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Investment in Chile KPMG CHILE 2009 Edition



Investment in Chile KPMG CHILE 2009 Edition

The information contained herein is intended for general use and cannot be considered as tax advice. Application to specific situations should be determined through consultation with your tax adviser.




Chapter I.

Vehicles of investment in Chile


Incorporation of a legal entity


Limited Liability companies

i. ii. iii. iv. v. vi. vii.

Incorporation Liability of interest holders Capital Transfer of interest Management Distribution of profits Supervision by government authorities


Stock Corporations

i. ii. iii. iv. v. vi. vii.

Incorporation Liability of stockholders Capital Transfer of shares Management Distribution of profits Supervision by government authorities


Stock Company

i. ii. iii. iv. v. vi. vii. viii.

Sole shareholder Incorporation Liability of interest holders Capital Transfer of interest Management Distribution of profits Supervision by government authorities


Branch of a foreign entity



Representative or agent



Foreign Funds


Simplified procedure for investment in securities






Chapter II.

Foreign Investment in Chile

Foreign Investment Statute



Chapter XIV of The Central Bank Compendium of Foreign Exchange Regulations


Protection for foreign investors




Chapter III.

Imports and Exports







Chapter IV.

The Chilean Tax System



a. b. c.

Legislative Structure Tax Administration Tax payments


Corporate income taxes

a. b. c. d. e. f.

Overview Applicable corporate taxation Special regime under Foreign Investment Statute Chilean resident interest holder Calculation of taxable income Specific Tax on Mining Activities


Special Issues related with foreign investment in Chile

Investment platform Transfer Pricing Rules

a. b.




c. d. e. f. g.

Debt Equity Ratio Foreign tax credit Tax treatment on capital gains from selling companies Tax treaties Withholding taxes on payments to non

Income taxes on individuals


residents 45

a. b. c. d. e.

Non Chilean resident individuals Salaries and other remunerations to individuals Specific issues Tax returns and compliance Deductions from individual income.


Valued Added Tax

a. b. c. d.

Transactions not subject to VAT Credit and Debit System Tax liability VAT administration


Stamp Tax


7. 8.

Custom Duties Municipal tax

50 50


Other taxes


a. b.

Property tax Inheritance and donations tax


Chapter V.

KPMG contact partners


Chapter VI.

Chilean Institutions for Foreign Investors


Chapter VII.

Chile at a Glance






CHAPTER I VEHICLES OF INVESTMENT IN CHILE Non-residents, individuals and legal entities, that wish to operate in Chile may chose to execute their activities through the following vehicles: -

By setting up a legal entity. The most common entities to set up are limited liability companies and corporations.


By setting up a branch of a foreign entity.


By appointing a representative or general agent.


By setting up or registering in Chile a foreign investment fund.


By registering with the Chilean IRS under the simplified procedure for investment in securities


Incorporation of a legal entity

Corporations and limited liability companies are the most common forms of setting up legal entities in Chile. Below you will find a brief description of these types of entities. Limited liability companies and corporations are separate legal entities, different from their interest holders and stockholders. 10

For tax purposes, none of them are considered pass through entities. Most legal entities in Chile must have at least two interest or shareholders, either individuals or artificial persons. Nevertheless the stock company, a new type of corporate entity introduced into our legal system in 2007, allows for a sole shareholder. The percentage of ownership of each holder is not relevant. For the purpose of setting up a limited liability company or a stock corporation, foreign partners or shareholders must grant powers of attorney authorizing a Chilean resident individual to represent them. These powers of attorney must be granted before a Notary Public at the jurisdiction of the interest holder and thereafter apostilled before the corresponding Chilean Consulate. Consultation with your nearest Chilean Consulate is advised. a.

Limited Liability Companies (“Sociedades de Responsabilidad Limitada�)



Limited liability companies, hereinafter LLC, are set up by a public deed granted before a Notary Public. Such public document contains the bylaws and the articles of incorporation of the company. An abstract of the public deed must be published in the Official Gazette and registered with the Registry of Commerce within 60 days of the completion thereof. LLC´s are usually formed by a small number of interest holders (the legal maximum is 50 partners, the minimum is interest holders). It is not relevant whether or not interest holders are Chilean or foreign nationals, resident or nonresident, individuals or other legal entities. In 2003 the Congress passed a Law that authorized the setting up of individual limited liability companies consisting of a sole interest owner. However, these entities may only be formed by individuals.


Liability of the interest holders

The liability of the interest holders in the LLC is limited to the amount of their respective contributions or to the amount fixed by the interest holders in the bylaws.




The interest holders, at their will, fix the amount of capital in the organizational documents. There is no minimum or maximum capital requirement. The capital is not divided into shares rather the partners' capital contributions give rise to rights or interests in the company.


Transfer of interest

Interest in an LLC is not freely transferable or assignable. Any transfer or assignment requires the approval of all the other interest holders, documented by means of an amendment to the bylaws of the LLC. Likewise, any change to this deed requires the consent of all interest holders and the corresponding formal amendment to the by-laws. (v) Management Management may be entrusted to the interest holders, as established in the bylaws. The interest holders may grant management responsibilities to a legal representative or to another individual. The legal representative must have residence in Chile.


Distribution of profits

Subject to some conditions, the interest holders may freely establish the terms and conditions of profit distributions.


Supervision by government authorities

Unlike stock corporations whose shares are publicly traded and that are subject to the supervision of the Superintendence of Securities and Insurance (SVS), LLC’s are not subject to government supervision, No publication of annual financial statements is required, nor is the LLC required to hold regular annual meetings. Independent auditing is not required either. b.

Stock Corporations (“Sociedades Anónimas”)

Under Chilean regulation, corporations may be "open stock corporations" or "closed stock corporations". Open stock corporations are those whose shares are traded to and among the general public, those that have 500 or more shareholders and 12

those in which at least 10% of the subscribed capital belongs to a minimum of 100 shareholders. On the contrary, closed stock corporations are those that do not comply with the aforementioned characteristics.



Corporations, whether closed or open, must be set up through a public deed granted before a Notary Public. Such public deed contains the bylaws and the articles of incorporation of the entity. An abstract of the public document must be registered in the Registry of Commerce and published in the Official Gazette. Open stock corporations must be registered in the SVS as well. Closed stock corporations may voluntarily register at the SVS. To incorporate an entity to develop activities in businesses such as banking, insurance, etc., an authorization of a government office is also required.


Liability of the shareholders

Shareholders are only liable for the value of their shares.



No minimum capital is required (except for banks, financial institutions, securities entities and others). In accordance with the law, the total initial capital must be subscribed and paid within three years counted from the date of incorporation. Failure to do so will result in the automatic reduction of the capital to the actually paid amount. Corporations are permitted to issue one or more classes of stock, with or without par value and with different preferences, limitations, voting and liquidations rights. It is very unusual for a corporation to issue shares with par value. Shares may be paid in cash or transferring assets. Every year, capital and share’s value is automatically modified due to monetary correction (inflation adjustment) whenever the shareholders’ approve the financial statements at the annual meeting. Capital may also be increased and diminished by an amendment to the bylaws.



Transfer of shares

Listed entities offer their shares publicly. The shares of these entities may be freely traded. Shares of other kind of corporations are not publicly traded. Unlike the interest in LLC, the shareholders may sell their shares without the consent of the other shareholders. Both for open and closed corporations, the minimum number of shareholders is two. There is no maximum number of shares possible to issue.



A Board of Directors elected at a regular shareholders’ meeting manages stock corporations. The minimum number of directors is five in the case of open stock corporations and three in the case of close stock corporations. In case of corporations that require having an “audit committee” the minimum number of directors is seven. The shareholders’ meeting may revoke the board of directors. The law does not require directors to be shareholders. There are no restrictions on the nationality and residence of directors. Also, directors can participate in the meetings in any form (i.e., internet, phone, teleconference, etc.) Decisions of the Board of Directors are adopted by debate and voting. The Board of Directors may appoint an individual as general manager of the entity. The general manager is the legal representative of the company. The function of the general manager is to execute the decisions agreed by the Board of Directors. The manager cannot be a director in open corporations.In case of closed corporations the manager cannot be the chairman of the corporation. The Board of Director’s meetings must be held at least monthly in open stock corporations. Bylaws shall specify the minimum frequency of these meetings in closed stock corporations, otherwise they must be held monthly. Certain matters of importance require the approval of a general shareholders’ meeting, such as dissolution, transformation, merger or division, reduction of capital and the transfer of 50% or more of the assets of the corporation. 14

Shareholders’ meetings are ordinary (which must be held as established in the corporation’s bylaws at least once a year) and extraordinary (which can be held at any time when required according to the needs of the corporation).


Distribution of profits

In the case of open stock corporations the law requires that at least 30% of the annual net profits be distributed to the shareholders, unless unanimously decided otherwise at the ordinary shareholders’ meeting. In the case of close stock corporations, shareholders may freely determine in the bylaws the distribution of net profits and dividends. However, if not otherwise addressed in the bylaws of the close stock corporation, the provisions that rule open stock corporations govern profit distributions.


Supervision by government authorities

Open stock corporations are subject to the supervision of the SVS.Open corporations are subject to strict requirements, such as protection rules for minority shareholders. The same regulations that apply to open stock corporations may be applied to closed stock corporation if agreed in a general shareholders meeting of such entities. c.

Sociedades por Acciones (stock companies)

(i) Sole shareholder

This is the only type of legal entity which allows for a corporate body to establish an entity with one single owner/shareholder: Nevertheless, there may be two or more. Its capital is divided into shares. The administration regime is much simpler and less time consuming than a stock corporation.

(ii) Incorporation

A stock company can be incorporated with one single shareholder. There is no maximum amount of shareholders. If the stock company was originally incorporated with two or more shareholders, the company is not dissolved if its stock becomes the property of a single shareholder. Stock companies are set up by a public deed granted before a Chilean 15

Notary Public or by private instrument registered on a Public Notary’s official records. The public deed contains both the bylaws and the articles of incorporation. In the case of non Chilean shareholders, powers of attorney to set up the legal entity would be required (this is unless duly empowered legal representatives of the shareholders sign the public deed in Chile). These powers of attorney should be legalized before a Chilean Consulate through a specific procedure. An excerpt of the public deed must be published in the Official Gazette and registered in the Registry of Commerce within one month of the execution of the company’s by laws. Stock companies should register with the Chilean Internal Service (SII) to obtain a taxpayers´ identification number and to initiate activities as a taxpayer.

(iii) Liability of the shareholders

Shareholders limit their liability for the company’s obligations to the amount of stock held.

(iv) Capital

The capital of a stock company is divided into shares. There is no minimum capital required to incorporate a stock company. Capital stipulated in the bylaws must be effectively paid within five years from the date of incorporation. Failure to do so will result in the automatic reduction of the capital to the paid amount. Stock companies can issue stock, with or without par value. Furthermore stock companies can issue preferred stock. Preferred stock need to be indicated on the corporation’s by laws and the preference may be economic (preferred dividend) or political (multiple vote in the stock holder meetings). Capital can be increased through a modification of the by-laws approved at the Shareholders´ Meeting. Nonetheless, the by-laws can authorize the administration to increase the capital without prior approval of the Shareholder’s Meeting within a predetermined scope. Decreases in capital must also be approved at the Shareholders Meeting with a majority vote indicated in the company’s by-laws. If the by-laws do 16

not specifically indicate the majority required for a decrease of capital, the unanimous consent of the shareholders is needed. As for any entity prior authorization by the Internal Revenue Service is also required for a capital decrease. The company can acquire its own stock unless it has been specifically forbidden on the company’s by- laws.

(v) Transfer of shares

Unlike the interest in Limitadas, shareholders may freely sell their shares without the consent of the other shareholders (unless the shareholders have entered into an agreement which limits the transfer of shares).

(vi) Management

Unlike stock corporations, stock companies are not subject to a specific administration regime. The company’s by-laws should organize the administration regime of the stock company. If the company’s by-laws do not regulate the administration regime, stock company’s administration regime is governed by the same administration regime that rules close stock corporations.

(vii) Distribution of profits

Shareholders may freely determine in the bylaws the distribution of net profits and dividends.

(viii) Supervision by government authorities

Stock companies are not subject to the control of government agencies. 2.

Establishment of a branch of a foreign legal entity

Foreign entities may also develop activities in Chile by setting up a branch of a foreign corporation. The establishment of a branch of a foreign entity in Chile requires the registration of the bylaws of the foreign company before a Notary Public. It must also be registered at a Notary Public’s records, a general power of attorney granted to the agent that will run the branch as well as other documents that certify that the company has been legally established and it is in good standing. Additionally the appointed agent must make some statements regarding the Chilean branch. Among the issues to state about, the agent must 17

declare that the corporate assets are subject to Chilean law in order to b ack the obligations of the branch in Chile, that the branch will maintain easily realizable assets in Chile for the same purpose, etc. These declarations must be included in a public deed. An abstract of the public deed must be registered in the Registry of Commerce and published in the Official Gazette. The agent of the foreign entity must be broadly empowered to carry out and conclude business on behalf of such foreign company, which is entirely liable for the obligations contracted by the branch in its benefit. The branch must publish its annual financial statements in a leading local newspaper during the quarter following the end of the year. 3.

Appointment of a representative or general agent

To develop some types of activities in the country, foreign entities may also appoint a representative office in Chile. By granting powers of attorney, the foreign entity may nominate an individual or a legal entity as its agent in the country. Representative offices usually develop activities in order to gather information about the local market as well as to inform the Chilean clients about the products offered by the foreign entity. Consideration should be given to the creation of a permanent establishment of the foreign entity in Chile by the activities developed by the representative office. 4.

Setting up or registering an investment fund

Foreign investors may also invest in Chile through a Foreign Capital Investment Fund or a Foreign Risk Capital Investment Fund. The fund contributors may be foreign individuals or legal entities, including foreign investors and institutional investors. The management of the fund relies on a Chilean stock corporation. The instruments in which the funds may invest are expressly regulated.


Some foreign Funds may also be registered in Chile in order to be able to invest in securities. Profit remittances made abroad by the aforesaid investment funds are subject to a sole 10% tax. Additionally, if some requirements are met, capital gains obtained by the funds are tax exempt. 5.

Simplified procedure for investment in securities

A simplified procedure is available for investment in securities (particularly shares of open stock corporations traded on the stock exchange) which may be channeled through a stock broker or a bank without its being necessary to set up an agency or a permanent establishment in the country. To benefit by this simplified procedure the foreign investor must appoint a stock broker or bank as his representative by means of a special liability agreement. The representative will provide the investor with a Tax Payer’s Identification Number (“RUT�). The RUT will allow the investor to operate instantly on the securities market without prior constitution of companies or agencies in Chile. Provision of the RUT number and execution of the agreement are sufficient to start processing the selling or purchase orders issued by the investor. By this mechanism non resident investors may obtain a RUT number through the entities providing securities custody services. A bank operating in Chile may act as custodian and process the sale and purchase of securities on the local stock exchange through a broker. However, if the investor chooses to operate without a custodian he may obtain a RUT number through his local stock broker.





CHAPTER II FOREIGN INVESTMENT IN CHILE In general terms, foreign exchange transactions can be freely made in Chile. As stated below, only few regulations restrict this general principle. In order to regulate some areas of the money exchange market, the Chilean regulation establishes a foreign currency market segment called the Formal Exchange Market. The participants of this market are banks and exchange houses authorized by the Central Bank. There is also a so called Secondary Exchange Market, consisting in the remainder participants of the market, where foreign currency may be freely exchanged. The Chilean Central Bank states that some specific transactions must be performed exclusively on the Formal Exchange Market. Among the transactions to be executed at the Formal Exchange Market are foreign loans, capital contributions made by foreign entities and capital and profit remittances abroad. The Central Bank is also empowered to establish some other restrictions and information requirements. The entry of foreign currency into Chile, either as a capital contribution or as a foreign loan, must be executed through one of the investment vehicles established by the Chilean regulation.


The two general investment mechanisms are: - -

The Foreign Investment Statute (Decree Law 600 or DL600), and The Chapter XIV of the Central Bank Compendium of Foreign Exchange Regulations (Chapter XIV).


Foreign Investment Statute

Any foreign individual or foreign legal entity as well as Chilean individuals with residence abroad, may bring investment into Chile through the mechanism established by the Foreign Investment Statute established by the Decree Law 600. By signing a foreign investment contract, foreign investors enter into a legally binding agreement with the Chilean government. Such contract may not be modified unilaterally neither by the Chilean government nor by any legislative measure after it has been signed. The agreement may only be amended with the consent of both parties. The contract acknowledges the following rights to the foreign investor: (1)

Repatriation of capital exempted from tax, after one year from its entrance and the repatriation of profits without restriction in time,


Access to the Formal Exchange Market for the conversion of currency at the most favorable rates available,


Access to nearly all productive sectors of the economy,


Invariability with respect to certain tax legislation and treatment, and


Nondiscrimination guarantees.

The investor may bring capital into the country not only in the form of currency but also in tangible assets, technology, loans or the capitalization of loans or profits. The minimum investment amount for a new project is US$ 5,000,000 (five million dollars) when investments consist of foreign currency and 23

associated credits. The minimum amount is US$ 2,500,000 (two and a half million dollars) when the investment is in the form of tangible assets, technology, and capitalization of profits or capitalization of credits. Loans associated with foreign investments may not account for more than 75%. Investments of US$50 million or greater may benefit from additional favorable tax incentives. The foreign investment contract will determine the term for the investor to bring the investment funds into Chile. This term may not exceed eight years in the case of mining investments and three years in all other projects. The procedure to execute the contract is simple and the Committee works expeditiously. The foreign investor must submit an application to the Foreign Investment Committee, entity representing the Chilean government for the purposes of the foreign investment agreements. The application must include information about the foreign investor and the amount of the investment. Profits generated by the investment in Chile may be transferred abroad at any time upon payment of the respective Chilean taxes without any limitation. Remittances of capital may be sent abroad one year after the entry of the investment into Chile. As will be analyzed below, DL 600 foreign investors may choose special regimes and tax benefits. DL 600 foreign investors may also choose to establish, for a period of 10 years, a total income tax burden of 42% instead of the regular tax rates according to the general tax regime. Though the tax burden of the general tax regime is lower, the benefit of the special regime is the possibility to fix the applicable rates during a certain period. The foreign investor may waive the invariability established by the special regime at any time. In this case the foreign investor cannot later return to the fixed rate regime. In addition, foreign investors under the DL600 may be exempt of VAT on the import of investments brought into the country in the form of tangible assets provided those goods are included in a list prepared and published by the Ministry of Economy’s Foreign Trade Department. Investments in new industrial or extractive activities, including mining, are entitled to additional tax benefits, provided they have a value of at 24

least US$ 50 million. In these cases, the tax invariability may be extended to 20 years. Invariability of legal provisions and rulings of the tax authorities regarding certain tax issues may be also established. New Legislation for mining projects: On 16 June, 2005, Law 20.026 was published in the Official Gazette. It establishes a specific tax on mining activities. The Law amends Decree Law 600 by adding a new Article 11 ter. That article establishes a regime of invariability for the aforementioned tax, for those investors that sign a new foreign investment contract related to projects with a value of no less than US$ 50 million. 2.

Chapter XIV of the Central Bank Compendium of Foreign Exchange Regulations (Chapter XIV)

Another mechanism available to foreign investors for brining investment into Chile is Chapter XIV of the Compendium of Foreign Exchange Regulations (Chapter XIV). Chapter XIV regulates foreign loans, deposits, investments and capital contributions transferred to Chile from abroad. This investment vehicle involves a simple registration of the investor at the Chilean Central Bank, procedure that is usually carried out through the commercial bank that participates in the transaction. Chapter XIV is applicable to investment in the minimum amount of US$10,000 in form of foreign currency and contribution of shares or ownership interest in foreign entities. The acquisition of shares in open corporations or quotas in Investment Funds domiciled in Chile for the purpose of trading securities representative of the same in foreign markets is also considered investment. Capital and profits may be remitted abroad according to the terms and conditions contained in specific regulations issued by the Central Bank in force at the time of the transaction. Pursuant to the current foreign exchange regulation there is no limitation regarding the timing or amount of profits and capital remitted abroad.



Protection for Foreign Investors

Since 1991, Chile has negotiated and concluded several Bilateral Investment Treaties (BITs). These treaties provide foreign investors with protection from discrimination. The principles of national treatment, and most favored nation are also recognized. Likewise, they state that any expropriation will be adopted in accordance with a law based on public good or national interest, in a non-discriminatory manner, and must be accompanied by the provisions of prompt, adequate and effective compensation. BITs signed by Chile also grant investors from contracting states free transfer of capital, profits, interest and other funds. Some restrictions may apply, in accordance with national law. BITs also guarantee access to insurance coverage against non-commercial risks, provided by the World Bank’s Multilateral Investment Guarantee Agency (MIGA) and the Overseas Private Investment Corporation (OPIC). The aforementioned guarantees are reinforced by the principle of subrogation granted by BITs. This means that if one contracting state grants any kind of insurance against non-commercial risks in favor of an investment in the territory of the other contracting state, the host country shall recognize the rights of the former to be subrogated to the rights of the investor in case the insurance is paid. In addition, BIT agreements consider a dispute settlement mechanism based on arbitration. Under this arbitration mechanism, an investor on its own behalf can bring a claim against the host country, independently of his home government.




CHAPTER III IMPORTS AND EXPORTS During the last 30 years Chile has implemented open economy policies that promote international trade. Exports are highly encouraged and the export sector represents an important part of the Chilean economy. Regarding imports, few limitations exist for entering merchandise into Chile. The only significant restriction refers to used vehicles. To promote international trade, Chile has signed several free trade agreements. Among others, Chile has entered into free trade treaties with Panama, Japan, China, the USA, Canada, Mexico, South Korea, the Central American Community, EFTA, and the European Union. Chile has also signed treaties with Mercosur (Brazil, Argentina and Uruguay), PerĂş, Colombia, Venezuela, Bolivia and Ecuador. Imports The procedure to import merchandise into Chile is quite easy. The most important documents required to execute an import operation are the import report, the commercial invoice, the corresponding bill of lading and the insurance and certificate of origin if applicable. Importers who carry out imports exceeding US$ 5.000.000 FOB value per annum must inform the Chilean Central Bank about the payment terms and status of the import transactions. The information must be presented quarterly and may be filed through the Internet. Regarding tariffs, the general customs duties rate is 6%, applicable over the CIF value of the imported merchandise. Additionally to customs duties, imports are subject to an 19% VAT applicable over the CIF value increased by the customs duties. Nonetheless, the average effective rate over imports is lower than 6% due to the free trade treaties. Free trade zones, operated as a public utility usually adjacent to some port of entries located in extreme zones of Chile (Iquique, in the north and Punta Arenas in the south) are used to promote imports. Any merchandise brought into such a zone is exempt from the customs and VAT laws that govern the payment of duties on entry of goods. 28

Consequently, goods may be sold, stored, exhibited repacked and assembled within the free zones of customs duties and VAT without such payments. Exports For statistical and money exchange purposes, Chilean exporters who carry out exports exceeding US$ 5.000.000 FOB value per annum must provide to the Chilean Central Bank certain information mainly related to the foreign currency obtained as a result of such exports, payment of export advance installments and outstanding balance of the same. The information must be presented quarterly and may be filed through the Internet. The export procedure is very easy and it is usually carried out through a customs agency. The agency acts on the exporters behalf regarding affairs in which the Customs Office participates. Typically the customs agency is in charge of handling matters required to obtain and file the dispatch document (former export statement). Chilean legislation contains several laws intended to promote exports. Among the benefits to the exporters are the possibilities of deferral of the custom duties applicable on imported capital goods and the refund of VAT paid by the exporters. Other benefit to exporters is the possibility to obtain a refund of the withholding tax applicable to technical assistance services that form part of exported goods or services.







In general, taxes in Chile are imposed only by the central government. Besides municipal licenses applicable on the development of some economic activities, no other state or municipal taxes exist. The principal applicable taxes in Chile are: - - - - - - -

Income Tax Value- Added Tax (VAT) Stamp Tax Property Tax Municipal Tax Customs duties Inheritance and Donation Tax


Legislative Structure

The Chilean Constitution guarantees Chilean residents an equal tax burden, either in proportion of the income received or with progressive tax rates. The Constitution also ensures the equal distribution of other public revenues and prohibits the introduction of taxes that are without a doubt disproportionate or unfair. Similarly, it guarantees nondiscrimination by the State in economic matters. The Constitution also states that only a law approved by the Chilean Congress may establish, revoke, reduce or remit taxes of any kind or nature. In addition, the President has the exclusive right to introduce tax bills to Congress. b.

Tax Administration

The Chilean Servicio de Impuestos Internos (the Internal Revenue Service (“IRS�) is the authority responsible for the tax control and administration. The IRS is in charge of the application, control of the compliance, and enforcement of tax laws and regulations. The IRS is also empowered to provide administrative interpretations of the tax legislation through general or private rulings and instructions. 32


Tax Compliance (Tax Returns/Tax Payments)

For tax purposes, the tax period is the calendar year, irrespective of the corporate tax year. Accordingly, annual financial statements must be prepared as of December 31 of every year. Taxpayers must generally file annual income tax returns each year. The returns are due April 30 following the tax period. The annual income tax return constitutes a tax self-assessment by the taxpayer. In addition to filing annual income tax returns, business entities are obligated to file and pay monthly First Category Tax prepayments known as “PPM�s (provisional income tax payments). The provisional amount to pay is determined with respect to the monthly gross income of the taxpayer. When the final return is filed in April, the difference between the tax paid and the tax due is either paid to or reimbursed by the government. Furthermore, business entities must file monthly returns to report VAT, withholding taxes on salaries, payments abroad and other taxes. Monthly tax returns are due the 12th day of the following month (i.e., January tax returns are due February 12th). 2.

Corporate Income Taxes


Corporate Taxation Overview

Income generated by corporations, limited liability companies, stock companies and branches of foreign companies is taxed in two stages. First, the income generated/accrued by the entity is subject to the First Category Tax. If the profits are retained at the entity lever and are not distributed, no other tax is applicable to the accumulated taxable earnings besides the First Category Tax. Additionally if profits are distributed to individuals in Chile or remitted to legal entities or individuals abroad, such distributions are subject to a second level tax. This second level tax (the Global Complementary Tax or the Additional Tax) will depend on whether the beneficiary of such distribution is a Chilean resident or not. For example, when the profits are remitted abroad to the foreign investor, the earnings will be subject 33

to the Additional Tax. If however the profits are distributed to a Chilean resident individual, those profits will be subject to the Global Complementary Tax. However if the profits are retained by the entity and are not distributed to shareholders, no second level tax will apply on the accumulation of taxable earnings. No additional tax will apply if a dividend is distributed or funds are withdrawn to pay another Chilean corporate entity. No deduction is permitted for profits distributed to shareholders or interest holders. Limited liability companies and branches are considered separate entities, so, from a local perspective, profits are only subject to second level tax if they are distributed to the owners. Entities incorporated in Chile are subject to tax on its worldwide income. Non residents are only taxed in Chile on its Chilean sourced income, with some exceptions (i.e. services provided abroad and paid from Chile, which are subject to withholding taxes). b.

Applicable corporate taxation

According to the Chilean tax system, accrued income generated by legal entities will be subject to the First Category Tax at the rate of 17%. When the taxable income is distributed or remitted abroad, such distributions will be subject to an Additional Tax (the tax is collected at source via withholding tax) at a rate of 35%. The amount of the First Category Tax paid may be credited against the Additional Tax. This credit must be added in the calculation of the tax base of the Additional Tax. The purpose of this two level tax system is to promote savings and investments. An example to illustrate the applicable taxation is as follows: Taxable Income of the Chilean Company Corporate Income Tax (First Category Tax) Income Distributed to Parent Company

100 (17) 83

Additional Tax (Withholding Tax) Base Additional Tax before Tax Credit Corporate Tax Credit of First Category Tax

100 (35) 17


Additional Tax Payable Cash Available to Parent Company after taxes

(18) 65

The total tax burden for the company corresponds to the rate of 35%. c.

Special regime under The Foreign Investment Statute

Foreign investors subject to the Foreign Investment Statute (DL600) can chose between the general tax regime and a special tax regime that guarantees stability of the tax regime applicable to their investments. Even though currently the tax burden for taxpayers under this special regime is higher than the general tax regime, foreign investors that choose the special regime have the certainty that no amendment to the tax regulation will increase the applicable tax burden. The total income tax burden is 42% under the special tax regime. This special taxation is applicable for a period of 10 years from the commencement of activities. In the case of industrial or mining projects exceeding US$50,000,000, this term can be extended to 20 years As with the general system, the Chilean company under the special tax regime will be subject to the First Category Tax at the rate of 17%. However, this tax is not a tax credit against the Additional Tax (withholding tax). When the taxable profits are distributed abroad, the D.L.600 foreign investor will pay the difference between the applicable 42% and the First Category Tax paid instead of paying the 35% Additional Tax (withholding tax) on income withdrawn. Thus, when remitting profits abroad, the income tax withholding rate will be 25%. The following example illustrates the total tax burden under this special regime: Income of the Chilean Company Corporate Income Tax (First Category Tax) Income Distributed to Parent Company abroad Withholding Tax Base (Additional Tax) Withholding Tax Payable Cash available to Parent Company after taxes

100 (17) 83 100 (25) 58

Again please note that the total tax burden under the special tax regime for D.L.600 foreign investors is 42%. 35

Foreign investors who have opted for the special regime may waive the rights granted by this regime at any time and become subject to the regular tax regime. The waiver is irrevocable and the taxpayer can never be subject to the fixed rate. d.

Chilean resident interest holders

In the case where the interest holder of the investment is a Chilean resident individual, withdrawals and profit distribution will be subject to a personal progressive tax (Impuesto Global Complementario). The rates of this tax range from 0% to 40%. Profit distributions paid to Chilean corporate entities are not taxable. e.

Calculation of taxable income

Under the general rules, taxation is based on the taxable income determined on the basis of earnings and losses of the financial statements annually prepared. It is not necessary to keep a separate accounting for tax purposes. Therefore, in order to determine the taxable income, the taxpayer’s financial result may be subject to to additions and subtractions to arrive to the taxable income. In certain cases, the law allows taxpayers to determine taxable income based on a presumed taxable income. In such cases, it is not necessary to maintain complete accounting books and records as may otherwise be required. Under a presumed income regime taxes are paid according to a presumed income that basically consists in a percentage of a property value. Generally taxable income is defined as the gross income less direct cost of the goods/services and necessary expenses to produce that income, adjusted for inflation and as provided by the income tax law. Gross Income: Gross income, for tax purposes, is derived from the income disclosed in the financial statements prepared in accordance with Chilean Generally Accepted Accounting Principles (Chilean “GAAP�). The concept of gross income includes revenues of all sorts, e.g. earnings derived from property ownership, investments, industrial and commercial activities, and other business activities. According to the Chilean tax regulation, gross income is recognized when accrued for tax purposes. Nevertheless, the Income Tax Law specifically excludes from gross income some specific items, as mentioned below. 36

Exclusions: According to Chilean tax regulation, there are some items that are excluded from what is considered taxable income. Examples include: • •

The return of capital contributions and certain compensatory damage payments (compensation of moral damage only if established by a court of law) are common exclusion items.

Profit distribution by a Chilean company payable to Chilean resident legal entities is not subject to the First Category Tax. The profit distributions will be subject to taxation when remitted abroad or if they are paid to Chilean resident individuals.

Direct costs: Generally, direct costs include raw materials, salaries and optionally freight. On the other hand indirect cost are treated as expenses. For the valuation of inventory, the only accepted methods for tax purposes are FIFO and the weighted average. Expenses or Deductions: in order to determine the taxable income, only necessary expenses are deductible from the gross income. According to the Chilean tax law, deductible expenses should meet the following requirements: 1)

Expense should be necessary to generate taxable income. Necessary is determined in reference to the expense type considering the business activity as well as to its amount (reasonable amount).


Expense should not have been previously deducted as a result of being included as direct costs.


Expense must be paid or accrued effectively by the company during the tax year in which it is deducted.


Expense must be supported, documented, and justified before the Chilean tax authorities.


Expense cannot be comprised of an expense that the Chilean tax law has declared nondeductible.


The Income Tax Law expressly refers to the most common business expenses. Among the regulated expenses are interest, taxes, losses, bad debts, depreciation, salaries, exchange rate adjustments and differences, organizational and start-up expenses, promotional expenses and research and development expenses. The following are examples of common tax expenses expressly regulated by the Law: Depreciation: Generally depreciation of tangible fixed assets is tax deductible. The amount of the annual depreciation is determined on a straight-line basis by dividing the value of the assets by its useful life. The Chilean tax authorities issue a document with the useful life of the most common assets. Taxpayer may choose the application of the “accelerated depreciation�. In this case, the useful life is reduced to one third of the life established by the tax authorities. Accelerated depreciation may be applied to fixed assets acquired locally or imported. In the first case, the assets must have been acquired new (without use). The difference between accelerated and linear depreciation is deducted from the tax base of the First Category Tax but cannot be deducted for the purpose of calculating final taxes when the income is distributed to a Chilean resident individual or remitted abroad. Under specific circumstances, the Chilean tax authorities may authorize special depreciation regimes. Losses: Losses generated during a fiscal year may be deducted from retained earnings. If a loss balance remains, it may be carried forward indefinitely until it offsets future profits. Bad debts: In order to write off bad debts for tax purposes, the Chilean regulation states that the taxpayer must have exhausted all reasonable means to obtain the payment of such debts. In 2008, the Chilean IRS issued detailed instructions regarding the procedures that must be met such as attempt to collect the debt, as well as documentation necessary to evidence that such debt is not recoverable in order to write off the bad debt for tax purposes.


Compensation: In general, salaries, wages and bonuses paid to employees during the year are deductible. Taxes: Income taxes are not deductible. A deduction may be available for other taxes such as real property tax, stamp tax, municipal taxes and foreign income taxes. If a foreign tax credit is claimed, it would not be possible to deduct the foreign tax as an expense. Rent payments: Rent and lease payments paid by corporate taxpayers are generally deductible for tax purposes. Interest: In general, interest accrued is deductible for tax purposes to the extent such interest is not in consideration for indebtedness related with the purchase of assets that do not generate taxable income. See discussion below regarding Thin Capitalization rules. Start up expenditures: Start up costs may be amortized over a period of 1 to 6 years. Intangible assets: Generally, depreciation/amortization of intangible assets is not tax deductible. Charitable deduction: Provided certain stringent requirements are met, certain donations for charitable, educational, sports or cultural purposes may be treated as a tax credit or as a deductible expense for part of the amount. These tax incentives are subject to limitations. f.

Specific Tax on Mining Activities

The tax on mining activities is levied on operational income derived from mining activities by taxpayers that extract mineral substances and sell them in any state of production. Mining companies whose annual sales exceed the equivalent value of 50,000 metric tons of fine copper are taxed at a flat rate of 5%. Mining companies whose annual sales range between the equivalent of 12,000 and the equivalent of 50,000 metric tons of fine copper pay a progressive tax rate that varies between 0.5% and 4.5%. 39

Mining companies whose annual sales are less than to the equivalent of the value of 12,000 metric tons of fine copper are not subject to this tax. The value of a metric ton of fine copper is calculated according to the average value at the London Metal Exchange which is be published, in domestic currency, within the first 30 days of every year by the Chilean Copper Commission (COCHILCO). The operational income of the mining activity is calculated applying deductions and additions to the First Category Tax Base. In particular, income that is not derived directly from the sale of mining products is deducted and loss carry forward, interest and accelerated depreciation allowance have to be added. 3.

Special issues related to foreign investors


Investment Platforms in Chile

On December 2002, the Chilean Congress passed a Law that created the “Investment Platforms” regime. Under this regime, Investment Platforms are a legal fiction according in which a corporation that is established in Chile is considered as foreign legal entity for tax purposes. Therefore, such corporations will not be subject to taxation in the country on its foreign source income. Chilean source income earned by the Investment Platform is subject to taxation however. The objective of the Law is to promote the creation of investment vehicles for foreign investors that wish to establish their business center in Chile from where to invest in other countries of the region. Thus, as previously mentioned, investments made outside Chile by the Investment Platforms will not be subject to taxation in Chile. b.

Transfer pricing rules

In general terms, Chilean regulation follows OECD guidelines on transfer pricing. Specifically, the law refers to a “reasonable profit margin” or “production costs plus a reasonable margin” as methods that can be used for determining an arm’s length price. Reference is also made to retail prices charged to third parties as an acceptable measure of market value. The transfer pricing law empowers the Chilean IRS to challenge 40

intercompany transactions that are not conducted on an arm’s length basis. Corporate taxpayers must keep a registry of all transactions with related parties and the supporting documentation of such transactions. c.

Thin Capitalization Rules

According to the general rule established by the Chilean tax regulation, interest paid in consideration to loans granted by foreign banks or financial institutions is subject to an income tax withholding rate of 4% vs. the general income tax withholding rate of 35%. As a result, the application of the reduced withholding tax rate of 4% is subject to the thin capitalization rules with a 3:1 debt equity ratio. Therefore if a Chilean entity, beneficiary of the loan, is in a position of “excess indebtedness”, the applicable income tax withholding rate (for the percentage of excess debt) will be 35%. The difference between the 4% and the 35% is levied and payable by the Chilean entity. In other words, it is not the foreign lender that is subject to this tax. For these purposes, the debtor is considered to be in a position of “excess indebtedness” when its total debt with related parties or secured with money or securities by third parties, exceeds three times its taxable equity. “Total debt” for this purpose includes only amounts carrying interest subject to 4% withholding tax. Although not related to tax matters, foreign investors should bear in mind that in the case of projects channeled through DL 600, the Foreign Investment Committee may limit the percentage to be brought into Chile as debt. Currently this limit has been set at 75% of the total authorized investment. Again, this limit is not a tax limit but a legal limit that should also be considered by taxpayers. d.

Foreign tax credit

In order to avoid double taxation, Chilean entities that earn income outside of Chile may take as a foreign tax credit the corporate income tax or income tax withholding applicable abroad against the local corporate income tax. For the foreign tax credit regulations to apply, the Chilean taxpayer must record the outbound investment in the Outbound Investment Registry kept by the IRS. The previous requirement of channeling the investment 41

through the formal exchange market (i.e. basically through a bank) has been abolished with effect from January 1st, 2007. In general, the foreign tax credit depends on the type of income and on whether a tax treaty is in force with the source country. The foreign tax credit may be available for income tax withholding with respect to foreign dividends, profit distributions, and royalties received/accrued by or remitted to the Chilean taxpayer. Regarding foreign dividends and profit distributions, an underlying foreign tax credit is also granted for the corporate income tax paid by the foreign subsidiary or branch (and sometimes even a second tier subsidiary in the same country). The foreign tax credit is generally limited to the lower of: • Amount of the foreign tax effectively paid • A percentage of the foreign source income grossed up with the available credit. i) For income accruing from non treaty countries, foreign tax credit is capped at: Dividends Profit accrued from branches or permanent establishments abroad Royalty income

30% (less in certain cases) 17% 17%

Other types of income earned in non treaty countries (e.g. interest, capital gain) do not give rise to a foreign tax credit. ii) For income accruing from treaty countries, the foreign tax credit is available for all types of income and is capped at 30% (i.e. dividends, branch income, royalties, interest, capital gain, remuneration of dependent or independent services, etc.). Chile has entered into income tax treaties with Brazil, Canada, South Korea, Croatia, Denmark, Ecuador, Ireland, Spain, France, Malaysia, Mexico, Norway, New Zealand, Paraguay, Peru, Poland, Portugal, the United Kingdom and Sweden . iii) The aggregate amount of foreign tax credits for all types of income may not exceed an overall cap of 30% of the net foreign source income. The net foreign source income is the consolidated sum of foreign source profits and losses subject to taxation in Chile, less the expenses incurred to generate such income, plus the total tax credits calculated by the tax payer.



Tax treatment on capital gains by nonresident companies

In general, capital gains generated from selling an interest in a Chilean legal entity is subject to the general taxation regime, which consists of First Category Tax upon accrual and final taxes upon distribution (Additional Tax in the case of non resident owners). The First Category Tax may be used as a tax credit against the final taxes. However, if some requirements are met, the capital gain obtained from selling shares of a stock corporation may be subject only to the First Category Tax. In the case of foreign institutional investors that fulfill the requirements established by the Law, the capital gain obtained from selling shares of listed corporations, bonds or other publicly traded debt instruments is tax exempt. A general exemption also applies to capital gain generated from selling stock of listed corporations when the transaction is executed in an authorized stock exchange or in a public offering and some other requirements are met. Other tax incentives may also be available. f.

Tax Treaties

As of February 28th, 2009, Tax Treaties are in force with Argentina, Brazil, Canada, South Korea, Croatia, Denmark, Ecuador, Ireland, Spain, France, Malaysia, Mexico, Norway, New Zealand, Paraguay, Peru, Poland, Portugal, the United Kingdom and Sweden. Tax Treaties with Belgium, Colombia, Russia, Thailand and Switzerland have been signed but have not yet entered into force. Tax Treaty with South Africa is concluded but not signed yet. Tax Treaties with, Australia, Austria, China, Cuba, the USA, Finland, the Netherlands, Hungary, India, Italy, Kuwait, Czech Republic and Uruguay are in progress of being negotiated. g.

Withholding taxes on payments abroad

As a general rule, payments made from Chile in consideration for services provided by individuals or legal entities neither domiciled nor resident in Chile are subject to income tax withholding. 43

The general applicable income tax withholding rate on the payments made abroad is 35%. However, some payments abroad are subject to different income tax withholding rates such as the following examples: -

Interest paid abroad in consideration to loans granted abroad by foreign or international banks or financial institutions is subject to a 4% income tax withholding rate. As stated before thin capitalization rules also apply.


Payments for technical assistance and engineering services provided in Chile or abroad are taxed at a rate of 15% or 20%.


Payments for the use of trademarks, patents, formulae, assistance and other similar services are subject to a 30% income taxwithholding rate. In the case these payments are made to a related party, the amount should not exceed in the aggregate 4% of the income of the Chilean entity. This limit is not applicable when the taxation in the State of the beneficiary of the fees is equal or higher than 30% and other requirements are met.


Payments for the use of patents, utility models, industrial design, layout of integrated circuits, new vegetal varieties and computer programs when paid to an unrelated beneficiary are taxed at a 15% income tax withholding rate. This reduced rate is not applicable to beneficiaries resident or incorporated in a tax haven.

- - 44

Lease payments for imported tangible assets are subject to an income tax withholding rate of 1.75% on the amount of each rental payment. This reduced rate applies only to goods eligible for deferred payment of customs duties. Payments abroad in consideration of ocean freight toward and from Chilean ports, commissions and participation in these fees as well as revenue derived from services to ship and cargo in Chilean or foreign ports are subject to a 5% withholding tax rate. This tax does not apply where a reciprocity agreement is force, where no similar fee is applicable to Chilean ships in both the country where the ship is registered and in the country of the operator, if other than the country of registry.


Payments for leases, lease-purchases, charter parties or any other contract that contemplates the use of foreign ships for coastal trading are subject to a 20% income tax withholding rate. The same is applicable when the relevant contract allows or does not prohibit coastal trading.

There are also some payments made by a Chilean entity for services provided abroad that are exempt from income tax withholding. Among the services exempt from income tax withholding are freight, commissions paid in consideration of a commercial mandate and international communication services. The following services connected with exports from Chile are also exempted: freight, loading, unloading, storage, weighing, sampling and analysis of products, melting, refining and application of other special processes to Chilean products. For these exemptions to be applicable, some administrative requirements must be fulfilled. 4.

Taxes applicable to individuals

The general rule according to the Chilean tax regulation is that Chilean residents are subject to taxation over their worldwide income. Foreign individuals will be taxed in Chile only over their Chilean source income during the first three years in Chile. Accordingly during such term, foreign individuals will not be subject to taxation with respect to income generated by assets located or activities carried out outside of Chile. a.

Non-Chilean resident individuals

During the first six months present in Chile, non-Chilean resident individuals are subject to a 20% tax on their fees or salaries for scientific, cultural or sports activities. The tax rate for any other type of service is 35%. After the conclusion of a continuous six month period, these individuals will be subject to the progressive personal tax similar to Chilean residents. b.

Taxation on salaries and other remuneration to individuals

Depending on the nature of the activities undertaken and on whether dealing with employees or independent contractors/professionals, 45

individuals are subject either to the “Second Category Tax” or the “Global Complementary Tax”, respectively. Both are personal taxes at progressive rates. The range of the tax rates of these taxes range from 0% to 40%. In the case of employees, the Second Category Tax must be withheld and paid by the employer on a monthly basis. The tax base is the amount of the salary after deducting social security payments. If an employee earns other income, he/she will need to submit a tax declaration on April of the following year that includes the aggregated income. c-

Specific issues


Home leave is allowed as an expense for the employer, while the employee will be subject to tax on these benefits.


Severance payment is not taxable as long as the amount does not exceed one month’s pay for each year of service. One month’s pay is determined as the average of normal monthly pay over the 24 months immediately preceding termination


Payments made by an employer for club membership fees or wages of a servant or chauffeur are taxable unless it can be dem onstrated that they are provided solely for a business purpose.


Expenses regarding food, lodging or transportation are nontaxable only if the amounts are reasonable and provided solely for business purposes. Some requirements must be fulfilled.


Tax Returns and Compliance

The Second Category Tax is withheld monthly by the employer or the payer. In contrast, the Global Complementary Tax is paid annually by the individual. The tax return is due by April 30th of each year. An extension of the filing date is not allowed. In order to promote electronic filing of


the annual tax return, but only where no tax payment is due (e.g. application for refund), the IRS generally authorizes filing through the Internet until early May. e.

Deductions from individual income

Other than a deduction for social security contributions, in general no other deductions are permitted from gross taxable income (medical expenses, other taxes, interest paid on mortgages, casualty and theft losses are all not deductible for tax purposes). A very limited credit is available for interest paid on mortgages related to the acquisition of housing. An exception exists for professionals working as independent contractors. Independent contractors may deduct their actual business-related expenses with adequate documentation. Alternatively, they may apply a standard deduction equal to 30% of their gross revenue (with a cap of 15 Annual Tax Units: approximately US$ 13.500,-1) without the need to document expenses. 5.

Value Added Tax (VAT)

The VAT rate is a flat 19%. In general, VAT is applicable on the price charged for the following transactions: -

Sales of tangible goods provided by habitual sellers performing such transactions on a recurrent basis.


Services, whether habitual or not, that can be considered commercial, industrial, financial, or related to mining, construction, insurance, advertising or other commercial activities.


Imports, whether habitual or not.


Transaction deemed by the VAT Law as “sales” and “services”. Examples of these transactions are:

The leasing of tangible goods and of real estate that includes furniture in general or equipment which fits the property for commercial or industrial use.

1 Considering an exchange rate of 1US$ = 467 Chilean Pesos


Royalties or lease payments for the use of patents, trademarks or similar rights.

Constructions of any kind when built totally or partially by construction companies.

Fixed assets sold before they are fully depreciated or within four years from their acquisition.

Withdrawal of tangible assets from inventory.

Interest accrued in a sale on credit.

Transactions not subject to VAT Among the transactions not subject to VAT are: •

Professional and technical assistance services.

Capital contribution of tangible assets made by a DL 600 foreign investor, when some requirements are met.

Sale of used vehicles, if some requirements are met.

Interest on loans and securities.

Lease of real estate under some circumstances.


Real estate transfers under some circumstances.

International freight, both by air and sea.

Credit and debit System The VAT charged on sales and services by a seller or a service provider subject to the tax is the “VAT Debit”. The VAT paid on business purchases of goods and services by a VAT taxpayer is the “VAT Credit”. On a monthly basis, VAT taxpayers may deduct their VAT Credit from their VAT Debit. The excess of VAT Debit should be declared and paid monthly. On the contrary, if in a given month the VAT Credit exceeds the 48

VAT Debit, the remaining VAT Credit balance is carried forward and can not be refunded in cash. A refund in cash is available only for VAT credit derived from the acquisition of fixed assets where a credit balance persists for at least six months. It is important to note that non resident taxpayers can recover VAT but only in very limited and specific cases. In general, only registered VAT taxpayers can benefit from VAT Credits. Tax liability According to the Chilean VAT system, the ultimate economic burden of the taxation is transferred to the final consumer. However, the seller of goods or services is generally responsible for paying the taxes. Exceptionally, when the seller is not domiciled in Chile or when for other reason it is difficult for the Chilean tax authorities to control the correct application of the tax, the buyer is obligated to withhold and to pay the tax. VAT administration Local VAT taxpayers must record all sales transactions on invoices that were previously stamped and registered with the Chilean IRS. Significant penalties apply to noncompliance of these requirements. Taxpayers may also apply for individual authorizations to issue electronic invoices under an IRS approved system when certain requirements can be met. VAT tax declarations and the balance due, after netting VAT credits with debits, must be filed and paid monthly. These tax returns are due on the 12th day of the month following the month of the transaction. VAT on imports is paid at the same time as customs duties when goods are imported. 6.

Stamp Tax

In general terms, any kind of documentation that contains a loan or credit transactions for money borrowed is subject to the Stamp Tax. However, in the case of foreign loans, the Stamp Tax is applicable even if the transaction is not contained in a written document. 49

Promissory notes, bills of exchange, letter of credits, etc. are also subject to the tax. The Stamp Tax rate depends on the duration of the loan. A rate of 0.1% per month or fraction thereof applies between the issuance of the loan and its maturity date with a maximum of 12 months. Accordingly the maximum tax is 1.2% on the face value of the loan balance. For documents payable at sight or on demand, the rate is 0,5%.2 Some loans to finance exports are exempt from the Stamp Tax. Special temporary exemption: As a measure to support economic activity, loans granted in 2009 will be stamp tax exempt. Loans granted between January and June 2010 will be subject to 50% or the normal rates. 7.

Custom Duties

Imports into Chile are subject to custom duties at a general rate of 6%. Chile has signed several free trade agreements that reduce the applicable tariff. Among others, Chile has entered into free trade treaties with Panama, Japan, China, USA, Canada, Mexico, South Korea, the Central American Community, EFTA, and the European Union. Chile has also signed treaties with Mercosur (Brazil, Argentina and Uruguay), Peru, Colombia, Venezuela, Bolivia and Ecuador. Under exceptional circumstances, imports may be subject to additional or compensatory tariffs. 8.

Municipal Tax

Municipal taxes consist of licenses or permits that levy the exercise of certain business and professional activities. Municipal licenses or permits can be divided in two groups depending on the nature of the activities carried out. The first group deals mainly with commerce or business activities, industrial activities, professions and occupations, profitable and extractive activities that involve subsequent sale of manufactured or processed products. The permit levies the activity developed by the taxpayer in an office, firm, market, trading 2 Tax rates applicable to loans issued after 25.03.2008


house, convenience store, booth stand, newsstand or other similar establishments. The second group deals with the exercise of freelance professional activities and independent services executed by individuals. Depending on the municipality, commerce, industrial activities or similar activities are levied at a rate that ranges between 0.25% and 0.5%. The tax base over which this rate is applied is the taxable equity of the entity. Investments in other entities that are also subject to this tax may be deducted in order to avoid economic double taxation. The tax is capped at 8.000 Monthly Tax Units (approximately US$600.000,-3) Professional activities and independent services performed by individuals are levied with a fixed amount. The Municipal government located where the taxpayer establishment grants municipal permits. In cases where the taxpayer has several placements, the permit is paid proportionally between all of its settlements. Regarding professional activities, the Municipal government in which the main office is settled grants the permits. Municipal licenses are usually paid on annual basis. 9.

Other Taxes

Property Tax Property on real estate is subject to taxation at an annual rate depending on the property value ranging from 1.2% to 1.425 %. The rate is applied over the government appraisal of property. Inheritance and gift taxes Donations and inheritances are subject to a progressive tax applicable over the net amount of the inheritance or donation. The tax rate range fluctuates between 1% to 25% depending on the estate’s amount. The chargeable tax varies depending on the beneficiary’s relationship with the assignor or donor. If the inheritance or donation’s beneficiary is a close relative of the assignor or donor, a fixed sum exemption could apply over the inheritance or donation value. On the contrary if the beneficiary is a distant relative or not related, a tax surcharge of 20% or 40% could apply over the calculated final tax.

3 Considering an exchange rate of 1US$ = Chilean Pesos





CHAPTER VI KPMG CONTACT PARTNERS KPMG Auditores Consultores Av. Isidora Goyenechea 3520, Las Condes Santiago Telephone: (56-2) 798 1000 Fax (56-2) 798 1001 Web site: Regional Offices Av. Libertad 1405, piso 9 of. 901, Torre Coraceros Viña del Mar Telephone: (56-32) 297 3581 Fax: (56-32) 268 4789 O’Higgins 241, piso 17 of. 1702 Concepción Telephone: (56-41) 223 6659 Fax: (56-41) 222 8483 KPMG CONTACT PARTNERS

Senior Partner: Cristián Bastián

(56-2) 798 1101

Audit Lead Partner: Alejandro Cerda

(56-2) 798 1201

Advisory Lead Partner Cristián Solís de Ovando Lavín (56-2) 798 1371 Tax Lead Partner: Fernando Leigh

(56-2) 798 1401

Tax Partner: Edmundo Soto Juan Ignacio Cornejo Mario Silva

(56-2) 798 1401 (56-2) 798 1401 (56-2) 798 1401


Audit Partners Héctor del Campo José Galindo Joaquín Lira Cristián Maturana Teresa Oliva Gabriel Ortíz Benedicto Vásquez Roberto Muñoz Alejandra Vicencio Mario Torres Patricio Guevara José Navarrete

(56-2) 798 1202 (56-2) 798 1217 (56-2) 798 1211 (56-2) 798 1214 (56-2) 798 1214 (56-2) 798 1215 (56-2) 798 1201 (56-2) 798 1217 (56-2) 798 1218 (56-2) 798 1214 (56-2) 798 1211 (56-41) 223 6659

Conversion Services IFRS Partner Jason Anglin (56-2) 798 1216 Risk Advisory Services Partner Humberto Salicetti (56-2) 798 1501 Financial Advisory Services Partner Miguel León (56-2) 798 1382





CHAPTER VII CHILEAN INSTITUTIONS FOR FOREIGN INVESTORS Foreign Investment Committee (Comité de Inversiones Extranjeras) Teatinos 120, 10th floor Santiago Telephone: (56-2) 688 3113 (56-2) 688 5554 Fax: (56-2) 698 9476 Web site: ProChile Teatinos 180, 10th floor Telephone: (56-2) 827 5309 (56-2) 827 5304 Fax: (56-2) 827 5436 Web site: American Chamber of Commerce (Cámara de Comercio Americana) Av. Kennedy 5735, Of. 201 Santiago Telephone: (56-2) 290 9700 Fax: (56-2) 212 0515 Web site: Employers’ Confederation (Confederación de la Producción y del Comercio) Monseñor Nuncio Sótero Sanz de Villalba 182 Santiago Telephone: (56-2) 231 9764 (56-2) 362 0598 Fax: (56-2) 231 9808 Web site: 58

Industrial Development Corporation (Sociedad de Fomento Fabril) Av. Andrés Bello 2777, 3rd floor Santiago Telephone: (56-2) 391 3100 Fax: (56-2) 391 3200 Web site: German Chamber of Commerce and Industry (Cámara Chileno-Alemana de Comercio e Industria) Av. El Bosque Norte 0440, Of. 601 Santiago Telephone: (56-2) 203 5320 Fax: (56-2) 203 5325 Web site: British Chamber of Commerce (Cámara Chileno-Británica de Comercio) Av. El Bosque Norte 0125 Santiago Telephone: (56-2) 370 4175 Fax: (56-2) 370 4164 Web site: Chamber of Commerce of Santiago (Cámara de Comercio de Santiago A.G.) Monjitas 392 Santiago Telephone: Fax: Web site:

(56-2) 360 7000 (56-2) 633 0962

Central Bank of Chile (Banco Central de Chile) Agustinas 1180 Santiago Telephone: (56-2)670 2000 Fax: (56-2) 670 2099 Web site: 59

Government Advisory Body for Social and Economic Planning (Organismo Gubernamental de Planificación Económica y Social) Ahumada 48 Santiago Telephone: Fax: Web site:

(56-2) 675 1400 (56-2) 672 1879

Ministry of Economy, Development and Reconstruction (Ministerio de Economía, Desarrollo y Reconstrucción) Teatinos 120 Santiago Telephone: Fax: Web site:

(56-2) 473 3400 (56-2) 473 3609 (56-2) 473 3403

Ministry of Finance (Ministerio de Hacienda) Teatinos 120 Santiago Telephone: Fax: Web site:

(56-2) 473 2000 (56-2) 688 7440

Santiago Stock Exchange (Bolsa de Valores de Santiago) La Bolsa 64 Casilla 123-D Santiago Telephone: Fax: Web site:

(56-2) 399 3000 (56-2) 380 1959

Chilean Internal Revenue Service (Servicio de Impuestos Internos – S.I.I.) Teatinos 120 Telephone: Fax: Web site: 60

(56-2) 698 8195 (56-2) 692 1641



CHAPTER VIII CHILE AT GLANCE Chile is a narrow and long country located at the most southern area of the world. Due to its geographical characteristics, it has a vast range of landscapes, as for example: the most arid desert in the world, the long Andes mountain range and the Pacific Ocean which bathes the whole country with its deserts, fertile valleys, beautiful lakes and glaciers. Chile has a length of over 4000 kilometers and has an average width of 180 kilometers. Geography and Population Chile’s continental surface amounts to 756.096 Km2 and 2.006.096 Km2 including the Antarctic territory. It has its borders with Peru at the North, with Bolivia and Argentina to the North-East, to the East and South-East with Argentina, to the West with the Pacific Ocean and to the South with the Street of Drake. The country is divided in fifteen regions, the capital Santiago is located in the Metropolitan Region. The largest urban centers are: Santiago, with 5.4 million inhabitants; Concepción, Viña del Mar, Valparaíso, Talcahuano, Temuco and Antofagasta. Spanish is the official language of the country and its population is largely Roman Catholic. Chile’s population is mainly a mix between Spaniards and Native Americans (95%), 3% is composed of Native Americans and the remaining 2% belongs to others ethnic groups. Therefore, most of Chile’s 62

inhabitants are from Spanish descent; while another portion descentfrom other European countries as for example: Italy, France, Yugoslavia and England explained by an important immigration during the colonial period. During 1848 and for a period of 90 years an important immigration of Germans occurred towards the southern territories mainly Valdivia, Llanquihue and Osorno. These places have, nowadays, an important German influence in their customs and meals. According to the national statistics institute, of Chile. Chile’s population amounts approximately to 16.763.470 persons as of April 2008, with a growth of 0,916% percent. The rate of infant mortality is 8 per thousand births and the life expectancy is 76.8 years. As of March 2009, the workforce is estimated at 5.1 million people. Climate Chile’s climate is very different from one geographical area to another. Nonetheless, it is possible to observe four main areas: To the North: you can find the most arid desert of the world, the “Atacama Desert”, in this area almost no rain has been recorded for decades. Due to its characteristics, there are significant temperature differences between day and night. In the center of the country, you can find a Mediterranean climate with fairly dry summers that cover from November to March with temperatures of around 30°C or 86°F. The winters in this area of the country are very rainy and the average temperatures is of 15°C or 60°F. To the south of the Bio Bio River, the amount of rain increases and falls during the whole year. The difference between the day and night temperatures decreases. More to the south, especially in the Patagonia, the weather is more humid, colder and rainy. In addition, due to the proximity of the Pacific Ocean with the Andes Mountain Range, you can find different microclimates in which the temperature and vegetation is completely different in comparison to the rest of the geographical area; in these areas you can find sceneries with a great variety of flora and fauna. To the West of Continental Chile is located Eastern Island that presents a tropical climate during the whole year with slight temperature differences between night and day.


A brief historic background Almost 10,000 years ago, the indigenous tribes that moved to Chile settled in the fertile valleys of the region, nowadays known as Chile. The Chilean territory was occupied in the north by the Atacameños, to the south by the Onas who lived in the territory of the Patagonia; but the most important tribe were the Mapuches who lived in the center part of the country. During the 15th century the Incas expanded towards Chile covering an important portion of the country. Nonetheless, this expansion was unsuccessful due to important characteristics of the Mapuches: their warrior spirit and their constant rejection towards domination. Due to these reasons, the Incas were unable to expand further than the South of the Maule River and occupied the territory to the north of it for }approximately 50 years. Due to the presence of the Incas, the Mapuches learned about the construction of sophisticated fortresses and roads. But the presence of the Incas was interrupted by a far more important event: the arrival of the Spanish conquistadors in Peru in the year 1532. Diego de Almagro was the first Spaniard who entered Chilean territory trying to conquer all the territories to the south of Peru. These territories, according to the natives in Peru, had a large wealth in gold, silver and other metals. Almagro started his way to Chile with four hundred men arriving initially at the Aconcagua Valley. Three years later, Diego de Almagro gave Pedro de Valdivia the task of colonizing Chile. This is how on February 12, 1541, Pedro de Valdivia accompanied by 150 soldiers founded Santiago de la Nueva Extremadura, which is nowadays the capital of the country. The Spaniards, in the same way as the Incas, had to endure a fierce resistance of the Mapuche tribe. On September 18, 1810, Chile declared its independence form Spain, which started a war against the Spanish rulers for many years until finally the troops under command of Bernardo O´Higgins and General José de San Martín defeated the Spanish troops in the battle known as Batalla de Maipú in April 1818. This victory completed finally the independence process of Chile. Since the declaration of the Chilean Independence and the wording of the first Constitution in 1818, a democratic tradition started which lasted for approximately 150 years. 64

In 1973 this democratic tradition was broken by a coup d’Êtat headed by general Augusto Pinochet, who maintained his power during 17 years. Finally, on December 14, 1989, Patricio Aylwin was elected president in democratic elections after almost two decades of military government. Political System Currently, Chile is a democratic republic headed by a President as Chief of State. The political system of Chile is composed of three branches: The Executive branch is composed by the President of the Republic and a cabinet chosen by him. Every four year presidential elections are held through the vote of the citizens. The suffrage system establishes that all citizens older than 18 years registered in the elections records, are allowed to vote. On December, 2005, Michelle Bachelet was elected President of the Republic, position which she will held until 2010. The Legislative branch is composed of two chambers: the Senate and the House of Representatives, which together represent the National Congress. The Senate is composed by 38 senators elected by the vote of the citizens. The House of Representatives is composed by 120 representatives chosen by the citizens. The Judicial Power is composed by the Supreme Court, which has jurisdiction over all other tribunals and courts of appeal distributed along the country. The members of the Supreme Court are appointed by the President of the Republic and ratified by the Senate. Economic Facts The currency used in Chile is the peso. As a result of the Chilean liberalization towards international trade, accompanied by the privatization of state companies and low governmental expenses, the country is a very interesting destiny for foreign investors. The main and constant objective of the Central Bank has been maintaining low inflation rates. These rates were 2.4% in 2004, increasing to 3.7% in 2005; in 2008 the inflation rate fell to 2.6% and 65

during 2007 this reach to 7.5%. The inflation rate at the end of the year 2008 was 7.1%9. Government has promoted the export of products that are not part of the main export source of the country, as for example fruits, wine and fish. The main export source is copper. According to the economic indicators, the Gross Domestic Product in 2008 was estimated at US$169.458 millions, presenting a growth of 3,2%. The income per capita is estimated at US$10.814 with an inflation rate of 7,1%. On the other hand, the unemployment rate of 2008 amounted to 7,8%. As of December, 2008, total exports were estimated at US$66 billion (US$ Fob 2008) and total imports at US$56 billion (US$ CIF. 2008); the largest commercial partners are the following:11 Exports Major Trade Partners European Union China United States Japan Mercosur 10 Total

% of Total 24.4% 14.2% 11.2% 10.4% 9.9% 100.0%

Imports Major Trade Partners Mercosur United States Union European China South Korea Japan Total

% of total imports 19.6% 19.4% 12.7% 12.0% 5.6% 4.7% 100.0%

9 Source: Central Bank ,of Chile - 10 Regional commercial treaty among Argentina, Brazil, Paraguay, Uruguay and Venezuela 11 Source: ProChile - Chilean trade commission -


Main Exported and Imported Products: Exports Imports Copper Fish Fruit Paper and pulp Chemicals

Consumer Goods Chemicals Motor Vehicles Fuel Electrical machinery heavy

GPD by economic sector Financial and business services 16.8%

Personal services 10.8%

Housing property 5.4%

Others 5.9%

Agricultural and forestry 3.7%

Fishing 1.0% Mining 6.7%

Retail restaurants and hotels 10.5%

Manufacturing 15.8% Electricity, gas and water 1.8% Construction 7.5%

Transport and communication 10.1%

Source: Central Bank of Chile -


January 1, New Year’s Day Holy Week, third weekend of April May 1, Labor Day May 21, Naval Battle of Iquique June 29, Saint Peter and Saint Paul July 16, Virgin Carmen´s Day August 15, Assumption of the Virgin September 18, Independence Day September 19, Army Day October 12, Columbus Day October 31, Protestant and evangelical churches Day November 1, All Saints’ Day December 8, Feast of the Immaculate Conception December 25, Christmas 67

KPMG en Chile Santiago Isidora Goyenechea 3520 Piso 2 Las Condes. Tel.:+56 (2) 798 1000 E-mail: Viña del Mar Av. Libertad 1405, of. 901 Piso 9 Torre Coraceros Casilla 9032 Tel.:+56 (32) 297 3581 Concepción O´Higgins 241, of. 1702 Piso 17 Tel.:+56 (41) 223 6659

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© 2009 KPMG Auditores Consultores Ltda., sociedad de responsabilidad limitada chilena y una firma miembro de la red de firmas miembro independientes de KPMG afiliadas a KPMG International, una cooperativa suiza. Todos los derechos reservados. Impreso en Chile. KPMG y el logotipo de KPMG son marcas registradas de KPMG Internacional, una cooperativa suiza.



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