Damalion Chile desk
Doing Business in Chile
Chile is operating as a unitary republic, with administration and governing powers lay on the hands of the President of the Republic. The country is divided into fifteen regions, which are then subdivided into local administrative communes. Chile strictly adheres to its strong republication tradition and strategic political constitution.
In recent decades, Chile has been enjoying political stability, with the President of the Republic being appointed through a democratic election. The National Congress and Deputies of the Senate hold legislative duties and are elected democratically as well.
Doing business is Chile is fast becoming an attractive option for foreign investors and corporations. The country features a dynamic business environment as its citizens are assumed right to total economic freedom. Its legislations and economic framework have made it a business-friendly environment among international investors. Foreign entities and private investors can set up their business quite easily in Chile.
The prevailing Chilean legal system is patterned after the French and Spanish legal systems. The 1985 Civil Code serves as a model for other Central and South American governments. There is a long list of codes and laws currently enforced in Chile. Court mandates are only deemed valid for specific cases for which it is delivered. Chile was ranked 23rd out of the 168 countries and territories according to Transparency International’s 2015 Corruption Perceptions Index.
Chile’s legal framework gains support from an independent judiciary consisting of the Supreme Court, Court of Appeals, and Judges of First Instance. There also exist civil, criminal, and labor judges to preside on such cases. Recourse arbitrators are also supplies to settle civil and commercial disputes.
The Central Bank of Chile holds an autonomous role in deciding the country’s monetary policy rate. It is the duty of the Central Bank to maintain low inflation rate over time. The institution aims a rate of 3% inflation rate, with a range of ±1%.
Chile enjoys an open economy, with banks utilizing technical innovations and directly linked to international information and operating systems. There exist two primary financial institutions in the Chilean Market. Firstly, commercial banks that offer account holders with a wide range of banking solutions. Secondly, financial institutions with limited offerings and are limited to the export and import operations, underwriting, and other financial services.
The Central Bank of Chile also holds the rights to intervene in the market to regulate foreign exchange rates. It is the sole responsibility of the Central Bank to analyze and evaluate the financial and macroeconomic environment of the country. They are also responsible for publishing the country’s Monetary Policy Report quarterly to discuss the latest trends and decisions made for monetary policy rate.
Foreign Investments in Chile
A foreign investor looking to establish business in Chile must request a certificate from the Foreign Investment Promotion Agency within 15 days of registration. The certificate will allow them to gain access to systems that are utilized for direct foreign investments.
A certificate issued to a foreign investor, be it a private citizen or a legal entity has the following rights:
- Right to send transferred capital and net profits from investments abroad, given all tax duties are met.
- Right to access formal exchange market to settle currencies in which investments are denominated.
- Right to be exempted from sales and service tax on the importation of goods, given all importation requirements are met.
- Right to non-discrimination, while being subject to common laws applicable to domestic investors.
Non-Chilean private and institutional investors can do business in Chile through the following strategies:
- Representative appointment
A representative will act on behalf and carry the risk of the foreign principal to carry out business transactions.
- Agency or branch registration of a foreign legal entity
A foreign entity must appoint an agent to set up a branch in Chile. All documents must be duly notarized and translated in Spanish.
- Establishing a company by shares
Setting up a company by shares must only have one shareholder in order for it legally do business in Chile.
- Setting up a corporation or partnership, in which it is required to have a partner or shareholder
A corporation or partnership in Chile with a requirement of at least two partners or shareholders, can be established with one or more partners or shareholders.
- Individual enterprise can be set up as a limited liability company
A limited liability individual enterprise is unique in that its assets and liabilities are completely separate from that of the individual. There must only be one individual, local or foreign, that can establish a limited liability individual enterprise.
Business Vehicle Types
Limited Liability Company (SRL)
- Most commonly used by foreign investors in Chile.
- Liability of members are limited to their share capital.
- Partnership losses are not offset by the income of other partners.
- Minimum of 2, maximum of 59.
- Automatically dissolved if there is only one partner.
- Foreign legal entities can be partners.
- Not subject to the control of regulatory authorities or public agencies in Chile.
- Are not obliged to publish accounts.
- Main source of regulation can be found in Law 3,918, the Chilean Code of Commerce, and the Chilean Civil Code.
- Corporate governance can be found in the company bylaws.
- Incorporated through a deed from its partners through power of attorney.
- Deed must contain bylaws that must be published in the Official Gazette and registered in the Commerce Registry.
- All partners must agree unanimously to any changes to the bylaws, such as change of partners, business purpose, and powers of management.
- Partnership bylaws dictate how the partnership shall be managed.
- Management powers exercised by one or more partners. A Board of Directors may assume the role of third party.
- Minimum share capital is delineated in the partnership bylaws.
- There are no requirements for a minimum amount.
- Capital contributions may be in cash, property, technology, or services provided to the partnership.
- Capital may be increased or decreased only after the agreement of all partners and as amended in the partnership deed.
- Liability of partners are limited to the amount of their capital contributions, unless specified otherwise by the partnership deed.
Distribution of Profits and Loans to Partners
- Annual profits may be paid to a partner without recouping the losses from previous losses.
- Loans to partners are regarded as distributions of profits.
Corporation or Public Limited Company (SA)
- Under Chilean law, a corporation can be open, public, private, closed, or a special corporation.
- A Corporation is public in the following instances:
– Public share offering as per Securities Market Act (Law 18.045)
– Has at least 500 shareholders and at least 10% of issued capital is held by 100 of its
shareholders at the very least.
Source of Regulation
- Public corporations under the control of Financial Market Commission (CMF).
- Listed on the stock exchange, published to all shareholders an annual report and audited financial statements annually.
- Public corporations must distribute at least 30% of net profits unless all shareholders agree otherwise.
- These rules don’t apply to private corporations.
- A minimum of two shareholders required.
- A corporation is automatically dissolved with only one shareholder.
Directors and Management
- Board of Directors take care of management.
- Board of Directors must have three directors at the least for private corporations and five at the least for public corporations.
- Directors can be of any nationality.
- Election to the Board of Directors must be held every three years.
- Board of Directors may be re-elected.
- Board of Directors may delegate powers of management to a manager, assistant manager, lawyers, and members of the board.
- Incorporated by means of deed containing corporation bylaws.
- Abstract of bylaws must be published in the Official Gazette and Commerce Registry.
- Corporation name must contain the words, Sociedad Anonima or S.A. initials.
- There is no obligation for a minimum share capital.
- The required capital is divided into shares. Shares are transferrable without restrictions except for certain cases, such as those delineated in a company’s shareholder agreement.
- The liability of shareholders ins a public limited company is limited to the amount of their respective capital distributions.
- Set in its bylaws and may be in cash, kind, or property.
- Shares cannot be issued as payment for personal service or for incorporation of the corporation.
- Capital must be fully paid up in three years.
- Capital may be increased or decreased during general meeting and upon approval of tax authority.
- Corporation cannot pay dividends until losses from previous years are set off.
Transfer of Shares
- Board of Directors cannot limit or stop share transfers and is applicable to public corporations as well.
Joint Stock Company (SpA)
- New business vehicle being patronized by investors due to its flexibility.
- Allows sole shareholder 100% of company shares.
- It is a combination of a public limited liability company (SA) and a limited liability company (SRL), governed by its company bylaws and provisions delineated by the Commercial Code.
- Offers greater regulatory flexibility, making it one of the most popular business vehicles among foreign investors and legal entities.
- Incorporated via public deed or by one or two representatives following a private agreement duly notified by a notary public.
- Deep of incorporation must be published in the Official Gazette and filed before the Commercial Registry with the asset registration in the jurisdiction where a company will be established or doing business from.
- SpA can be incorporated with a single shareholder, either domestic or foreign, as well as private individuals.
- Capital is divided into shares, with shareholders only liable up to the amount of their capital contributions.
- The capital of a SpA must be paid in full within five years from incorporation.
- In case a company fails to subscribe its full capital, it will be reduced to the actual paid in capital.
- No minimum capital requirements in the formation of a SpA.
- Capital can be paid in cash, kind, or contributing other asset types. Assets must be appraised by its shareholders.
- Issuing shares as form of compensation to a shareholder is strictly prohibited.
- Shareholders are required to formulate a manner of management, through the Board of Directors or delegated company managers.
- Selling of shares does not require prior approval or authorization from the remaining shareholders, except if the company bylaws clearly include an agreement restricting the selling and transfer of shares.
Individual Limited Liability Company (EIRL)
- Legal entity of commercial nature with assets unique from those of its owner.
- Does not require third-party participation.
- Governed by the Chilean Code of Commerce.
- Can undertake civil and commercial activities, except insurance and banking activities.
- Assets limited to the amount specified in the deed.
- Owner is personally liable up to the capital contribution.
- Company is liable to the extent of all its assets.
- During incorporation, the company must indicate specific activity and industry in which it will operate.
- Foreign company may establish presence in Chile, wherein its legal structure may only carry out its purpose in a direct way to Chile.
- Not a legal entity separates from parent company.
- Foreign company is liable to credits of the Chilean representative office.
- All agency assets are subject to Chilean Law.
- Establishment starts with delegating a representative or agent, through general power of attorney.
- Agent responsible for creating representative office through notary registration.
- All documents must be translated in Spanish.
- Abstract deed submitted to the Registry of Commerce and Official Gazette.
- All income originated in Chile, must be determined on the location of the office, and in accordance to accounting balance records.
Formation and Incorporation
- Incorporation starts with obtaining a Tax Identification Number from the Tax Administration.
- Company is required to make monthly tax statements beginning on the month following registration.
- Incorporated through deed executed by a notary public.
- Management entrusted to Board of Directors, which in turn can appoint a manager and other officers based in Chile.
- No restrictions on the nationality of directors or managers.
Directors’ and Officers’ Liability
- As per Corporation Act 1981, directors must exercise the same diligence and care as a reasonable person would in the management of a company.
- Directors are jointly liable for damages caused to the company or shareholders, as well as willful misconduct or act of negligence.
Parent Company Liability
- Parent company not liable for the debts of its subsidiaries in Chile.
- As a shareholder however, it is liable for unpaid contributions to share capital.
- Any changes to company bylaws must be made following the same formations as for registration and incorporation.
- Accounts and annual reports do not have to be prepared or filed before the Commerce Registry.
Labor, Employment, and Immigration
- Employers and workers are governed by the Labor Code.
- Recruitment process must be done fairly and conscientiously without discrimination against color, sex, race, motherhood, marital status, union affiliations, religion, political standing, socio-economic, native ancestry, illness, sexual orientation and language.
- All limitations are applicable to companies that employ 25 workers or more.
Standard Rules on Employment Contract
- Employment contract is a mutual agreement that must be provided within 2 weeks after the worker has started his role at work. In the case of contracts for specific work or services less than 30 days, contract must be presented five days after a worker begins his or her work.
Employment Visas, Work, and Residence Permits
The following ways a foreigner can enter and gain residence in Chile, for which an appropriate visa must be obtained:
- Entry mainly for recreational, sports, or health purposes only.
- No intention to do business or invest in Chile.
- Expatriates with tourist visa can stay in the country up to 90 days.
- May be granted for labor contract, allowing a foreigner to carry business or be hired to work in Chile.
- Visa can be renewed indefinitely for up to two years.
- Foreigners who lived in Chile for two years may gain permanent residence upon renewal.
- Foreigners with familial connections, interest n the country whose stay is considered useful or beneficial to the country.
- Visa may be extended to the rest of the family members.
- Visa holder may carry out any business activity without limitations.
- Foreign skilled professionals may obtain temporary residence as per approval of national judicial entities and international groups recognized by Chile.
- Non-resident or non-domiciled companies in Chile are subject to withholding tax on income sourced from Chile at 35%.
- Standard rate for royalties is 15% and 30%.
- Interest rate on loans granted by foreign banks and financial institutions is 4%.
- Profit distribution by a Chilean company with permanent establishment to entities and individuals not domiciled in Chile will be assessed with 35% withholding tax.
- Branches will be taxed on worldwide income as per Act 20.630 of September 2012.
- Branches may claim relief under relevant double taxation treaties of country of origin and Chile.
- Corporate tax as of 1 January 2012 is 20% on net worldwide income accrued during each fiscal year.
- Value Added Tax at 19% on imports, recurrent sales of movable goods, certain real estate, and certain services.
- Stamp tax must be paid on certain credit agreements and documents. As of 1 January 2013, stamp tax is 0.033% of principal loan amount per month.
- Credit agreements and documents are subjected to 0.166% tax of the loan principal amount if payable on-demand or evidence credit operations are payable after previously agreed fixed term has expired.
- Municipal license rate assessed between 0.25% and 0.5% of the tax payer’s net assets for any professional, manufacturing, commercial, industrial and other tertiary or secondary activities.
- Dividends paid are assessed with 35% withholding tax.
- Dividends received from overseas recognized as ordinary income and taxed accordingly.
- There will exemptions applied on dividends received as per any relevant double taxation treaty.
- Interest paid to non-residents are assessed with 35% withholding tax.
Intellectual Property (IP) Royalties Paid
- IP royalties paid to foreign corporate shareholders are subject to 30% withholding tax.
- Rate can be reduced 15% for utility models, patents, industrial designs, drawings, integrated circuit topographies. and layouts.
- 15% withholding tax on computer programs, except royalties paid abroad for the use of standard software will be exempt from tax as of 1 January 2013.
Transfer Pricing Rules
- All transactions between a Chilean company and foreign affiliate or subsidiary must be made at arm’s length.
- Tax authorities can assess the market value and subject taxes on the assessed value.
- Transfer pricing rules are applicable to cross-border company operations as per Act 20.630.
Double Taxation Treaty
- At present, Chile has signed international treaties for the avoidance of double taxation based on the OECD model.
- Chile has treaties signed with a total of 24 countries, including neighboring Latin American countries, such as Argentina, Brazil, Colombia, Mexico, Ecuador, Peru, Paraguay, as well as Canada, South Korea, Croatia, Denmark, Belgium, New Zealand, Portugal, Thailand, Malaysia, Ireland, United Kingdom, and many more.
- Signed double taxation treaties with the United States, Russia, and Australia, but have yet to be entered into force.
Damalion Chile desk is made of accredited professionals who help you start your foreign investment in Chile. We help you register your Chilean company, enter into the Chilean market, negotiate your commercial contracts, find new local partners and optimize taxation on your foreign investment.
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