When establishing a company in Chile there are a number of company structures available and the choice will depend on factors that include the investor’s business strategy and the scale of the investment. The main types of company that can serve as a vehicle for a foreign investment are:
- Individual Limited Liability Company: legal entity of a commercial nature, with assets distinct from those of its owner, that does not require the participation of a third party. Assets are limited to the amount specified in the deeds and the owner is answerable only for personal goods up to the amount of capital contributed to the company, while the company is answerable with all its goods.
- Limited Liability Company: each partner’s liability is limited to the amount of his capital contribution or to the higher amount specified in the company’s deed. The purpose, administration and supervision of such companies can be freely determined by the partners and there is no minimum capital requirement. The partners may be Chilean or foreign, individuals, or legal entities, but cannot number less than two or more than 50.
- Corporation: company formed by a common fund provided by shareholders who are responsible only for their respective capital contributions and administered by a board of directors, with at least three members who are revocable and elect a manager and the board’s chair.
Currently a new law is being processed that will allow the creation of companies to take place within a day, without any associated costs. Once a legal entity has been created, the next step is to obtain a Tax Identification Number or RUT (its Spanish acronym) from the National Tax Service (SII). Applications can be submitted to any of the SII’s offices around the country (see www.sii.cl)
Starting Company Activities
Once established, the foreign investor must submit a business start-up statement to the National Tax Service (SII). This is a sworn statement in which the taxpayer notifies the SII that it plans to undertake activities that, under the tax laws in force, may be liable to taxation.
Corporate tax rates
As compared to other countries, Chile stands out for its low tax rates. Corporate tax, currently 20%, is levied on income derived from commercial, industrial, mining and other activities involving the use of capital. The amount of this tax is determined based on the earnings before taxes (revenue accrued and/or received minus expenses) obtained by the company. It is declared annually, in April, accounting for all the income received in the preceding calendar year.
VAT is levied at a rate of 19% on the sales of goods and services, with exemptions for some services of employees, independent consultants and sales of real estate by a construction company which are not subject to VAT. The VAT paid on imports may be used as a credit against the VAT on the sale.