13 Investment Management and Financial Planning Securities Law has established as a presumption of private offer, one where no mass communication media has been used to market the placement and: (i) the offer has been targeted exclusively to Institutional Investors; or (ii) the placement has involved Securities with a face value equal to or greater thanapproximately US$ 154, (S/. 428,038.24). Private offers are not subject to the requirements established by the Securities Law and CONASEV regulation. 13

Investment Management and Financial Planning There would be no legal obligations that impede an Offshore company to deliver a term sheet to potential investors describing Securities offered by way of

14 Investment Management and Financial Planning There would be no legal obligations that impede an Offshore company to deliver a term sheet to potential investors describing Securities offered by way of a private offer. When offering or promissing to sell Securities to Domiciled Individuals -different than Peruvian Institutional Investors- we suggest to have personal meetings -on a one to one basis- and that the documents to be handed out or sent to such individuals, expressly inform that: (i) such documents do not constitute a public offer of Securities; (ii) any placement activity will be understood to be made abroad; and (iii) the Securities will not be registered or supervised before te Peruvian Securities authority. 14

15 Trust Services According to the Banking Law, Trust States in Peru may only be managed by companies under the SBS supervision. There is no restriction for an offshore company to perform activities as a Trustee for peruvian grantors or beneficiaries. In these cases it will be important to consider that: (i) direct assets under the Offshore company shall be located abroad; and (ii) restrictions stated in the Private Banking and Investment Management and Financial Planning, sections above. 15

16 Inheritance Framework Peruvian Inheritance Law Legitime: constitutes the proportional share of the estate which passes by law to the family and dependants of the testator. Forced heirs and the unavailability to freely dispose all the assets in a will. The testator cannot deprive his forced heirs of their legitime, nor impose any kind of lien. A Domiciled Individual with forced heirs may transfer all of his goods and assets before his death since legal restrictions are applicable when the grantor (predecessor) disposes in life his assets for after his death (excemption spendthrift cases). 16

17 Inheritance Framework Peruvian Inheritance Trust Regulation Under Peruvian law a predecessor (grantor) may only grant a trust with the part of: (i) its asssets that do not constitute the legitime, for the benefit of any person or group; or (ii) the legitime that corresponds to his underage or disable heirs, for its benefit, and as long as such conditions subsists. 17

18 Inheritance Framework Setting and Offshore Inheritance Trust A Domiciled Individual can transfer assets and funds directly or through an Offshore company- to an Offshore Private Interest Foundation or Trust. In some offshore jurisdictions Private Interest Foundations as well as Trusts legislation contain specific provisions which prevent the application of foreign inheritance law to such vehicles. Nevertheless, regarding jurisdiction law, the Civil Code establishes that succesions are regulated by the law of the last domicile of the succesor, regardless of the location of the assets but there may exist difficulties if the characteristics indicated in the paragraph above are present. 18

19 Tax Framework Applicable Income Tax Rates Interests: 4.99% when certain conditions are accomplish. 30% when lender is vinculated to the borrower. Dividends: 4.1% Tecnical Assistance 15% Royalties: 30% Other type of income: 30% 19

20 Tax Framework Tax Consequences for Domiciled Individuals derived from foreign investments Income Tax a) Domiciled Individuals According to ITL, all taxable income obtained by Domiciled Individuals will be subject to Peruvian Income Tax Law (hereinafter, the IT ). Worlwide Income Source is subject to the corresponding IT. b) Applicable Tax Rates The applicable tax rate is a progressive cumulative rate, applied in tranches, as follows: 20

21 Tax Framework Net Income Rate Up to US$ 34,714 15% From US$ 34,715 to US$ 69,428 21% From US$ 69,429 onwards 30% Such rate is applied to the total net income obtained by the Domiciled Individual during each fiscal year. c) Payment Opportunity Foreign source income obtained by Domiciled Individuals will be subject to taxation in Peru during the fiscal year in which it is collected. 21

22 Tax Framework d) Foreign Investment vehicles Peruvian tax regulations regard special purpose vehicles domiciled outside Peru as foreign corporations. e) Investment vehicles Investments in foreign special purpose vehicles and foreign corporations may be carried out through equity contributions or loans. These do not have tax consequences. Any income resulting from operations performed abroad by the special purpose vehicles would not be burdened with IT. 22

Tax Framework Once any revenue is collected by Domiciled Individuals, such revenue (dividends or interests) derived from said vehicles will be burdened in Peru with the rate mentioned above.

23 Tax Framework Once any revenue is collected by Domiciled Individuals, such revenue (dividends or interests) derived from said vehicles will be burdened in Peru with the rate mentioned above. f) Lack of payment of IT IT that is not timely paid, generates the obligation to pay such tax plus interests calculated as of the date of payment. If such IT is not properly declared, the Tax Administration may impose fines. However, this may be reduced if the taxpayer voluntarily declares and pays the omitted tax. 23

24 International Tax Agreements Peru has Tax Agreements to avoid double imposition with countries from the Andean Community (Bolivia, Ecuador and Colombia) as well as Canada and Chile. Agreements with Brasil and Spain are pending for the Peruvian Congress approval. Peru is negotiating similar agreements with Sweeden, Switzerland, France, United Kingdom, Italy and Thailand. There is also an agreement with the United States of America regarding sharing tax information. 24

25 Ricardo Haaker 25

Contents. 1 Peru: Atractive economy and financial system 2 Organization 3 BBVA Continental vs. Peers 4 Social responsibility and Awards 5 Ratings

Contents. 1 Peru: Atractive economy and financial system 2 Organization 3 BBVA Continental vs. Peers 4 Social responsibility and Awards 5 Ratings September 2014 Disclaimer This document has been elaborated as a part of the information policies and transparency of BBVA Continental and contains public information, own source and provided by third