Gesellschaften in Chile II

 

A)    Legal antecedents ... adopt a corporate structure.

 

1.- General. ... Chile there are legally no one-person companies. Both LLCs ... corporations require at least two shareholders ... partners, respectively, who may be either individuals ... entities, national ... foreign.

In Chile there are no legal requirements as ... minimum capital. ... interests of partners ... shareholders, respectively, may be apportioned as provided ... the bylaws, without any minimum interest ... be held by ... minority partner ... shareholder. There are likewise no impediments against ... partners ... shareholders being mutually affiliated companies (e.g. parent ... subsidiary).

 

2.- Limited liability company. An LLC ... basically governed by Law 3918, defined as a partnership ... limited ... 50 partners, based ... trust, ... therefore intuito personæ. Consequently, ... entry ... replacement of a partner requires an assignment of rights entailing amendments ... the bylaws.  So, both this aspect as well as any other amendment ... the bylaws must have ... unanimous approval ... consent of ... partners.   ... requirement for unanimous consent ... usually a constraint with regard ... divestment when ... minority partner has a nominal capacity, since it may hamper ... controlling partner's freedom of action ... material issues such as early termination, dissolution, contribution of assets ... liabilities, merger, assignment of rights, making majority control downright illusory (unless ... minority partner ... an entity controlled by ... majority partner). It ... less relevant ... administrative matters since they are usually reserved ... the majority partner, who exercises management ... uses ... company name directly ... through agents appointed by a notarized instrument.

Besides amendments ... the bylaws, an LLC suffers no major hindrances ... may make its business purpose very broad, regulate management as best suits its partners' interests, e.g. having ... majority partner manage directly ... through agents, ... entrusting management ... both partners jointly, ... even having ... LLC be managed by a Board of Directors ... Trustees as provided ... the bylaws.

An LLC need not hold annual partners' meetings nor formal Board of Directors' meetings, if applicable, since it ... usually managed directly by a managing partner ... the agents appointed by ... same.

Capital at an LLC may be established ... any amount (no minimum ... maximum), ... the bylaws may provide for its piecemeal contribution - no contribution need be paid at ... time of incorporation.

These companies are incorporated ... evidenced by a notarized instrument, an excerpt of which must once be (a) registered ... the Commerce Registry of ... corporate domicile, ... (b) published ... the Official Gazette within 60 days from ... date of incorporation. Amendments are subject ... identical formalities ... terms.

 

3.- Corporation.  Private ... public corporations are basically ... comprehensively governed by Law 18046.

A corporation ... a stock company ... not a partnership. ... identity of ... partners ... not as relevant as ... fact of having made ... contributions promised for furthering ... business purpose. Consequently, shares may change hands freely without any amendment ... the bylaws (although this right may be limited under a shareholders' agreement). Decisions are generally made by majority vote ... not necessarily unanimously, even with regard ... amendments ... the bylaws.

The chief governing body ... the shareholders' meeting, ... convene at least once every year regularly ... on an extraordinary basis whenever called. ... regular meeting must examine ... approve accounts ... balance sheets, appoint ... board of directors, appoint ... account inspectors ... external auditors, as applicable, declare dividends ... decide ... regular, material issues of ... company. A special meeting, however, must make decisions regarding amendments ... the bylaws ... resolutions ... early termination, merger, contribution of assets ... liabilities, merger ... spin-off of ... company, ... latter two being subject ... a special majority vote

A corporation ... managed by ... board appointed by ... shareholders, which can be removed by ... same.

The board at private corporations must be composed of at least three individuals. Directors may be either Chilean ... foreign ... may reside ... be domiciled ... Chile ... abroad. Resolutions ... debates must be adopted ... conducted at a duly constituted meeting, of which written minutes must be taken.  Directors' duties may not be delegated but ... bylaws may contemplate for ... existence of alternate directors who are called ... act incase ... regular director ... absent, ... that ... board may actually convene at ... intervals provided ... the bylaws.

The board must appoint a manager, who ... be ... company's regular representative, ... whose absence there must be a person at least with sufficient faculties ... be agent for service of process ... represent ... company ... litigation.

Two regular account inspectors ... two alternates are also required, ... else independent accountants, who must report annually ... the shareholders' meeting.

These companies are incorporated ... evidenced by a notarized instrument, an excerpt of which must once be (a) registered ... the Commerce Registry of ... corporate domicile, ... (b) published ... the Official Gazette within 60 days from ... date of incorporation. Amendments must be evidenced by a notarized copy of ... Minutes of ... relevant Special Shareholders' Meeting ... are subject ... the same formalities ... terms as ... (a) ... (b) above.

 

4.- Foreign corporation agencies.  Corporation Law 18046 provides that for a foreign corporation ... establish an agency ... Chile, its agent ... representative must notarize, ... the official language of ... country of origin, translated into Spanish if originally ... another language, ... following documents:

a.            ... antecedents evidencing that ... company ... legally incorporated under ... laws of ... country of origin ... a certificate of good standing.

b.            Notarized copy of ... current bylaws, and

c.            A general power-of-attorney granted by ... corporation ... the agent, evidencing ... legal capacity of ... principal, clearly ... accurately stating that ... agent acts ... Chile under ... direct responsibility of ... foreign corporation, with broad authority ... engage ... acts ... its behalf. Usually foreign corporations are reluctant ... operate as Agencies because they must grant a broad power-of-attorney ... a single individual.

The above notwithstanding, ... agent must represent ... a notarized instrument ... behalf of ... foreign corporation, ... even date therewith ... before ... same Notary, ... following:

1.            Name under which it ... do business ... Chile;

2.            That ... company ... familiar with Chilean legislation ... regulations that ... govern ... operation, its acts ... contracts;

3.            That ... assets of ... foreign corporation are subject ... Chilean legislation, particularly ... meet ... obligations it incurs ... Chile;

4.            That ... company agrees ... keep liquid assets ... Chile ... meet any obligations it incurs ... Chile;

5.            Actual in-country capital ... run its business ... the date ... manner ... which ... capital shall be paid into ... Chilean agency's treasury;

6.            Domicile.

An excerpt of ... agent's representations must be published ... recorded within 60 days from ... date of ... above.

The agent ... required ... publish ... agency's annual balance sheet ... a local newspaper within 4 months from ... close of ... relevant year, which could be unadvisable for your client because of ... publicity.

 

5.-  Transformation, merger, spin-off. Chilean law allows a company ... undergo transformation by amending ... bylaws, maintaining its legal existence. Therefore, an LLC may be transformed into a corporation ... vice-versa at any time. Likewise, an agency may be changed into an LLC ... corporation. Chilean legislation also allows for LLC ... corporate reorganizations such as merger by creation ... absorption ... spin-off.   

These are, ... my opinion, ... most relevant aspects ... decide which company type best fits your needs. I am at your disposal ... elaborate further if necessary.

B) Some tax considerations ... deciding upon ... type of company.

 

6.- General. ... Chilean tax system ... basically neutral. LLCs, corporations ... agencies are subject ... an annual 15% corporate tax levied ... net taxable income, determined under ... Revenue Law, as evidenced by full, reliable accounting. Additionally, there are personal (complementary ... additional) income taxes levied ... profits distributed by ... company ... the partner, shareholder ... parent, respectively. ... the case of partners, shareholders ... parent companies not residing ... Chile, i.e. ... foreign owner, corporate profit distributions are taxed additionally at 35% minus a credit equivalent ... 15% of distributed corporate profits. ... other words, personal income taxes recognizes as a credit ... corporate tax paid by ... company ... generating ... profit remitted ... the foreign owner.

This dual tax structure, with an low accrual-basis corporate tax complemented by a personal income tax   levied at a high rate ... the owner at ... time of ... corporate profit remittance ... distribution -which recognizes ... credit ... corporate taxes paid- ... rather neutral. 

 

7.-  Some differences. Nonetheless, there are some differences despite this neutrality:

7.1. Tax base for personal taxes. ... 35% tax surcharge ... credit right based ... corporate tax ... applied differently ... the case of an LLC partner ... agency parent as against a corporate shareholder. ... both cases, ... applicable tax surcharge ... accrued at ... time of ... remittance ... corporate profit withdrawal. However, an agency parent ... the foreign partner of an LLC ... only levied ... tax surcharge for ... withdrawals ... remittances up ... the amount of ... Tax Profits Fund (FUT), i.e. ... retained ... non-distributed tax profits. Thus, ... parent ... partner ... not levied ... tax surcharge for any withdrawals ... excess of ... FUT, taxation being deferred until any subsequent year yielding an FUT ... debit ... excess withdrawal. However, foreign shareholders of a corporation pay ... tax surcharge ... the basis of their dividends, regardless whether ... distributed amounts correspond ... retained tax profits ... exceed ... same, i.e. whether ... dividends exceed ... FUT ... not. This difference also exists with regard ... a Chilean-residing ... -domiciled partner ... shareholder levied Individual Income Tax, with ... residence, domicile ... nationality of ... partner ... shareholder being irrelevant.

7.2. Reinvestment of corporate profits. LLC partners ... agency parents who pay corporate taxes per their actual income calculated sing full accounting procedures may withdraw profits ... reinvest them within 20 days ... other companies, not being required ... pay personal income taxes ... said withdrawals as long as they do not withdraw profits from ... company receiving said reinvestment. Corporate shareholders are not entitled ... reinvestments.

7.3. Expenses rejected at ... corporate level. LLC partners must consider as withdrawn from ... company at year's end -despite any existing losses- all items considered non-deductible expenses ... disbursements because they are not necessary ... generate corporate income ... constitute covert distributions of corporate profits. These items are levied personal income tax ... the partner, pursuant ... Article 21(1) of ... Income Law, taxed at 35% ... the case of ... foreign owner ... entitled ... a credit since ... rejected expense must be added ... the profits yielded ... the year taxed at ... corporate level. ... other words, ... partner ... levied a tax surcharge ... items considered covert profit distributions.

These items are treated differently ... the case of a corporation ... agency, where they are levied a corporate tax at 35%, without credit, payable by ... corporation ... agency pursuant ... Article 21(3) of ... Income Law. Therefore, ... shareholder ... not levied personal tax ... these items.

7.4. Assignment of rights compared ... capital gains ... share sales. ... assignment of rights at an LLC constitutes, for ... foreign assigning partner, regular income levied corporate tax ... tax surcharge. Both taxes are levied ... the extent ... price of ... assignment exceeds ... book value, determined based ... the most recent balance sheet plus contributions ... minus withdrawals made through ... date of ... assignment. ... this case, ... book value includes ... retained ... non-distributed profits which do not pay taxes as a result of ... assignment. ... assignment of shares ... a corporation is, for ... foreign assigning shareholder, a capital gain ... the extent he has held said shares for over one year. ... greater value, i.e. ... part of ... sales price ... excess of ... CPI-restated purchase cost, ... levied a single 15% tax without any room for considerations regarding ... status of retained tax profits.

 

C ) Foreign Investment

 

8.-  ... Chile, there are basically two foreign investment systems.

The first one ... Decree Law 600, ... Foreign Investment Statute, which allows for capital transfers (foreign currency, related credits, capital goods, technology likely ... be capitalized) under a statutory contract entered into by ... State of Chile with ... foreign investor, which regulates he rights, privileges ... obligations of ... parties. This statutory contract cannot be unilaterally modified by ... State of Chile ... only sums ... excess of US$1 million are eligible. Three benefits are afforded by this system. ... first ... related ... the exchange rate ... confers ... foreign investor ... right ... remit net profits annually without any limitation as ... amount, repatriate capital once ... mandatory minimum 1-year permanence term has expired, ... confers ... right ... purchase ... foreign currency ... the formal currency market ... remit profits ... repatriate capital. ... second ... a tax benefit, conferring ... foreign investor ... right ... tax invariability for 10 years from ... date of project startup, paying a 42% net of income taxes. This invariability may be waived at any time by ... foreign investor. Besides ... invariability, there ... another tax break consisting ... declaring ... repatriation of capital as tax-exempt for up ... the amount of ... investment actually made, ... the excess amount may be remitted subject ... regular taxation as explained ... 7.4. Finally, from a tax standpoint, ... investment ... capital goods enjoys customs invariability ... the imports are VAT-exempt. There are other rights such as non-discrimination. ... become eligible, ... application referred ... below ... notarization of ... contract are required.

The second system was created under Chapter XIV of ... Foreign Exchange Regulations of ... Central Bank of Chile. Only foreign currency contributions ... excess of US$100,000 are allowed under a Central Bank authorization, only conferring currency exchange rights with regard ... profit remittances, repatriation of capital following ... minimum 1-year stay, ... access ... the formal currency exchange market ... purchase foreign currency ... remit profits ... repatriate capital. No other rights are vested. ... enter this system, an application must be filed as indicated below.

D) Power-of-attorney ... represent investors

If ... future investors do not use a Chilean resident representative with full authority, they usually confer a power-of-attorney ... be represented ... Chile, ... text of which ... depend of ... nature of ... company ... the investment mechanism chosen. 

At any rate, it must include ... necessary authority ... file ... requisite applications, enter into a contract with ... State, register ... investor as a Chilean taxpayer, establish ... company, pay ... capital, withdraw ... necessary funds from ... banks ... any other authority deemed necessary ... a case-by-case basis. Attached please fund a text of ... power-of-attorney.

F) Procedure ... terms

To start ... establishment of a company, one must first execute ... requisite powers-of-attorney at ... Chilean Consulate ... before a notary public whose signature ... legalized ... recorded at ... Consulate. This second approach ... preferable since it ... faster.

In parallel fashion, ... foreign investment application must be prepared (under DL 600, if this option ... chosen) ... the registration for capital contribution ... be filed with ... Central Bank.

Once ... powers-of-attorney are received, ... public instrument must be executed ... publication requirements met. Then, ... investor company must be registered ... the Chilean Taxpayers' Registry, RUT (obtained immediately) ... the application must be filed with ... Foreign Investment Committee, if ... DL 600 mechanism ... chosen, enclosing ... bylaws of ... company ... the annual reports ... balance sheets for ... last three fiscal years of ... investor company. 

If an LLC ... the preferred option, it may be created immediately upon receipt of ... powers-of-attorney, without having ... wait for ... funds ... securing ... investment authorization beforehand.

However, if it ... the wish ... establish a corporation, ... DL investment application  must be filed first, ... else approved with ... funds previously brought into ... country if ... chosen option ... Chapter XIV of ... Chilean Central Bank's Foreign Exchange Regulations.

It takes about ... weeks ... complete ... paperwork associated with ... incorporation of either company type, ... everything must be evidenced ... a public instrument recorded ... the Commerce Registry ... published ... the Official Gazette, all of which may be done concurrently with ... processing of ... foreign investment application. 

In ... case of a corporation, ... board must meet once ... requisite procedures are complete, ... order ... appoint a chairman ... general manager ... issue ... necessary powers-of-attorney.

It should be beared ... mind that, for practical reasons, ... Chilean company must have a general attorney-in-fact  with a residence permit ... Chilean ID card, since ... Internal Revenue Service ... requires ... grant clearance for ... startup of business activities.

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