Company Registration in Chile
Healy Consultants Group PLC
07 November, 2014
Chile is known to be the favored location in Latin America to do business. This is partly due to the fact that opening a company in Chile is somewhat simple, compared to other countries in Latin America. Chile is a favored choice for product distribution, simply because it has the best infrastructure in Latin America. This infrastructure includes high quality roads, bridges, railways, air and sea-ports which ease the transfer of goods and services. In order to form a company in Chile, you only need two shareholders, who can be of any nationality. Chile has been voted 7th freest economy in the world by 2013 Index of Economic Freedom, due to availability foreigners experience, as they are permitted to register in all sectors of the economy except hydrocarbons. Along with this, Chile has been voted the least corrupt country in Latin America according to Corruption Index, 2012; therefore, the Chilean legal system is intact, and can be usefully used in order to resolve business disputes. Chilean free zones offer resident businesses a 100% corporate tax exemption for all company operations and import duty exemption. Along with this, government incentives are available for all resident companies, including: a refund of expenses for employee training (up to a maximum of 1% of that employees annual payroll), and tax credit of up to 15% of annual profits.
There are three business entity types in Chile, including: limited liability company, branch office, and representative office. The limited liability company, which is most common, can be formed with a minimum of two shareholders and one director in just six weeks. These shareholders can be of any nationality; however the one director must be a resident. A branch office is 100% foreign owned; however, a local sponsor or agent must be designated. Before registration of a branch office one must seek permission from the government. This type of entity is able to invoice local customers, sign local sales contracts, and receive income from customers. A representative office is also 100% foreign owned, and is obliged to designate a local sponsor or agent. However, this entity is prohibited to make direct sales within Chile, therefore a representative office can only engage in promotion of the business of the parent.
Chile currently has three free trade zones: duty free zone of lquique (ZOFRI), Punta Arenas free trade zone, and Africa free trade zone, which furnish magnificent manufacturing infrastructure including land and ready-made factory buildings and export facilities. The ZOFRI is located in the Northern part of Chile and provides large warehouses, serviced area, and financial area. Companies who choose to conduct their business in ZOFRI enjoy 100% exemption from corporate tax, 100% exemption from custom duties, 0.8% import tax, and 0% VAT on their first sale at ZOFRI. This free zone is made up of multinationals from both commercial and industrial sectors such as imports, exports, retail, assembly, manufacturing, and industrial processing. The Punta Arenas free trade zone is located in the Southern part of Chile, and boasts a large amount of warehouses, shopping centers, storage areas, and construction lots. Those who conduct their business in this free trade zone benefit from 100% exemption on corporate tax and 100% exemption from custom duties for imported goods. The Africa free trade zone is located near the border between Chile, Peru, and Bolivia. The location of this free trade zone enables investors to benefit from the convenient logistics for trading activities with the three countries. Companies which operate in this zone are qualified for 100% exemption on corporate tax. And 100% exemption from custom duties. Multinationals from the manufacturing, exports, and mineral trading sectors make up this free trade zone.
In Chile, the corporate income tax rate is collected at 20% on world-wide income, along with capital gains tax. The standard rate for value added tax is 19%, and all resident companies must file for value added tax on a monthly basis. Interest payments are subject to a withholding tax of 35%. Rural property is taxed at 1% annually, while urban property is taxed at 1.2%. Dividends which are transferred from a Chile resident company to a non-resident company are subjected to a withholding tax of 25%. Tax returns must be filed by the 31st of April each year. Certain business entities are required to file audited statements. These entities include: banks, financial institutions, insurance companies, public-traded companies, and pension plans. Consolidated statements must be arranged when a subsidiary is controlled at 50% or more by a corporate shareholder. Although, when the subsidiarys operations contrast largely from those of the parent company, consolidation is not required. Chile currently has 28 Double Taxation Treaties with countries, including Australia, South Africa, UK and USA. These treaties ultimately reduce the withholding tax on payments overseas.
A company registered in Chile must have a minimum of at least one permanent resident director who can be of any nationality, and each company must have a registered office in Chile. Not all starting businesses in Chile need the same registration and licenses, so it is important to gather information on what you exactly need. This could be confusing due to the numerous types of permits and licenses, depending on the nature of the business activity could include health, environmental and municipal permits. After the formation of a company, the entrepreneur should prepare a business start-up document which needs to be submitted to the National Tax Service. Each company registered in Chile must possess a working license from the municipality where they operate. The fee for the license is paid once a year for a 12-month period, from July 1st to June 30th, and the fee ranges from 0.25% to 0.5% of the companys capital. It is also required that all employees register to a professional accident insurance which is controlled by public authorities.
Foreign entrepreneurs may face several problems when trying to incorporate a company in Chile. Due to the country not having a sufficient bureaucracy, entrepreneurs can face delays when seeking a business license approval from the government. Foreign entrepreneurs can also find obtaining financial assistance difficult due to the interest rates being freely negotiable; therefore, bankers typically choose to increase them. Along with this high commission rates are often demanded by officials, and time delays are highly common during the loan approval process. A company registered in Chile cannot employ more than 15% of foreigners, this can be quite difficult since only 10% of the local Chilean population speak English. Rental of office space can prove to be quite expensive as the average annual rental is US$25 per sq. ft. The country is also extremely dependent upon exports, which in return makes the country vulnerable to external economic shocks.
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