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Chile Info · Joined: 23 Nov 2006 Posts: 17 Home Country: chile

DOING BUSINESS IN CHILE

STARTING A BUSINESS

STANDARDIZED COMPANY
Legal Form: Sociedad Anónima (SA) – closed
Minimum Capital Requirement: 0
City: Santiago

Registration Requirements:

Procedure 1. Notarize articles of incorporation and record them in a public deed

Time to complete: 1 days

Cost to complete: USD 250

Comment: Notary cost may vary from $100 to $400.

Procedure 2. Publish deed (SA) in the official gazette Diario Oficial

Time to complete: 3 days

Cost to complete: USD 150

Comment: Need to be published within 60 days of the date of the deed containing the bylaws. The publication fees are calculated depending on the number of lines and letters. On average, the costs amount to about $150.

Procedure 3. Register at the commercial registry of the state in which the entity is formed

Time to complete: 4 days

Cost to complete: USD 15+0.2% of capital

Comment: Need to be registered within 60 days of the date of the deed containing the bylaws.

Procedure 4. Register for the Single Tax Register (Rol Unico Tributario)

Time to complete: 1 day

Cost to complete: 1 day

Comment: The declaration is made to the Internal Revenue Service within the two months following the month activities start; the declaration must contain a description of the nature, the domicile of the company and amount of the enterprise's capital. The procedure is fast, usually having both/any of them done within some hours in a single day if all legal documentation required is ok (i.e. notarized articles of incorporation and powers of attorney, registrations, property title of the offices or lease agreement, etc.). However, seal of invoice and receipt forms can only be done after RUT has already been obtained, because that number must appear on them. So generally this procedure is carried out afterwards once forms are duly printed. VAT registration is also done here. SII implemented an electronic registration system to obtain the tax number via Internet.

Procedure 5. Inspection from the Internal Revenue Service (SII)

Time to complete: 1 day

Cost to complete: no charge

Comment: The inspectors verify that the domicile of the company corresponds to the company's offices.

Procedure 6. Print receipts/invoices in the authorized printing company

Time to complete: 1 day

Cost to complete: USD 43 per 50-page book

Procedure 7. Seal documents account books & official receipts forms at the Single Tax Register (Rol Unico Tributario)

Time to complete: 1 day

Cost to complete: no charge

Comment: Seal of invoice and receipt forms can only be done after RUT has already been obtained, because that number must appear on them. So generally this procedure is carried out afterwards once forms are duly printed.

Procedure 8. Obtain a "Patente Municipal" working license from the competent municipality

Time to complete: 14 days

Cost to complete: no charge

Comment: Decree Law 3063/1979 rules that any profession, activity, industry, commerce, art or any other profitable activity, independent of its denomination, has to obtain a working license from the municipality ("the License"). A separate license must be obtained from the corresponding Municipality for each of the enterprise's establishments, offices, warehouses, etc. The License is paid once a year for a 12 months period, from July 1st. to June 30th. The License can be paid in two installments (1 per semester), and its amount goes from 2.5/1000 to 5/1000 of the contributor's capital, with a minimum of one Unidades Tributarias Mensuales, UTM (1 UTM= Ch$31,508) and a maximum of 8,000 UTM (US$475,593). There is no cost associated with the inspection.

Procedure 9. Register with the labour-related accident insurance (Seguro Social contra Riesgos de Accidentes del Trabajo y Enfermedades Profesionales) at the Mutuales de Seguridad

Time to complete: 1 day

Cost to complete: no charge

Comment: According to Law 16,744, the professional accident insurance is obligatory for any employee, regardless the activity, services rendered or the nature of the employer. The Insurance is administrated by the National Health Service (Servicio Nacional de Salud) and by the Social Insurance Service (Servicio del Seguro Social). In both cases, the administration is carried out by public authorities, and the fees have to be paid in a public entity named Instituto de Normalización Provisional. These entities administrate mainly the fees corresponding to public employees. However, private entities named Mutualidades de Empleadores ("Mutualidades") may also administrate the Insurance. The Mutualidades are non-profit private entities which may administrate the Insurance of the employees of their members, generally private companies.

WAYS OF SETTING UP BUSINESS

Nonresident individuals and companies can operate in Chile in one of the following ways:

• By appointing a representative

• By forming an agency or branch of a foreign corporation

• By forming a partnership or corporation under Chilean law

Through a representative

A representative acts on the basis of a mandate, contained in a contract, that the nonresident principal confers to a Chilean resident individual or entity. The representative acts on behalf and at the risk of the foreign principal to carry out one or more business transactions. The principal and the representative are free to agree whether or not the latter will receive any remuneration.

By setting up a Chilean branch or agency of a nonresident foreign corporation

The foreign corporation must appoint an agent to set up the branch. The agent must notarize the following documents that must be written in the official language of the foreign country and must be accompanied by a translation into Spanish:

• Proof that the corporation is legally incorporated abroad

• Certification that the corporation is still in existence

• Authenticated copy of the corporation's current statutes

• General power of attorney issued by the corporation to the agent that will represent it in Chile; the power of attorney must state clearly that the agent acts in Chile in the corporation's name.

At the same time, the agent, on behalf of the corporation, must notarize a deed that indicates:

• The corporation will maintain in Chile realizable assets to cover the liabilities that must be served in Chile

• The effective capital assigned to the Chilean branch or agency, and the way and dates that such capital will be brought into the country

• The domicile of the principal agency or branch in Chile

Within sixty days, a summary of the notarized documents must be filed with the Register of Commerce. Within the same period, the summary must also be published once in the Official Gazette (Diario Oficial).

Branches of foreign limited liability partnerships require only the granting of a power of attorney.

FORMS OF BUSINESS ORGANISATION

Under Chilean commercial law, the following types of partnerships or corporations can be formed:

Corporation ("Sociedad anónima"):

The "sociedad anónima" (corporation) is a body corporate that results from the forming of a single equity contributed by the shareholders. The shareholders' liability is limited to the amount of their individual contributions. The corporation can be publicly traded or closely held and its affairs are administrated by a Board of Directors whose members can be replaced at any time.

Chilean law considers that a corporation's activities are always mercantile, even though it is formed to carry out acts that would otherwise be deemed to be civil.

Publicly traded ("sociedad anónima abierta")

A corporation is considered to be publicly traded if it meets one or more of the following conditions:

• The corporation's shares or other securities are listed on a Stock Exchange or are offered to investors in general through a public offering

• The corporation has more than 500 shareholders of record

• At least 10% of the subscribed capital is owned by more than 100 shareholders (excluding any shareholder that individually owns more than 10% of the corporation's capital)

• The corporation has elected voluntarily to be rouled by the regulations and standards of publicly-traded corporation

All other corporations are deemed to be closely-held.

Publicly-traded corporations are subject to the regulatory control of the Superintendencia de Valores y Seguros (Superintendency of Securities and Insurance) and must be listed in the Register of Securities.

Creation of a corporation ("sociedad anónima"):
A corporation is created by means of a notarized deed that must contain, as a minimum, the following:

• The names, professions and addresses of the shareholders that are starting the corporation

• The name and domicile of the corporation

• The specific objects for which the corporation is created

• The life of the corporation, which can be indefinite; if nothing is said, the life is presumed to be indefinite

• The capital of the corporation and the number of shares, indicating any special series of shares and privileges, and whether the shares have a par value or not; the way the shareholders must pay in their contributions and the dates they must do so and the valuation assigned to any contributions that are not made in cash

• How the corporation is to be administrated and how the administration will be supervised by the shareholders

• The corporation's financial year-end (at which date the financial statements must be drawn up) and when the General Shareholders Meeting must be held

• How the corporation will distribute its profits

• How the corporation will be liquidated

• How the differences among the shareholders or between the shareholders and the corporation are to be decided; if nothing is said, it is understood that the differences will be submitted to arbitration

• The names of the first Directors

A summary of these statutes, duly notarized, must be filed with the Register of Commerce that corresponds to the corporation's domicile. The summary must also be published once in the Official Gazette. Both the filing and the publication must be made within sixty days of the date the deed is signed.

General partnership ("sociedad colectiva")

In a general partnership all the partners administrate the company individually or through an elected representative. Each partner is solely responsible for all of the legal liabilities of the partnership.

To create a general partnership the partners, or their legal representatives, must sign a duly notarized deed. The partnership deed must contain, as a minimum, the following:

• The names, professions and addresses of the partners

• The partnership's name, which must be the names of one or more of the partners, followed by the words "y compañía" (and company)

• Partner or partners who will administrate the general partnership and that are allowed to use the company's name

• The capital contributed by each partner in cash or otherwise; if the contribution is not in cash, the value assigned to it or how such value is to be determined

• The object of the partnership

• How the profits or losses are to be assigned to the partners

• When the partnership will start and when it will end its legal existence

• The amount each partner can draw annually for personal expenses

• How the partnership is to be liquidated, and how its assets will be assigned to each partner

• How differences among the partners are to be settled, whether or not an arbitrator will be used, and, if so, how he or she will be appointed

A summary of the partnership deed must be filed with the appropriate Register of Commerce within sixty days.

Limited liability partnership ("sociedad de responsabilidad limitada")

A limited liability partnership is similar to a general partnership. The principal difference is that each partner's liability is limited either to the amount of capital he contributed or to a greater amount specified in the partnership deed.

A limited liability partnership is formed by means of a notarized deed that should contain the items required for a general partnership deed. The name of a limited liability partnership should contain the name of one or more partners or a reference to the partnership's object. However, the name must end in the word "limitada" (limited); otherwise, each partner is unlimitedly liable for all the partnership's liabilities.

Filing of a summary with the Register of Commerce is also required within 60 days. The summary must also be published in the Official Gazette within the same 60 day period.

Limited partnership ("sociedad en comandita")

In a limited partnership some partners provide all or a part of the partnership's capital with no right to manage the partnership's affairs. These partners have limited liability.

In addition, one or more other partners are designated as managing or general partners and have unlimited liability for the partnership's debt and losses.

If the limited partners' capital is represented by shares, the partnership is known as a limited partnership with share capital ("sociedad en comandita por acciones"). Otherwise, it is a simple limited partnership ("sociedad en comandita simple").

The requirements to create a limited partnership are similar to those for forming a general partnership.

Association

An association ("asociación" or "cuentas en participación") is a contract between two or more businessmen or entities to share in one or more commercial transactions, that will be carried out by one of them in his own name. Such partner must render an account to his other partners and share with them any profit or loss that might result.

The association only creates rights among the partners. As far as third parties are concerned, only the partner in whose name the transaction is carried out is responsible.

There are no legal requirements for forming an association.

TAXATION

Principal taxes in Chile

All taxes in Chile are levied at national level. There are no significant municipal, provincial or regional taxes, excepting Municipal License

The principal sources of tax revenue are:

• Corporate and personal income taxes

• Value-Added tax

• Import duties

In addition, the Chilean tax system includes stamp tax, real estate tax, inheritance and gift tax, and several other taxes.

Income tax

Income taxation in Chile is based on two factors: the taxpayer's place of residence and the source of the income. All resident taxpayers, whether individuals or corporations, are subject to taxes on their total income, wherever earned, with the sole exception of foreign individuals who only pay taxes on Chilean source income for their first 3 years in the country. This period can be extended. In general, nonresident taxpayers are only taxed on Chilean-source income; that is, on income earned from assets located in Chile or from activities carried out in Chile.

Income from Chilean corporations or Chilean partnerships is always considered to be Chilean-source income.

Chilean tax law is divided into Category Taxes, that tax income from certain activities, and Global Taxes, that tax all income.

The Category Taxes are:

• First Category Tax on income from industry, commerce, mining, real estate, and other activities involving the use of capital. This tax is allowed as a credit against the global taxes due.

• Second Category Tax on income from personal services, as an employee. Income of self-employed persons and professionals is classified as Second Category income but is not subject to Second Category tax.

The Global Taxes are:

• Complementary Tax on the total income from both categories of resident individuals.

• Additional Tax on the total income from both categories of non-resident individuals or non-resident corporations when they are withdrawn, distributed as dividends, or are remitted abroad.

Income tax rates

The principal tax rates are as follows:

• First Category Tax 15%

• Second Category Tax:

• Self-employed persons (professionals, directors of corporations,

professional partnerships, and others) (*)

•Employees (if subject to an employment contract, this is the only tax

payable) exempt to 45%

• Complementary Tax (resident individuals) exempt to 45%

• Additional Tax (nonresident individuals and nonresident corporations) 35%

• Withholding of Additional Tax:

• Royalties paid abroad, in general 30% (***)

• Royalties paid abroad for film and video 20%

• Royalties paid abroad for authors' and edition rights 15%

• Technical assistance or engineering services 20%

• Other services paid abroad 35%

• Interest to foreign corporations 35%

• Interest to foreign banks and registered financial institutions 4%

• Marine freight 5% (**)

• Insurance premiums to foreign insurers 22%

• Reinsurance premiums to foreign reinsurers 2%

• Special tax:

• Disallowed expenses of corporations 35%

(*) Income is subject to Complementary or Additional Tax.

Professional partnerships can choose to be taxed under the First Category Tax regime.

(**) There are exemptions on the basis of reciprocity

(***) As of January 1,1998, there is an overall limit of 4% of the yearly sales and services, when all or part of the royalties are paid to related companies, unless they are taxed add 30% or over in the beneficiary’s country.

Payment of income taxes

Each taxpayer must file an annual income tax return and pay any tax due during the month of April following the year end.

No annual income tax return is required for an employee who receives only compensation income. In this case, the Second Category Tax is withheld and paid to the Treasury by the employer on a monthly basis.

The First Category Tax or corporate tax is payable on accrued income on a yearly basis.

In most cases, estimated payments must be made on account of First and Second Category Taxes, Additional Tax and Complementary Tax.

Income taxes applicable to a foreign investment

• Normal taxation

The following is a simplified example of the income taxes that generally affect a foreign investment in Chile:

Income before taxes 100.00

First Category Tax - 15% (15.00)

Net distributable income 85.00

Withholding tax on distributions or dividends:

Additional Tax - 35% of 100 (*) (35.00)

Less tax credit - 15% of 100 15.00

Net received by a nonresident parent, partner or shareholder 65.00

(*) The tax credit is added to the dividend to compute the tax basis for the Additional Tax.

The investor who has opted for the 42% invariable rate can elect at any time to be taxed at the normal rates. This election is irrevocable.

• The 42% alternative

Foreign investors that have a DL 600 contract and have chosen the 42% rate are subject to the 15% First Category Tax (payable by the branch or subsidiary) and a 27% Additional Tax on the same tax base, when profits or dividends are remitted. Thus, the total theoretical tax burden is 42% on pretax income instead of the 35% currently payable under normal taxation.

The following is a simple example of how the 42% invariable rate is applied:

Income before taxes 100.00

First Category Tax - 15% (15.00)

Net distributable income 85.00

Withholding tax on distributions or dividends:

Additional Tax - 27% (42 - 15) of 100 (27.00)

Net received by a nonresident parent, partner or shareholder 58.00

Taxation of different types of business establishments

In general, differences arising from the choice of business organization are not very significant.

For an agency, branch, or permanent establishment of a foreign corporation only Chilean-source income is taxable. Taxable income is determined on the basis of the actual profits earned on its activities in Chile. When the accounting records do not reflect actual profits, the Internal Revenue Service can determine presumptive net income using either of the following bases:

• By multiplying the agency's gross income by the parent company's ratio of net income to gross income •By multiplying the agency's total assets by the parent company's ratio of net income to total assets

In a limited liability partnership, if any of the partners is a Chilean resident individual, that partner's share of income is not subject to the Additional Tax, but is added to his or her other income and taxed at the appropriate personal rates (Complementary Tax) with a tax credit equivalent to the First Category Tax paid by the limited liability partnership.

In a Chilean corporation, the First Category Tax is paid by the corporation, but it is a tax credit for the shareholders. Resident individual shareholders receive a credit against their Complementary Tax on dividends received. Nonresident shareholders receive a tax credit against the Additional Tax due on dividends remitted abroad.

Value-Added Tax

An 18% Value-Added Tax (VAT) is charged on all recurring sales of tangible assets and on services that result in the charging of interest, premiums, commissions, or other similar remuneration. Imports are also subject to VAT

This is a typical Value-Added tax: the VAT paid on imports, purchases, and services received (tax credit) is deducted from the VAT due on sales and services rendered (tax debit). The taxpayer must file a monthly tax return and pay the net tax debit by the twelfth day of the subsequent month. A net tax credit (increased to reflect the changes in the consumer price index) can be carried forward to the subsequent months.

Exports are zero rated. Accordingly, no VAT is due on export sales, but VAT paid on purchases of goods and services that are necessary to produce the exported goods is either deducted from other VAT due or refunded by the Internal Revenue Service. Incoming and outgoing marine and air transport services are exempt from VAT. Services that are rendered to nonresident entities, and which are used exclusively outside Chile can be deemed to be exports by the customs service, and treated in the same way.

In addition to VAT, certain luxury items and beverages are subject to sales tax at rates that vary according to the type of items sold.

Foreign tax credit

A foreign tax credit is allowed against the First Category Tax for income taxes withheld abroad on dividends or paid on branch income. The credit is capped at 15% of foreign source income. In computing taxable income, foreign taxes paid are added to the tax basis. Foreign taxes paid in excess of the cap, which cannot be used as a tax credit, are allowed as a deduction from taxable income.

As of January 1, 1998, the credit cap wil go up to 30% with those contries with which Chile signs double taxation traties, with the foreign taxes up to 15% being creditable against the 15% First category Tax and the balance against the local company’s shareholders’ or partners’ Additional or Complementary taxes.

Treaties to avoid double taxation

Chile and Argentina have signed a treaty to avoid double taxation. Income earned in one country is subject to taxes in that country only; it is exempt from the other country's taxation when it is repatriated.

In computing his or her Complementary Tax, a Chilean resident must include Argentine- source income only for determining the applicable tax rate.

There are several treaties with other countries to avoid double taxation on the transport of goods and people by sea or by air.

Additional treaties to avoid double taxation are being negotiated in the context of the new foreign tax credit provisions.

Chile has signed a double taxation treaty with Canadá, which is expected to come into force on January 1, 1999, once it has been approved by Congress.

Customs duties

Customs duties are 11% ad valorem for virtually all imported goods and products.

There are some bilateral and regional reductions regarding some products, in the context of the ALADI (Latin American Integration Association) Agreement.

Chile has signed agreements with Mexico to eliminate customs duties between the two countries over 10 years. Chile has also signed bilateral treaties with Colombia, Venezuela, Peru and Ecuador for the elimination of duties.

Chile belongs to the "Mercosur" treaty as an associated member, and has negotiated immediate and staged reductions or eliminations of customs duties.

Municipal License

This is an annual fee that is collected by the municipalities. The fee is calculated on the taxpayer's equity at a rate which is set by each municipality, with a minimum of 0.25% and a maximum of 0.5%.

The total annual fee cannot exceed 4,000 monthly tax units (about US$215,000). The fee is allocated among the municipalities in which the taxpayer has an office, factory, warehouse or other establishment.


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