Chile is the best evaluated economy in Latin America and, indeed, one of the best evaluated among emerging economies worldwide. Its sustained economic growth and social progress have been highlighted by different international organizations and in 2010 it became the first South American country to join the Organization for Economic Co-operation and Development (OECD).
Chile is going through an historic moment in regards to foreign investment, which is a sign of confidence in the performance of the economy and institutional stability. Its hallmark transparency, competitiveness and excellent business prospects position the country not only as the best destination for foreign investment in the region and also as one of the world’s leading destinations.
1.1.- Demographic and economic environment
According to projections from the National Institute of Statistics, Chile has a population of 18,006,407 inhabitants. However, population growth has dropped lately, with growth rates of 0.99% between the censuses of 2002 and 2012. In year 2020, most of the population will be over 35 years. Later studies have shown that 64% of the working population works in services, 23% in industry and 13% in agriculture.
With the Constitution of 1980 the free market system was stablished, which has made the country one of the strongest economies of the continent. At the same time, the coverage of social programs has been increasing. Because of this and the policy of economic openness and global integration, Chile is now internationally recognized as a platform for foreign investments to other countries in Latin America.
With a GDP (calculated at purchasing power parity) per capita of USD$ 24,170 and the Human Development Index, Chile is located at the head of Latin America.
1.2.- Investment climate. Why is Chile a good place to invest?
Reliance. Chile is a safe and reliable place in which to do business. This is borne out by risk rating agencies which have maintained or increased their ratings for Chile, highlighting its political stability, low level of public debt, the health of its financial system and the solidity of its macroeconomic system at a time of external crisis.
Competitiveness. Chile has a consolidated position as Latin America’s most competitive economy. This is mainly due to its sustained economic growth and openness to trade which have set it apart internationally as a free and dynamic market. In the 2015 World Competitiveness Yearbook published by the Institute for Management Development (IMD), Chile took 35th place out of 61 economies, maintaining its leadership within Latin America.
Transparency. Chile is known for its transparency and this is reflected in international rankings that highlight the low level of corruption in the country and, particularly, its finances, due to government efforts to raise standards in administration of the state.
In Transparency International’s 2014 Corruption Perceptions Index, Chile ranked in the 21st placed within 175 countries included in the index and ahead of all other Latin American countries.
Integration. Chile’s open economy, combined with an active policy of bilateral, regional and multilateral trade agreements, has underpinned a sustained increase in foreign trade in goods and services and in the country’s international competitiveness, consolidating its position as an active international partner.
Attractive business climate. Thanks to its political and economic stability, openness to trade, legal security and excellent growth prospects, Chile has maintained an attractive and dynamic business climate for investors. According to the Business Environment Rankings of the Economist Intelligence Unit (EIU), Chile is the 13th most attractive economy to do business in, for the years 2014 to 2018 and leads Latin America in this field.
Foreign investment in Chile is regulated by local rules and international agreements to which the country has subscribed. In addition, foreign investment is subject to the rules contained in bilateral investment treaties (BITs) between Chile and other nations. These mechanisms, which include dispute settlement frameworks, provide additional protection for foreign investors in Chile.
Under Chilean law there are no limitations on a foreign investor who wants to wholly own a Chilean company. Foreign companies and individuals can invest in all productive activities and sectors of the economy.
2.1.- Investment opportunities
The main sectors for investments are:
Mining. Chile is a key international player in this sector and the world’s largest copper producer. It is estimated that mining companies will invest US$104,000 million in Chile during the next eight years.
Food industry. Chile offers opportunities in fruit farming and agriculture, wine and grape products, olives, meat products, milk, salmon, ancillary industries, processed foods and biotechnology applied to the food industry.
Energy. Demand for electricity is forecast to grow at an annual rate of between 6% and 7% through to 2020, calling for 8,000 MW in new projects or, in other words, a 50% increase in existing installed capacity. Chile has hydroelectric potential in the south, a favorable climate for solar plants in the north and ideal natural conditions for renewable energies as well as the need to diversify its matrix and increase energy independence.
Infrastructure. Chile has a portfolio of public works concessions projects worth a total of US$7,900 million that includes bridges, highways, hospitals and port infrastructure.
The country is currently going through a period of reforms that are completely changing the way to invest in Chile. However, the regulation of foreign investment is contained in Law 20.848/2015 and in the Compendium of Foreign Exchange Regulations of the Central Bank of Chile.
With the reform of 2014, the Agency for Promotion of Direct Foreign Investment was created, to accomplish an OECD standard.
2.3.- Limitations on foreign investment
There are limitations in certain areas, such as coastal trade, the mass media, fishing, and real estate property in border zones.
2.4.- Restrictions on foreign investment
Certain economic activities considered relevant to national security are restricted to the State, such as the exploration and exploitation of hydrocarbon deposits in coastal waters under national jurisdiction or in areas classified as important to national security, and the production of nuclear energy. However, in certain circumstances foreign companies can invest in these areas.
2.5.- Foreign investment mechanisms
Although this matter was reformed and is likely to come further reforms during this year and next, the mechanisms for foreign investment in Chile can be resumed in three: first, there is equality between Chilean and foreign investors; second, the investor enters in a certificate that is like a contract with the State of Chile, which means that the terms of the contract cannot be altered unilaterally; and three, tax stability.
3.1.- Legal entities
Establishing an investment vehicle in Chile is straightforward and relatively inexpensive. The tax treatment afforded to the various types of corporate entities is very similar and home country considerations will often be decisive in determining the appropriate entity.
Since 2013, most of the legal entities can be incorporated in one day and through the web.
3.1.1.- Limited Liability Company (Sociedad de Responsabilidad Limitada)
This is the most commonly used type of business entity in Chile. Like corporations, an LLC is a separate legal entity and the liability of its members or quotaholders is limited to their respective contributions. Accordingly, an LLC’s losses may not be offset against quotaholders’ other income.
LLCs require a minimum of two and a maximum of 50 quotaholders and foreign legal entities may be quotaholders. LLCs are not subject to the control of a regulatory authority and have no obligation to publish or file accounts. Quotaholder will set out the management structure of the LLC.
3.1.2.- General and Silent Partnerships (Sociedad Colectiva o Sociedad en Comandita)
General Partnerships are similar to LLCs, except that the liability of quotaholders is unlimited.
Silent Partnerships consist of management partners whose liability is unlimited and silent partners whose liability is limited to their capital contributions to the partnership. The identity of a silent partner needs only be revealed to the tax authorities.
3.1.3.- Corporation (Sociedad Anónima)
A corporation may be either public/open or private/closed. A corporation is public when it registers its shares in the Securities Registry, either voluntarily or by legal obligation. All other corporations are private.
Public corporations are subject to the control of the Superintendence of Securities and Insurance and must be listed on the Stock Exchange, publish and send to all shareholders an annual report and audited annual financial statements, and distribute at least 30% of net profits, unless all shareholders agree otherwise. These requirements do not apply to private corporations.
A minimum of two shareholders is required for the incorporation of a corporation. Management is in the hands of a board of directors. Directors may be of any nationality and are appointed by the shareholders.
Corporations may not pay dividends (i.e. distribute profits) out of annual profits until previous years’ losses have been recouped.
3.1.4.- Limited Liability Stock Companies (Sociedad por Acciones)
Limited Liability Stock Companies are the newest legal vehicle for establishing a company in Chile. As in corporations, the liability of owners is limited and the vehicle constitutes a distinct legal entity from the shareholders. Accordingly, the losses of a LLSC may not be offset against the assets of the shareholders.
Additionally, the capital of this entity is divided into shares. A difference with respect to a corporation is that the shareholders of an LLSC are free to regulate the management structure of the company.
LLSC are not subject to the control of a regulatory authority and have no obligation to publish or file accounts. LLSC´s act of incorporation will set out the management structure.
A minimum of one shareholder is required for the incorporation of an LLSC and may not pay dividends (i.e. distribute profits) out of annual profits until previous years’ losses have been recouped.
3.1.5.- Branch Office of a Foreign Corporation (Agencia de Sociedad Anónima Extranjera)
Foreign corporations may establish a branch office in Chile by appointing by public deed a person present in the country with broad powers to represent the corporation. The foreign corporation must also register and publish certain information about itself, including the amount and form of its capital in Chile. The liabilities of the branch must be supported by liquid assets retained in Chile, although no minimum capital is required.
Foreign corporations are fully liable for the activities of their Chilean branches, and the financial statements of the branch must be published. Branches are taxed on locally derived income only.
3.1.6.- Joint Venture (Asociación o Cuentas en Participación)
An “Asociación” or “Cuentas en Participación” is basically a type of joint venture contractual relationship in which two or more parties participate in one or more business ventures which are carried out in the name and under the responsibility of one party only. This party, known as the manager or administrator, is responsible for rendering accounts to the other participants and distributing profits and losses among them in agreed proportions. The manager is responsible for all dealings with third parties in relation to the association and relevant business ventures.
An agreement between the parties sets out the purpose, form and terms of the association and the parties’ respective interests. The arrangement is essentially private and does not create a separate legal entity.
Foreign members of a Joint Venture or Asociación often operate in Chile through a jointly formed Chilean corporation, LLC or Branch Office.
3.2.- Is it expensive to invest in Chile?
The cost of establishing a legal entity in Chile is relatively low and does not involve waiting a long time.
According to the way that foreign investment enters the country, the payment of tax is determined. However, tax rates are also relatively low.
Chile ensures the free convertibility of currencies, allowing a permanent access of foreign investors to the currency market, facilitating the investment process and keeping its costs low.
3.3.- Is tax treatment different according to each legal entity?
While tax treatment is the same, there are benefits and exemptions for certain legal entities.
The essential principles of the Chilean Securities Market are transparency, accurateness, sufficiency and timely disclosure of information, guarantee of equal conditions for all market participants and investor protection.
4.1.- Public Offering of Securities
In general, no person, whether resident or non-resident, national or foreign, may publicly offer, market, advertise or sell securities or securities brokerage services, within the boundaries of the national territory of Chile, unless in accordance with and subject to the Securities Market Law.
Securities Market Law requires that any public offering of securities must be preceded by the registration with the Superintendence of Securities and Insurances of both the issuer and the relevant securities or class of securities being offered. The public offering of non-registered securities in Chile is prohibited.
To make a public offering, the Chilean securities laws require a license to conduct, offer, sell, advertise and provide brokerage services in Chile. It is required that any person or entity that publicly offers, sells or markets securities, securities brokerage or investment services within Chile be licensed by the SVS.
Securities deposit and custody services provided in Chile must be conducted by special business purpose companies (acting as custodians of publicly-offered securities) with the prior approval of the SSI.
The rendering of investment advisory, financial advisory, and asset management services do not require a license and are not subject to regulation.
4.2.- Secondary Market
The Securities Market Law regulates stock exchanges and securities intermediaries which may be of two types, namely Brokers, which are dealers that are members of a stock exchange and are authorized to trade on the exchange and off-the-exchange over the counter; and Securities Brokers, which are dealers that may only broker and deal off-the-exchange over the counter.
Securities intermediaries are required to keep the books and registries stipulated in the applicable regulations and to provide the SSI with information on their transactions and operations. In addition, they are also required to submit financial statements on a periodic basis and to report to the SSI the opening and closing of offices or branches and any other information that the SSI may deem necessary.
The SSI maintains a public registry of presidents, directors, officers, managers and trustees of the entities that are subject to its supervision and jurisdiction, including securities intermediaries. These entities must update the information within 3 business days from the date of any change in the identity, office, designation or removal of any of the persons appearing on the file.
The Chilean Constitution guarantees equal distribution of taxes in proportion to income or in the progression or manner established by law. The law cannot impose taxes that are unmistakably disproportionate or unfair.
The Chilean Tax Administration, named Servicio de Impuestos Internos (SII) has no authority to legislate tax matters, but it does have the power to interpret tax legislation through administrative pronouncements.
In October 2014 a Tax Law Reform bill was passed and it changed in several ways and parts the taxing law. This reform is going to be applied gradually from 2014 to 2018.
5.1.- Direct taxes
5.1.1.- First Category Tax
As a general rule, income derived from commerce and industry, amongst other activities, is subject to the First Category Tax, at a rate of 24% (2016), on an accrued or cash basis, whichever occurs first.
5.1.2.- Second Category Tax
This tax applies to salaries, fees, wages, and other forms of remuneration paid for dependent personal services. It is: (a) a sole or unique tax: the income or remuneration is subject to this tax only; (b) a withholding tax: taxes are withheld and paid by the employer on behalf of the employee; (c) a progressive tax: based on a progressive scale that ranges from 0 to 40%; (d) a tax that applies to received income: taxes are due once the employee has received his or her income; (e) calculated and paid on a monthly basis.
5.1.3.- Global Complementary Tax or Surtax
A progressive tax that is levied on individual’s resident or domiciled in Chile with respect to their worldwide income accrued or received in the preceding commercial year. It is applied on a progressive scale ranging from 0 to 40%.
5.1.4.- Additional Tax
Broadly speaking, this tax is levied on Chilean-source income received by non-residents. It usually works as a withholding tax at a general 35% tax rate which may vary depending on the nature of the payment and the existence of Double Taxation Treaties.
5.2.- Indirect taxes
5.2.1.- Value Added Tax – VAT
Chilean VAT is an indirect tax that works on a Credit-Debit mechanism. The tax borne by a company or business by acquiring goods or services corresponds to the VAT credit, whilst the VAT charged on the goods and services sold to customers correspond to their VAT debit. Hence, our VAT is properly a “value added tax” that levies the value added on every stage of the production and distribution process, being also neutral for taxpayers. This tax has a rate of 19%.
5.2.2.- Stamp tax
This tax is levied mainly to documents containing a monetary credit operation. It applies at rates ranging from 0.033% per month/fraction with a cap of 0.4% of the loan principal amount. The rate is 0.166% on payable upon demand loans. The Stamp Tax is considered to be an ordinary expense, deductible for income tax purposes.
On 2016, the rates will change. It will be applied at rates ranging from 0.066% per month/fraction with a cap of 0.8% of the loan principal amount and the rate will be 0.0332% on payable upon demand loans.
5.2.3.- Luxury and special taxes
In addition to VAT, certain beverages, mainly alcoholic drinks, and some special goods are subject to an additional sales tax, with rates ranging from 13% to 50%.
5.3.- Tax year
For First Category Tax compliance purposes, the tax year corresponds to the income generated in the previous commercial year; thus, tax returns filed during the 2014 tax year (generally in April) refer to the 2013 calendar year.
5.4.- Tax holidays.
There are no tax holidays for overseas investors.
5.5.- Double taxation treaties
Currently, according to information published by the Tax Administration, Chile has 25 double taxation agreements, with the following countries: Australia, Belgium, Brazil, Canada, Colombia, Korea, Croatia, Denmark, Ecuador, Spain, France, Ireland, Malaysia, Mexico, Norway, New Zealand, Paraguay, Peru, Poland, Portugal, United Kingdom, Russia, Sweden, Switzerland and Thailand.
6.1.- Main regulation
6.2.- Employment agreement
The employment agreement must be in writing and there are several essential elements which must be included: name and nationality of all parties and the employee´s address, date of birth, duties, place of work, work hours, remuneration and starting date.
Chilean Labour Law prefers indefinite term contracts, but it allows fixed-term contracts. The maximum fixed-term duration is one year, but for managers and professional personnel it is two years.
6.2.1.- Is there any probationary time?
The law does not formally recognize probationary periods.
6.2.2.- Working hours
The law sets a limit of 45 hours per week for employees subject to the ordinary working hour regulations. The employer may not distribute these hours over more than six days in a week, or less than five days.
Certain classes of hotel, club, theatre and restaurant employees, among others, are subject to special rules.
6.2.3.- Overtime payments
Every employee subject to a working hour limit is entitled to overtime pay, with some limited exceptions. Overtime pay can only be mutually agreed in writing by the parties, is 50% higher than regular pay, has a limit of two hours per day and is allowed for jobs that do not damage the health of the worker.
6.2.4.- Termination of employment agreement
Dismissal is treated on a case by case basis, even in cases where many workers are dismissed at the same time. Chilean Law has no special rules in the case of mass dismissal.
The employment agreement can end by mutual agreement, resignation of the worker, death of the employee, expiry of the period agreed in the contract, completion of the work or service which gave rise to the contract, or due to force majeure. It can also end on several grounds that relate ultimately to faults by the worker. In all of the above cases the worker will have no right to compensation. If the employer dismisses the worker arguing ‘company needs’ there will be right to compensation.
6.3.- Part-time employment
Regarding part-time employment, an employee cannot work more than two thirds of the stipulated maximum weekly limit. Therefore, a part-time employee can work a maximum of 30 hours per week.
The annual holiday entitlement is 15 working days. Saturdays, Sundays and holidays are not included in the calculation of this 15-day period. Therefore, a worker is entitled to 21 calendar days of vacation leave each year. The holiday period must be continuous, but the excess over 10 working days may be fractioned by mutual agreement with the employer.
Only absences due to illness and pregnancy entitle workers to receive pay. The parties must agree on any other kind of absence.
The minimum wage calculated on a monthly basis for 2016 is CLP $250.000 (USD $352). The employer is obliged to pay the contributions for social security, including old-age pensions, health care, unemployment insurance and legal bonus.
Minimum wage is important because on its basis are calculated a series of institutions, such as the legal bonus to which are entitled all employees.
The national average income in 2015 was CLP $473.215 (USD $667).
6.7.- Sick and maternity leave and pay
An employee is only entitled to sick pay after at least six months of membership of his or her health insurance scheme. The employee must also have made three months’ worth of contributions to the system prior to the starting date of the period of sick leave.
There is no annual limit to sick leave or sick pay. The employee is entitled to sick leave or sick pay every time the he or she is ill, provided the aforementioned membership and contribution requirements have been met.
Foreigners can apply for a resident visa subject to an employment agreement when they come into the country in fulfilment of the agreement or when they are settled in the country. In both cases they can bring their families but these beneficiaries, as dependents, are not permitted to engage in remunerated activities.
The visa subject to an employment contract is valid for up to two years and may be extended for additional two-year periods. The holder of a visa subject to contract may apply for permanent residency after holding the visa for two years.
A resident visa subject to an employment contract will be granted free of charge and without the requirement to present a written employment contract to artists, scientists, teachers, writers and, in general, to individuals of particular cultural relevance or figures of renown; individuals sponsored by public or private entities of recognised solvency; and individuals whose activities are carried out for charitable, educational or informational purposes. This type of visa may also be issued free of charge to foreigners taking part in industrial, artistic or scientific exhibitions, fairs or other public events held to foment production or to promote commercial or cultural exchanges between other countries and Chile.
7.1.- Is there a working permit for foreigners holding tourist or students visa?
These individuals must apply for permission to work while their permits or visas are still valid.
Chile’s foreign trade policy is based on the principle that all goods may be freely traded and everyone may engage in international trade transactions.
Chile does not impose any limits on the amount of currency derived from trade operations, although imports and exports with a total value of US$5 million or higher on a FOB basis in any single year must comply with certain obligations to report to the Central Bank of Chile.
Chile enforces the Harmonised System for Tariff Classification (HS) and affords at least most favoured tariff treatment to all its trading partners. The HS is an internationally recognized standard classification system for products adopted by most nations and created by the World Customs Organization (WCO).
Chile applies the following treaties: Free Trade Agreements with Australia, Canada, Central America (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua), China, Colombia, EFTA (Iceland, Liechtenstein, Norway and Switzerland), Malaysia, Mexico, Panama, Peru, Korea, Turkey, United States and Vietnam; Economic Association Agreements with Ecuador, European Union, Japan, P4 (New Zealand, Singapore and Brunei Darussalam as well as Chile), and Pacific Alliance (Peru, Colombia, México as well as Chile); Economic Complementation Agreements with Bolivia, Mercosur (Argentina, Brazil, Paraguay and Uruguay) and Venezuela; Partial Scope Agreements with India and Cuba. Likewise, there are Agreements signed but not yet in force with Vietnam and Hong Kong and Agreements negotiated but not yet signed with India and Indonesia.
Chile will be part of the Trans-Pacific Partnership, a trade agreement among countries of the Pacific Rim that will expand the Chilean market to 810 million people who make up 40% of world GDP. Member countries of the TPP are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam.
All individuals or legal entities with a Tax ID number and that have initiated activities before the Tax Administration, may import all kinds of manufactured products or raw materials produced by a factory or a facility duly registered and controlled by the competent institution or authority in the country of origin.
In order to carry out an importation successfully, it is necessary to assess and meet the technical, administrative and legal requirements associated with the importation process according to the nature and end use of the goods, including certifications, analyses and statements. Compliance with such requirements and procedures will be monitored by the pertinent audit institutions of the Chilean Government.
This operation is not affected by the payment of any custom duties, unless expressly established by law. Exports can be done by all individuals or legal entities with a Tax ID number and initiation of activities before the Tax Administration.
All products, manufactured or not, that comply with the requirements and regulations of the country of destination can be exported. Such requirements may correspond to certifications issued by Chilean supervising institutions, or to the fulfilment of the obligation to present relevant documentation or information necessary for the product to be freely sold in the country of destination of the exportation.
8.3.- Opportunities that the country offers
Chile’s main exports are refined copper, copper ore, unprocessed copper, chemical sulphate pulp and fish fillets, according to the Harmonized System. Exports of goods and services in 2012 accounted for an exchange of USD 90.9 billion.
Its main imports are refined petroleum, crude oil, cars, delivery trucks and airplanes and helicopters. Imports of goods and services in 2012 accounted for an exchange of USD 90 billion.
Chile provides many opportunities for foreign trade, as it is an open, dynamic and internationally connected market.
Environmental legislation is contained in a set of laws and decrees about water, air, biodiversity, ozone, light pollution and general rules, quality standards, emission standards, indigenous issues, national monuments, environmental citizen participation plans, prevention and decontamination plans, waste, noise, soil and saturated or latent areas, among others.
Environmental institutions comprise the Ministry of Environment, the Environmental Assessment Service, the Superintendence of the Environment, the Biodiversity and Protected Areas Service and the environmental courts. Taken together, all these institutions aim to ensure compliance with various laws created to protect the environment.
Environmental law gives a different treatment and subjects to different processes the diverse economic activities, so it is necessary to study each case requirements.