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Form a Corporation in Chile
The following contains information about forming a corporation in Chile. You will gather tips and helpful hints that are relevant regarding the nature of the entity to be formed and other aspects to be considered regarding doing business in Chile.
We believe important to mention some aspects of Chilean regulations:
Under Chilean regulations, 100% of the partners of an entity can be foreigners.
One of the legal representatives of the entity must be Chilean or a foreigner with a Chilean residence.
In 2014, Chilean Congress enacted a significant tax reform, which introduces substantial changes to the Chilean tax system, including two alternative methods for computing shareholder-level income taxation.
The first method is the attribution-basis shareholder taxation. Under this mechanism, Chilean companies will continue to be subject to corporate-level income taxation at the rates mentioned below. The corporate-level income tax rate will increase gradually from the current 20%, as follows:
- For 2014, 21%
- For 2015, 22.5%
- For 2016, 24%
- For 2017, 25% for shareholders on the attribution method, and 25.5% for shareholders on the cash-basis method.
- For 2018 and future years, 25% for shareholders on the attribution method and 27% for shareholders on the cash-basis method.
Under this method, shareholders would be taxed on income attributed to them as of the end of the tax year in which the income is generated. These profits would be taxed at the shareholder level whether or not they are distributed (the so-called ‘attribution method’).
The underlying corporate income tax paid at the entity level remains creditable for all taxpayers against the final shareholder tax, so the combined total Chilean income tax burden remains 35%. This regime will be available on January 1, 2017.
The second method is the cash-basis shareholder taxation. Under an alternative mechanism, a 27% corporate-level income tax (CIT) applies, along with a 35% shareholder-level tax that is imposed on cash distributions. 65% of the CIT is creditable against the 35% shareholder-level tax.
The default mechanism for foreign shareholders generally will be the cash-basis mechanism, unless the distributing entity makes an election to apply the attribution method.
Once the election is made, it will apply for five years. There are rules coordinating the application of both regimes in the context of a corporate reorganization.
For the company to be able to run a business in Chile it needs to be incorporated as a Chilean legal entity.
The mechanisms to transfer capital are simple and fast. The regulations on this matter are stable and straightforward.
Alternatives and steps for the incorporation of a Chilean Entity
Incorporation of a legal entity
Within the ample range of alternatives between partnerships and share companies that the Chilean regulations consider, we often recommend the incorporation of a COMPANY BY SHARE (SPA)
It is a legal commercial entity that can have one or more shareholders.
The procedure would be to incorporate the company with an employee of our firm who upon concluding the incorporation process would immediately transfer the shares to the investor, by this means the investor would then assume full control of the new entity.
Within the entities or structure of companies that can be incorporated, the following ones can be considered:
- Limited Liability Partnerships.
- Stock Companies
- Company by share (SPA)
- Limited Liability Partnership. A company formed by two or more partners that requires that any amendment be approved by all partners, regardless of the participation of ownership that any one may have. Therefore a 1% owner has the same rights that a 99% owner.
- A Stock Company is a company formed by two or more shareholders and to be modified it requires the approval of a 51% majority and for certain matters up to two thirds of the shareholders.
- Company by Share (SPA) is a capital company that exists with one or more shareholders. This type of company was previously explained.
All of the mentioned entities have the same tax treatment, regardless of the type of entity.
For the incorporation of the entity we need to know the following:
- The name of the entity, which can be the name of your company ending with the letters SpA
- It is also necessary to indicate the line of business and the capital to be contributed into the entity .
- The name or names of the individuals that will be the legal representatives of the entity. We would assume it would be you.
A lawyer that we can provide can be assigned for the initial incorporation procedures. This individual can also act as the legal representative as the Chilean regulations require for the representative to be Chilean or foreigner, yet a resident of Chile. This process would last until you obtain your visa.
- Time required for the incorporation: Under this last scenario the company can be legally incorporated and ready to run in approximately 15 working days.
- An estimated fee for the incorporation including expenses between US$2200 and is US$ 3500, depends the company and the clients.
- Representation costs, legal address and accounting services
- Representation and administration: Monthly fee of between US$990 and US$1800 paid in advance every six months.
- Legal Address US$ 500 monthly fee paid in advance every six months.
US$ 600 per month during the initial settlement month until the business is running. The fees will be accordingly modified depending on the workload. Eventually the hiring of an in house accountant would be evaluated.
Representing the company means that we would have powers of attorney limited to only administrative functions with none of the disposal faculties.
The administration of a company in Chile has to be in the hands of a Chilean or a foreigner with residence in Chile. This requirement is mandatory in order to be able to draw checks and for all banking, tax and customs procedures. Including, yet not limited, to the obtaining a tax individual number, stamping and authorizing invoices, etc.
This administration can be changed at any time or may also continue in the future when acting together with a manager, in a position of controller for the company.
All of these matters will be determined and solved during the initial process of the development of the business and changed accordingly based on mutual trust.
Initially the company could be domiciled in our offices in Chile, basically for obtaining the tax number and obtaining the permits to start running the business.
Inflow of foreign exchange into Chile
The most common way to bring in and send out foreign exchange is following
The regulations of Chapter XIV of the Foreign Exchange regulations Compendium of the Central Bank of Chile. We can eventually propose a tax planning alternative for the inflow of capitals or credits, including advice on tax burdens and proof of income.
Fee: US$ 900
We count with an excellent staff of lawyers specialized in to help in labor conflicts. We can solve labor issues on a daily basis and also help in the wording for labor contracts.
The fees for this kind of service can be charged by the hour or through a monthly retainer.
Opening Bank Accounts
Once the company has been duly incorporated, we can proceed to open a bank account in Chilean pesos or US$ dollars in a local commercial bank. Through Internet you would then be able to control, review and make payments in this account.
Fees: US $900
Obtaining a Visa
Our fees for the obtaining a visa for each individual requiring one amounts to US$2500.
Obtaining a Tax Number
The RUT (ROL UNICO TRIBUTARIO), which is the Chilean ID tax number, must be obtained by all foreign shareholders and also for the company. We can deal with obtaining the said number. Fees: US$ 350 for each one.
Standard Legal Fees
The standard lawyer fees are US$ 350 per hour
We believe that the presence of your company in Chile requires much more than the incorporation of a local legal entity, we can assure that we have a vast experience collaborating with our foreign clients in all matters related to legal and tax planning, including labor regulations and accounting matters. Another of our pluses is that we are well connected to speed up many of the processes required for the business operation.