Doing Business in Chile 2011
1
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Doing Business in Chile 2011
In the preparation of this guide, every effort has been made to offer current, correct and clearly expressed information. However the information in the text is intended to afford general guidelines only. This publication is distributed with the understanding that Ernst & Young International is not responsible for the result of any actions taken on the basis of information in this publication, nor for any errors or omissions contained herein. Ernst & Young International is not attempting through this work to render legal, accounting or tax advice. Readers are encouraged to consult with professional advisors for advice concerning specific matters before making any decision. The information in this publication should be used as a research tool only, and not in lieu of the tax professional’s own research with respect to client matters. Ernst & Young offers traditional audit and tax services, as well as customized services in corporate finance, online security, risk management, the valuation of intangibles and e-business acceleration. In addition, legal services are available in various parts of the world where permitted. This book is one in a series of country profiles prepared for use by clients and professional staff. Additional copies may be obtained from Ernst & Young’s Office in each country.
Ernst & Young Mailing Address: Av. Presidente Riesco 5435, 4th Floor, Las Condes, Santiago, Chile Street Address: Av. Presidente Riesco 5435, 4th Floor, Las Condes, Santiago, Chile Telephone : (56 2) 676-1000 Facsimile : (56 2) 676-1032
©2001 Ernst & Young All Rights Reserved
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Preface TThis book was prepared by Ernst & Young, Chile. It was written to give the busy executive a quick overview of the investment climate, taxation, forms of business organization, and business and accounting practices in Chile. Making decisions about foreign operations is a complex process and requires an intimate knowledge of a country commercial climate, with the awareness that the climate can change overnight. Companies doing business in Chile, or planning to do so, are advised to obtain current and detailed information from experienced professionals. This book reflects information current at January 31st, 2011
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Doing Business in Chile 2011
Index
Introduction
8
Geography Population and Language Population Language Time Public Holidays Useful Addresses and Telephone Numbers
8 8 8 9 9 10 10
A. Government Structure and Economic Climate A.1 A.2 A.3 A.4 A.5
Government Structure Economy Type of Economy General Economic Trends Leading Industries Mining Forestry Fishing Agriculture Manufacturing Financial System Central Bank and Bank Regulators Stock Exchanges and Securities Regulating Authority Stock Exchanges Securities Regulating A authority Currency
11 11 11 11 12 12 12 12 12 12 13 13 14 14 14 14
B. Investment Climate and Foreign Trade B. 1 B.2 B.3
Investment Incentives Non-discrimination Policy Regional Incentives Special Industry Incentives Free Trade Zones Tax incentives Special investment Considerations Regulated Industries Intellectual Property — Internet Domain Name Registry Employment of Foreign Nationals Government-Owned Industries and Privatization Restrictions on foreign Investment — Foreign Investment Statute — Investment Contracts — Large Foreign Investments — Financing Requirements for Foreign Investors Foreign-Exchange Controls Antitrust Regulations Regional and International Trade Agreements and Associations
15 15 16 16 16 17 18 18 18 19 20 20 20 20 21 21 22 22 22 23
Major Trading Partners and Leading Imports and Exports
24
Importing and Exporting Imports Exports Customs Duties — Valuation and Rates — Free- Trade Zones — Temporary Admission and Bonded Warehouses
24 24 25 25 25 25 25
B.4
B.5
5
Index
C. Companies C. 1
Forms of Enterprise Corporations — Open and Closed Corporations — Subsidiary and Related Companies Limited Liability Companies — General Companies Joint Ventures Branches of Foreign Corporations Structures Most Often Used by Foreign Investors
27 27 27 28 29 29 30 30 31
C.2
Mergers and Acquisitions
31
C.3
Corporate Taxes at a Glance
31
C.4
Taxes on Corporate Income and Gains Corporate Income Tax Corporate Income Tax Rate Tax Payments and Income Tax Return Tax Incentives — Foreign Investment Statute/DL600 — Regional Tax Benefits — Free Trade Zones — Specific-Industry tax incentives Construction and real estate Oil and atomic energy Small-scale activities — Alternative simplified tax regime — Foreign Tax Relief — Chilean Holding Company Regime
33 33 33 33 34 34 34 34 35 35 35 35 35 36 36
C.5
Determination of Taxable Income Gross income Direct cost Inventories Expenses Depreciation and Amortization Allowances Non-deductible expenses Inflation adjustment (Monetary restatement) Relief for losses Profits distribution or withdrawal Distributions in excess of taxable profits Some topics related to foreign companies — International loans and thin capitalization rules — Services, duties, patents and technical assistance Transfer pricing Charges between companies Taxation on payments to persons or entities not domiciled in Chile — Special additional tax rates Specific tax on operational mining income Stamp tax Municipal tax
38 38 38 38 39 39 40 41 41 42 42 42 42 43 43 44 44 44 45 46 46
D. Individuals D.1
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Doing Business in Chile 2011
Income Tax Who is Liable Income Subject to Tax — Employment Income — Self-Employment Income — Salaries and other wages — Investment Income — Directors’ Fees — Equity Plans Capital Gains and Losses Deductions — Personal Deductions and Allowances — Business Deductions
47 47 47 47 48 48 48 48 49 49 49 49 49
Index
Rates — Employment Income — Self-Employment and Business Income — Non-residents — Foreign-source income — Relief for Losses
50 50 50 51 51 52
D.2
Estate and Gift Taxes
52
D.3
Tax Filing and Payment Procedures
53
D.4
Double Tax Relief and Tax Treaties Labor law Employment contract — Labor relationship — Work-day Schedule — Collective Bargaining — Salaries — Profits Sharing — Vacations and leave Employment contract Termination — Severance Payment
53 54 54 54 54 54 55 55 56 56 57
D6.
Social Security Retirement pensions Voluntary Saving (APV) — Conventional deposits — Death and disability pensions Medical benefits in the case of disease — Public Health System — Private Health System Work accidents and occupational disease benefits — Unemployment Insurance
58 58 59 60 60 61 61 61 61 61
D.7
Foreigners working in Chile Foreign Staff Limitations — Salary — Social Security Payment Social Security Treaties Visa requirements — Residence visas — Temporary visa — Visa subject to employment contract — Work Visas for Family Members Identity card Drivers’ License
61 61 62 62 62 62 63 64 64 64 65 65
Appendices Appendix 1: Useful Addresses and Telephone Numbers Appendix 2: Economic Performance Statistics Appendix 3: Contributions by Industrial Sectors to the Economy Appendix 4: Table of exchange rates for the Chilean peso Appendix 5: Major Trading Partners Appendix 6: Imports and Exports. Appendix 7: Corporate Tax Calculation Appendix 8: Individual Income Tax Calculation
67 68 68 69 69 70 71 72
Ernst & Young in Chile
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Ernst & Young Firms Worldwide
75
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Introduction Geography Chile extends for 4,270 kilometers (2,670 miles) along the west coast of South America bordering the Pacific Ocean. Chile shares a short border with Peru to the north and borders Bolivia and Argentina to the east. Because Chile is located south of the equator, the seasons are the reverse of those in the northern hemisphere, with the weather becoming cooler as one travels farther south. Although much of the northern area is located in the tropics, the climate is not tropical because of the influence of the Humboldt Current and the relatively short distance between the coast and the snowcapped Andes. Most of the northern region is arid and is composed of the 600-mile long Atacama Desert. This region provides Chile with salt, guano, nitrates, lithium, iron and most of its copper and molybdenum. Other productive economic activities include fishing, fish meal and fish oil industries, fruit and wine production, as well as tourism. The central part of the country, often referred as the Central Valley, has warm summers and mild winters. The Central Valley is devoted primarily to industry, agriculture and mining activities. In addition, most of Chile’s business activities are concentrated in this region. Santiago, Chile’s capital and most other major cities are located in this region, which features the highest population density in Chile. From this historical center, Chile expanded during the late nineteenth century to include the northern and southern regions of its current national territory. The southern region of Chile has cool weather and abundant ram. It features rich grazing lands and forests, as well as many lakes and a series of volcanoes. This region serves as the center of the forestry industry. Cattle and sheep farming are also significant activities. Petroleum and natural gas are found in the far south.
Population and Language Population Chile recorded a population of 15.116.435 in 2002. The Chilean population is predominantly of European descent, most notably Spanish. Other ethnic groups include Italians, Germans and Slavs. Chile has a large and growing middle class.
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Doing Business in Chile 2011
ln 2002, the National Institute of Statistics of Chile recorded the following population in its principal cities: 6.061.185 in Santiago (Metropolitan Region); 1.861.562 in Concepción and Talcahuano (Eighth Region) and 1.539.852 in Valparaíso and Viña del Mar (Fifth Region).
Language Spanish is the official language in Chile. Accounting records, tax returns, deeds of incorporation and all official business matters must be written in Spanish. English is the second most important language, but is not widely spoken. In Chile, the availability of bilingual personnel is limited.
Time Chile is four hours behind Greenwich Mean Time, except between mid-October and mid-March, when Daylight Savings Time is in operation and clocks are advanced by one hour. Time differences between Santiago and other major world cities are shown in the following table.
City
Hours Ahead of or Behind Chile
Beijing
+12
Berlin
+5
Hong Kong
+12
London
+4
Los Angeles
-4
Moscow
+7
New Delhi
+9
New York
-1
Rome
+5
Seoul
+13
Sydney
+14
Tokyo
+13
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Public Holidays The following table lists the annual holidays in Chile. The dates in italics vary from year to year.
Holiday
2011
2012
January 1
January 1
Holy Friday
April 22
April 6
Holy Saturday
April 23
April 7
Easter
April 24
April 8
May 1
May 1
Battle of Iquique
May 21
May 21
Feast of St peter and St Paul
June 27
Jul 2
Our Lady of Mount Carmel
July 16
July 16
August 15
August 15
Independence Day
September 18
September 18
Army Day
September 19
September 19
DĂa de la Raza
October 10
October 15
Reformation Day
October 31
November 2
All Saints Day
November 1
November 1
Immaculate Conception
December 8
December 8
December 25
December 25
New Year’s Day
Labor Day
Assumption of the Virgin Mary
Christmas Day
Useful Addresses and Telephone Numbers For a list of useful addresses and telephone numbers in Chile, see Appendix 1, page 67.
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Doing Business in Chile 2011
A Government Structure and Economic Climate A.1 Government Structure Chile is a democracy, with a president elected by direct popular vote. Legislative power is exercised by a bicameral congress, which is also elected by the people. The judicial branch is independent. An independent body, the Office of the General Controller (Contraloría General de la República,) controls the administrative actions of the government. Chile divides its country into 15 numbered regions (Regions 1 to 12; 14 and 15) plus the Metropolitan Region where Santiago is located. Each numbered region is headed by a Mayor. Regions are further subdivided into 53 provinces, each headed by a governor, comprising a total of 346 municipalities, each headed by a democratically elected mayor.
A.2 Economy Type of Economy Chile encourages private enterprise and exports to increase domestic industrial growth. Its primary industries—mining, agriculture, forestry and fishing—are all oriented to the export trade. Chile seeks to diversify its industrial sectors to reduce its reliance on copper exports. The government provides incentives for domestic and foreign investors to attract capital investments necessary to sustain the rate of industrial growth. Liberal rules apply to foreign investors. For further details concerning foreign invest ments, see Section B.1, page 15.
General Economic Trends Chile experienced an economic recession in 1999, the economy’s worst performance since 1983. The recession was attributed to weak copper prices, a severe drought and economic crises in certain other countries. However,
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Chile’s economic structure survived
Fishing
the recession, and the economy is
Chile’s fishing industry, which includes
expected to recover and experience
captures and salmon farming, was
strong economic growth in the future.
ranked third in the world in 1994. The fishing industry’s main exports include
For a table of Chile’s leading economic
fish meal and oil, but exports of fresh
indicators, see Appendix 2, page 68
and frozen fish and shellfish have grown significantly in recent years. Salmon farming is a fully developed industry, with Chile listed as the
A.3 Leading industries
second largest country in the world market after Norway. In 2008, exports
Chile has a reasonably diversified
of fish, including fish and shellfish for
economy compared to other Latin
consumption and for industrial use,
American countries. Chile’s leading
totaled US$ 3.407,3 millions.
industries include mining, forestry, fishing, agriculture and manufacturing.
Agriculture For a table listing the contribution of
Fruit production, including grapes,
various industries to gross domestic
apples, nectarines, pears, berries
product (GDP), see Appendix 3,
and kiwis, is a quickly growing export
page 68.
industry. During the past 20 years, the fruit industry has a constant growth. In 2006 – 2007 period more than 2.3
Mining
million tons were exported. In 2008
Chile is one of the world’s leading
fruit industry exported US$ 3.341,6
copper producers with the largest
millions.
declared reserves. Chile also mines and exports nitrate, iron, iodine,
Other areas of the agriculture industry
molybdenum, lithium, coal, gold
are considerably diversified and
and silver.
currently satisfy nearly all of domestic demand. Chile exports wines to several countries, particularly in North and
Forestry
South America.
Chile’s forestry industry produces significant amounts of pulp, radiata pine, hardboard, particle board,
Manufacturing
counter sheeting, veneer, newsprint
Chile has a moderately diversified
and timber, most of which
manufacturing industry that is
are exported.
beginning to export products, including metal mechanical goods,
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Doing Business in Chile 2011
textiles and processed foods. Although Chile has not yet developed heavy or high-technology indus足tries, it has successfully begun to develop and export specialized software and instrumentation systems.
A.4 Financial System Central Bank and Bank Regulators The Central Bank of Chile and the Superintendency of Banks and Financial lnstitutions (SBFI) supervise banks and other financial institutions under legal regulations that require the equitable distribution of credit and protect against undue influence by related parties. The Central Bank, an autonomous institution, promotes the stability of the monetary system and facilitates foreign and domes足tic payments. The SBFI authorizes the formation of domestic banking enterprises, which must be established as Chilean corporations. Branches of foreign banks must be authorized to operate in Chile. Branches enjoy the same rights and are generally subject to the same regulations as domestic banks. Foreign banks with足out formal branches in Chile may be authorized by the SBFI to appoint repre足sentatives in Chile to act as agents, but these representatives may not engage in banking activities. Commercial banks are authorized to operate checking accounts and may receive public deposits in the form of bonds, promissory notes, deposit certificates, loan agreements or similar documents as permitted by law. Funds from these deposits may be used to grant loans. Other financial institutions organized as Chilean corporations and approved by the SBFI may perform various activities, including the following: A financial institution may grant adjustable loans (based on inflation reflected in the consumer price index, foreign-exchange rates or other indices) or non-adjustable loans in accordance with the applicable regulations, and may require loan guarantees. A financial institution may acquire, discount, sell, assign or transfer to third parties bills of exchange, promissory notes and other documents that represent actual obligations. It may also allow other creditors to participate in loan transactions. A financial institution may grant guarantees in accordance with regulations established by the SBFI.
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Stock Exchanges and Securities Regulating Authority
A.5 Currency
Chile’s currency is the peso (Ch$/ Stock Exchanges
CLP). The exchange rate for the
The trading volume on the Santiago
Chilean peso is determined by
Stock Exchange has risen considerably
market prices.
during the past decade. The stock exchange, which is a privately owned
A futures market in pesos has been
corporation, recorded sales of US$
established in Chile. Futures contracts
41,577 million in 2009. The fixed-
are drawn in British pounds, Euros,
interest and financial brokerage
Japanese yen and U.S. dollars.
markets also experienced substantial
Nonfinancial entities may buy and sell
growth. Large institutional investors,
contracts through brokers authorized
including pension funds, mutual funds,
by the SBFI.
insurance companies and foreign investment funds, have accounted
Appendix 4, page 69, provides a table
for much of this growth. The stock
of exchange rates for the Chilean peso
exchange also has developed futures
against selected major currencies in
and options markets.
February 2008.
Most transactions involving shares of public corporations are conducted on the stock exchanges located in Santiago and Valparaíso. Nevertheless, shares of both public and private corporations may be traded privately. Securities Regulating Authority The Superintendency of Securities and Insurance (SSI) regulate open corporations (see Section C.l, page 27). The SSI is authorized to develop and improve capital market products and instruments, prescribe regulations, impose penalties and fines on noncompliant entities, protect minority shareholders, review financial information of entities and in certain circumstances, conduct external audits.
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Doing Business in Chile 2011
B Investment Climate and Foreign Trade
B.1 Investment Incentives Chile welcomes foreign investment and its laws governing foreign investment are among the most liberal in Latin America. Chile generally encourages investment through a free-market policy instead of granting incentives, subsidies or tax abatements. It does, however, offer a fixed tax rate, a non-discrimination policy relative to domestic investors and industry-specific incentives.
Non-discrimination Policy The Foreign Investment Statute establishes the principles of non-discrimination and legal equality concerning taxation and certain other matters. Under Article 9 of the statute, legal provisions and regulations pertaining to “certain productive activities (defined below)” are deemed discriminatory if they apply to all or most of activities in Chile, excluding foreign investment. Similarly, legal or regulatory provisions establishing exceptional regimes for certain sectors or regions of the country are deemed discriminatory if foreign investors are denied access to such sectors or regions, even if compliant with the same conditions and requirements imposed on domestic investors. Section 11 of the statute allows regulations that may limit access to internal credit by foreign investments covered by the statute. In practice, however, discriminatory limits are not imposed. For purposes of the statute, “certain productive activities” are activities defined under internationally accepted classifications that give rise to products classified by an equal tariff bracket under the Chilean Schedule of Customs Duties. An equal tariff bracket refers to goods that do not differ by more than one unit in the last digit of the schedule. If a foreign investor or a domestic enterprise in which the investor participates claims that a legal regulation is discriminatory, the investor may apply for removal of the discriminatory provision within a year after the issue date of the regulation.
15
The Foreign Investment Committee
Forestry Corporation are exempt from
must rule within 60 days from the date
real estate taxes and receive a subsidy
of such application. The Committee
from the government. To obtain these
may either deny the application,
benefits, investors must apply to the
take measures to eliminate the
National Forestry Corporation.
discrimination or, if these measures are outside the Committee’s authority,
The National Water Irrigation
request that the appropriate
Commission may grant subsidies of up
authorities act on that matter. The
to 75% for venture capital invested in
foreign investor may apply to the
water irrigation projects.
courts for a remedy if the Committee does not issue a decision, if the Committee issues an unfavorable
Free-Trade Zones
decision or if it is impossible to
Chile has declared as free-trade zones
eliminate the discrimination through
the northern city of Iquique and the
administrative proceedings.
southern city of Punta Arenas. A freetrade zone is an area surrounding
In general, differences do not exist
a port or airport that is deemed to
between domestic and foreign
be outside Chilean territory for the
investors in Chile for purposes of
purpose of import duties.
income taxes, indirect taxes (including value-added tax or VAT)
Goods entering the zones do not
and customs duties.
require an import permit or the acquisition of foreign exchange in the formal market (for details concerning
Regional Incentives
foreign exchange controls, see Section
Regional bonuses are granted for
B.2, page 22). No customs duties or
hiring workers and for new investments
taxes are imposed on such goods.
in the most northern and southern
Merchandise imported into a free trade
regions of Chile.
zone may be held on deposit, exhibited, unpacked, packaged, labeled, divided, repackaged or sold within the zone.
Special Industry Incentives
In addition, imported goods and
The following industry-specific
raw materials may be assembled,
incentives are available to both foreign
finished, connected, manufactured or
and domestic investors.
transformed. The goods may then be re-exported from the zones without
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Doing Business in Chile 2011
Under Decree Law 701, amended by
restriction. The goods may also be sold
Law 19.561, companies engaged in
or transferred into other areas of Chile
the forestation or reforestation of
in accordance with normal regulations.
lands that are qualified by the National
However, such sales and transfers are
considered to be imports, and VAT and import duties are imposed on the foreign parts or components. The First Region and the Punta Arenas Region of Chile are considered free-trade extension zones. Goods transferred from the free-trade zones to the extension zones are subject only to a 4.4% tax, which may be credited against import duties and VAT if the goods are later transferred to other areas of Chile. This tax is refunded if the goods are exported. The 4.4% rate of tax is adjusted in the same proportion as the average customs duty rate may increase or decrease. All types of goods may be imported into the zones, including those in the prohibited list, except for weapons, ammunition, and other items considered offensive to Chilean morals or detrimental to health standards, animal or agricultural safety, and national security. Enterprises located in the free-trade zones may enjoy the following tax benefits: Exemption from VAT on sales and services provided within the free-trade zones. Exemption from first category or corporate income tax, but not from global complementary or additional tax (for details on first category or corporate income tax, see Section C.4, page 33; for details on global complementary and additional tax, see Section D.1, page 47). Enterprises are required to keep accounting records in accordance with the Chilean regulations to determine the income subject to global complementary tax or additional tax. Insurance companies, commercial banks and other financial institutions do not qualify for tax benefits in the free-trade zones.
Tax Incentives Chile offers a fixed tax rate and special tax benefits for certain activities. Accelerated depreciation of fixed assets and tax reimbursements on exports are granted to both domestic and foreign investors under the same conditions. For details concerning tax incentives, see Section C.4, page 33.
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B.2 Special Investment Considerations
such items;
Inventions that have been publicized in Chile through publishing or other media;
Regulated Industries
Inventions already known to the
In an effort to encourage private
public abroad even though not yet
enterprise, the government has
introduced in Chile;
reduced business regulations to a
Pure scientific principles or
minimum. Regulations are limited
theories without practical
to the areas of taxation, labor,
applications; and
environment, health standards
Inventions contrary to Chilean
and free trade protection. The
laws or morals that would
Superintendency of Banks and
undermine health standards,
Financial Institutions and the Central
public order or national security.
Bank of Chile regulate banking and financial activities (for details, see
To apply for a patent, the inventor
Section A.4, page 13).
must prove the novelty and originality of an invention to the office in
The Superintendency of Securities and
accordance with the applicable
Insurance regulates open corporations
regulations and must pay a fee. If
(see Section A.4, page 14).
the office approves the application, the inventor is granted the exclusive right to manufacture, sell or trade the
Intellectual Property
invention for the duration of the patent
Patents. The Chilean Patent Office
term. Patent holders may transfer their
grants patents, which are valid for a
rights to third parties by registering a
non-renewable term of 15 years. Under
public deed with the office.
Sections 37 and 38 of Law 19.039, the following items may not be patented:
Trademarks. Chile accepts the international classifications of
Financial, commercial or business
trademarks. As a result, foreign
systems that may simply be
investors may follow the international
verified or validated upon
classifications to determine which
inspection;
items to register as trademarks. The
Direct uses of natural resources
following items cannot be registered as
or energy, regardless of whether
trademarks:
such uses are newly discovered;
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Doing Business in Chile 2011
New or different uses for known
Generic or commonly used words;
articles or elements, and changes
Names of individuals, unless
or variations in the forms,
expressly approved by the
dimensions or components of
individual;
Technical or scientific denominations; and Names of flags or nations.
Applications to register trademarks must contain the name, term or label for which protection is requested and the corresponding classification. In addition, the applicant must pay an initial fee and renewal fees. Registration of a trademark provides rights of ownership and exclusive use of the trademark. Trademarks are valid for a term of 10 years, and may be renewed indefinitely for additional terms. Industrial Designs. Industrial designs include all three-dimensional forms and any industrial or artisan goods that serve as models to manufacture other units that can be distinguished from similar products by their form, geometric configuration or ornament (or a combination of these characteristics). An industrial design must be a new development or an original work compared to existing products. Packaging may be included in the goods protected as industrial designs if the requirements for new development and originality are met. Industrial designs may not protect clothing designs. Registration of an industrial design is valid for a non-renewable term of 10 years. Utility Models. Utility models protect inventions of a lesser inventive degree than patents. Utility models relate to forms that contribute directly to their function or that represent benefits, advantages or technical advances for their function. For example, instruments, apparatuses, tools, devices, and objects or parts of a patent may be considered utility models if they produce a utility or represent a benefit, advantage or technical effect that did not exist before. Registration of a utility model is valid for a non-renewable term of 10 years. - Internet Domain Name Registry Registration of domain names using “.cl” requires local presence in Chile. Foreign applicants must provide the name and taxpayer registration number (Rol Unico Tributario) of an administrative contact with a Chilean address. The applicant must fill in a form, which allows registration of domains directly under “.cl,” but not lower-level domains. Applications to register domain names containing “.cl” are subject to an initial fee
19
of approximately US$45, which is valid
the government’s ownership of
for the first two years of the domain
businesses. Since then, many public
operation. An anual maintenance fee
state-owned corporations have been
of approximately US$20 must be paid
transferred to private entities and,
after two initial years.
in certain cases, stock has been transferred to the corporations’ employees. However, state-owned
Employment of Foreign Nationals
enterprises still account for a
Under the Chilean Labor Code, at
and control most of the capital of the
least 85% of the personnel rendering
100 largest firms in Chile. The pace
services to an employer must be
of privatization has slowed in the past
Chilean. The following rules are applied
years but has recently accelerated,
to compute the 85% requirement:
particularly regarding highways,
substantial amount of total production
ports and public utilities. In addition, The total number of workers
private social security entities, which
employed by the enterprise in the
are independent funds owned by
entire country is considered.
contributing employees and managed
Specialized technicians who
by private corporations, have replaced
cannot be replaced by national
the government’s social security
personnel are excluded.
system and are enjoying
Foreign nationals with Chilean
considerable success.
spouses or with Chilean descendants are considered Chileans.
Restrictions on Foreign Investment
Foreign nationals resident in Chile for more than five years
- Foreign Investment Statute
(disregarding occasional
The Foreign Investment Statute
absences) are treated as Chileans.
(Decree Law 600) aims to treat foreign and domestic investors
Employers with 25 or fewer employees
equally. The statute applies to foreign
are exempt from this requirement.
individuals and legal entities, as well as to Chilean citizens resident and
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Doing Business in Chile 2011
For details concerning work visas for
domiciled abroad, who transfer foreign
foreign nationals, see Section D.7,
capital into Chile and elect to negotiate
page 62.
a foreign investment contract.
Government-Owned Industries and Privatization
The statute grants foreign investors
A three-stage privatization program
investments through a policy of non-
initiated in 1973 considerably reduced
discrimination in relation to national
rights and benefits concerning
investors. Investments under the statute may be in the form of freely convertible foreign currency, tangible assets, technology that may be capitalized, loans associated to foreign investment and capitalized convertible foreign-currency loans. The minimum investment amount under the statute is US$5 million. Loans may not exceed 75% of the total investment amount. The Foreign Investment Committee, the only institution authorized to accept foreign investments under the statute, must approve the terms and conditions of investment contracts (for details, see Investment Contracts, below). Members of the Committee include the Minister of Economy, Development and Reconstruction, the Minister of Finance, the Minister of Foreign Affairs, the Minister of National Planning, and Central Bank President. The Committee must approve the following investments: Investments exceeding a total value of US$5 million or the equivalent in foreign currency; Investments related to sectors or activities that are generally developed by the government or that are public services; Investments in social communications media; and Investments by foreign governments or by foreign public entities. Other investments must be approved by the Committee’s Executive Secretary. The Committee only needs to be informed of approvals made by the Executive Secretary, unless the Minister of Economy, Development and Reconstruction decides to submit a particular case for the Committee’s formal approval. - Investment Contracts The Foreign Investment Committee’s Executive Secretary must approve foreign investment contracts. The contracts stipulate the term in which the foreign investors must transfer capital to Chile, not to exceed a period of 3 years. For investments in mining activities, the transfer of capital must occur within a period of 8 years. However, the Committee may unanimously approve to extend the term to 12 years if prior exploration activities are required. For investments in industrial or extractive projects (excluding mining) totaling at least US$50 million, the term may be extended for up to 8 years. - Large Foreign Investments Foreign investments totaling US$50 million or more in industrial or extractive projects, including mining activities, may be granted certain benefits. These benefits may include the application of specific tax laws effective at the time of the investment for a period from 10 to 20 years, depending on the term of the project.
21
These laws include legal and
Foreign-Exchange Controls
administrative regulations concerning
In general, foreign currency may be
the depreciation of assets, carry
freely exchanged, among individuals
forward of losses and organizational
and legal entities directly or through
expenses. In addition, the investment
money exchange entities, at market
contract may include the Chilean
prices in the “informal market,”
Tax Bureau official authorization
including foreign exchange for import
to maintain accounting records in
and export trade purposes (for details
foreign currency. Foreign investors
concerning import and export, see
may irrevocably elect to forge these
Section B.5, page 24). However, local
benefits and to be governed by the
enterprises investing abroad must
regulations otherwise applicable.
operate in the formal e xchange market
The investor also may be granted the
and inform their investments to the
right to be governed by the laws and
Central Bank of Chile. They should also
regulations concerning the free export
register their investments abroad with
of goods that are in force at the time
the Tax Bureau Many foreign-exchange
the contract is signed.
restrictions and requirements relative to prior authorization from the Central
- Financing Requirements for Foreign
Bank have been eliminated. Proceeds
Investors
from sales or services received by
No specific restrictions are imposed on
exporters from abroad, and loans in
a foreign investor access to domestic
foreign currency from abroad, are no
loan and credit facilities. However,
longer required to be translated into
foreign investors’ access to domestic
Chilean currency. These and other
credit may be restricted under the
regulatory measures are currently
Foreign Investment Statute.
being implemented to achieve total liberalization of the Chilean foreign-
Almost all loans granted in Chile are
exchange market.
in the form of short-term loans that may be rolled over each month at the prevailing interest rates. The Central
Antitrust Regulations
Bank of Chile must authorize the
The Economic Prosecutor protects
general rules, terms, interest rates and
consumers against monopolistic
other conditions concerning foreign
activities. For further details, see
loan agreements associated to foreign
Section C.2, page 31.
investments. This authorization is also required for any other charges collected from debtors that are included in the total cost of foreign loan, including commissions, taxes and any other expenses.
22
Doing Business in Chile 2011
B.3 Regional and International Trade Agreements and Associations 1.
Chile is a member of the Latin American Integration Association (LAIA, or ALADI in Spanish), which promotes the economic and social development of the region with a view toward establishing a Latin American common market. The LAIA has established an economic preference area with a regional tariff preference, regional agreements and agreements between particular member countries. Other members of the LAIA include Argentina, Bolivia, Brazil, Colombia, Ecuador, México, Paraguay, Perú, Uruguay and Venezuela.
2.
In 1976, Chile withdrew from the Cartagena Agreement (Andean Pact), but it continues to comply with certain decisions of the pact.
3.
Chile is a member of the General Agreement on Tariffs and Trade (GATT) and the Asia Pacific Economy Cooperative (APEC).
4.
Chile is also associated with the Common Market of the South (Mercado Común del Sur or Mercosur).
5.
Chile has subscribed an association agreement with the European Union. The purpose of this convention is to obtain benefits from the financial environment, which, in general terms, translates in placing 90 per cent of Chilean exports to the European market at zero rates in eight years at the utmost. In addition to progressively freeing the country’s economic relations by means of a free trade zone for industrial and agricultural products, an investment agreement, competition rules, industrial property, etc.
6.
Chile has an association agreement as part of P4 group, formed with New Zealand, Singapore and Brunei Darussalam.
7.
Chile subscribed a Free Trade Agreement with South Korea in 2003 by virtue of which the customs duties affecting vehicles, television sets, cellular phones, computers manufactured in this country were eliminated over a period of four years. Likewise, the tariffs affecting parts and spare parts of vehicles will also be eliminated within five years.
8.
Chile subscribed a Free Trade Agreement with the United States of America in January 2004. By virtue of that document, 87 percent of national products will reach that country at zero rates, thus bringing the following
23
benefits:
economy, foreign trade has increased and diversified during the past 25
a) b)
c)
Major growth of the Gross
years. Chile’s most important partners
Domestic Product (GDP)
include the United States, Latin
Increase in the productivity of
American countries and Asian Pacific
companies as a result of new
countries. For a table of Chile’s leading
and cheaper technology
trading partners, see Appendix 5,
Chile will become a corridor for
page 69.
the trading and transportation of our neighbor countries
Chile’s leading exports include copper,
products
nitrate, fresh fruit, wine, wood, paper and pulp, fish meal and seafood. Chile’s
9.
With China a Free Trade
leading imports include oil, consumer
Agreement was signed in 2005,
and finished goods, and gas. For a
with terms of 1, 5 and 10 years
table of Chile’s leading imports and
to eliminate custom tariffs in a
exports by sector, see Appendix 6,
lot of products that this country
page 70.
exports to Chile. Also many Chilean exports to China have terms of 1, 2, 5 and 10 years to eliminate tariffs. 10.
B.5 Importing and Exporting
A Free Trade Agreement was subscribed with Japan in 2007 that eliminated 90 percent of
Imports
tariffs of bilateral commerce
Custom Authorities are competent
between both nations.
to review and authorize import operations. Basically all destinations
11.
Chile also subscribed Free Trade
must be submitted to Custom Service
Agreements with Panama,
(Servicio Nacional de Aduana),
Canada, Mexico, Central
by a custom broker who acts as
America, and EFTA (European
intermediate agent on behave of
Free Trade Association).
actual importer. All import operations are very simple and the documents require by Custom
B.4 Major Trading Partners and Leading Imports and Exports
Service are related to invoices, showing the price of the merchandising imported and shipping documents which will customs the amount of
As a result of Chile opening its
24
Doing Business in Chile 2011
custom value to apply the import duty.
Exports Exports require a document issue by custom named D.U.S. (Documento Ăšnico de Salida). This document allows shipping the merchandise and must be obtained through a custom broker.
Customs Duties - Valuation and Rates Imported goods are subject to customs duties, expressed as percentages of their cost insurance freight (CIF) value, or to ad valorem customs taxes. Specific duties expressed in U.S. dollars per unit of weight or measures are levied on cerÂtain goods. The rate of customs duties for 2001 is 8%, decreasing to 7% in 2002 and to 6% in 2003, which rate will be applied to future operations. However, certain exceptions apply for automobiles and cerÂtain goods. The government imposes surcharges on imports dumped in Chile. - Free- Trade Zones Chile has established free-trade zones, which provide certain benefits. For information concerning free-trade zones, see Section B.1, page 16. - Temporary Admission and Bonded Warehouses Temporary admission of certain goods, including foreign vehicles, machines, containers, and cinema and television films, is allowed subject to terms and conditions determined by the Customs Authorities. A guarantee for the amount of corresponding customs duties is normally required. The payment of custom duties may be deferred for a term of up to seven years on imported capital goods intended to produce export goods, if the importer signs a promissory note that guarantees payment of the customs duties. Foreign goods may be deposited in free warehouses without payment of customs duties until their formal import. The customs authorities control the free warehouses, and may also designate a national factory or an industrial establishment as a bonded warehouse for raw materials and components for manufacture.
25
26
Doing Business in Chile 2011
C Companies
C.1 Forms of Enterprise Regardless of whether they are associated with domestic investors, foreign investors may conduct business in Chile as individuals or through entities governed by the Commercial Code and legal regulations. These entities include the following: Corporations (Sociedades Anónimas, or SAs); Limited liability companies (sociedades de responsabilidad limitada, or SRL); Branches of foreign corporations (agencias); Limited liability or silent companies (asociaciones o cuentas en participación, sociedades en comandita simple, or sociedades en comandita por acciones) Limited Liability Individual Enterprise (Empresas Individuales de Responsabilidad Limitada or E.I.R.L) Wholly Owned Stock Corporations (Sociedades por Acciones or SPA) General companies (sociedades colectivas comerciales). Unlimited liability; However, foreign investors generally conduct business activities using only the first three types of entities listed above.
Corporations - Open and Closed Corporations Corporations are classified as either open (sociedad anónima abierta) or closed (sociedad anónima cerrada). Corporations classified as open are those that offer their stock to the public, corporations with more than 500 shareholders, and corporations with 10% of their equity held by a minimum of 100 shareholders (excluding individual shareholders exceeding that percentage.) All other corpo rations are closed. The Superintendency of Securities and Insurance (S.V.S.) regulates open corpora tions on the following matters:
27
Insurance and transfer of shares;
- Subsidiary and Related Companies
Types of information that must be
Subsidiary companies (sociedades
disclosed by the board of directors
filiales) may be organized as
to the shareholders concerning
corporations or companies. If more
corporate legal, economic and
than 50% of a company’s voting shares
financial matters;
are owned by another corporation, the
Appointment of external auditors;
company is considered a subsidiary.
At the S.V.S.’s election,
If another corporation owns 10% or
attendance of an S.V.S. officer at
more of a company’s voting shares,
shareholders’ meetings;
the company is a related company
Receipt and review of audited annual financial statements; Distribution of dividends according
(sociedad coligada). Subsidiaries and related companies are subject to the following rules, among others:
to the law, which requires a minimum distribution of 30% of a corporation’s annual profits; Relations between parent companies and their subsidiaries; Bankruptcy and liquidation proceedings; General inspection concerning
Subsidiaries and related companies may not acquire shares of the parent or principal corporation. Directors of the parent corporation may attend and speak at meetings of the subsidiary’s
commercial activities and
administrators. They may also
operations; and
review the subsidiary’s books and
Compliance with legal and regulatory provisions and bylaws.
records. The parent or principal corporation must present at the ordinary meeting of its
The S.V.S. is authorized to examine
shareholders an explanatory
an open corporation’s books of
report on the entire business,
account and other records, to count
including its own operations
cash, and to request the preparation
and those of its subsidiaries and
and filing of financial statements
related companies, as well as the
as of certain dates, as well as any
financial statements of related
information generally concerning the
companies.
development of the business of open corporations. The S.V.S. may also cite violations and impose fines and other penalties for legal infringements by the administrators of open corporations.
28
Doing Business in Chile 2011
Limited Liability Companies (Sociedades de Responsabilidad Limitada or S.R.L.) The limited liability partnership is the most common business form used by indi viduals and corporations carrying on business in Chile. Limited liability companies are considered companies of persons (sociedades de personas), in contrast to corporations, and may be formed by a minimum of 2 and a maximum of 50 partners. Partners may be nationals or foreigners, residents or nonresidents, individuals or other companies or corporations. Accordingly, foreign individuals, foreign corporations or other legal entities may constitute a Chilean limited lia bility company. Limited liability companies are not normally required to file their annual accounts with the SVS. They are, however, subject to normal inspection and regulation by the tax authorities. Other authorities may regulate limited liability companies if they become bankrupt or engage in certain activities. But, there are some activities such as banking or insurance that cannot be done by this type of companies. Limited Liability Individual Enterprise (Empresas Individuales de Responsabilidad Limitada or E.I.R.L.). This represents a social structure that mainly consists in an individual having the possibility to organize an enterprise where the responsibility of this legal entity is limited to the amounts contributed. This type of enterprise always has the status of a commercial entity, regardless of the purpose set forth in the by-laws of the same. This does not prevent it from developing activities of any nature, be they civil and commercial, except for those established by the law as proper to corporations. The “enterprise” is exclusively liable with respect to such obligations within the scope of its business purpose, including its “whole goods”, however, the “owner” is only liable to “the effective payment of the contribution it had undertaken to make.” The net profits of the enterprise will become a part of the owner’s patrimony once they have been withdrawn and they are not liable with respect to the obligations of the enterprise.
- General Companies The Civil and Commercial Codes regulate general companies.
29
Partners of general companies
A general power of attorney granted
are responsible for all partnership
to the agent representing the company
liabilities. Other aspects of general
in Chile. The document must indicate
companies are similar to limited
in which capacity the person will act
liability companies (see Limited
on behalf of the company, as well as
Liability (Companies, page 27).
state clearly that the agent will act
Because partners are subject to
under the direct responsibility of the
unlimited liability, these types of
company, with the full power to do
companies are not generally used.
business in the name of the company and to represent the company before the Chilean courts.
Joint Ventures The agent must sign before the notary Chilean law does not separately
a public deed on behalf of the company
categorize joint ventures. They are
on the date when the above documents
equivalent to de facto associations of
are executed. The deed must contain
individuals or entities.
the following information: The name that the company will
Branches of Foreign Corporations
use to conduct business in Chile and the company’s purpose or legal activity;
Formal government approval is not
A statement that the corporate
required for foreign companies or
assets are subject to Chilean laws
corporations to establish branches
in order to back the obligations of
in Chile. To establish a branch in
the branch in Chile.
Chile, a representative must file
A statement that the company
certain documents in the office of a
is familiar with Chilean laws and
Chilean notary on behalf of a foreign
regulations governing the acts,
company. If the documents are not
contracts and liabilities of its
issued in Spanish, the documents must
branch;
be executed in the language of the
A statement that the company
country of origin and translated into
will maintain in Chile sufficient
Spanish. The following documents
liquid assets to satisfy its Chilean
are required:
liabilities; The amount invested in the branch
A document demonstrating that the corporation is legally established in its country of origin and legally exists.
30
Doing Business in Chile 2011
dates and way in which capital will be admitted into the country; and The address of the principal local branch.
An abstract of the documents filed with the notary and the notarized public deed must be recorded with the Commercial Registry and published in the 0fficial Gazette within 60 days from the deed’s date. Chilean branches of foreign companies must publish their annual financial state ments in a newspaper where they are addressed within four months after their financial year-end.
Structures Most Often Used by Foreign Investors The structures most often used by foreign investors include the corporation and the limited liability partnership. A branch is generally not used because a foreign company remains liable for the debts of its Chilean branch.
C.2 Mergers and Acquisitions Under Decree Law 211, the National Economic Prosecutor (Fiscal Nacional Económico), which protects consumers against monopolistic activities, may prohibit horizontal mergers that restrict commerce. No limitations are imposed on acquisitions. Nevertheless, foreign companies may choose to obtain rulings before commencing an acquisition or restructuring of activities. On October 2003 the National Congress passed a new bill that introduced substantial modifications to the law with regards to free competition by streamlining the entities in charge of these matters and creating a new Free Competition Court, law that was approved and enacted by the President of the Republic.
C.3 Corporate Taxes at a Glance Corporate Income Tax Rate (%).................................................... 17/20/18.5 (a) Capital Gains Tax Rate (%)................................................... 0/17-20-18.5/35(b) Branch Tax Rate (%).................................................................... 17/20/18.5 Withholding Tax (%) Dividends................................................................................................. 35 (c)
31
Interest.............................................................................................. 35/4 (d) Royalties from Patents, Trademarks, Formulas and Similar Items......... 30/15 (e) Technical Services Rendered Abroad.................................................. 20/15 (f) Other Fees and Compensation for Services.............................................. 35 (g) Net Operating Losses (Years) Carry-back........................................................................................ Unlimited to back structures), will be subject
(a After the earthquake of February 27th, 2010, The Chilean Congress
to the 4% withholding tax plus a
approved certain rules intended
31% additional burden, which has
to collect funds to finance the
to be paid to the Chilean Treasury
reconstruction of the country.
by the Chilean debtor (resulting
According to such rules the
therefore in an effective rate of
Corporate Income Tax (20% rate)
35% for interests paid on excess
and on commercial year 2012
indebtedness).
(18,5% rate). On Commercial
year 2013 regular 17% rate will be
a taxpayer will be deemed as
reestablished.
being in an “excess indebtedness” position when in the respective tax
(b) Depending on the circumstances of
year, the total debt with related
the transaction.
parties, which qualifies for the 4%
(c) The rate is 35% less a 20% or 18,5% credit for the corporate tax paid.
withholding tax, exceeds three
The same treatment applies to
times the tax payer’s equity.
distributions made by branches. (d) 35% as a general rate. 4% if the
Doing Business in Chile 2011
Finally, according to the Chilean Tax Law, the difference between the 4% rate and the 35% rate will be allowed
international bank or to foreign or
as a deductible expense for the
international financial institutions.
Chilean debtor. (e) 15% may apply for certain payments
countries may be subject to a 15%
(i.e. invention patents, industrial
withholding tax rate.
designs, software licenses) as long
In regards to the reduced 4% rate on
as the beneficiary is not a related
interest payments made to a foreign
party and it is not domiciled in a
bank or foreign financial institution,
country considered as a tax haven
there are thin cap rules to consider.
by the Chilean authorities. If any of
Any interest paid or due on “excess
the listed circumstances exists the
indebtedness” derived from credit
rate is 30%. A 10% rate may apply
or financial operations granted
on payments to Treaty countries.
by related parties or guaranteed
32
payment is made to foreign or
Inter-company loans from Treaty
Pursuant to the Chilean Tax Law,
(f) 15% if the beneficiary is not a
with money or securities by third
related party and it is not domiciled
independent parties (certain back
in a country considered as a tax
haven by the Chilean authorities. If parties are related or payment is made to a tax haven a 20% would apply. No withholding taxes may apply on payments to Treaty countries. (g) If services are rendered by an entity domiciled in a treaty country, and such services do not imply the creation of a permanent establishment in Chile, income could qualify as business profits under article 7 of the OECD model tax treaties that Chile has subscribed in which case remittance is exempt from any withholding.
C.4 Taxes on Corporate Income and Gains Corporate Income Tax Corporate income tax is imposed on accrued net income. Chilean resident companies are subject to corporate income tax (first category tax) on their worldwide income. Companies are considered resident if they are incorporated in Chile. A Chilean branch of a foreign corporation is taxed solely on the basis of its Chilean source income. The income of corporations, limited liability companies and foreign branches is assessed in two stages: first, when the income is accrued; and second, when the profits are distributed to shareholders or partners, and in the case of branches, when they are withdrawn or remitted abroad. The corporate tax is credited against the tax on profits distributed to partners or shareholders.
Corporate Income Tax Rate The corporate income tax rate for incomes generated on commercial years 2011 is 20%. Regular corporate income tax rate is 17%. However in order to finance reconstruction efforts after February 27th, 2010 earthquake, the Congress approved provisional raises of the corporate incoming tax. The provisional corporate income rates are 20% for incomes generated during calendar year 2011 and 18,5% for incomes generated during calendar year 2012. Corporate Income Tax rate at 17% will be reestablished on calendar year 2013.
Tax Payments and Income Tax Return Except for the last period of a company’s validity, financial statements must be prepared as of December 31st of each year for income tax purposes. Income tax returns must be filed in April of the following year.
33
Provisional monthly payments (PPM
import of certain capital goods
for its abbreviation in Spanish) with
corresponding to an authorized
respect to the final annual income
investment in kind. On the other hand
tax liability must be made on a
certain specific stability regimes are
monthly basis. The amount payable is
available for mining investors.
determined as a percentage of gross receipts accumulated
- Regional Tax Benefits There are certain tax benefits related
during the corresponding month. If the
to isolated geographic areas. For
company has losses in a given year,
example, corporate income tax is not
the PPM can be suspended during the
assessed on enterprises located in the
following quarter. PPM will continue to
extreme south region of Chile and in
be suspended if losses continue in the
the Chilean Antarctic. Also, there are
quarters thereafter.
certain state subsidies and grants that seek to foster activities in those areas.
Tax Incentives - Free trade zones - Foreign Investment Statute, DL 600
Since 1975, free trade zones have
Foreign investors who subscribe
been set up and operate in the north
an investment agreement with the
and south of the country, i.e. Iquique
Republic of Chile may elect to pay an
and Punta Arenas, respectively.
inclusive income tax at a fixed rate of 42% for a period of 10 years since the
While imported merchandises remain
commencement of the enterprise’s
in the free trade zones no VAT or
activities, instead of the regular tax rates.
customs duties are assessable. Free trade zones can be used for different
The above mentioned 42% rate
purposes such as warehousing,
includes all income taxes under the
sampling or exhibition, packing, selling,
legislation in force at the date of the
manufacturing and assembling.
investment agreement. Sales and services provided in the free Currently, this election is not attractive
trade zones are exempt from
to investors because the overall tax
VAT and profits are exempt from First
burden in Chile is 35% (taking into
Category Tax. There is no reduction or
contribution corporate income tax
exemption for the case of the Global
and withholding tax for a 100% equity
Complementary or Additional Taxes.
financed investment). Some of the free trade zone benefits
34
Doing Business in Chile 2011
Investors under the Foreign Investment
have been extended to the cities
Statute and the respective receiving
of Arica, in the north of Chile, and
companies do not pay VAT on the
Tocopilla.
- Specific-industry tax incentives Chile offers certain tax incentives to specific industries. These incentives are available to both foreign and domestic investors.
Construction and real estate Revenues earned from housing legally qualified, as “low-income housing” are exempt from any Income Tax. “Low-income housing” refers to houses which surface area is not over 140 square meters, in addition to other legal requirements. Construction companies are entitled to deduct from their provisional monthly payments a 65% of the VAT assessed on the sale of those houses they have built.
Oil and atomic energy As a principle of the law, only the Chilean government can exploit these resources. Nonetheless, it may enter into operating agreements with private contractors to implement the exploitation. The contracts may be subject to the regular income tax regime or to a special regime according to which a 50% tax is assessed on gross revenues and no other income tax is assessed. Under Decree Law 1.820, companies engaged in oil exploration or exploitation activities are eligible for VAT and customs reductions ranging from 10% to 100% on certain items, including imported machines, materials and spare parts.
Small-scale activities There are certain small-scale activities such as mining, agriculture and land transportation, where taxpayers may pay taxes on a deemed amount of taxable income, which is normally less than actual income. - Alternative simplified tax regime Small businesses may chose a simplified tax system where First Category Tax is calculated on any cash flow distributed to owners, like in the case of Additional Tax or Global Complementary Tax, and not on an accrual basis.
35
If this system is chosen, there is no
Argentina, Belgium, Brazil, Peru,
need to keep records of cumulative
Canada, Colombia, France, Ireland,
taxable profits, inventories or balance
Malaysia, Mexico, New Zealand,
sheets; nor to make restatements or
Norway, Paraguay, Poland,
inflation adjustments.
Portugal, South Korea, United Kingdom, Ecuador, Denmark,
When a company under this regime is
Switzerland, Sweden, Croatia and
dissolved, First Category, Additional
Thailand.
or Global Complementary Taxes are payable on any difference between the initial capital, adding or deducting
Signed: Russia, United States and Australia.
capital increases or decreases, as the case may be, to or from the capital on
Under the tax treaty concluded with
the date the company is wounded up.
Argentina, income tax is levied in the source country, and not in the
If this system is chosen, it must be
country of the investor’s residency.
maintained for at least three years.
On the other hand, the rest of the tax
The changeover to the regular regime
treaties mentioned above are based
implies the payment of taxes as in the
on the OECD model; they generally
case of dissolution.
eliminate double taxation by allowing a credit system for Chile and a
- Foreign Tax Relief
deduction mechanism for the other
Income tax paid in other countries may
party involved.
be credited against Chilean corporate income tax liabilities up to an amount equivalent to the lower of; (i) the
- Chilean Holding Company Regime
taxes effectively paid abroad or (ii)
The “Chilean Holding Company”
20% or 30% of the foreign source
(“CHC”) regime provides for
income (depending on the type of
participation exemption on foreign
income received). In any case, the
source income earned through the
total foreign tax credit can never
CHC, including dividend distributions
exceed 30% of the Chilean company´s
and capital gains (on the transfer of
Net Foreign Source Income. Any
the non-Chilean investments made
additional foreign income tax is not
by a CHC, as well as on the transfer
recognized as income for Chilean
of the shares of a CHC—for the part
corporate tax purposes.
representing foreign source capital gain). In a nutshell, foreign investors
36
Doing Business in Chile 2011
Foreign tax relief may also be available
using the CHC to channel investments
under double tax treaties. Herein
(into countries different from Chile)
below there is a list of the Treaties that
will no be subject to income tax in Chile
are currently in force in Chile.
(i.e., on income earned on their stock,
its subsequent distribution as well as on capital gains earned upon disposal of the investment). There is no minimum holding period to benefit from the participation exemption regime discussed above. No capital duty is imposed on the issuance of the shares of the CHC. Stamp tax is only applicable on the agreement that instruments a loan to the CHC. The Municipal tax that applies on the net equity of companies located in Chile (in general, at a 0,5% rate on the entity’s net equity with a ceiling of US$602.290 approximately) should not be applicable; however further clarifications should be expected on this regard. The CHC is not allowed to perform financing activities, nor to perform any other activities which differ from holding investments abroad or rendering services to the companies in which the CHC holds an interest. The CHC regime is generally not applicable when the investor resides or is addressed in countries or territories defined as tax havens or preferential fiscal regimes following the definition of the “Organization for Economic Cooperation and Development” (“OECD”).
37
C.5 Determination of Taxable Income
source income is recognized on a
Taxable income, determined in
Inter-company dividends and profit
accordance with the generally accepted
distributions from a company to
accounting principles, includes all
another are not subject to first
profits, with the exception of some
category tax since those profits are
minor items that are not considered
taxable only once at the level of the
income for tax purposes, such as
company generating the profit.
cash basis.
bonuses paid by the government to encourage the development of certain areas of the country and to increase
Direct cost
employment. Dividends received by resident companies from other resident
According to the Income Tax Law,
companies are exempt from tax.
only raw materials, direct labor and, optionally, freight and insurance
Taxable income is determined on the
are considered as direct costs.
basis of losses or earnings indicated in
Indirect costs are normally treated
the financial statements prepared at
as expenses. The cost of imported
year-end. A separate accounting does
goods includes the CIF value, customs
not need to be kept for tax purposes.
duties, customs clearing expenses and, optionally, freight and insurance.
In the paragraphs below we describe the most relevant considerations of
For the mining industry, the purchase
the concepts of gross income, costs
price of mining property can be
and expenses, which will be taken into
transferred to the cost of the mineral
account in determining income. It will
extracted, known as the “unit of
also be analyzed the accounting for the
production� method.
inflation adjustment used in Chile.
Inventories Gross income The law authorizes the first-in, firstGross income includes the income
out (FIFO) and the weighted-average
earned on all transactions, the sale
cost methods of inventory valuation.
of assets and other activities, except
Nonetheless, there is no significant
for those that the Income Tax Law has
difference in choosing one system or
declared to be non taxable income.
the other in the case of companies that follow inflation-adjustment procedures.
As a rule, gross income is recognized for tax purposes upon accrual. Foreign
38
Doing Business in Chile 2011
Expenses As a general rule, all necessary expenses for producing income, duly proven and justified, may be deducted for determining the taxable income in the period owed or paid. As a general rule, Chilean taxes, except for those contained in the Income Tax Law, are deductible. Foreign taxes which are not creditable in Chile are not treated as deductible expenses as they are not taxed as a consequence of the Chilean taxpayer being able to recognize, as taxable income, only the net income, after foreign taxes. For the case of VAT, the tax charged on purchases is usually credited against the tax paid on sales and does not therefore affect revenues; whenever VAT cannot be imputed as a credit, it is a deductible cost or expense. Losses in a certain year must first be deducted from retained earnings and remaining losses can be carried forward indefinitely.
Depreciation and Amortization Allowances Depreciation of tangible fixed assets is tax deductible. The depreciation percentage is determined by applying the straight-line method on the estimated useful life of the assets without considering a residual value. Once fully depreciated, assets are recorded at a nominal value of one peso solely to keep them on the books. Some of the normal depreciation periods fixed by the Internal Revenue Service are the following:
Assets
Years
Solid buildings
80 to 40
Semisolid buildings
40 to 20
Buildings of light materials
10
General installations
10
Machinery and equipment
15
Cars, pickups, station wagons and buses
7
Trucks
7
39
Taxpayers may apply the so-called
applied after the revaluation of fixed
“accelerated depreciation� method,
assets according to the rules of
which is regulated by the Income
monetary restatement.
Tax Law. This is also straight-line depreciation, but the useful life of the goods is one-third of the life set by the
Non-deductible expenses
Internal Revenue Service for regular depreciation, without considering
For entities other than corporations
fractions of one year. Accelerated
and branches of foreign corporations,
depreciation can be applied to new
non-deductible expenses which have
goods acquired locally or imported
been disbursed (actual cash flows)
goods, provided that their useful life
are considered withdrawn by the
exceeds three years.
partners or entrepreneurs in the year of disbursement, and are therefore
It is worth mentioning that the
assessed the corresponding taxes
accelerated depreciation is a tax
in proportion to their interest in the
benefit for the local company, so that
company. This tax is applicable even if
the effect of the benefit has to be
the company or business does not have
reversed for purposes of determining
taxable income or if taxable income is
the taxable income when the profits
lower than disbursements.
are distributed abroad. Goods that become unusable before
Loans to partners in a company other
the end of their expected useful life
than a corporation are also deemed to
may be depreciated twice as fast as
be profits withdrawn by the partners,
originally contemplated under their
but unlike other non-deductible
applicable regime.
expenses, they are treated as normal withdrawals, meaning they are taxed
Organization and start-up expenses
according to the company’s record of
can be amortized in a period not to
taxable profits.
exceed six years, beginning with the year the expense was incurred or the
Chilean corporations and branches
year when the taxpayer began to earn
of foreign corporations must pay
gross income from his principal source
a penalty tax at a rate of 35% on
of business, if that occurs later.
certain expenses that mean cash flows and that are not deductible for tax
Research and development expenses
purposes. The 35% penalty tax is also
may be deducted entirely in the
applied to foreign partners of limited
year they are owed or paid or can be
liability companies. This 35% tax also
amortized over six consecutive years.
applies to loans granted to individual shareholders. This tax must be paid
Annual depreciation rates must be
40
Doing Business in Chile 2011
even if these flows exceed cumulative
taxable profits or if the company records losses. This rate is 42% for companies subject to the special tax regime in the Foreign Investment Statute.
Inflation adjustment (monetary restatement) The income tax law contains provisions designed to prevent the taxation of profits created by inflation. These provisions, known as monetary restatement, require taxpayers to annually revalue certain assets and liabilities based on changes to the consumer price index (CPI)1 and the foreign-exchange rates. Nevertheless, inventories are normally adjusted by an approximation to the replacement cost. In order to make an inflation adjustment, a distinction is made between monetary and non-monetary assets and liabilities. Only non-monetary assets and liabilities are adjustable by inflation provided they are recorded at the end of the period. Equity is considered non-monetary. The non-monetary accounts’ adjustment is recorded as follows: The adjustment of assets is debited from the corresponding asset account and is credited to the inflation-adjustment profit/loss account. The adjustment of liabilities is debited from the inflation-adjustment profit/ loss account and is credited to the corresponding liability account. The adjustment of initial equity is debited from the inflation-adjustment profit/ loss account and credited to a special equity account called “shareholders’ equity revaluation”. The increases and decreases in equity throughout the year such as capital contributions and profit distributions are adjustable for inflation as explained above and are also credited to or debited from the shareholders’ equity revaluation account and the inflation-adjustment profit/ loss account.
Relief for Losses Losses must first be carried back to offset undistributed profits from prior years and may then be carried forward indefinitely. However, special rules exist for entities suffering an “ownership change”, in which case tax losses cannot be deducted from the company´s taxable income.
1 The National Statistical Service fixes the monthly CPI.
41
Profits distribution or withdrawal
up to the amount of cumulative taxable profits of the company, differing payment of the tax on the
Partners and shareholders are taxed on
excess withdrawals until and to the
profits either distributed or withdrawn.
extent taxable profits are earned in
Individuals resident or domiciled
subsequent years. This mechanism
in Chile are subject to the global
of postponing the final tax does not
complementary tax, while individuals
have effect in the case of dividends
and legal entities domiciled abroad are
distributed by corporations to its
subject to the 35% additional tax .
shareholders, which are taxable
2
regardless of whether there are Taxpayers subject to these taxes are
taxable profits or not at the company
entitled to a credit for the first category
level. Indeed, any income remitted
tax paid.
abroad, and that does not correspond to exempt income, will be considered
Branches pay the 35% additional tax
taxable income subject to pay the 35%
when profits are withdrawn or remitted
additional tax rate (or the 42% tax rate
abroad. A credit for the first category
if they are under the invariable tax
tax paid is also applicable.
regime contained in D.L. 600).
Distributions in excess of taxable profits
Some topics related to foreign companies
Due to the differences between
-International loans and thin
the profits shown in the financial
capitalization rules
statements and taxable income, profits
The overall tax burden on repatriation
in excess of taxable income may
of equity is 35%. Yet, foreign investors
either be distributed as dividends or
frequently use thin capitalization
withdrawn from the company.
financing for their Chilean projects to benefit from a reduced 4% withholding
Taxable profits are recorded separately
tax on qualifying interest payments
from financial profits. The differences
(provided that the interest was paid to
may occur for different reasons, for
a foreign bank or t a foreign financial
example, upon reversing the effect of
institution). Nevertheless a 31% rate
the financial provisions.
would be applied in addition to the 4% rate on those interests that arise from
Distributions to partners of limited
“excess indebtedness� in related party
liability companies are taxed for
transactions.
2 This rate may vary in the case of foreign investors who have invested under the Foreign Investment Statute, and that are under the invariability tax regime.
42
Doing Business in Chile 2011
A company is in an “excess indebtedness” position when its related party debt is three times higher than its equity. The company’s equity is calculated as of January 1st of the fiscal year when the debt was contracted, or the date for the activities start-up, as the case might be, adjusted by the increases (or decreases) in equity capital. The share in the income of subsidiaries or affiliates by the company paying the interest, is also added to (or deducted from) this calculation. A debtor and a creditor are deemed to be “related parties” when one entity has an interest of 10% or more in the capital or profits of the other. Companies are also considered as being related when they have a common partner or shareholder who, directly or indirectly, has an interest of 10% or more in the capital or profits of the other. A relationship is also presumed in the case of a debt guaranteed by third parties with money or securities (back to back structures). - Services, duties, patents and technical assistance In general, payments for services provided abroad to entities not domiciled in Chile are subject to a 35% withholding tax. The payment of duties, patents and assistance is subject to a 30 or 15% withholding tax depending on the specific nature of the service. However, the 15% rate is only available if the service is not rendered among related parties or payment is made to a tax have in which case the rate is 30%. Also, a 15% rate applies for technical assistance or engineering services, whether provided in Chile or abroad unless service is rendered among related parties or payment is made to a tax have in which case the rate is 20%. The tax treaties subscribed by Chile under the OECD model establish reduced rates for services rendered by an entity of a Contracting State or even exemption if the income qualifies as a business profit. All these payments are deductible provided they are necessary to generate taxable income.
Transfer pricing Under the Chilean tax legislation, if prices of goods and services in internal and external transactions differ significantly from the values set forth for such items in similar transactions, conducted between independent parties, the tax authorities may adjust the prices for tax purposes, particularly if the transactions are conducted between related parties.
43
The Internal Revenue Service may contest the prices agreed upon in transactions between an agency or branch and the parent company or other agencies or affiliates to the parent company when they do not adhere to usual prices between independent companies.
- Special withholding tax rates Interests on loans paid to foreign banks or financial institutions: 4% Payments for the use of trademarks, patents, formulas, assistance and other similar services: 15% / 30% Payments for engineering services
In the case of related loans, the tax
or technical assistance rendered
authority may challenge the expense
in Chile or abroad: 15% / 20%.
in the case of interest being paid out of Chile to a related entity.
Fees paid for sea freight to or from Chilean ports: 5% Payments for leases, lease-
Charges between companies
purchases, charter parties or any other contract that contemplates
The reimbursement of specific
the use of foreign vessels for
expenses incurred by a foreign
coastal trading: 20%
company in relation to activities of a Chilean agency can be deducted from taxes by the agency. General unspecified charges are unacceptable.
Foreign taxpayers levied with the Withholding tax applied to profit and dividend distribution are entitled to a tax credit equal to the corporate incoming tax rate paid on income
Taxation on payments to individuals or entities not domiciled in Chile Chilean source income, which is not specifically taxed as profits, services or royalties, either received or accrued by a taxpayer without residency or domicile in Chile, is subject to a withholding tax (additional tax) at a general tax rate of 35%, or 42% if they are under the invariable tax regime established in the D.L. 600.
44
Doing Business in Chile 2011
withdrawn, distributed or remitted. This credit must be added in the calculation of the tax base for the Withholding tax.
The following examples illustrate the above, assuming the distribution of profits generated by a Chilean entity during commercial year 2011: Chilean company’s income ........................................................................ 100 Corporate tax (first category)................................................................... (20) Income distributed to foreign parent company.............................................. 80 Withholding tax base (additional tax)......................................................... 100 Withholding tax determined....................................................................... (35) Corporate tax credit ................................................................................... 20 Withholding tax payable............................................................................ (15) Available to foreign parent company............................................................ 65 As it can be appreciated, the total tax burden for the parent company corresponds to the withholding tax rate - which is 35%. Even though the effective tax burden could also be calculated as the withholding tax ($15) over the income to be distributed to the foreign parent company ($80), resulting in an effective tax rate of approximately 18.75%, please note that due to the gross up mechanism the withholding tax is always paid on the Chilean company´s income ($100 in the example) and furthermore, the cash outside of Chile is always $65. Therefore, the effective tax burden for an equity financed investment in Chile is always 35%. Finally, please note that the 35% burden is also applicable under a treaty scenario, since of the existing double taxation treaties provide for a reduction in the taxation applicable to dividends or profits paid out of Chile.
Specific tax on operational mining income The specific tax on mining activities is levied on mining companies. It is applied over the operational mining income of the taxpayer. Under Law N°20.469, published on October 21st 2010, new rates have been The general rate varies1 depending on the annual sales of the company when such sales are below 50,000 metric tons of fine copper (MFT), from 50,000 MFT onwards, the rate is calculated according to the profit margin of the company. Taxpayers with sales equal to or less than the equivalent of 12,000 MFT are exempt. A progressive tax with rate schedules that go from 0.5% to 4.5% applies to taxpayers with sales over 12,000 MFT and less than 50,000 MFT. Progressive and marginal tax rates ranging from 5% to 14% applies to taxprayers with sales equal to or greater than the equivalent value of 50,000 MFT.
1 Those rate provided by the Income Tax Law were recently determined for this specific tax (October 2010). Those new rates are applicable from 2011 anwards, unless the taxpayer chase to utilize one of the stability regimes set forth in the transitory precepts of the law, in the which case they are in force from 2010 onwards with a rate depending on the stability regime applicable.
45
This tax must be filed and paid annually,
of any profession and the development
although provisional monthly payments
of industrial, business, artistic activities
applicable towards the annual tax
or any other profitable secondary or
liability must be made at a 0.3% rate
tertiary, regardless of their nature
over monthly sales of minerals. The
or name, carried out within the
advance payment rate may be
jurisdiction of a given municipality.
adjusted year to year to take into account the actual annual tax liability.
Taxes are calculated on the tax prayer’s equity, calculated for tax purposes as
Additionally, the specific tax on
of 31 December, on which amount the
mining activities is deductible for
rate determined by each municipality is
income tax purposes.
applied. The rates range from 0,25% to 0.5% as ceiling.
The operational mining income is determined on the basis of the net
The annual tax payable may not
taxable income of the company with
exceed 8,000 monthly tax units
certain adjustments.
(MTU) (equivalent to approximately US$636,130, where one MTU is worth
Stamp tax
Ch$37,643 and an exchange rate is
This tax is applied on documents
Ch$437.4 per dollar.)
that evidence a cash credit operation where one of the parties give, or
Municipal taxes paid are distributed
undertakes to give the other party, a
among the municipalities where the
given amount of money while the other
taxpayer has employees working in
party undertakes to give it back on a
offices, shops, factories, warehouses
date other than the day on which is was
or other kinds of establishments.
given. Instrument discount operations
Taxpayers who are not obliged to
that state cash credit operations are
prove income by means of a general
also subject to this tax.
balance sheet must only pay an annual tax equal to 1 MTU, (that is to say,
All loans, whether foreign or local, are
approximately US$79.5) This would
subject to a stamp tax paid up front.
be the case, for example, of a company
Currently, the rate of stamp tax is equal
that only earns income derived from
to 0.05% on the principal per month or
movable capital.
fraction of month from disbursement to maturity, capped at 0.6%. Documents
In calculating the equity of a taxpayer
on demand are subject to a fixed rate
subject to paying the municipal tax, the
of 0.25% Lastly, stamp tax is an allowed
portion of such equity invested in other
expense for income tax purposes.
businesses or companies also subject to municipal tax may be deducted.
46
Doing Business in Chile 2011
Municipal tax
Lastly, municipal tax is an allowed
This annual tax is levied on the practice
expense for Income tax purpose.
D Individuals
D.1 lncome Tax
Who Is Liable All individual persons domiciled or resident in Chile are subject to personal income tax on their worldwide income. Nonresidents are taxed on their Chilean-source income only. Exceptionally, foreign nationals are subject to tax on Chilean-source income only during their first three years of residence or domicile in Chile. An individual present in Chile for more than six months in one calendar year or for more than six months in total within two consecutive tax years is considered a Chilean resident. Domicile is defined as residence in a place with the intention of staying there. An individual’s intention is proved through facts and circumstances, including employment within the country or moving one’s family into the country. Chilean-source income is defined as income which arises from goods located in the country or from activities developed within the country, regardless of where the domicile or residence of the taxpayer is located, or where the income is paid.
Income Subject to Tax - Employment Income Second category tax (employment tax) burdens employment income. Taxable employment income includes any type of remuneration received under an employment contract, including benefits in kind. However, severance payments, transportation and lunch allowances, board and lodging provided to employees
47
for the employer’s convenience are
employer. This tax is levied on wages
tax-exempt within certain limits.
paid after the deduction of social
Legal family allowance payments,
security payments. The tax brackets
social security benefits established by
are indicated in Appendix 8.
law and severance payments within certain limitations are not included in
No other income tax is assessed on
taxable income.
employees except when they earn other income in addition to their compensation income. In that case,
- Self-Employment Income
the Global Complementary Tax is also
Global complementary tax is imposed
applicable both to salaries as well as
on income withdrawn from business
other income, but a credit is granted
enterprises, and on income earned
for the tax withheld.
by professionals and independent employees. However, individuals receive a credit equal to the amount of
- Investment Income
first category tax (20% for 2011) paid
When shareholders receive dividends
on the income by the enterprise.
from a corporation, they are entitled to a credit of the 17% first category
Income and expenses are subject to
tax. The dividends are then aggregated
a monetary correction based on the
with other non-salary income and
change in the Consumer Price Index
subject to global complementary
(CPI) between the month prior to the
tax, along with the following types of
collection or disbursement and the
investment income:
month preceding the financial year-end. Interest derived from loans; Individuals and small partnerships engaged in agriculture, mining, land transportation and certain other
Doing Business in Chile 2011
deposits or time deposits in cash; Interest derived from bonds,
activities are entitled to special tax
debentures or other debt
benefits for small taxpayers, which
instruments, unless otherwise
include paying tax on deemed income
provided by international
if gross income does not exceed a
agreements; and
specified amount.
48
Interest derived from demand
Rental and royalty income.
- Salaries and other wages
- Directors’ Fees
Employees are subject to a personal
Directors’ fees are taxed in the same
tax at progressive rates that reach
manner as professional income,
a marginal rate of 40 %, which must
without deduction of actual or deemed
be withheld and paid monthly by the
expenses.
- Equity Plans There are no legal provisions in the Chilean Tax law and few Internal Revenue Service (IRS) rulings on the subject of equity plans. Therefore, general rules on employment income or capital gains apply for this matter. These benefits are increasingly being included in the compensation package of high level executives of local entities, as well as launched by international companies with business in Chile.
Capital Gains and Losses Capital gains derived from sales of personal property, including automobiles and household furniture, not used in connection with a trade or business are exempt from tax. Gains derived from sales of real estate not used in connection with a trade or businesses are also exempt, unless the transactions are considered habitual or the property is held for less than one year before its transfer. Gains derived from transfers of personal property and real property used in a trade or businesses are treated as ordinary income and are subject to tax at the reg足ular global complementary tax rates. Capital gains derived from sales of stock and other investments are taxed at a flat rate of 20% (for 2011) depending on the circumstances additionally at the regular global complementary tax rates.
Deductions - Personal Deductions and Allowances Individuals may deduct from taxable income social security contributions paid, up to applicable ceilings. The amount invested during the year in shares of public corporations, certain financial instruments and certain other items may be partially deducted from tax足able income.
- Business Deductions Deductible expenses consist of expenses necessary to produce income. There are no expense deductions for employment taxes. Entertainment and automobile expenses are not deductible.
49
Instead of accounting for actual expenses, individual professionals and indepen足 dent workers may take a standard deduction equivalent to 30% of gross income, limited to 15 Annual Tax Units (ATUs, see Rates, below).
Rates - Employment Income Second category tax (employment tax) is levied on a progressive scale and with足 held by employers. The income brackets are based on monthly tax units (MTUs), which are adjusted monthly for changes in the CPI. For example, in January 2010, an MTU is equal to CLP$36,679. The following table presents the personal income tax brackets and corresponding tax rates.
Taxable Income Exceeding MTU
Not Exceeding MTU
Rate %
13,5
O
13,5
30
5
30
50
10
50
70
15
70
90
25
90
120
32
120
150
37
150
More
40
O
- Self-Employment and Business
20% amount is then cred足ited against
Income
the global complementary tax of the
Global complementary tax is calculated
proprietor when profits are withdrawn
on an annual basis rather than the
from the enterprise if the profits
monthly basis used for dependent
are not reinvested in the same or in
employees. The brackets and rates are
another local enterprise. If they elect
the same as those indicated above,
to be taxed as commercial entities,
except that the MTU is replaced by
professional partnerships are subject
the annual tax unit (ATU). An ATU is
to the first category tax.
equivalent to 12 MTUs. Some self-employed taxpayers are
50
Doing Business in Chile 2011
Sole proprietors are subject to the
subject to provisional tax, which in
20% (for 2011) first category tax on
some cases is withheld by the payer,
accrued income in the same manner
and credited against final tax, at a
as corporations or partnerships. The
rate of 10% of gross fees or receipts.
This applies to independent workers, professionals and individuals in professional partnerships who are not subject to the 20% first category tax. For a sample income tax calculation for a resident individual, see Appendix 9, page 73.
- Non-residents Individuals working in Chile for periods not exceeding six months in a year or for a total of six months in total within two consecutive years are considered nonresidents. However, a person may be treated as resident from the first day of his or her stay in Chile if evidence of an intention to establish a domicile in Chile exists. Non-residents are subject to “Withholding tax” on their Chilean-source income, which is income earned for services rendered in Chile or activities performed in the country, at flat rates of 15%, 20% or 35%. The rate is generally 15% for remuneration paid for technical or engineering work or for professional or technical services rendered under certain conditions. However, 15% rate is increased to 20% if the payments are made to a related entity or to a resident in a country listed as a tax haven. The rate is 20% for fees or salaries for cultural or sports activities. The tax rate for other types of services is 35%. Additional tax may also be imposed on non-residents receiving payment of remunerations from Chile for services rendered abroad. The general tax rate is 35% with special rates of 15% or 20% imposed under the conditions described above. Dividend income of non- residents is generally subject to tax at a rate of 35%, with a credit for the 20% first category tax. Interest and remunerations for certain services, as we said, are generally subject to a 35% withholding tax. The tax rate for directors’ fees is also 35%. Royalties are subject to withholding tax at a rate of 30%. The withholding taxes are final taxes.
- Foreign-source income During the first three years of residence in Chile, foreign nationals resident or domiciled in the country are not subject to taxes in Chile over their foreignsource income; only Chilean source income will be taxed in the country, applying resident taxes.
51
- Relief for Losses Business losses of a self-employed person must first be carried back. To the extent the loss exceeds profits from prior years; the unused portion of the loss may be carried forward indefinitely. Individuals who are not self-employed or engaged in their own business may off足set investment losses against investment profits in the same year.
D.2 Estate and Gift Taxes Estate and gift tax is a unified tax, assessed in accordance with rates and brackets expressed in ATU1s (On January 2011 ATU is equivalent to CLP$ 451,716). Residents are subject to estate and gift tax on worldwide assets. Nonresidents are subject to estate and gift tax on assets located in Chile only. Estate tax paid abroad may be credited against Chilean tax. A zero rate applies to the first 50 ATUs transferred from an estate to close relatives, including a spouse or children. Only five ATUs are subject to the zero rates if assets are transferred to other beneficiaries. The following rates apply after deduction of the exempt amount.
Taxable Income Exceeding ATU 0
80
1
80
160
2.5
160
320
5
320
480
7.5
480
640
10
640
800
15
800
1,200
20
1,200
1 On January 2011 1 ATU is equivalent to CLP$451.717
Doing Business in Chile 2011
Rate %
52
Not Exceeding ATU
25
D.3 Tax Filing and Payment Procedures Taxes withheld from employees must be paid by the local employer on or before the 12th day of each month for the preceding month’s payroll. Regarding employers not domiciled or resident in Chile, the employee him/herself must report and pay the corresponding taxes on or before the 12th day of each month for the preceding month’s payroll. Certain self-employed taxpayers, including independent workers, professionals and professional partnerships, are required to pay provisional monthly tax that is credited against the final tax at a rate of 10% of gross monthly fees or receipts. Enterprises that pay fees to professionals or independent workers must withhold 10% from gross fees, which is treated as a provisional payment by the taxpayer. Taxes withheld by payers of fees are credited against the provisional monthly payments. Spouses are taxed separately on their personal income. Annual income tax returns must be filed in April for income received in the pre ceding calendar year. Tax withheld or paid monthly is credited against tax due. Any tax owed must be paid when filing the tax return. Taxpayers receive refunds in May for excess taxes paid.
D.4 Double Tax Relief and Tax Treaties Chile has currently in force tax treaties with Argentina, Belgim, Brazil, Canada, Colombia, South Korea, Denmark, Ecuador, Spain, France, Ireland, Malaysia, Mexico, New Zealand, Norway, Paraguay, Peru, Poland, Portugal, United Kingdom, Croatia, Switzerland, Sweden and Thailand. Chile has signed tax treaties, but are not yet in force, with Russia, Australia and United States. In addition, negotiations are already concluded with South Africa. If treaty relief is not available, corporate taxpayers receive a tax credit, up to arate of 20%, for foreign income taxes paid. Any foreign taxes paid above the 20% rate may be deducted as a tax expense.
53
Labor law - Work-day Schedule Below is a brief description of the
The work-day schedule is the time
main considerations in labor laws
during which the employee should be
governing the relations between
available for the employer, regardless
employers and employees.
of the actual performance of his/ her duties. The work-day must be established in the employment
Employment contract
contract and cannot exceed 45 hours per week, with certain exceptions. Working hours must be distributed
- Labor relationship
weekly in no more than six days and no
The Chilean Labor Code defines
less than five.
individual employment contract as a convention through which
Overtime is payable at a surcharge of
both employer and employee are
50% and a special agreement is required,
reciprocally obliged, this latter to
not exceeding two hours per day.
render personal services under dependence and subordination of the
Management positions within the
employer and this one to pay per those
organization such as vice-presidents,
services a determined remuneration.
managers or other executives will be
The employer has the obligation to draft
exempted of the work-day schedule in
the employment contract in writing,
accordance to article 22 of the Chilean
though a labor relation will exist if the
Labor Code.
abovementioned elements are present, even if there is no written contract.
Work-day schedule can be presumed when entrance and/or exit hour
A collective labor contract is an
reporting requirements are mandatory,
agreement between the employer
when discounts him remuneration
and one or more unions or a group of
apply in case of late arrival, and when
non-unionized employees in order to
there a direct functional control of the
establish common working conditions,
way and means by which the employer
salaries and other benefits for a
performs his /her duties.
determined period of time, and that arises after a Collective Bargaining
54
Doing Business in Chile 2011
Procedure, expressly regulated in
- Collective Bargaining
the Chilean Labor Code. Generally
It is a negotiation process between
collective bargaining takes place at a
the employer and one or more unions
one-compeny level, but if all parties
in the company or a group of non-
agree, a collective bargaining procedure
unionized employees to agree upon a
can include two or more employers.
collective labor contract. It is a highly
regulated process and only if this procedure is followed, it away lead to a legal strike. The bargaining process can include employees from more than one firm as well as two or more employers. However, the bargaining process is only mandatory for the employer and its own employees, on a one company basis. High-ranking executives and employees can participate in a collective agreement unless it is stipulated otherwise in their individual employment contracts. Agreements reached, as part of a collective contract, must be in effect for a minimum of two years and a maximum of four years. However, the agreements can be modified with the consent of the parties.
- Salaries Salaries correspond to payments in cash or kind that the employee receives for his/her work according to the terms established in the employment contract. Some payments are expressly excluded from the salary concept, not constituting taxable compensation, such as lunch and transportation allowances, per-diems, family allowances granted in accordance to the law, severance payments legally established and others that may proceed upon employment termination and in general, expense reimbursements incurred in upon employment duties. These concepts must be provided within a reasonable amount given its purpose, and may be deemed as a taxable compensation when exceeding. The salary can be based on a unit of time that can be one day, one week, a twoweek period or a month as the maximum. It can be set by piece, measurement or work. If salary is totally or partially accrued or a daily basis, an additional mandatory payment is required to compensate for sundays and holidays within the same work period. The monthly salary agreed upon in the employment contract, must exceed the minimum monthly wage annually established by law on June each year, currently equivalent to CLP$172.000, US$ 350 for the period July 2010-June 2011. The salary must be paid in Chilean pesos. Nonetheless, Chilean companies can agree to and pay salaries in foreign currency as well as some corporate obligations derived from contracts.
55
- Profits Sharing
by the ISAPRE or FONASA (social
A percentage of annual profits must be
security private and public institutions,
distributed among the employees. The
respectively).
alternatives for complying with this obligation are:
Pregnant women are entitled to six weeks of paid leave before the
30% of net taxable profits, with some adjustments. 25% of annual salaries, with a
projected birth date and twelve weeks of paid leave after childbirth. This payment is made by the State. The
ceiling of 4.75 monthly minimum
father has 5 days of paid leave upon
salaries per employee.
birth of his child.
The employer can decide freely which
In both cases, the employment
alternative to use each year.
contract remains in effect, but the employer stops paying salary and the
The parties can also agree to more
employee receives compensation from
advantageous benefits that may or
the social security entity to which he or
may not imputed against the legal
she is affiliated.
benefits mentioned above. Employers must guarantee union - Vacations and leave
leaders leave if they are required
Employees are entitled to an annual
to perform duties specific to their
paid vacation of 15 business days
position. This leave will depend on the
after one year of work. Ten of those
number of employees in the union.
days must be consecutive and the remaining five can be used as agreed
Finally, special paid leaves apply in
upon by the parties.
case of death of close relatives (3 to 7 days).
Up to two years of vacation time can be accumulated under consent of the parties.
Employment contract Termination
Vacations can be compensated in cash only if the employment contract
a) Employment contract termination
is terminated and there are pending
causes with no mandatory
unused days.
severance payment In this group we can set, in one
56
Doing Business in Chile 2011
Employees are entitled to paid leave
hand, those employment contract
in case of illness or accident for the
termination causes that do not
time indicated in a certificate issued
generate the obligation of paying a
by a doctor. These payments are made
severance indemnity, as they derive
from the decision of the parties or from natural causes, such as mutual agreement, employee’s death, term of the contract expiration and employee’s resignation. On the other hand, we have those termination causes that do not generate the obligation of paying a severance indemnity upon the employee’s misconduct such as lack of probity, sexual harassment, immoral conducts, incompatible negotiations and in general, any conduct that would represent a willful breach of the employment obligations. b) Employment contract termination with mandatory severance payment The employer can unilaterally terminate the labor bond invoking the Company’s needs, such as those derived from the modernization of the services, downsides in productivity, changes in the economy or in market conditions that may carry the need of employee’s separation. Regarding those employees empowered to represent the employer, such as managers or agents granted with general management faculties, the employment contract may be terminated, with no need of invoking any cause. In both cases the dismissal requires a 30 –day written notice given to the employee. This notice would not be required upon in-lieu payment, corresponding to the last due remuneration. (with a ceiling of UF 90, approximately equivalent to CLP $ 1.800.000). In both the cases before stated, the employer is obliged by the law to pay a severance payment, within certain caps and conditions. - Severance Payment When an employment contract has been in effect for more than one year, the employer must pay compensation in order to unilaterally dismiss an employee. This rule is applicable to the termination due to unilateral decision or economics needs of the firm. The same compensation must be paid if the contract is terminated because of employer neglect. This compensation is equal to 30 days of the last salary earned by the employee (with a ceiling of 90 UF, approximately equivalent to CH $1.800.000) per year of service (fractions above six months are considered one year) with a ceiling of 330
57
days. The UF (Unidad de Fomento) is
In this regard, employers when
a unit expressed in Chilean pesos that
violating employee’s fundamental
varies according to the CPI.
rights upon employment termination may be ordered by the labor court
Regardless of the time the contract
to pay a penalty severance that rises
has been in effect, the employer must
from 6 to 11 monthly remunerations,
give notice of a unilateral dismissal one
in addition to ordinary severance
month in advance or otherwise pay
payments.
the salary for that period (also with a ceiling of 90 UF).
The parties may agree to prepayments on account of any compensation apart
Higher compensation must be agreed
from the compensation stipulated
upon in individual or collective labor
by law.
contracts or may be paid voluntarily by the employer upon employment termination.
D6. Social Security The parties can stipulate a severance payment in case the employment contract terminates upon other causes
Retirement pensions
such as employee’s resignation or mutual consent of the parties, and can
Social security contributions covering
also improve the legal caps established
pension funds are paid by employees
for these payments.
at a rate of approximately 12% on salaries up to a maximum of 66 UF for
Whichever the causes of
2011. These contributions are withheld
termination the employer must pay
and paid by employers on a monthly
the employer a compensation for
basis, and are deducted from the
pending and proportional holiday
base on which employment taxes are
that have not been used during the
calculated.
labor relation. The applicable wage ceiling is adjusted During year 2009, substantial
annually. The UF is an inflation-indexed
modifications to the Labor claims
unit expressed in Chilean pesos that
procedure were performed, including
varies according to the consumer
a special chapter that created a
price index.
procedure to guardian fundamental
58
Doing Business in Chile 2011
rights of the employees, such as life,
Men are eligible to retire at 65 years
physical and mental health, honor,
old and women at 60. In certain
inviolability of private messaging, non-
circumstances, they may retire earlier.
discrimination, among others.
The payments are made to the pension
funds managed by privately owned entities (pension fund administrators = AFP) regulated by a government agency (Superintendence of Pensions).
Voluntary Saving (APV) Currently, taxpayers of Second Category Tax (compensation income tax) can deduct from their taxable income the amounts of voluntary savings made to a pension fund, through a discount on their salary, withheld by their employer, up to a monthly limit of 50 UF. Besides, if the employee makes direct deposits for pension fund purposes, it will be distributed in the whole tax year, according to the procedure established in article 47 of the Income Tax Law, deducting from the taxable income, the amount of such voluntary savings. The limit of this deduction is equal to the difference between 600 UF, less the total amount of any voluntary savings made through employer discount explained above. Profits are not taxed. As the intention of this benefit is to increase the pension funds amounts, the law established a penalty tax over the withdrawals performed before the retirement. For these purposes, the law provides the following regimes: The employee does not deduct the amounts voluntarily saved from the taxable base, paying the applicable tax over the funds profitability, but is allowed to withdraw the funds tax free when retiring. This regime is paired with a 15% contribution financed by the state equivalent to the 15% of the amount of the voluntary contributions (up to certain caps), which shall be reduced in the same proportion in case of withdrawal of the funds. The employee uses the tax benefit, deducting the contributions from the taxable base (within the above mentioned caps) and not paying taxes over the funds profitability, but subject to the penalty tax in case of withdrawing the funds. The tax rate in this case will be the same of the Global Complementary Tax, plus an increase of 3% to 7%. The social security institutions, must withhold a 15% provisional tax over the withdrawn amount, which will be credited against the final applicable tax. Also, the resources mentioned before, can be withdrawn as “surpluses of free disposition� when the person fulfils certain requirements. The surpluses of free disposition are funds that persons that are receiving a pension can withdraw from their account, partially tax free when the amount of their social security
59
saving exceeds the amount needed to
Conventional deposits plus their
finance a pension equivalent at least
profitability cannot be withdrawn
to the 70% of the average income for
before the employee’s retirement, but
social security purposes in the last 10
they can generate free disposition
years, and at least to the 120% of the
surpluses.
minimum pension guaranteed by the State. If these sums have been saved
The time and modality of the
for a period over 48 months before
conventional deposits can be freely
the date of the determination of the
agreed upon by the parties and
surplus of free disposition, according
must be informed to the respective
to article 42 ter of the Income Tax
institution in which they will be
Law, they can be withdrawn tax free,
deposited.
up to an annual maximum of 200 UTM, with a total limit of 1200 UTM. In other words, they can withdraw
- Death and disability pensions
200 UTM annually, for up to six years.
These pensions are financed by the
Alternatively, the person may make a
employees with funds accumulated for
single withdrawal up to a maximum of
this purpose in the pension fund plus a
800 UTM.
mandatory insurance plan. Premiums for this purpose is currently 1.49% of salaries. These payments are made to
- Conventional deposits
the same pension funds as retirement
Employees can deposit in their
pensions. The above percentages are
individual capitalization account, or
applicable to wages and salaries with a
in other authorized institutions, the
ceiling of 66 UF, for year 2010.
conventional deposits that they may agree with the employer, in order to
Since 2009, this premium must be
increase the capital required to finance
borne by the employer for companies
a premature pension or to increase the
over 100 employees (it is borne by
amount of the pension.
the employee on companies with 100 employees or less), and starting from
Amounts destined to conventional
2011 for all employers, regardless the
deposits do not constitute
number of employees.
remuneration for any legal purpose with no cap. However, theys will be tax-free only up to a cap of UF 900 per year. They are directly deposited by the employer in the employee’s account in the respective social security institution or in other authorized.
60
Doing Business in Chile 2011
Medical benefits in the case of disease Employees can choose between two systems: - Public Health System This system is financed by contributions paid by affiliates equal to 7% of their salaries, with the same ceiling of 66 UF for year 2010, mentioned above.
- Private Health System Under this regime, employees can subscribe a health insurance contract with private entities. The minimum payment is equal to the payment for the public health system, which rises up to 7%. Above this rate it would be deductible from the taxable base only up to the 7% of the cap. In both cases, payments are withheld by the employer and made to the corresponding health institution. They are tax deductible for employees.
Work accidents and occupational disease benefits Employers pay a basic contribution of 0.95% on salaries up to 66 UF for year 2010, to cover labor accident insurance. Activities considered high risk are assessed at a higher rate up to 4.3%. This is mandatory for Chilean and foreign employees. - Unemployment Insurance This insurance is co-financed between the employer and the employee at a 2.4% and 0.6% respectively contributed from the employees’ monthly wage. The maximum monthly wage to be considered for these effects caps UF 99 for year 2010 (cap is adjusted annually). This contribution is mandatory for Chilean and foreign employees with an employment contract after October 2002, and voluntary for those employed before that date. Upon employment contract termination, employees may make up to five withdrawals from his/her personal fund account for unemployment.
61
D.7 Foreigners working in Chile
This exemption does not include payments for work accidents and unemployment insurance.
As a general rule, foreign individuals rendering services in Chile are subject to the same laws as Chilean
Social Security Treaties
employees. However in their respective employment contracts, special clauses
Chile has currently in force social
must be included for migratory
security agreements with the following
purposes.
countries: Argentina, Australia, Austria, Belgium, Brazil, Canada, Colombia, Czech Republic, Denmark, Ecuador,
Foreign Staff Limitations
Finland, France, Germany, Luxembourg, Norway, Netherlands, Peru, Portugal,
Foreigners cannot exceed 15% of
Quebec, Spain Sweden, Switzerland,
the staff in firms with more than 25
Uruguay, USA.
employees, with some exceptions. These treaties provide totalization of - Salary
contribution periods, exemptions and,
Chilean companies may agree to pay
in some cases, funds transfer.
salaries and social security obligations derived from contracts with foreign
Visa requirements
employees in foreign currency upon filing an employment contract.
In general, foreign individuals may enter the country as tourists, with their
- Social Security Payment
visas stamped on their passports or
Foreign professionals and technicians
similar documents when needed, as
rendering services in Chile can be
long as the country of nationality has
exempted from contributing in the
consular relations with Chile.
Chilean social security system (only pensions funds and health insurance)
Regarding some countries as
as established by Law N째18.156,
Argentina, Peru, Bolivia, Uruguay,
provided they are affiliated to a social
no passport is required to enter the
security system abroad that grants
country. Nationals from the said
benefits at least similar to those
countries may enter Chile with their
provided in Chile (old age, disability,
respective national identity cards.
illness and death), and that the employee expresses his/her will to use
Entering the country under the tourist
the exemption as a clause in his/her
regime, allow the foreign individuals to
employment contract.
remain in the country for a 30 day period that may be extended up to 90 days.
62
Doing Business in Chile 2011
Tourist visas do not allow the holders to perform remunerated activities in the country, even if the payment is performed abroad. Nevertheless, the Internal Chilean Ministry can grant a work authorization when certain circumstances concur. This authorization is granted for a 30-day period which can be extended for equal periods until the expiration of the tourist visa. - Residence visas Residence visas can be classified in the following categories: Officials: granted to Consular or Diplomatic office members. Temporary: granted to foreign individuals that pretend to work or develop legal remunerated activities in Chile. It is granted for up to one year, renewable only once for the same period. Subject to Employment Contract: granted to foreign individuals that enter the country to render formal services to a local employer. Student: granted to individuals pursuing courses of study in Chile. Valid for up to one year and may be renewed for additional one-year periods, as many times as necessary. Political refugee: granted to nationals of politically convulsed countries, who intend to establish permanent residence in Chile. Permanent residence: an indefinite visa, that grants the expatriate the same rights as an ordinary Chilean national, except for the rights to vote and seek public office. In order to apply for the above mentioned visas, foreign nationals must file the following documents: Corresponding application form. Passport. Documents that prove professional status, legalized before the foreign and Chilean corresponding authorities. Documents that prove marital status, legalized before the foreign and Chilean corresponding authorities Documents that support the activities that the applicant will develop in the country, for example, an employment contract and documents that prove the applicant has been accepted in a college or educational institution. Police Record issued by the corresponding authority, proving that the applicant has no criminal record. Health certificates.
63
Documents vary depending on the
The visa holder completing one year
approving authority and the type of
of residency under this visa regime
visa requested.
can request permanent residency. After two years of temporary visa,
The most common visas to work
requesting the permanent residency
legally in Chile are the visa subject
is mandatory, otherwise the foreign
to employment contract and the
individual must leave the country.
temporary visa. - Visa subject to employment - Temporary visa
contract
This visa allows the holder to develop
A foreign employee may apply for this
remunerated activities in the country.
kind of visa when he/she will be hired by a Chilean company.
It may be requested abroad before the respective Chilean Consulate through
In order to obtain this visa, the
an application process that may last
foreign employee must apply before
from 3 to 4 weeks.
the respective Chilean consulate abroad or before the Internal Chilean
In that procedure, in addition to the
Ministry once he/she entered the
correspondent application form,
country, submitting the correspondent
documents before indicated must
employment contract.
be submitted. Before the Consulate, the procedure This visa may also be requested once
may take up to 4 weeks; and up to 4
the foreign individual has entered the
months before the Chilean Internal
country, before the Internal Affairs
Affairs Ministry.
Chilean Ministry, in which case the application process would last from 3 to 4 months, through a provisional
- Work Visas for Family Members
permit may be obtained within the
Dependent family members of the
first month, to work which while
holder of a temporary visa or a visa
approval is pending.
subject to employment contract are not allowed to develop remunerated
64
Doing Business in Chile 2011
The basic requirement for an
activities in the country. If they
individual to get a temporary visa in
intend to do so, they must apply
Chile is to have an interest on residing
independently for a temporary
in the country, for example business,
residence visa subject to an
family, or studies. This type of visa
employment contract, or applicable,
is granted for one year and can be
which will allow them to perform legal
extended only once for another year.
remunerated activities in the country.
Dependent family members of the holder of a temporary visa or a visa subject to employment contract, will have their authorization and its extensions attached to the holder’s. Children of an expatriate do not need student visas to attend schools in Chile.
Identity card Foreigners older than 18, except for tourists, must apply for an identity card and register in special immigration registries before the International Police Office, within 30 days from the date they enter the country, or within 30 days after stamping the visa in Chile.
Drivers’ License Tourists may drive in Chile with their driving licenses, during the extension of their tourist authorization. Foreigners with residence visas (temporary or subject to employment contract) or with permanent residence authorization, must obtain a Chilean Driving License. The requirements to obtain the license (only medical exams, or written and practical drive exams too) may be different depending on the Municipality before which the application is submitted.
65
66
Doing Business in Chile 2011
Appendices
Appendix 1: Useful Addresses and Telephone Numbers When dialing from an international location, the international telephone country code for Chile, 56, must be used as a prefix. Central Bank of Chile
Agustinas 1180
Santiago Telephone: (2) Facsimile: (2)
670-2000 698-4847
Chamber of Commerce
Monjitas 392 Santiago Telephone: (2) Facsimile: (2)
360-7000 633-0962
Development Corporation
Moneda 921 Santiago Telephone:(2) Facsimile:(2)
631-8200 671-1058
Production and Commerce Confederation MonseĂąor
Sotero Sanz 182 Santiago Telephone:(2) Facsimile:(2)
231-9764 231-9808
Foreign Investment Committee
Ahumada 11 Santiago Telephone:(2) Facsimile:(2)
698-4254 698-9476
Government Advisory Body for Social and Economic Planing
Ahumada 48 Santiago Telephone:(2) Facsimile:(2)
675-1400 672-1879
Ministry of Economy,
Avda.Libertador Bernardo O’Higgins 1449 Santiago Telephone:(2 Facsimile:(2)
473-3400 473-3430
Ministry of Finance
Teatinos 120 Santiago Telephone:(2 Facsimile:(2)
828-2000 671-8064
Santiago Stock Exchange
La Bolsa 64 Casilla 123-D Santiago Telephone:(2 Facsimile:(2)
399-3000 380-1962
Tax Bureau
Teatinos 120 Santiago Telephone: (2) Facsimile: (2)
395-1115 695-1412
67
Appendix 2: Economic Performance Statistics The following table presents key indicators of Chile’s economic performance from 2007 through 2010.
2007
Gross domestic product
166
2008
2009
2010
162,5
163,7
221,6
(US$billions) Inflation rate of consumer
7,8
7,1
6,87
3
7,1
7,8
9,7
8,1
Exports (US$ billions)
68,2
67,8
66,5
69,6
Imports (US$ billions)
43,8
61,9
57,6
54,5
Balance of trade (US$ billions)
24,4
5,9
8,9
8,2
prices (%) Unemployment rate (%)
Source: Central Bank of Chile. National Statistical Institute.
Appendix 3: Contributions by Industrial Sectors to the Economy The following table shows the contribution of various industrial sectors to Chilean gross domestic product in 2010. Sector Agriculture, livestock and forestry
Ch $ (millions) 2.560.516
Fishing
654.718
Mining
19.955.499
Manufacturing
11.555.694
Electricity, gas and water
3.354.817
Construction
8.168.327
Trade and catering
9.408.415
Transports
5.953.248
Comunications
1.645.433
Financial services (a) Housing Personal services (b) Public administration
16.312.688 4.396.008 11.638.625 4.626.558
(a) Includes financial services, insurance, leases and services providers between enterprises. (b) Includes education and public and private health services. Source: Central Bank of Chile.
68
Doing Business in Chile 2011
Appendix 4: Table of exchange rates for the chilean peso January 2011. USA Dollar
$ 473,4
Euro
$ 640,5
Yen
$ 5,68
Pound Sterling
$ 760,07
Argentinian Peso
$ 117,60
Appendix 5: Major Trading Partners The following tables present Chile’s major trading partners in 2010 Imports Country
2010 US$ millions
USA
9.330,4
China
8.295,3
Argentina
4.670,6
Brazil
4.631,6
South Korea
3.372,3
Japan
2.908,8
Mexico
2.037,2
Germany
1.968,2
Colombia
1.533,3
Peru
1.330,8
UK
966,1
Spain
936,7
Italy
924,3
France
810,4
Exports
2010
Country
US$ millions
China
17.355,4
Japan
7.593,0
USA
7.002,3
Brazil
4.291,6
South Korea
4.086,3
Netherland
2.559,9
Italy
2.459,7
Taiwan
2.090,2
Mexico
1.844,2
India
1.754,1
Belgica
1.657,8
Canada
1.391,0
Spain
1.293,4
France
1.204,4
Source: Prochile
69
Appendix 6: Imports and Exports The following tables present Chile’s imports and exports by economic sector in 2010.
Imports Consumer Goods Capital Goods Intermediate Goods Others Total
Exports
US$ (millions)
Percentage
13356
22,6
9683
16,4
30584
51,8
5333
9
58956
100
US$ (millions)
Percentage
Agriculture, fruit, livestock, forestry and fishing
Doing Business in Chile 2011
6,12
Mining
44279
62,3
Manufacturing
19283
27,1
Otros
3114
4,3
Total
71028
Source: Central Bank of Chile.
70
4352
100
Appendix 7: Corporate Tax Calculation The following is a sample income tax calculation for a corporation in commercial year 2011 (tax year 2012).
Ch$ (Millions)
Ch$ (Millions)
Calculation of Taxable Income Profits according to financial statements
50
Aggregates (a): Automobile expenses
3
Depreciation of automobiles
2
Penalty imposed by tax authorities
2
Provision for voluntary bonus
6
Financial and tax monetary restatement difference
6
Estimate expenses accrual
3
First category tax accrual
7
35% additional tax accrual
2
31
Deductions (b): Dividends received (from Chilean companies)
(3)
Accrued partnership profits (from Chilean companies)
(8)
Difference for accelerated depreciation
(10)
Loss Carry forward
(15)
Net income subject to first category tax
(36)
45
Less expenses subject to the 35% special tax: Rejected expenses
(3)
Taxable income
42
Calculation of 72Tlx First category tax (Ch$42 million x 20%) (c)
8.4
Special tax (d) (Ch$3 million x 35%)
1.05
9.45
(a) The aggregates include expenses that are deemed not necessary to produce income under the Chilean tax law. (As for example, depreciation of certain assers not required to develop the business purpose of the entity). (b) The amounts deducted include items not subject to first category tax. (c) For incomes generated during commercial year 2011, corporate taxe rate is 20%. (d) Special tax is imposed on certain expenses that are not deductible for tax purposes.
71
Appendix 8: Individual Income Tax Calculation Monthly second category tax table up to March 2011
From To
UTM Tax %
475.537,50
0,00
0,00
-
35.225 Deduction
475.537,51
1.056.750,00
0,05
23.776,88
1.056.750,01
1.761.250,00
0,10
76.614,38
1.761.250,01
2.465.750,00
0,15
164.676,88
2.465.750,01
3.170.250,00
0,25
411.251,88
3.170.250,01
4.227.000,00
0,32
633.169,38
4.227.000,01
5.283.750,00
0,37
844.519,38
5.283.750,01
And up
0,40
1.003.031,88
The following is a tax calculation for commercial year 2010 (tax year 2011) for an individual resident in Chile.
Cl $
Cl $
Withdrawals entitled to 15% credit
20,000,000
Dividends received entitled to 10% credit
11,000,000
Fees (net of 30% deemed expenses)
6,500,000
Effective interest on short-term deposits (a)
700,000
Remuneration (net of social security Contributions)
5,000,000
Calculation of Global Complementary Tax Base
First category tax credit (b)
72
Doing Business in Chile 2011
Withdrawals (0.17647 x Cl$20,000,0000)
3,529,400
Dividends (0,11111 x Cl$11,000,000)
1,222,210
4,751,610
Global complementary tax base
47,951,610
Calculation of Global Complementary Tax ©
UTA
Dic. 2007
$ 410.664
Global Complementary tax
From
To
Tax %
Deduction
0,00
$ 5.543.964,00
0,00
0,00
“
5.543.964,01
12.319.920,00
0,05
277.198,20
“
12.319.920,01
20.533.200,00
0,10
893.194,20
“
20.533.200,01
28.746.480,00
0,15
1.919.854,20
“
28.746.480,01
36.959.760,00
0,25
4.794.502,20
“
36.959.760,01
49.279.680,00
0,32
7.381.685,40
“
49.279.680,01
61.599.600,00
0,37
9.845.669,40
“
61.599.600,01
And up
0,40
11.693.657,40
7,233,117
Tentative tax
7,233,117
Cl $ 47.951,610
Less credit: Sole tax paid for remuneration Credit for first category tax 10% Chilean withholding tax on fees
(100,000) (4,751,610) (928.571)
(5,780,181)
Global complementary tax payable
1,452,936
(a) Effective interest is calculated after monetary correction of the deposits. (b) The calculated amounts of the credit are rounded down. (c) The calculation of tax is based on the 2008 brackets. The value of an annual tax unit (ATU)
as of 3l December 2010 was Cl$451,260.
73
Ernst & Young in Chile Ernst & Young is one of the leading professional services firms in Chile. Our 1.000 professionals and support staff are available anywhere in Chile, working out of our office in Santiago. Ernst & Young professionals in Chile are experienced in all aspects of business services, particularly in the following areas: Tax Consulting: We design and implement domestic and international tax planning strategies to help our clients operate efficiently and effectively and minimize their taxes worldwide. We assure compliance with tax regulations and assist in dealing with tax authorities. Accounting: We help develop and improve accounting systems and controls, comply with industry and fiscal requirements, as well as changing regulations, and we account fur complex transactions. We provide owner-managed compa nies with bookkeeping, accounting, internal audit and reporting services. Auditing Services: An Ernst & Young audit is individually tailored, cost- effective and focused on the client’s areas of highest risk. We provide suggestions for improvement in controls, productivity and management. Inbound Investment: We help clients design market entry strategies and identify potential local partners and suppliers. We advise on legal structure, financing, management structure, information systems, expatriate remuneration and employment issues. Corporate Finance: We help companies initiate, structure and manage transactions; raise money through debt, equity and development capital; negotiate joint ventures and strategic alliances; conduct business valuations; and conform to stock market requirements. Mergers and Acquisitions: We help our clients locate suitable business partners, targets for mergers or acquisitions, or purchasers for all or part of their companies. We assist with integrating acquired operations into existing companies. Expatriate Services: As market leaders in expatriate services, we have the expertise to assist clients with a broad range of issues confronting individuals working and living abroad. Employer Services: We provide advice un all issues affecting employers, including employment law and contracts; human resources policy; income tax
74
Doing Business in Chile 2011
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76
Doing Business in Chile 2011