Hiring in Peru – What Companies Need to Know About Profit Sharing

Peru has been one of the fastest growing economies in Latin America over the last decade. One of the sectors attracting the most international attention is mining, with Peru currently the second largest copper producer in the world after Chile.

The growth of the mining industry continues to attract foreign companies providing equipment, technology, and services to the sector. However, companies entering the Peruvian market must adapt to local labour regulations, which can be more generous to employees than those in North America or Australia.

One of the key labour obligations that companies must understand is employee profit sharing.

The right of employees to receive a share of the employer’s profits is established in the Peruvian Constitution and regulated primarily by Legislative Decree No. 892 and its regulations. Understanding how this system works is important when planning operational costs and corporate structures in Peru.

Employee Profit Sharing – Overview

Employee profit sharing (Participación en las Utilidades) is a mandatory employment benefit that requires companies to distribute a percentage of their annual taxable profits to employees.

Employees are entitled to profit sharing when the following conditions are met:

• The company is incorporated under Peruvian corporate law.
• The company generates taxable net profits during the fiscal year.
• The company has more than 20 employees on average during the fiscal year.
• The rule applies regardless of the size of the company’s revenue or equity.

The percentage of profits distributed depends on the industry sector in which the company operates.

Which Employees are Eligible?

Employees are eligible to receive profit sharing if they:

• Have a formal employment relationship with the company.
• Performed services during the relevant fiscal year.

The benefit applies to Full-time employees, Part-time employees, Employees under fixed-term contracts, Employees under indefinite contracts.

Employees do not need to have worked the full year to qualify. If an employee joined or left the company during the year, their profit share is calculated proportionally based on the time worked.

The benefit does not apply to independent contractors, consultants, interns, or trainees who do not have an employment relationship with the company.

Profit Sharing Percentages by Industry

The percentage of profits distributed to employees depends on the company’s principal economic activity.

The applicable percentages are:

• Fishing – 10%
• Telecommunications – 10%
• Manufacturing – 10%
• Mining – 8%
• Wholesale and retail trade – 8%
• Restaurants – 8%
• Other business activities – 5%

How the Profit Share Is Calculated

Once the applicable percentage is applied to the company’s taxable net profits, the resulting amount is distributed among employees using two criteria:

50% based on days worked – Half of the total profit-sharing pool is distributed based on the number of days each employee worked during the year. The amount is calculated by dividing the total pool by the sum of all days worked by employees and multiplying that result by the number of days worked by each employee.

50% based on salary – The remaining half is distributed based on each employee’s annual remuneration. The total salary pool paid during the year is used as the basis for allocating this portion.

Maximum Profit Sharing per Employee

Peruvian law establishes a limit on the amount each employee can receive.The maximum amount an employee may receive is equivalent to 18 monthly salaries. If the calculated amount exceeds this limit, the excess amount remains with the employer.

When Must Profit Sharing Be Paid?

Profit sharing must be paid within 30 calendar days after the deadline for filing the company’s annual income tax return.

In Peru, the annual tax return is generally filed between late March and early April, depending on the company’s tax identification number. If profit sharing is not paid within this period, employees may claim statutory interest on the unpaid amount.

When paying profit sharing, companies must also provide employees with a calculation statement detailing how the amount was determined.

Conclusion

Peru offers significant opportunities for companies operating in mining and related industries. However, the country also has a labour framework that includes several statutory employee benefits, including mandatory profit sharing.

Companies entering the Peruvian market typically start with smaller teams, so profit sharing may not be a major consideration in the early stages. As these companies grow and expand their workforce, however, profit sharing becomes an important factor in the overall cost of employment and should be incorporated into financial planning.

Unlike discretionary bonuses, profit sharing is a mandatory legal benefit and cannot be waived or replaced through employment agreements.

With proper planning and advice, companies can structure their operations in a way that manages these obligations efficiently while remaining fully compliant with Peruvian labour law.

Ax Legal helps industrial technology, engineering, and service companies to navigate the legal and commercial aspects of operating their business in Latin America. With deep knowledge of the industrial and natural resource sectors, we provide actionable and practical advice to help streamline our clients’ entries into Latin America, improve how they operate in the region, and to protect their interests.

Over the years, our team of legal and commercial advisors have developed a track record of working with companies of all sizes from Australia, Canada, the U.S., and Europe. The one common factor that connects our clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.

To better understand how we can support you in the Region, please contact Cody Mcfarlane at cmm@ax.legal