Chile: Guide to Doing Business

Transcription

Guide to Doing Business
Chile
Prepared by Lex Mundi member firm,
Claro & Cia., Abogados
This guide is part of the Lex Mundi Guides to Doing Business series which
provides general information about legal and business infrastructures in
jurisdictions around the world. View the complete series at:
www.lexmundi.com/GuidestoDoingBusiness.
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CLARO & CIA.
Doing Business in Chile
2015
A publication prepared by:
CLARO & CIA.
Apoquindo 3721 –14th Floor
Las Condes
Santiago
Chile
Contact: José María Eyzaguirre B.
E-mail: [email protected]
Tel: +56 2 2367 3033
Fax: +56 2 2367 3003
Web : www.claro.cl
© 2015 Claro & Cia. – All rights reserved
CLARO & CIA.
The information in this Doing Business in Chile guide intendsto provide an introduction to certain
issues of general interest. It does not purport to constitute legal advice and should not be relied
upon. When looking to do business in Chile legal advice should be sought.
__________________________
INDEX OF SUBJECTS
1.
Chile at a Glance ............................................................................................................ 1
1.1
1.2
1.3
1.4
2.
Foreign Exchange and Foreign Investment ................................................................. 6
2.1
2.2
3.
Introduction ........................................................................................................... 10
Corporations ......................................................................................................... 10
Limited Liability Companies ................................................................................. 19
Stock Companies ................................................................................................... 20
Tax Considerations....................................................................................................... 21
4.1
4.2
4.3
4.4
4.5
4.6
4.7
5.
Foreign Exchange Regulations ............................................................................... 6
Foreign Investments Regulations ............................................................................ 6
Investment Vehicles ...................................................................................................... 10
3.1
3.2
3.3
3.4
4.
Presentation of Information .................................................................................... 1
Geography and Demography .................................................................................. 1
Chilean Economy .................................................................................................... 2
The Constitutional and Political System ................................................................. 4
Introduction ........................................................................................................... 21
Taxation of Individuals and Entities Domiciled or Resident in Chile .................. 21
Taxation of Individuals and Entities not Domiciled or Resident in Chile ............. 29
Other Taxes ........................................................................................................... 33
Transfer Pricing .................................................................................................... 35
Double Taxation Treaties ...................................................................................... 37
Tax Elusion vs. Tax Evasion ................................................................................. 38
Labor Matters ............................................................................................................... 41
5.1
Introduction ........................................................................................................... 41
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Doing Business inChile
C L A R O & C I A.
5.2
5.3
5.4
5.5
5.6
5.7
5.8
6.
The Employment Agreement .................................................................................. 41
Nationality of Employees ...................................................................................... 41
Remunerations....................................................................................................... 42
Termination ........................................................................................................... 43
Social Security and Insurance ............................................................................... 44
Unions and Collective Bargaining ........................................................................ 45
Subcontracting and Supply of Temporary Personnel ............................................ 47
Immigration .................................................................................................................. 49
6.1
7.
Visas ...................................................................................................................... 49
Fundamentals of Private Law ...................................................................................... 51
7.1
7.2
7.3
8.
Contract Law ......................................................................................................... 51
Liability ................................................................................................................. 51
Property Law ......................................................................................................... 52
Data Protection ............................................................................................................. 54
8.1
8.2
8.3
9.
Introduction ........................................................................................................... 54
Personal Data Protection Act ............................................................................... 54
Data Export ........................................................................................................... 55
Consumer Protection .................................................................................................... 56
9.1
9.2
9.3
10.
10.1
10.2
10.3
10.4
10.5
10.6
11.
11.1
11.2
11.3
11.4
11.5
12.
12.1
12.2
Introduction ........................................................................................................... 56
Main Rules............................................................................................................. 56
Collective Actions .................................................................................................. 57
Intellectual Property ................................................................................................. 58
Legal Framework .................................................................................................. 58
Industrial Property ................................................................................................ 59
Copyright............................................................................................................... 68
Licensing ............................................................................................................... 69
Domain Names ...................................................................................................... 69
Enforcement of Industrial and Intellectual Property Rights ................................. 69
Antitrust Law ............................................................................................................ 71
Introduction ........................................................................................................... 71
Sanctions Regime .................................................................................................. 72
Merger and Acquisition Transactions ................................................................... 72
Statutes of limitation.............................................................................................. 74
Leniency Program ................................................................................................. 74
Security Interests ...................................................................................................... 75
Introduction ........................................................................................................... 75
Pledges .................................................................................................................. 75
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12.3
12.4
12.5
13.
Mortgages.............................................................................................................. 76
Tax ......................................................................................................................... 77
Ancillary Nature of Security Interests ................................................................... 77
International Trade .................................................................................................. 78
13.1 Import/Export Regulations .................................................................................... 78
13.2 Export Incentives ................................................................................................... 79
13.3 International Commerce Treaties ......................................................................... 82
13.3.1 Free Trade Agreements ..................................................................................... 82
14.
14.1
14.2
14.3
14.4
14.5
14.6
15.
15.1
15.2
15.3
15.4
16.
16.1
16.2
Certain Financial Activities ..................................................................................... 85
Certain Governmental Authorities ........................................................................ 85
Banks ..................................................................................................................... 86
Securities ............................................................................................................... 89
Insurance Activities ............................................................................................... 91
Pension Funds ....................................................................................................... 92
Investment and Mutual Funds ............................................................................... 96
Environmental Matters ............................................................................................ 99
Governing rules ..................................................................................................... 99
Environmental Impact Assessment System ............................................................ 99
Participation of Community ................................................................................ 101
Environmental Liability....................................................................................... 101
Mining..................................................................................................................... 103
Introduction ......................................................................................................... 103
Mining Legislation .............................................................................................. 103
17.
Energy ..................................................................................................................... 108
18.
Water Law ............................................................................................................... 110
18.1
18.2
19.
19.1
19.2
19.3
19.4
19.5
20.
20.1
20.2
Introduction ......................................................................................................... 110
Water rights ......................................................................................................... 110
Privatization of Infrastructure ............................................................................... 112
Legal Framework of Public Works Concessions................................................. 112
Regulatory Authority ........................................................................................... 112
Amendments to the Concession Agreement ......................................................... 112
Force Majeure Risk ............................................................................................. 112
Termination ......................................................................................................... 113
Telecommunications .............................................................................................. 114
Introduction ......................................................................................................... 114
Telecommunications Concessions ....................................................................... 114
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21.
Insolvency ............................................................................................................... 116
21.1 Introduction ......................................................................................................... 116
21.2 Reorganization Proceeding ................................................................................. 116
21.2.2 Reorganization Proposal ................................................................................. 117
21.2.3 Enforcement .................................................................................................... 117
21.2.4 Proposal’s Rejection ....................................................................................... 118
21.2.5 Out of Court or Simplified Reorganization Agreement ................................... 118
21.3 Liquidation Proceedings ..................................................................................... 118
21.3.1 Compulsory Liquidation Proceeding .............................................................. 118
21.4 Preferential Transfers ......................................................................................... 119
22.
22.1
22.2
Enforcement of Foreign Judgments ...................................................................... 121
Procedure ............................................................................................................ 121
Substantive Requirements ................................................................................... 121
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1.
Chile at a Glance
1.1 Presentation of Information
In general, the information presented, including laws and regulations, is in effect as of June
30, 2015. This report contains information of general interest and does constitute or purport to
constitute legal advice. For legal advice on matters of Chilean law you should consult Chilean
counsel.
In this document, references to “USD” are to United States dollars, references to “CLP” are
to Chilean pesos, references to “UF” are to Unidades de Fomento, references to “UTM” are to
Unidades Tributarias Mensuales and references to “UTA” are to Unidades Tributarias Anuales.
The UF is an indexed unit of value, which is adjusted daily to reflect the previous month’s
inflation (determined in accordance with the variation of the Consumer Price Index, as determined
by the Chilean National Institute of Statistics). As of June 30, 2015, the value of the UF is
equivalent to approximately USD 39.37.
The UTM and UTA are units determined by law and continually updated, which serve as
measures or reference points for tax purposes. The UTM is the monthly unit, and the UTA is the
annual unit. As of June 30, 2015, the value of a UTM and a UTA is equivalent to approximately
USD 68.96 and USD 827.51, respectively.
When converting Chilean peso figures into United States dollar figures we will use the
dólar observado rate, which is calculated by taking into account the previous business day’s
transactions in the formal foreign exchange market and published by the Central Bank. As of June
30, the equivalent value of one United States dollar is CLP 634.58.
1.2 Geography and Demography
Chile is located along the south-western coast of South America, stretching approximately
4,300 km (2,666 miles) distributed among continental land, myriad islands, including the renowned
Easter Island, and the polar icecap in the South. Chile’s natural borders comprise the Andes
Mountains in the East; the Pacific Ocean in the West; the Antarctica in the South; and the Atacama
Desert in the North. Its neighbor countries are Argentina and Bolivia in the East and Peru in the
North.
Even though the official language is Spanish, several native languages are still in use, such
as Mapudungun (or Mapuche language spoken in some areas of the Center-South), Aymara (spoken
in some northern areas) and Rapa Nui (spoken in Easter Island).
In the case of English, it has become widespread in the business world and tourism.
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The population, according to the 2012 census1 is 16,634,603 inhabitants. The estimates for
2020 show a total population of 18,896,684 inhabitants.
The country is divided in 15 regions. Apart from Santiago, the main cities of Chile are:
Antofagasta (important mining industry center); Valparaíso (one of the main Chilean ports),
Temuco, Concepción, and Puerto Montt.
1.3 Chilean Economy
Chile’s climate and natural resources vary as dramatically as its territory. Indeed, the North
is predominated by dry and arid climate. It concentrates the country’s most abundant mineral
resources and mining activity. Additionally, the area is also developing agriculture focused mainly
on tropical fruits. Secondly, the central zone has a Mediterranean climate, characterized for its mild
wet winters and long dry summers. This guarantees ideal conditions for vineyards, and in the
Centre-South provides fertile agricultural soil with extensive forestry and hydroelectric resources at
higher altitudes. Finally, the South is characterized by areas of heavy rainfall and fjords which
provide excellent conditions for fishing and tourism.
This multiplicity of geographic zones offers an enormous potential for economic activities
linked to Chilean natural resources, such as the following ones.
1.3.1
Mining
Chile concentrates most of the world’s copper reserves2 which have turned it into the main
worldwide producer and exporter3. Copper is the country’s main export earner. In fact, according to
the Central Bank in 2013, these exports represented 52.3 percent of the country’s total exports.
Although, a state-owned copper company, Corporación Nacional del Cobre or Codelco, is
the largest producer and exporter, this has not deterred foreign mining firms to invest in Chile due
to its advantageous conditions.
Another relevant participant of Chilean mining industry is molybdenum, a metal used
primarily as an alloying agent in steel, in cast iron and super alloys to enhance certain material
properties, such as strength, toughness and corrosion resistance.4
Other significant minerals are iodine5, lithium6 and silver.7
1
Note that due to some accuracy problems of the last census the Chilean government has projected to anticipate the
forthcoming one.
2 According to the 2011 United States Geological Survey (“USGS”) reported that Chile had the largest copper reserves in
the world, which arises to 28.3 percent of total reserves.
3 According to the 2013 yearbook, the Chilean Copper Commission reported that in 2012 the country was the main
worldwide copper exporter reaching a share of 34.4 percent.
4 In its 2013 yearbook, the Chilean Copper Commission reported that, as of the end of 2012, Chile accounted 35.1 percent
of the world’s production, and in 2014 the USGS reported that Chile possessed 20.9 percent of the world’s reserves.
5 According to the 2014 Minerals Information Summary of the USGS Chile represents 63.1 percent of the world’s
production and 23.68 percent of the world’s reserves.
6 According to the 2014 Minerals Information Summary of USGS the country represents 38.5 percent of the world’s
production and 57.7 percent of worldwide reserves.
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1.3.2
Fishing
Due to its extensive coastline Chile has turned into a fishing and fish-farming powerhouse.
The country’s strengths and competitive advantages lie in the rich fisheries extant within its 200mile economic exclusion zone.
1.3.3
Wine-making
Chile is an internationally acclaimed producer of fine wines and spirits. As it has been said
above, the country’s wine valleys possess the right mixture of soil, sunlight, temperature and
humidity conditions to grow grapes yielding world-class wines, year in and year out. Chilean wine
sales are diversified among more than 80 countries. Apart from wine, it is also one of the worldwide
main exporters of fresh grapes and raisins.8
1.3.4
Forestry
Forestry is Chile’s second largest exporting industry9 due to its large areas destined to
forestation, which mainly correspond to plantations of radiate pine, eucalyptus, poplars and other
kinds of pine.10 Apart of the logging companies, the Chilean forestry industry includes lumber mills,
particleboard manufacturers, construction suppliers, furniture makers, and pulp and paper mills. All
of these products are sold in more than one hundred countries.
1.3.5
Transportation
The country has developed an efficient transportation system, seaports, airports and
logistical infrastructure to connect the geographic distances between Chile and other business
centers around the world. Since the mid-1990s, the private sector has participated actively in the
development of public infrastructure in the form of concessions.
1.3.6
Technology and Communications
Due to its advantageous conditions, international companies, such as Delta Air Lines, Air
France, Hewlett Packard, Citigroup, and BBVA, among others, have chosen Chile as the location
for their Latin American call and software development centers. For example, the country is
connected to four international fiber optic networks, and has high-speed ADSL, FTTH and cable
Internet access, as well as, LMDS technology.
7
According to the 2014 Minerals Information Summary of the USGS the country owns the third largest nominal reserves
of silver in the world, representing 14.8 percent.
8 It is also the world’s largest exporter of fresh grapes, According to the International Organization of Vine and Wine
(Organisation International de la Vigne et du Vin), as of 2011, Chile is the world’s largest exporter of fresh grapes, fourth
largest exporter of raisins, eighth largest producer of wine and fifth largest exporter of wine 8.
9 The 2014 Forestry Yearbook issued the Forest Institute of Chile confirmed that forestry is the second-largest exporting
industry in the country, which reported in 2013 USD 5,714 billion in sales.
10 According to the forestry industry association CORMA, in 2012, Chile had a total of 2.41 million hectares destined to
forestation, 1.47 million of which correspond to radiata pine plantations.
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Chile also has one of Latin America’s highest fixed and mobile telephony (132.1 per 100
inhabitants), paid TV (48.7 per 100 inhabitants), and Internet (56 per 100 inhabitants) penetration
rates.11 Despite this progress in telecommunications infrastructure, operators continue to identify
opportunities for new investments in Wireless Local Loop (“WLL”), 4G Mobile Telephony,
WiMax, Local Multi-Distribution System (“LMDS”), Ruta 5D (Public-sector broadband network),
IP Networks, Digital Television, Digital Audio Broadcast (“DAB”) and High Altitude Platforms
(“HAPs”).
All of these precedents have created a highly competitive local telephony and Internet
markets.12
Finally, The World Bank Doing Business in Chile 2015 report, which reviews the ease of
starting up a business in each country, classified Chile in the 41st position among 189 economies.
1.4 The Constitutional and Political System
All citizens and public powers are subject to the Constitution and its legal order, conformed
by a hierarchy of norms. Perhaps, the most important contribution of the Constitution of 1980
resides in its section devoted to “Constitutional Rights and Duties”, whereby several rights,
liberties, and equalities are guaranteed to all individuals. As a consequence, many of them are
safeguarded by special constitutional actions.
Although foreign investments are safeguarded by laws of general application, they are also
guaranteed by constitutional expedite remedies as constitutional rights, liberties and equalities are
recognized for all individuals.
The Chilean political system is divided into three independent powers. The first one,
corresponds to the Executive Power which is headed by the President of the Republic (“President”),
who is the country’s highest authority. The Constitution recognizes the President as Head of the
State and Government for four years without reelection for a second consecutive term.
On the other hand, the Legislative Power is represented by the National Congress which is
vested with legislative and supervisory powers. It is composed by the Chamber of Representatives
(120 members) and the Senate (38 members) whose members are elected by popular vote.
Finally, the Judiciary Power is in charge of administrating justice independently from the
other governmental branches. The Chilean judicial system is divided into three levels: Supreme
Court, Courts of Appeals and tribunals of first instance. The highest tribunal is the Supreme Court,
which has jurisdiction over the whole country and cannot abstain from deciding upon matters within
its competence.
11
Source; 2014 Subsecretariat of Telecommunications Statistic Report.
Note that the 2014 Networked Readiness Index published by the World Economic Forum, which measures the degree
of preparation of a country to participate in and reap benefits from information technologies, placed Chile in the 35 th place
among 148 economies, being first in the Latin American region by a wide margin, and only second after Malaysia in the
upper middle income group of economies.
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One of the judicial system main principles is unity of jurisdiction, which is the basis of the
organization and operation of the country’s courts explained above.
However, Stare Decisis is not one of the principles applicable in Chilean law, which means
that judicial decisions do not create mandatory precedents and are only enforceable against the
parties to a lawsuit.
Arbitration proceedings are permitted, except in public policy matters such as criminal or
labor law. The arbitration tribunals’ awards may be enforced by ordinary courts. Compulsory
arbitration is provided for certain matters, such as conflicts between a company’s partners or
shareholders.
In connection to the laws’ constitutionality review, the Constitutional Tribunal is enabled to
perform either an ex ante review regarding bills, and an ex post review through the inapplicability
action (Recurso de Inaplicabilidad).
Currently, there is no restriction in the law to submit international civil or commercial
agreements or private relations13 to foreign laws or jurisdictions, or to arbitration proceedings
abroad. However, Chilean law shall be applied on issues of public policy.
For the validity and enforceability of such submission, as well as, the enforcement in Chile
of foreign judgments, please see Chapter 22 on “Enforcement of Foreign Judgments.”
13
Note that international agreements or relations are defined as those which contain an international or foreign element.
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2.
Foreign Exchange and Foreign Investment
2.1 Foreign Exchange Regulations
Under the law governing the Central Bank of Chile (the “Central Bank Act”), any person
may freely enter into foreign exchange transactions. Foreign exchange transactions are defined
under the Central Bank Act as any purchase and sale of foreign currency and, generally, any act or
agreement that creates, amends or terminates an obligation payable in any foreign currency,
regardless of whether there are any actual transfers or remittances from or to Chile. For these
purposes, “foreign currency” includes bills and coins from foreign countries, whichever their
denomination or characteristics, bills of exchange, checks, letters of credit, payment orders,
promissory notes, money withdrawals, and any other document evidencing obligations in such
currency, and gold.
However, under the Central Bank Act, the Central Bank is empowered to require that
certain foreign exchange transactions be reported to it and/or that they be carried out in the “formal
foreign exchange market.” The formal foreign exchange market is exclusively composed of the
banks established in Chile and the exchange entities, stockbrokers and broker-dealers authorized for
such purposes by the Central Bank. The Central Bank Act also allows the Central Bank to impose
certain conditions on foreign exchange transactions, such as the obligation to return and convert
foreign currency, impose a mandatory deposit or “encaje” and others, for a period of time not to
exceed one year, but which may be indefinitely renewed at the end of such period for equivalent
one-year periods. As of the date of this document, no restriction other than making certain
transactions in the formal foreign exchange market and some reporting obligations are currently in
force.
Chapter XIV of the Compendium governs foreign credits, deposits, investments and capital
contributions (each as defined therein) in excess of USD 10,000. The transactions subject to these
rules shall be informed to the Central Bank and settled through the formal exchange market, unless
the foreign currency is used directly abroad, in such case only reporting is required.
2.2 Foreign Investments Regulations
Foreign investments in freely convertible currency which purpose is to (i) pay or increase
the capital of companies; or (ii) acquire shares or rights in existing companies to participate in its
management, may be brought into Chile either under the Central Bank Act and Compendium or
under the Foreign Investment Statute (“Decree Law 600”). Decree Law 600 will remain in effect
until December 31, 2015 at which time it will be abrogated.
Although investments made under the Central Bank Act may be restricted from access to
the formal exchange market if adverse macroeconomic conditions so demand, investments made
under Decree Law 600 are always granted with the right to access to the formal foreign exchange
market to repatriate capital and profits. The remittance of capital is free of any taxes, duties or
charges up to the amount of the investment made. Any gains over such amount shall be subject to
the general tax regime.
While Decree Law 600 provides that capital invested thereunder may not be repatriated
earlier than one year from the time the investment is made, the Central Bank Act has no such
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restriction. Under both Decree Law 600 and the Central Bank Act profits may be freely remitted
abroad at any time at the discretion of each investor.
Whereas pursuant to Chapter XIV of the Compendium foreign investments made
thereunder must be reported to the Central Bank ex post, foreign investments made under Decree
Law 600 require a previous approval of the Foreign Investment Committee (the “FIC”) or of the
FIC’s Executive Vice President and the subscription by the investor of a foreign investment
agreement with the State of Chile. The approval process typically takes one month (though
preliminary approvals are obtained in one or two days).
Since June 6, 2003, the FIC has established that the minimum investment amount under
Decree Law 600 for a new project which arises to USD 5 million, when the investment is in foreign
currency and associated credits. Such minimum amount is USD 2.5 million, when the investment is
in the form of tangible assets, technology, and capitalization of profits or capitalization of credits. It
is worth noting that the FIC may modify the aforesaid minimum amounts. Projects submitted to the
FIC’s consideration must involve a ratio between equity and associated credits of up to 25/75.
Under the Central Bank Act, only investment projects of more than USD 10,000 (or its equivalent
in another foreign currency) or more are eligible.
Investments under Decree Law 600 may be brought in freely convertible foreign currency,
tangible assets, technology that may qualify as capital, loans associated to a foreign investment and
capitalization of foreign loans registered with the Central Bank or of profits entitled to be remitted
abroad. In the case of foreign currency, generally, investors may execute their foreign exchange
operation only once the foreign investment contract has been executed. Notwithstanding the
foregoing, investors may request an authorization to exchange their currency immediately when
submitting the corresponding application. Investments in any form other than foreign currency
require the foreign investment contract to be duly executed. The Central Bank Act provides that
investments thereunder must be made either in freely convertible foreign currency, which may be
brought into Chile or used abroad to pay the corresponding investment, or in shares or equity rights
in foreign companies.
Investments under Decree Law 600 must be brought into Chile within the term stipulated in
the foreign investment contract, which may not exceed three years (or eight years, in the case of
mining investments). The term for investments in non-mining industrial or extractive projects for
amounts of USD 50 million or more may be extended to eight years by resolution of the FIC (or to
12 years, in the case of mining investments).
Certainly Decree Law 600 affords the best legal protection available in Chile to foreign
investors, as their rights and privileges are secured by an investment contract entered into with the
Republic of Chile which cannot be unilaterally modified by the State. These foreign investment
contracts are governed by Chilean law and are subject to the jurisdiction of Chilean Courts.
Investors may, however, request at any time the amendment of the contract for the purposes of
increasing the amount of the investment or changing its purpose. Foreign investors may further
assign the rights conferred by the investment contract to another foreign investor (together with the
investment itself). On the contrary, the alternative provided to foreign investors by the Central Bank
Act has traditionally been based only on an administrative resolution issued by the Central Bank
and, consequently, is to some extent more vulnerable.
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Furthermore, Decree Law 600 guarantees additional protection to foreign investors such as
a non-discriminatory and non-discretionary treatment vis-à-vis domestic investors, except for the
possibility that regulations may be enacted to limit foreign investors’ access to local financing.
Also, Decree Law 600 grants foreign investors the possibility of benefiting from an
invariable income tax regime and, in certain cases, from special devices particularly designed for
project financing purposes. Decree Law 600 grants foreign investors the right to opt to be subject to
a ten-year invariable overall income tax regime of 42 percent. Since the current income tax rates, in
the aggregate, impose a lower tax burden, this special tax regime is presently not attractive to
existing foreign investors.
The special rules particularly designed for project financing purposes are basically
applicable to industrial or extractive projects, including mining projects, arising to USD 50 million
or more, and typically consist of a possible extension of the ten-year invariable overall income tax
regime for a total period of up to 20 years and maintenance for the same period of time of the rules
and regulations regarding the determination of income taxes and the free exportation of goods in
effect upon the execution of the relevant investment contract.
Effective January 1, 2006, the Income Tax Act (defined below under Chapter 4 on “Tax
Considerations”) introduced a special tax on mining activities (see also Section 16.2.4 on “Mining
Tax”). The law which amended the Income Tax Act also amended Decree Law 600 to set forth an
alternative tax invariability regime for mining projects involving an amount equal to or higher than
USD 50 million.
On June 25, 2015, Law No. 20,848 on direct foreign investment was enacted. This law
creates a new regime applicable to “direct foreign investment” instead of Decree Law 600, which
will be no longer applicable once this law enters fully into effect as described below. For these
purposes, the law defines “direct foreign investment” as the transfer to Chile of foreign capitals or
assets, owned or controlled by a foreign investor, for an amount equal to or higher than USD 5
million or their equivalent in other currencies, through freely foreign convertible currency, physical
properties in all its forms and states, reinvestment of profits, credits capitalization, technology in all
its forms which are susceptible to be capitalized or credits associated to foreign investment coming
from a related company. It will also be considered a direct foreign investment the one that, within
the amount previously mentioned, is transferred to the country, and is materialized through the
acquisition or participation on a company’s equity or the capital of the receiving entity of the
investment, constituted in Chile according to its law, and that directly or indirectly gives to the
investor control of at least 10% of the voting stock of the company, or any equivalent percentage in
the participation of the company’s capital if it is not a stock company, or in the equity of the
relevant enterprise.
Under this new law, foreign investors shall have the right to remit abroad the transferred
capital and the net profits their investments generate, once their tax obligations are fulfilled
according to Chilean legislation. It also grants access to the formal exchange market in order to
liquidate the currencies constitutive of their investments, or to obtain the necessary currencies to
remit the invested capital or net profits obtained from the direct foreign investment.
Also, the new law guarantees foreign investor to be subject to the same legal framework as
a national investor, without the possibility of any kind of arbitrary discrimination, neither directly
nor indirectly.
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Pursuant to this new law, the foreign investor will be exempted from the payment of the
value added tax regarding the importation of capital goods, as long as this importation fulfills the
requirements and proceedings stablished by the Decree Law No. 825 of 1974 (specifically, article
12, letter b, number 10).
For purposes of ensuring the above benefits, the law entitles a foreign investor to request a
certificate from the Agency for the Promotion of Foreign Investment (Agencia de Promoción de la
Inversión Extranjera), evidencing that it qualifies for such regime.
Finally, the law creates two new bodies: the Ministries’ Committee for the Encouragement
and Promotion of Foreign Investment (Comité de Ministros para el Fomento y Promoción de la
Inversión Extranjera), in order to develop strategies and plans on this matter, and the Agency for
the Promotion of Foreign Investment, which shall be the legal successor of the Foreign Investment
Committee.
Note that the new law specifically provides that all the foreign investments contracts shall
remain fully effective, as long as, they have been entered into before January 1, 2016 or before such
later day when the law becomes effective (which depends on the issue of certain ancillary decrees
by the President of the Republic within one year from June 25, 2015). Also, the law allows foreign
investors to submit requests for entering into a foreign investment agreement during a term of four
years following January 1, 2016 or such later day when the law becomes effective. Subject to
signing the relevant agreements within such term, said investors will be covered by the tax
invariabilities described above at a rate of 44.45 percent.
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3.
Investment Vehicles
3.1 Introduction
This chapter focuses on the main features of both, public and closed corporations
(sociedades anónimas abiertas y cerradas), limited liability companies (sociedades de
responsabilidad limitada) and stock companies (sociedades por acciones). All of them correspond
to the main investment vehicles provided by Chilean Law.14
In order to organize one of these legal entities a notarial deed15 with certain mandatory
clauses is required. Additionally, an abstract of such deed must be registered in the Commerce
Registry and published in the Official Gazette.
3.2 Corporations
The Chilean Corporations Act (Law No. 18,046 or “Corporations Act”) distinguishes
between public and closed corporations.
Public corporations are those which have voluntarily or due to a legal mandate, registered
their shares in the Securities Registry held by the Superintendence of Securities and Insurance
(Superintendencia de Valores y Seguros or “SVS”), whereby this registration subjects them to the
supervision of said governmental body. Note that the corporations that fulfill any of the following
conditions are subject to said compulsory register regime:
(a) if they have 500 or more shareholders; or
(b) if at least 10 percent of its subscribed capital is held by at least 100 shareholders,
excluding those who individually or acting through other individuals or entities, hold
more than such percentage.
In contrast, closed corporations are defined as those which have not registered their shares
in the Securities Registry. However, they voluntarily may submit to the provisions applicable to
public corporations, and those intending to make a public offer of their securities shall first register
their shares in the Securities Registry (see also Section 14.3.1 on “Public Offer of Securities”).
Except as otherwise stated, all of the rules described hereafter are applicable to both, public
and closed corporations.
14
Note that other corporate forms exist, but they are rarely used as they do not provide partners/shareholders with limited
liability.
15 Note that the law also accepts other kind of documents in the case of corporations and stock companies, subject to
certain formalities that are almost equivalent to granting a notarial deed. However, incorporating a company without a
notarial deed is extremely unusual.
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3.2.1
3.2.1.1
Board of Directors
Composition
Corporations are managed by a board of directors, which members are elected in one
election at either ordinary or extraordinary shareholders’ meetings and who may be re-elected.
The law provides that the number of directors shall be invariable and even specifies a
minimum depending on whether the corporation is public (five) or closed (three).
Exceptionally, if a public corporation fulfills the following requirements the board of
directors shall be composed of seven members, one of them independent:
(a) the public corporation must have a market capitalization of UF 1,500,000
(approximately the equivalent to USD 59,051,656.2) and;
(b) at least 12.5% of the issued voting capital shares correspond to shareholders who
individually control or own less than 10% of such shares.
Moreover, if the requirements described above are fulfilled by the relevant public
corporation, it will also have a Directors’ Committee and shall appoint an independent director.
The shareholders meeting is entitled to revoke all members’ appointment as if they were a
unit, but it is unable to do it individually.
3.2.1.2 Main Faculties
The board of directors represents the corporation in general, except for the matters where
the law or the corporation’s articles of association exclusively entitle either the ordinary or
extraordinary shareholder’s meeting to resolve them.
The board of directors may delegate part of their authority to the corporation’s main
executives, managers, attorneys or one or more of the directors.
3.2.1.3
Liability and Duties
The Corporations Act provides, in general terms, that the directors will be jointly and
severally liable for the damages caused to the corporation or its shareholders by willful misconduct
or ordinary negligence. Any provision in the by-laws or in a shareholders’ agreement exempting or
limiting this liability will be subject to be declared null. In addition, the directors will be jointly and
severally liable and with the corporation for damages and fines arising out of a breach of the
Corporations Act, its regulations, the by-laws or the rulings of the SVS.
The directors elected by a group of shareholders shall have the same obligations towards the
other shareholders and the relevant corporation and, therefore, cannot act against the interests
thereof on the basis of instructions received from such group of shareholders.
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3.2.2
Decision Making Process
The decision making process of a corporation is held at the board level, except in cases
where a resolution passed at the shareholders’ meeting level is required according to Corporations
Act or the corporation’s by-laws.
The Corporations Act distinguishes between ordinary and extraordinary shareholders’
meetings. The prior ones are defined as those which take place once a year in the time indicated by
the corporation’s articles of association regarding the topics described by law. In absence of a
provision in the articles of association, the law provides that they shall take place in the first four
months of every year.
On the other hand, extraordinary shareholders’ meetings are those held at any time in
accordance to the corporation’s needs.
The law establishes a quorum for the shareholders’ meetings to be constituted. This quorum
depends on whether the meeting takes place after the first notice or the second one. Generally, if the
meeting is constituted at the first notice, then the presence of those shareholders who represent the
absolute majority of the voting shares is needed. In turn, if the meeting takes place at the second
notice, then there is no minimum.
Generally, matters are decided by the simple majority of all issued voting capital shares
attending the meeting. However, higher majorities are required by the Corporation’s Act in certain
matters and may be set forth by the by-laws of a corporation.
3.2.3
Shareholders’ Protection
Normally, shareholders’ voting rights are unlimited and the relevant shareholder can
exercise them at will. Pursuant to Article 30 of the Corporations Act, however, shareholders shall
exercise their corporate rights considering the rights of the corporation and of the other
shareholders. This provision sets forth a principle which may be applied by minority shareholders
when dealing with a decision which is so arbitrary and harmful that might be considered passed by
the majority shareholders with an illegitimate (e.g. legal in face but illegal in substance) intent of
damaging the corporation or the minority shareholders.
Additionally, in certain matters dissenting shareholders, as long as they comply with
specific requirements, are entitled to tender their shares to the corporation and be bought-out of the
same. This right is called withdrawal or appraisal right.
3.2.4
3.2.4.1
Acquisition of Control of Public Corporations
Control
The Chilean Securities Market Act (“Securities Act”) defines “control” as the power of an
entity or group of entities acting under a joint action agreement that enables them to direct the
majority of the votes in a corporation’s shareholders’ meeting and to elect the majority of the
members of its board of directors, or to significantly influence the corporation’s management. For
the purpose of this law “significant influence” is deemed to exist in respect of the person or group
holding, directly or indirectly, at least 25 percent of the voting share capital, unless:
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3.2.4.2
(a)
another person or group of persons acting under a joint action agreement control,
directly or indirectly, a stake equal to or greater than the percentage controlled by
such person;
(b)
the person or group does not control, directly or indirectly, more than 40 percent of
the voting share capital and such percentage is lower than the sum of the shares
held by other shareholders who individually or under a joint action agreement own
more than 5 percent of the share capital; and
(c)
in cases where the SVS has ruled otherwise, based on the distribution or
atomization of the overall shareholding.
Filing Requirements
Except when the target is a public corporation, no filings, publications or notices are
required when acquiring control of a Chilean corporation. If such corporation is publicly traded,
certain filings, publications and notices may be required depending on the potential acquirer’s
current intent and objectives, as summarized below. Also, any acquisition leading a person to reach
or exceed 10% of the outstanding shares of a public corporation- as well as acquisition by certain
qualified persons- shall be reported.
3.2.4.3
Filings and Publications
Article 54 of the Securities Act makes it mandatory for any individual or entity who
directly or indirectly seeks to become the controlling shareholder of a public corporation by any
means or procedures to publicly inform this intent.16
The notice shall be given to the target company, to every company controlling or controlled
by the target corporation, to the SVS and to the stock exchanges where the relevant shares are
listed. Additionally, this notice must be timely published in two newspapers of nation-wide
circulation and the acquirer’s web site, if available.
Although the content of the notice and its publication have been extensively determined by
the SVS in General Rule No. 104, the basic requirement is that it shall contain the price offered for
the shares and all other material elements of the transaction.
Failure to comply with the requirements contained in Article 54 of the Securities Act or
General Rule 104 of the SVS would not affect the validity of the transaction, but the shareholders of
the target corporation or other interested parties can claim damages, besides any administrative
sanctions that may be imposed by the SVS.
In addition, Article 54 of the Securities Act requires that within two business days
following the conclusion of the relevant transaction a publication shall be made in the same
newspapers where the notice described above was published. Also, these notices shall be sent to the
same persons mentioned in the preceding paragraphs.
16
Please note that this provision is not applicable when the acquisition is made through a tender or exchange offer. Please
see Subsection 3.2.4.4 on “Tender Offers” for a description of the filings applicable to tender and exchange offers.
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Article 200 of the Securities Act forbids any shareholder who has become controlling
shareholder of a public corporation to acquire within the 12 following months counted from the date
of the relevant transaction a number of shares equal to or higher than 3 percent of the latter’s
outstanding issued shares, unless through a tender offer at a price per share not lower than the one
paid at the time of the transaction. However, if the acquisition is made through a stock exchange
and on a pro rata basis for the rest of the relevant corporation’s shareholders, the controlling
shareholder may be enabled to purchase a higher percentage of shares in accordance and under the
circumstance described by the SVS regulations.
3.2.4.4
Tender Offers
Definition
The Securities Act defines a “tender offer” as an offer made to the public for the acquisition
of shares or convertible securities of a public corporation, pursuant to which it is offered to the
public corporation’s shareholders to purchase their shares, in terms that allow the offeror to acquire
a certain percentage of the corporation within a given period of time.
Mandatory Tender Offers
Title XXV of the Securities Act provides that the following transactions shall be carried out
through a tender offer:
(a)
the offer that would enable the offeror to become controlling shareholder;
(b)
the offer that the controlling shareholder shall make for all the outstanding shares of
a public corporation upon acquiring two-thirds or more of its shares of stock with
right to vote. Note that this offer shall be made at a price not lower than the price at
which withdrawal rights may be exercised; and
(c)
the offer that any person shall make for a controlling percentage of the shares of a
public corporation if such person intends to take control of the holding company
(whether listed or not) controlling such public corporation, to the extent that the
public corporation represents 75 percent or more of the consolidated assets of the
holding company.
The offeror must address the offer to all the shareholders of the target corporation or to all
the holders of a given series of shares. Except as required in letter (b) above, the offer may be
limited to a specific type of securities, a specific series of shares or a given number of shares, but
the securities or shares tendered must be acquired from the shareholders on a pro rata basis. In
addition to the foregoing, when the target has different series of shares and one of such series has
pre-eminence in the control of the corporation, any person making an offer to purchase shares of the
series with pre-eminence in the control shall make an offer for the same percentage of shares of the
other series.
Exceptions
Even if within the scenarios described in (a), (b) or (c) above, the provisions of Title XXV
do not apply to the acquisition of the following shares:
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(a)
those issued by a public corporation as a result of a capital increase that would
allow the acquirer to take control of the issuer;
(b)
those acquired from the controller of a public corporation, provided that the shares
are quoted in a stock exchange and that their sale price is paid in cash and is not
substantially higher than their market price. The term “substantially higher than the
market price” has been defined by the SVS as a price that is equal to or higher than
ten percent over the market price;
(c)
those resulting from a merger;
(d)
those acquired mortis causa; and
(e)
those acquired in forced sales.
In addition, there is an exception for acquisitions made pursuant to shareholders’
agreements registered with a public corporation prior to the enactment of Title XXV, which came
into force on December 20, 2000.
Information
Every tender offer must be announced publicly and a prospectus made available to all
interested parties.
In order to assure the transparency of the transaction, the SVS is vested with the power to
require the offeror to provide additional information aimed at giving the public all essential
information concerning the acquisition of the shares in the target company in a truthful, sufficient
and timely manner. The SVS may suspend an offer for up to 15 days, renewable for another 15
days, if the offeror fails to provide the information required. If at the end of this term the required
information has still not been made available, the SVS may cancel the offer.
Term and Competitive Bids
A tender offer must be open for not less than 20 and not more than 30 days after its notice
has been published. However, if a depositary entity is a shareholder of the target corporation the
offer shall be in place for 30 days.
In addition, the offer may be extended once for a term of not less than 5 and not more than
15 days. The extension of an offer must be made public before the expiration of the initial term, by
means of a notice published in the same newspapers where the original offer was published.
The law permits competitive offers to be made during a tender offer period, by publishing
the competitive tender offer notice not later than 10 days before the expiration of the initial offer
period. In principle, the competing bids are not subject to the same expiration date.
In contrast, if a tender offer is made through a stock exchange, any competing bids shall be
made following the same procedure and have the same expiration date.
In the event of the original offer’s extension, the competing offerors are entitled to extend
their bids for a period that expires on the same date than the one extended for the original offer.
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Within 3 days following the expiration of the initial offer period, the offeror must publish
the result in a notice in the same newspapers mentioned above. At the same time, the result must be
reported to the SVS and the appropriate stock exchanges. The date of the acquisition will be the
date on which the result is announced.
Revocability of the Offer and of the Tendered Shares
Although in principle tender offers are irrevocable, the offeror may set forth certain
objective conditions that may render the offer ineffective. These conditions must be clearly stated in
the notice to the public and in the prospectus.
The shareholders of the target corporation that have tendered their shares may always
withdraw their acceptance while the offer’s term is in force.
Amendment of the Offer
During offer’s term, the offeror is only entitled to increase the price offered for the shares or
the number of shares it intends to acquire. Any increase in the purchase price shall also benefit
those shareholders who tendered their shares prior to the price increase.
Once the term of the offer expires, the offeror is barred from making any new offer for a
period of 20 days.
Parallel Transactions; Integration Period
While the tender offer is in force, the offeror may not enter into negotiations with third
parties outside of the tender offer process.
At the same time, the offeror may not directly or indirectly acquire shares under more
favorable price conditions than the ones expressed in offer during the period between 30 days prior
to the date when the offer came into effect and 90 days subsequent to the publication of its outcome.
In case of breach, the shareholders who sold their shares under worse conditions are entitled to
claim recompense from the offeror and any other party who benefitted from those conditions
Defensive Tactics
Title XXV also imposes a set of obligations on the target corporation and its board of
directors, aimed at protecting the interests of the shareholders of the corporation, the integrity of the
corporation’s and the seriousness of the process in general. In this regard, during the term of the
tender the target corporation shall not:
(a)
acquire treasury stock;
(b)
create any subsidiary;
(c)
dispose of assets representing more than 5 percent of total assets; and
(d)
increase the corporation’s indebtedness by more than 10 percent of the one existing
before the offer was made.
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In addition, each board of directors member must issue a written report evaluating the
tender offer’s convenience for the corporation’s shareholders. Also, in this report each director must
declare any interest he/she may have in the transaction and any relationship with the corporation’s
controller or the offeror.
Simplified Rules
The SVS has waived some of the requirements mentioned above in cases of offers made for
the acquisition of up to 5 percent of the outstanding shares issued by a public corporation.
3.2.5
Related Transactions
3.2.5.1
Closed Corpotarions
Pursuant to Article 44 of the Corporations Act, a close corporation may only execute acts or
contracts involving material amounts17 in which one or more directors18 have interest, whether on
their own account or on behalf of another person, as long as, the following requirements are
fulfilled:
(a)
these transactions must have been previously approved by the board of directors;
and
(b)
the acts or contracts must be executed on an arms’ length basis.
Notwithstanding the foregoing, the corporation’s by-laws may authorize the execution of
such transactions without complying with any of those requirements. Moreover, the shareholders’
meeting is entitled to approve or ratify such acts or contracts with the affirmative vote of two-thirds
of the shareholders with right to vote. If required, the board of directors will resolve upon the
transaction without the vote of the interested director(s), and the relevant resolution will be reported
to the next shareholders’ meeting.
Transactions where a director of the parent company of the closed corporation has interest
must also comply with these requirements.
Finally, note that if the closed corporation is a subsidiary of a public one, then this matter is
subject to the requirements and process outlined below for public corporations.
3.2.5.2
Public Corporations
In the case of a public corporation, a “related transaction” is deemed to be any negotiation
or operation between the corporation and any of the following individuals:
Material transactions are those involving amounts exceeding the equivalent to 1 percent of the corporation’s
shareholders’ equity, in so far as the act or contract exceeds UF 2,000 (approximately equivalent to USD 78,738.57), and
in any case, those where the amounts involved exceed UF 20,000 (approximately equivalent to USD 787,385.7).
18 Note that this provision also applies to the directors’ spouses and close relatives, and to the companies where they have
a material participation.
17
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(a)
one or more related individuals or entities in terms of Article 100 of the Securities
Act19;
(b)
a corporation’s director, manager, officer or liquidator on its own account or for the
account of any person other than the corporation, or its respective spouse or blood
or marriage relatives up to the second degree;
(c)
an entity where 10 percent or more of its capital is owned by any of the individuals
described on letter (b) above, or also when one of them is director, manager or
officer of the relevant entity;
(d)
a person or entity determined as such by the corporation’s by-laws or if applicable
the directors’ committee; and
(e)
an entity where a director, manager, officer or liquidator of the relevant public
corporation, during the 18 previous months, has acted in any of those capacities.
A public corporation may only enter into a related transaction when its aim is to contribute
to the corporate interests, its conditions are set at arms’ length and the procedure indicated in the
Corporations Act has been followed.
3.2.6
3.2.6.1
Mergers, Conversions and Spin-offs
Mergers
A merger occurs when two or more corporations are pooled into one that succeeds them in
all their rights and obligations. The resulting or surviving corporation acquires all of the merged
entities’ assets, liabilities and shareholders.
The Corporations Act distinguishes between mergers by creation (fusiones por creación)
and mergers by absorption (fusiones por absorción). The former ones occur when two or more
corporations contribute their assets and liabilities to form a new one. The second one takes place
when one or more dissolved corporations are absorbed by an existing one.
The merger, and the relevant audited balance sheets and independent experts’ report, must
be approved by an extraordinary shareholders’ meeting in each of the participating corporations.
The law requires the affirmative vote of two thirds of the issued and outstanding shares with right to
vote and give the dissident shareholder withdrawal rights.
19
This article provides that the following persons are related to a company: (i) the other entities of the business
conglomerate to which the company belongs; (ii) parents, subsidiaries and equity-method investors and investees of the
corporation; (iii) all directors, managers, officers and liquidators of the corporation, and their spouses or blood relatives to
the second degree, or any entity controlled, directly or indirectly, by any of the referred individuals; (iv) any person that
by him/herself or with other persons under a joint action agreement, may appoint at least one member of the company’s
management or controls 10 percent or more of the capital or voting capital of a stock company, and; (v) all other entities
or individuals determined as such by the SVS.
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3.2.6.2
Conversions
Corporations may convert into other types of legal entities by means of an extraordinary
shareholders’ meeting with the approval of two thirds of the issued and outstanding shares with
right to vote.
The formalization of such a conversion must comply with the legal requirements pertaining
both to corporations and to the new type of entity. However, if another type of entity is converted
into a corporation, only the legal requirements regarding the organization of corporations must be
complied with.
3.2.6.3
Spin-Offs
The spin-off of one or more corporations from an existing one must be approved by an
extraordinary shareholders’ meeting of the latter with the affirmative vote of two-thirds of the
issued and outstanding shares with right to vote. At the same time, this shareholders’ meeting must
approve a capital reduction of the existing corporation and the distribution of assets and liabilities
between itself and the newly created corporation(s), as well as, the by-laws of the latter. The
shareholders of the divided company become, by the sole operation of law, shareholders in the new
corporation(s) in the same proportion they held in the former one.
3.2.6.4
No Loss of Capacity
The Law provides that none of a corporation’s shareholders will lose their capacity due to a
merger, conversion, spin-off or subsequent exchange of shares.
3.3 Limited Liability Companies
Limited liability companies (sociedades de responsabilidad limitada, or “LLC”) are a more
flexible structure, but require always for its formation and existence at least two partners. Its
number of partners may not exceed fifty.
3.3.1 Main Characteristics:
(a)
management: the law provides that the LLC’S management may correspond to one
or more of the partners acting in the manner indicated by it. They are also enabled
to delegate their functions to another partner or even a third party. If the articles of
association do not appoint a manager, the law provides that all partners are entitled
to take part in the LLC’s management subject to legal limitations;
(b)
distribution of profits and losses: in connection to the distribution of profits and the
eventual losses that the LLC may suffer, the law allows the partners to freely
establish those rules. However, in absence of agreement the law provides that
profits and losses shall be distributed in proportion to each partner’s contribution
the LLC’s capital;
(c)
equity rights’ transference: the transference of a partner’s equity rights requires the
amendment of the LLC’s articles of association and the consent of all partners.
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Otherwise, the transfer is unenforceable against them and subject to be declared
null; and
(d)
unfair competition limitations: all partners are not allowed to individually compete
with the LLC’s business without the rest of the consent. Nonetheless, the law
provides that the partners’ opposition cannot be unreasonably withheld. On the
other hand, this restriction may be expressly waived in the articles of association.
3.4 Stock Companies
Law 20,190, of 2007, created a new type of company denominated sociedad por acciones
(“stock company”). The main novelty of these entities is that stock companies may be formed by
one or more persons (individuals and/or legal entities) and, unlike corporations and limited liability
companies, are not dissolved when one person holds all of the shares. Furthermore, its provisions on
management, organization and amendment formalities are significantly simpler than corporations
and in some respects than LLC’s, but it is important to note that in the absence of a specific
provision in the articles of association stock companies are governed by the rules applicable to
closed corporations.
3.4.1
Main Characteristics
(a)
management: the shareholders may freely allocate the management of a stock
company, whether into one or more managers and/ or a board of directors, or even
managers or attorneys-in fact. Also any combination of the above mentioned is
allowed;
(b)
transfer of rights: the general rule is that there are no limitations in transfer of
shares;
(c)
conversion by the sole operation of law: if a stock company for more than 90 days
falls in any of the following situations, by the mere operation of the law it will
convert into a public corporation and shall be subject to the applicable rules of the
latter:
(i)
(ii)
the stock company has 500 or more shareholders; or
at least 10 percent of its subscribed equity capital is held by at least 100
shareholders, excluding those who individually or acting through other
individuals or entities, hold more than such 10 percent.
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4.
Tax Considerations
4.1 Introduction
As a general rule, individuals or entities domiciled or resident in Chile, regardless of their
nationality, are subject to income tax on their worldwide income.
For purposes of Chilean Law, an individual is considered a Chilean resident if the
individual has resided in Chile more than six consecutive months in one calendar year, or a total of
more than six months in two consecutive fiscal years. To date, the fiscal year coincides with the
calendar year. An individual is domiciled in Chile if such individual resides in the country with the
purpose of staying in Chile (such purpose to be evidenced by circumstances such as the acceptance
of employment within Chile or the relocation for the individual’s family to Chile).
Foreign individuals or entities not domiciled or resident in Chile are not subject to Chilean
taxes, except for Chilean source income. As a general rule, income is deemed to be of Chilean
source when it derives from assets located in Chile (e.g. real estate, personal property, shares issued
by a Chilean corporation, etc.) or activities carried out in Chile, regardless of where the
remuneration is paid and who pays it.
4.2 Taxation of Individuals and Entities Domiciled or Resident
in Chile
4.2.1
Individuals
The general rule is that the taxpayer is the one responsible for determining the amount of
taxes due. However, there are some situations in which it is the Chilean Internal Revenue Service
(Servicio de Impuestos Internos, or the “IRS”) itself who undertakes such procedure, and in other
occasions the law and even a judge is responsible to do so.
Individuals are required to pay an Overall Income Tax (“Overall Income Tax”) on their
worldwide income. The Overall Income Tax is a progressive tax with rates ranging from 0 percent
to 40 percent20. In connection with the profits that individuals receive from entities domiciled in
Chile, individuals are allowed to use as a tax credit the 22.5 percent First Category Tax (“First
Category Tax”) paid by the corresponding entity, if any.
Individuals also pay taxes on their dependent work-related income Second Category Tax
(“SCT”) with rates ranging from 0 percent to 40 percent21, which must be withheld by the
employer. The amount of this tax is calculated based on an individual’s dependent work-related
monthly earnings minus social security contributions.
On September 29, 2014, Law No. 20,780 was published in the Official Gazette (hereinafter, the “Tax Reform”),
introducing the most significant amendments to the Chilean tax system over the last 30 years and strengthening the
powers of the IRS to control and prevent tax avoidance. In accordance with the Tax Reform, the maximum rate of the
Overall Income Tax will decrease from 40 percent to 35 percent as of January 1, 2017.
21 In accordance with the Tax Reform, the maximum rate of the Second Category Tax will be decreased from 40 percent
to 35 percent as of January 1, 2017.
20
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Finally, the taxable base concerning individuals depends on the nature of the income that is
subject to SCT. For dependent workers, the taxable income consists of the amount received by the
worker according to the employment agreement, minus mandatory contributions paid by the
employer, such as health and retirement pensions, and income exempted from tax by law. For
independent workers, which are subject to the Overall Income Tax, the net taxable income consists
of the amounts received during the fiscal year, after deducting all necessary expenses.
As a general rule, Chilean residents are not subject to wealth taxes. Please note, however,
that real estate is subject to a “territorial tax” (Impuesto Territorial), its calculation is based on the
value of the real estate.
Foreigners, on the other hand, are subject to taxes in Chile only on their Chilean source
income during the first three years of residence. At the end of this period, foreigners may apply for
an extension of such term. After the original three-year period, or its extension, has lapsed,
foreigners are subject to taxes in Chile on their worldwide income, as if they were Chilean
residents. All income received by foreigners (whether received in Chile or abroad) for the services
rendered in Chile is deemed income of Chilean source.
4.2.2
4.2.2.1
Entities
Corporate Income Tax
Most companies are required to pay First Category Tax on their annual accrued income at a
rate of 22.5 percent.22
22According
to the provisions of the Tax Reform the corporate tax rate will be gradually increased to 24 percent in 2016. It
is important to note that the Tax Reform contemplates, among other matters, changes to the corporate tax regime by
allowing coexistence of two alternative tax regimes. From January 1, 2017, all taxpayers required to file taxes in
connection with their effective income shall opt for one of the following two taxation systems:
Attributed Income System (“AIS”): In general terms, according to this system, company owners, whether subject to the
Overall Income Tax or Withholding Tax (“WHT”), as applicable, shall pay taxes on the total profits earned by their
respective companies and not only on the basis of those withdrawn by or distributed to them. Profits shall be “attributed”
as agreed upon by the partners or shareholders in the respective bylaws and such procedure must be informed to the IRS.
Should the preceding provision not apply, profits shall be “attributed” in the same proportion as that in which the taxpayer
subscribed and paid up the capital. Under the AIS, taxpayers shall pay the First Category Tax at a rate equal to 25 percent,
which is wholly creditable against final taxes. To assess taxes to be paid by final taxpayers, all companies subject to the
First Category Tax shall keep some records in order to determine to which the corresponding withdrawn, remittance or
distribution from the company or the permanent establishment must be imputed and, consequently, the taxation
applicable.
Partially Integrated System (“PIS”): Company owners, whether subject to Overall Income Tax or WHT, shall pay taxes on
profits for any reason withdrawn by them or remitted, attributed or distributed to them from their company. Under the PIS,
and at the corporate level, the First Category Tax shall be paid at a rate equal to 27 percent, and only 65 percent of it may
be creditable against final taxes when profits are withdrawn or distributed from the company to its partners or
shareholders. Ultimately, this translates into a credit for 100 percent of the First Category Tax paid by the taxpayer, and a
reimbursement, by way of fiscal debit, of an amount equal to 35 percent of the referred credit, such fiscal debit entailing a
higher Overall Income Tax or WHT for all relevant purposes. The obligation to reimburse 35 percent of the credit shall
not apply to WHT taxpayers residing in any country with which Chile has signed a double taxation treaty. Accordingly,
the abovementioned limit of 65 percent of the First Category Tax shall not apply. Therefore, such taxpayers shall be
subject to an effective rate equal to 35 percent, whereas those in a situation different from that described shall pay an
effective rate of 44.45 percent. To assess taxes to be paid by final taxpayers under the PIS, companies subject to the First
Category Tax shall also keep some records in order to determine to which the corresponding withdrawn, remittance or
distribution must be imputed and, consequently, the taxation applicable.
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Corporations, stock companies, limited liability companies, limited liability individual
enterprises, individual companies subject to First Category Tax on a complete-accounting basis and
branches must pay taxes on their net taxable income (calculated on the basis of the accrual method
of accounting, as a general rule). In this respect, there are certain matters that may be highlighted:
(a)
in general terms, there are no restrictions on the carrying forward of any tax losses;
(b)
assets and liabilities are adjusted to reflect changes in Chilean inflation;
(c)
under certain conditions, imported or new tangible assets may be depreciated by
one-third of their normal economic life;
(d)
dividends or profits from other Chilean companies are not subject to First Category
Tax; and
(e)
a tax credit may be granted with respect to foreign taxes paid on certain types of
foreign source income.
Under certain circumstances, some activities (e.g. agricultural, mining and transportation)
pay taxes on the basis of deemed income, unless a corporation carries them out.
Entities are required to prepare tax financial statements for each fiscal year, and in April of
each year they must file tax returns for the preceding year. In addition, entities must make monthly
interim payments on account of the First Category Tax, and pay and declare the Value Added Tax
(“VAT”) and Additional Withholding Taxes (“WHT”) (see Section 4.3.1 on “Additional
Withholding Tax”) withheld during the preceding month. Finally, local entities shall keep a taxable
profit fund ledger (the Fondo de Utilidades Tributables, or “FUT”) that tracks the entity’s income
and its tax situation. The FUT is used to calculate taxes and the tax credits that may be available at
the time profits are distributed by such entity to its partners or shareholders, as the case may be23.
Taxpayers shall opt for one taxation system upon initiation of activities or within 3 months prior to the end of the pertinent
year, and they shall be subject to it for at least 5 consecutive fiscal years, after which they may adopt the other.
Sole proprietors (empresarios individuales), limited liability sole proprietorships (empresas individuales de
responsabilidad limitada), associations (comunidades), and partnerships (sociedades de personas) (in the last two cases,
when they exclusively composed by individuals with domicile and residence in Chile) shall be taxed under the AIS by
default. Unless they adopt a system, the remaining business organizations, including corporations and other stock
companies, shall be subject to the PIS by default. In order to adopt a system, partnerships and stock companies shall file a
signed statement and a public deed evidencing the unanimous consent of all partners or shareholders. In respect of
corporations, whether publicly-traded or privately-held, the system must be agreed upon at a shareholder’s special
meeting with a quorum of at least two thirds of the issued voting stock; then they shall file a statement and a public deed
containing the minutes evidencing the resolution adopted.
Taxpayers initiating activities before June 1, 2016, shall opt for a system from June through December of that year. Those
starting operations on or after June 1, 2016, shall make the option within 2 months following that in which they start to
operate, in their initiation of activities sworn statement.
Please note that currently a new bill of law is under discussion in the Congress to amend the tax regime. This bill of law
may introduce material changes to the regime described above, specially but not limited to the rules applicable to income
tax.
23 In this regard, please see footnote 22 as to the new tax systems that will be applicable as of January 1, 2017.
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C L A R O & C I A.
4.2.2.2
Profits Distributed to Individuals or Entities not Domiciled or Resident in Chile24
Distributions of profits by, and withdrawals of profits from an entity other than a
corporation, such as limited liability companies or permanent establishments, are subject to the
following order of imputation:
(a)
any withdrawals of profits must be imputed to “taxable income” as registered in the
company’s FUT (as of December 31 of the year of the distribution), in which case
withdrawals will be subject to WHT at a rate of 35 percent, with the corresponding
credit for the First Category Tax already paid by the company;
(b)
if no FUT exist as of December 31, or if the amounts paid exceed the taxable profits
recorded in the FUT as of such date, the profit withdrawal paid or the portion not
fully covered by such taxable profits, as the case may be, withdrawals of profits
must be imputed against the Financial Profits Fund (Fondo de Utilidades
Financieras or “FUF”, comprised by the difference between normal and accelerated
depreciation), in which case the profit withdrawals will be subject to WHT at a rate
of 35 percent, without any credit;
(c)
if no FUF exist as of December 31, or if the amounts paid exceed the amounts
recorded in the FUF as of such date, the profit withdrawal paid or the portion not
fully covered by such FUF, as the case may be, must be imputed against the nontaxable profits ledger (the Fondo de Utilidades No Tributables or “FUNT”), in
which case the profit withdrawals will not be subject to WHT; and
(d)
if no FUT, FUF or FUNT exist as of December 31, or if the amounts paid exceed
the amounts recorded that ledgers as of such date, the profit withdrawal paid or the
portion not fully covered will be subject to WHT, without any credit.
Please note that amounts remitted abroad by a limited liability company can be subject to a
provisional withholding on the amounts remitted abroad. In this case, the amount so withheld shall
be used as a tax credit against the WHT that may be applicable if at the end of the fiscal year in
which such remittance is made, the FUT or the FUF of such limited liability company are positive.
Conversely, if at the end of such fiscal year the limited liability company does not have FUT or
FUF, the foreign partners shall be entitled to a refund of the provisional tax withheld.
Distributions of profits by a corporation are always subject to WHT at a rate of 35%. In
addition, dividends distributed by a Chilean corporation are subject to the following order of
imputation:
(a)
24 Rules
any dividend distributed must be credited against taxable profits (from the oldest to
the newest) as recorded in the FUT (as of December 31 of the year prior to the date
on which the dividend is paid), in which case in which case dividends distributed
will be subject to WHT at a rate of 35 percent, with the corresponding credit for the
First Category Tax already paid by the company;
applicable from January 1, 2015 to December 31, 2016.
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(b)
if no taxable profits exist as of December 31 of the preceding year, or if the
amounts paid exceed the taxable profits recorded in the FUT as of such date, the
dividend paid or the portion not fully covered by such taxable profits, as the case
may be, must be imputed against the FUNT, in which case no withholding applies
on the dividend distribution; and
(c)
if non-taxable profits are available as of December 31 of the year prior the date on
which the dividend is paid, or if the dividend paid exceeds the non-taxable profits
available as of such date, the tax situation of the amounts not covered by the nontaxable profits, if any, is determined as of December 31 of the year in which the
dividend is paid, following the same rules of attribution referred to above.
However, in this case, a 35 percent provisional withholding must be applied on the
amount distributed, against which a deemed First Category Tax credit is granted. If
as of December 31 of the year in which the dividend is paid, no taxable profits
exist, the Chilean company has to refund the First Category Tax credit on behalf of
the shareholders who received the dividend.
As explained in letters (a) and (b) above, a credit is given for the First Category Tax paid by
the local entity, if any. This credit, however, does not reduce the WHT on a one-for-one basis
because it also increases the tax base on which the WHT is calculated.
The example below illustrates the effective WHT burden on a cash dividend received by a
foreign investor, assuming an WHT rate of 35 percent, an effective First Category Tax of 22,5
percent, and a distribution of 100 percent of a local company’s net income that is distributable after
payment of the First Category Tax:
Company taxable income
First Category Tax (22,5 percent of 100)
Net distributable income
Dividend distributed by local company
WHT
(35 percent of the sum of 77,5 plus 22,5 First Category Tax paid)
Credit for First Category Tax
Net WHT
Net dividend received
Effective dividend WHT rate
100
(22,5)
77,5
77,5
(35)
22,5
(12,5)
65
16,13 percent
Decree Law 600 grants holders of foreign investments that have registered their investment
projects under its provisions, the option to waive the application of the aforementioned ordinary
income tax regime and benefit instead from an overall fixed income tax regime. Decree Law 600
provides that investors may include in their investment contracts a clause providing that they shall
be subject, for a period of 10 years from the commencement of operations, to an overall fixed tax
rate of 42 percent on taxable income. The ten-year term may be extended to 20 years for industrial
and extractive projects valued at over USD 50 million. Since current income tax rates imposes, in
the aggregate, a lower tax burden, the special tax regime afforded by Decree Law 600 is presently
unattractive to foreign investors. The foreign investor who has opted for a fixed tax rate may
irrevocably waive the right to the fixed rate at any time. Thereafter, the foreign investor shall be
25
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subject to the general tax legislation. See Chapter 2 on “Foreign Exchange and Foreign
Investment”.25
4.2.2.3
Capital Gains
Shares of close corporations or public corporations that are not significantly traded on stock
exchanges
(a)
Gains resulting from the sale or contribution of shares purchased prior to January
31, 1984 are exempt from taxes as long as the seller or taxpayer is not customarily
engaged in the purchase and sale of securities, whether the sale is performed
between related or unrelated parties.
(b)
Gains resulting from the sale or contribution of shares purchased after January 31,
1984 that have been held for a period of one year or more are subject to a single
income tax of 22.5 percent; provided that the sale of such shares is not made
between related parties and provided, further, that the seller is not customarily
engaged in the purchase and sale of securities26. For these purposes, a related party
transaction occurs whenever the transaction is made between: (i) a partner in a
limited liability company; (ii) a shareholder in a close corporation; and (iii) a
shareholder in a public corporation holding 10% or more of its shares, as seller, and
25
According to the Tax Reform, as of January 1, 2016, Decree Law 600 shall be abrogated. Therefore, the Foreign
Investments Committee will not be able to enter into any new foreign investment contracts under such Decree Law.
Notwithstanding the foregoing, any parties to foreign investment contracts entered into with Chile will continue to be
subject to the provisions of their contracts, including what is set forth in Title III of Decree Law 600 in respect of the
Foreign Investment Committee.
26 According to the Tax Reform, effective by January 1, 2017, important changes on the way capital gains are regulated in
Chilean Law will take effect. As for the sale of shares or ownership rights the following changes are to be taken in
account: in order to determine the capital gain subject to taxation, the tax cost of the shares or ownership rights must be
deducted from the price. Without regard to the taxation system applicable, the losses arising from the sale of shares or
ownership rights in the same year may be deducted from the capital gains determined. For such purposes, upon sale of
shares or ownership rights in companies subject to the AIS, capital gains determined may suffer a reduction equal to the
portion of the income entered in the record of “own attributed income” accrued by the company provided, however, that
such income was not withdrawn, remitted or distributed at the end of the fiscal year preceding the sale. Such reduction
shall be proportional to the ownership rights or shares to be transferred. Taxpayers must first deduct the value of the
withdrawals or remittances received from the company during the same year the sale takes place. The Tax Reform also
eliminates the current distinction between “habitual” and “non-habitual” transactions and sets forth a differential system
on the basis of the term during which assets are held.
Less-than-a-year term: The capital gain shall be subject to the First Category Tax and the Overall Income Tax or WHT, as
applicable on the basis of received or accrued income.
One-year or over-a-year term: The capital gain shall be only subject to the Overall Income Tax or WHT, as applicable, on
the basis of received or accrued income.
In order to calculate the Overall Income Tax in (c) above and provided that the taxpayer has opted for the AIS, the capital
gain shall be deemed accrued during the period of commercial years in which the shares or ownership rights to be
transferred were held by the transferor. This entails the application of an average marginal rate resulting from the
incorporation of the annualized income into the taxable base for the Overall Income Tax pertaining to the preceding years
(recalculation) for a maximum of 10 years.
All transfers of shares or ownership rights between “related parties” pursuant to paragraph 2, of Article 17 No. 8 of the
ITL as provided by the text in force as of January 1, 2017, shall be taxed in accordance with (a) and (b) above.
On the other hand, when such transfers are made by taxpayers determining the First Category Tax on their effective
income based on full accounting records, the total capital gain shall be subject to the First Category Tax and the Overall
Income Tax or WHT, as applicable, on the basis of received or accrued income.
26
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the respective company or corporation or a company or corporation on which such
seller have interests, as buyer.
In all other cases, gains resulting from the sale of shares purchased after January 31, 1984
are fully taxable. Therefore, such gains shall become subject to First Category Tax that must be
declared and paid by the seller. Upon payment or distribution of such gains to Chilean resident
individuals, they shall be subject to Overall Income Tax. On the other hand, if such gains are
remitted or distributed abroad to non-resident individuals or entities, a 35 percent WHT shall be
levied. Please note, however, that in both cases a tax credit shall be given for the First Category Tax
already paid.
In general terms, gains are defined as any amounts exceeding the original price at which the
shares concerned were purchased, adjusted by local inflation.
Shares of public corporations that are significantly traded on stock exchanges.
(c)
Gain recognized in the sale of shares of common stock that are publicly traded and
have a high presence in the stock exchange, is not subject to capital gains tax in
Chile, provided that the shares of common stock are sold:
(i)
on a Chilean stock exchange authorized by the SVS;
(ii)
within the process of a public tender of shares governed by Title XXV of
the Chilean Securities Market Act (see Section 3.2.4.4); or
(iii)
as a result of the contribution of securities into a mutual fund under the
provisions of Article 109 of the Income Tax Act (“ITL”).
The shares of common stock must also have been acquired:
(i)
on a Chilean stock exchange, authorized by the SVS;
(ii)
within the process of a public tender of shares governed by Title XXV of
the Chilean Securities Market Act;
(iii)
in an initial public offer of shares of common stock resulting from the
formation of a corporation or a capital increase of the same;
(iv)
in an exchange of public offered securities convertible into shares; or
(v)
as a result of the redemption of securities subject to the provisions of
Article 109 of the ITL. Shares of common stock are considered to have a
“high presence” in the stock exchange when they:
(a)
are registered in the securities registry;
(b)
are registered in a Chilean stock exchange; and
(c)
comply with one of the following requirements:
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(i)
have an adjusted presence equal to or above 25 percent; or
(ii)
have a “Market Maker” in the terms and conditions set
forth by the SVS. Shares have “Market Maker” when the
issuer of the same has signed a contract with at least one
stockbroker.
Capital gains obtained in the sale of shares of common stock that are publicly traded, have a
high presence in a stock exchange, where issued before January 7, 2014 and that in their issuance
where not ruled under the provisions of article 104 ITL are also exempt from capital gains tax in
Chile when the sale is made by “foreign institutional investors” (“FII”), such as mutual funds and
pension funds. In order to apply the prior exception the FII must:
(i)
be incorporated abroad and not domiciled or resident in Chile;
(ii)
not directly or indirectly participate in the control of the corporations
issuing the securities it invests in, nor possess or participate directly or
indirectly in 10 percent or more of the capital or the profits of such issuers;
and
(iii)
have a representative or agent established in Chile to be responsible for
compliance with tax obligations, who has also the obligation to inform to
the IRS of the sale.
Foreign institutional investors who have purchased securities referred to in article 10727 of
the ITL before January 7, 2014, will also be exempted from capital gain tax if they comply with the
requisites established in the abrogated article 106 of the ITL.28
Equity Rights
The form of taxing this rights is the same applicable to letter (b) above.
Ability of the Tax Authorities to Reassess the Price Established by the Parties.
The IRS has the authority to conduct an appraisal of the shares or equity rights being sold,
whenever the price agreed upon by the parties is not within prevailing market prices. Because
companies other than public corporations do not usually have readily available market quotations,
prevailing market prices must be construed as reasonable commercial value, assessed in accordance
with common business practices.
A “tax rollover” (business reorganization process) may be carried out in Chile without the
risk of such an assessment, to the extent that the requirements of Article 64 of the Tax Code are
complied with. In general, Article 64 provides that the IRS is not entitled to assess the value at
which any assets, whether tangible or intangible, are contributed into a company within a business
27
Such as shares of public corporations that are significantly traded on stock exchanges, investment funds shares and
mutual fund shares.
28 The requisites had to do with ensuring that the investor in question was not related to the company who issued the
shares or resident or domiciled in Chile, among others.
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C L A R O & C I A.
reorganization process, provided that the relevant transaction has a “legitimate business reason.”
The transaction shall be effected by means of a capital increase in an existing company or the
incorporation of a new entity, and the capital contribution should not result in cash flows to the
recipient company. In addition, the assets must be contributed or recorded in the recipient company
at the same tax or financial value as recorded in the contributing company. Consequently, a “tax
rollover” should not have tax consequences in Chile to the extent that the assets are contributed at
their tax value and all the above-mentioned requirements are met.
Unfortunately, neither the law nor the IRS has defined the extent and scope of the
expression “legitimate business reason”. In this regard, the IRS has expressly pointed out that the
existence of a “legitimate business reason” is a factual circumstance that can only be determined on
a case-by-case basis. In addition, the IRS has expressly stated that a “tax rollover” could never
consist of, or imply, a mechanism or instrument implemented with the sole purpose of evading
taxes. Moreover, it is important to consider that in recent years, the IRS has made important efforts
to persuade and encourage Chilean Courts to look for the “true intention” underlying a given
transaction, instead of just focusing on the legality of each of the acts or steps taken in connection
therewith.
4.2.3
Controlled Foreign Corporations Rules
It is worth pointing out that, prior to the Tax Reform, Chile taxed foreign-source income
only when repatriated. However, in order to prevent tax base erosion due to residents investing in
foreign companies located in tax havens or low tax regimes, the Tax Reform established new rules
on Controlled Foreign Corporations (“CFC”).
Based on this new set of rules, Chilean taxpayers will be required to pay taxes on “passive
income” (such as dividends, royalties, interests, etc.) obtained by foreign entities controlled, either
directly or indirectly, by such Chilean residents, regardless of its actual remittance to the country.
This type of regulation is essentially anti-avoidance rules that are designed to prevent
Chilean companies or individuals from artificially moving their profits abroad to countries with low
or no taxation at all, reducing or deferring Chilean taxation.
This set of rules will be enacted by January 1, 2016.
4.3 Taxation of Individuals and Entities not Domiciled or
Resident in Chile
As explained above, individuals and entities not domiciled or resident in Chile are not
subject to Chilean taxes, except for income of Chilean source. As described above, the general rule
is that an income is considered to be of a Chilean source when it arises out of goods located in Chile
(e.g. real estate, personal property, shares issued by a Chilean corporation, etc.) or activities carried
out in Chile. Individuals and entities not domiciled or resident in Chile are taxed on their Chilean
source income with WHT.
If a foreign individual or entity not domiciled or resident in Chile has an agency, branch or
other permanent establishment in Chile, then such agency, branch or permanent establishment
would be subject to Chilean taxes.
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C L A R O & C I A.
4.3.1
Additional Withholding Tax
In general terms, individuals and entities domiciled or resident in Chile making payments to
individuals or entities not domiciled or resident in Chile, which payments constitute Chilean source
income under the ITL, are required to withhold the applicable WHT and declare and pay such tax to
the Chilean General Treasury within the first 12 days of the month following the withholding. In
addition, a special ledger must be kept to record the WHT so withheld, including the name and
address of the person for whose benefit the withholding was made, along with annual affidavit
filings.
WHT and the rate thereof shall be determined on a case-by-case basis, as it depends on the
type of payment, the payer and the payee, among other factors. As a general rule, however, the rate
of the WHT is 35 percent, but there are multiple exceptions. Certain particular cases are as follows:
(a)
Royalties: royalty payments to individuals or entities with no domicile or residence
in Chile are usually subject to WHT at a rate of 30 percent as a single income tax.
(b)
Software: with respect to the tax treatment afforded to software, it is necessary to
distinguish the physical support from the intellectual support. The physical support
is subject to:
(i)
customs duties at a rate of 6 percent, applied over the goods’ customs value
(see Section 4.4.1 below); and
(ii)
VAT equal to 19 percent. Any amounts paid or credited to individuals or
entities with no domicile or residence in Chile for the use of canned
software is subject to WHT at a rate of 15 percent.
However, the applicable rate is 30 percent when the individuals or entities with no
domicile or residence in Chile that are beneficiaries of the payments:
(i)
are incorporated, domiciled or are resident in a country listed as “tax
haven” by the Ministry of Finance29; or
(ii)
own or participate in 10 percent or more of the capital or revenues of the
payer or debtor of the remunerations, or are under a common partner or
shareholder that, directly or indirectly own or participate with 10 percent or
more of the capital or revenues of either one. The Chilean taxpayer obliged
to withhold the tax shall be required to prove the aforementioned
circumstances and provide a sworn statement within the two following
29
Pursuant to Decree No. 628 of the Ministry of Finance published in the Official Gazette on December 12, 2003, as
amended, the following jurisdictions are considered “tax havens” for these purposes: Principality of Andorra, Anguilla,
Antigua and Barbuda, Aruba, Commonwealth of The Bahamas, Kingdom of Bahrain, Barbados, Belize, Bermuda, British
Virgin Islands, Cayman Islands, Cook Islands, Republic of Cyprus, Commonwealth of Dominica, Gibraltar, Grenada,
Bailiwick of Guernsey, Isle of Man, Bailiwick of Jersey, Republic of Liberia, Republic of Malta, Republic of Mauritius,
Montserrat, Netherlands Antilles, Niue, Republic of Panama, Independent State of Samoa, Republic of San Marino,
Federation of Saint Kitts and Nevis, Saint Lucia, Republic of Seychelles, Saint Vincent and the Grenadines, Principality
of Liechtenstein, Principality of Monaco, Republic of the Marshall Islands, Republic of Nauru, Republic of Vanuatu,
Turks and Caicos Islands and United States Virgin Islands.
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months following the corresponding fiscal year, according to the terms and
conditions set forth by the IRS. However, computer programs qualified as
“Standard” are exempted from WHT. Standard computer programs are
those in which the rights being transferred are limited to those necessary to
allow its use, and no its commercial exploitation, reproduction or
modification or any other purpose other than to enable its use.
(c)
Fees for copyrights and edition rights: Payment of fees for copyright and edition
rights to individuals or entities with no domicile or residence in Chile are subject to
WHT at a rate of 15 percent as a single tax.
(d)
Interests on loans, deposits or the like: Interest payments to individuals or entities
with no domicile or residence in Chile are usually subject to WHT at a rate of 35
percent. However, if certain conditions are met the rate is reduced to 4 percent. For
instance, the rate is 4 percent with respect to interest paid on:
(i)
deposits denominated in foreign currency payable on demand or time
deposits;
(ii)
loans granted by international or foreign banks, foreign financial
institutions, foreign insurance companies and foreign pension funds
(“Foreign Loans”);
(iii)
deferred purchase price of goods imported under the system of deferred
payments (“Vendor Financing”);
(iv)
bonds or debentures issued in foreign currency by companies established in
Chile (“Bonds”);
(v)
bonds or debentures issued in foreign currency by the Republic of Chile or
the Central Bank of Chile; and
(vi)
the instruments referred to in (i), (iv) and (v) above issued or denominated
in Chilean pesos.
Nonetheless, interest payments on the excess of Foreign Loans, Bonds or Vendor
Financing from parties related to the debtor, as defined in the ITL, that would otherwise
qualify for the referred 4 percent WHT rate, shall be subject to a 35 percent WHT rate if the
aggregate amount of Foreign Loans, Bonds or Vendor Financing from such related parties
exceed three times the net worth of the debtor (thin capitalization rules). Therefore, interest,
premiums, remuneration for services, financial expenses and any other contractual
surcharges paid, credited to an account or made available to entities related to the borrower
in respect of loans or liabilities during the year in which the indebtedness is considered to
be excessive, will be subject to a single tax of 35 percent that will be applied to the
borrower separately. The 4 percent withholding tax already paid can be used as a credit
against the applicable 35 percent single tax. In this regard, please note that according to the
new Thin Capitalization rules, a lender or creditor will be deemed to be related to the payer
or debtor, among other cases, if the beneficiary (i.e. lender) is incorporated, domiciled,
resident or established in one of the countries contained in the list referred to in section 41
D of the ITL (harmful preferential tax regimes and tax havens published by the
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Organization for Economic Co-Operation and Development and qualified as such by the
Chilean Ministry of Finance, refer to footnote 29 above).
4.3.2
(e)
Services rendered in Chile: Payments to individuals or entities with no domicile or
residence in Chile for services rendered in Chile are usually subject to WHT at a
rate of 35 percent, unless the services are paid to foreign individuals for scientific,
cultural or sport activities, in which case the rate is 20%. This tax must be withheld
and paid before such individuals leave Chile by those who actually hired the
relevant services.
(f)
Services rendered abroad: Payments to individuals or entities with no domicile or
residence in Chile for services rendered abroad are usually subject to WHT at a rate
of 35 percent as a single tax.
(g)
Insurance premiums on goods and property permanently located in Chile: Insurance
premiums paid to entities not organized in Chile are subject to WHT at a rate of 22
percent as a single tax. Certain insurance premiums are exempted from WHT.
(h)
Reinsurance premiums on goods and property permanently located in Chile:
Reinsurance premiums paid to entities not organized in Chile are subject to WHT at
a rate of 2 percent as a single tax.
Agencies, branches or other permanent establishments in Chile
Although there is no legal definition of permanent establishment, except for certain Double
Taxation Treaties (Tratados de Doble Tributación Internacional) entered into by Chile and other
countries, the IRS by means of Ruling No. 2,205 dated June 5, 2000 has indicated that a permanent
establishment consists of the establishment of an office or branch which assumes the complete
representation of the foreign entity and carries out a formal activity, and which is able to close
transactions. On the contrary, if an attorney is appointed only to carry out specific activities that do
not pertain to the line of business of the foreign entity (e.g. collect dividends or refer clients) no
permanent establishment would exist. Needless to say, the above-mentioned ruling allows the tax
authorities to exercise certain discretion when determining whether or not there is a permanent
establishment in Chile.
An agency, branch or permanent establishment is subject to First Category Tax on its
Chilean source income.
If the books and accounting records do not allow the tax authorities to determine the actual
Chilean income of the foreign entity, the IRS may determine such income by:
(a)
applying to the gross income of the Chilean operations, the ratio between net
income and gross income of the entity’s headquarters (determined pursuant to the
ITL); or
(b)
applying to the assets of the Chilean operations, the ratio between the net income
and assets of the entity’s headquarters. The foregoing is without prejudice to the
ability of the IRS to apply any of the deemed income assumptions contained in the
ITL.
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Amounts remitted or distributed abroad are subject to withholding tax as explained above.
4.4 Other Taxes
4.4.1
Customs Duties Tax
Imports of goods into Chile are generally subject to a 6 percent customs duty. The import of
used assets is subject to a 50 percent surcharge over the applicable customs duty, except for those
used assets eligible for deferred payment of customs duties, in which case the general rule applies.
Imports of goods into Chile are generally subject to 19 percent VAT. VAT is levied on the
CIF value of the goods imported, increased by the amounts payable as customs duty.
Notwithstanding the foregoing, reduced ad valorem rates apply, in some cases down to 0
percent, as a result of the provisions of free trade agreements and other commercial agreements
entered into by Chile. In other words, any goods whose origin qualifies for the purposes of the
relevant free trade agreement or commercial agreement would benefit from a special preferred
treatment provided therein, by being subject to a reduced ad valorem or simply being exempt from
the same.
Imports are governed, among other principles, by the so-called “freedom rule” set forth in
Article 88 of the Central Bank Act, which guarantees that all kinds of goods may be freely imported
into Chile by any person. Any restriction to the import of goods can only be imposed by a special
law, subject to super majorities in Congress.
To date, the import of capital goods included in a List of Machinery and Equipment issued
by the Ministry of Economy is exempt from VAT to the extent that it forms part of an investment
project approved under Decree Law 600. This exception is also applicable to the importation of
goods included in a list of machinery and equipment which are not manufactured or otherwise
produced in Chile in sufficient quantity and quality that are part of a domestic investment project
considered to be of interest to this country by joint resolution from the Ministry of Economy and the
Ministry of Finance.
Chilean law contemplates the possibility of deferred payment benefits with respect to
customs duties in connection with the purchase of capital goods such as machinery, equipment and
other similar items dedicated directly or indirectly to the production of merchandise or services or
to their marketing. Only capital goods, whose production capacity does not disappear after first
usage, are eligible, provided, however, that such goods have a depreciation period of at least three
years. Payment of customs duties may be deferred in these circumstances over a maximum of seven
years provided that some requirements are met.
4.4.2
Municipal License
The carrying out of lucrative activities in an office space involves the payment of a
municipal license, the value of which is calculated on the basis of the paid-up capital of the
company concerned or of the branch in Chile, as the case may be. Municipalities may set the annual
rate ranging from 0.25 percent to 0.5 percent, but the amount of the license may not be less than 1
UTM (approximately equivalent to USD 68.96) or more than UTM 8,000 (approximately
equivalent to USD 551,680).
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4.4.3
Value Added Tax
A 19 percent VAT is levied, in broad terms, on the price of30:
(a)
sales and other contracts whereby moveable property is transferred, provided such
transactions are deemed customary for the seller (it is assumed that a transaction is
customary for a given entity if it is within its line of business);
(b)
services rendered which may be deemed commercial, industrial, financial, or
pertaining to mining, construction, insurance, advertising, data processing and other
business activities; and
(c)
imports.
As a general rule, the seller or service provider is liable for declaring and paying the VAT.
The amount of such tax, however, is added to the price of the goods or services. As a consequence,
it is actually the buyer who bears the tax (contribuyente de hecho), although the seller is the
taxpayer according to the law (contribuyente de derecho). Exceptionally, when the seller is not
domiciled in Chile or when it is for any reason difficult for the IRS to control and enforce seller’s
compliance with its tax obligations, the buyer is liable for withholding and paying VAT.
The VAT charged by a company on its sales or services is called a “VAT Debit,” while the
VAT borne by a company on purchases of goods or services is called a “VAT Credit”. In general,
an entity deducts its VAT Credit from its VAT Debit each month and files a tax return paying only
the balance, if any. If in any given month VAT Credits exceed VAT Debits, the difference may be
carried forward and added to the VAT Credit of the following month and so on.
4.4.4
Inheritance and Donations Tax
A progressive tax applies on the net value of property transferred upon the death of the
decedent or by way of gift during the donor’s lifetime. The Chilean Inheritance and Donations Tax
Act states that every allocation has a specified tax rate that ranges from 1 percent to 25 percent
depending on the amount involved, the purpose of the transfer or gift, and the family relationship
between the donor or decedent and the beneficiary. The tax (the “Inheritance and Donations Tax”)
must be paid within 2 years from the death of the decedent or from the date on which the gift is
granted.
In both cases, if no family relationship exists between decedent or donor and beneficiary,
the beneficiary should be regarded as third party and, therefore, a 40 percent surcharge would
increase the applicable rate.
These rates are applied onto the net value of each allocation, according to an inventory of
assets, which must include all the assets of the decedent that are located in Chile as well as those
located abroad. Nevertheless, successions of foreigners relating to assets located abroad shall be
added to the inventory only if the acquisition of those assets was made with funds of a Chilean
source. The tax paid abroad concerning assets included on the inventory can be used against the
30
With the Tax Reform, effective as January 1, 2017, Real Estate sales will be subject to VAT.
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total taxes due in Chile; however, the Inheritance and Donations Tax actually due could not be
lower than the tax that would have been applied had only the Chilean assets been added to the
aforementioned inventory.
4.4.5
Stamp Tax
Unless an exception is applicable, a stamp tax is levied on documents containing a money
credit agreement or “credit operations” (e.g. foreign and domestic loans, whether or not evidenced
by promissory notes; bonds; notes; the deferred purchase price of goods imported under the system
of deferred payments, etc.).
The stamp tax is currently equal to 0.033 percent of the principal of the loan for each month
or fraction thereof between the granting of the same and its maturity, with a ceiling of 0.4 percent of
the capital thereof. On the other hand, checks and the protest of bills are subject to a fixed stamp
duty. Instruments and documents payable on-demand or issued at sight, as well as documents
evidencing credit operations with no specified maturity term are subject to a 0.166 percent of the
principal of the loan.31
Exceptions may be available depending on the identity of the borrower or the purpose of the
loans, but are quite rare.
As exception, loan or credit operations coming from abroad are levied with stamp tax by
their mere recording on the accounting records of the debtor.
4.5 Transfer Pricing
The rules regarding transfer pricing contemplated in the ITL are aimed at enabling the IRS
to make well-founded objections, i.e. using information that, according to logical reasoning,
analysis and agreement, makes it possible to assign a different value to the transfer and to the
amounts collected or paid among related companies in case any of such companies are incorporated
abroad.
The concept of transfer pricing includes those charged for the purchase of goods, services
rendered, technology transfer, as well as the temporary granting of the use or possession of patents
and trademarks.
The referred rules on transfer pricing apply, among other cases, if a company incorporated
abroad participates directly or indirectly in the management, control or capital of a company
incorporated in Chile, or vice versa. Such rules also apply if the same persons participate directly or
indirectly in the management, control or capital of a company incorporated in Chile and a company
incorporated abroad. In addition, for the purposes of “price transfers”, the law presumes that such
relation exists with regard to companies that have entered into exclusivity agreements, joint action
31
According to the Tax Reform, effective as January 1, 2016, the Stamp Tax rate will be equal to 0.066 percent of the
principal of the loan for each month or fraction thereof between the granting of the same and its maturity, with a ceiling of
0.8 percent of the capital thereof. Instruments and documents payable on-demand or issued at sight, as well as documents
evidencing credit operations which are due and payable only after a previously agreed fixed term has expired (to the
extent such term is not greater than five months) will be subject to a 0.332 percent of the principal of the loan
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agreements, preferential treatments, financial or economic dependence or trust deposits. The same
presumption applies in the case of transactions made with companies incorporated in any of the
countries or territories included in a list prepared by the Ministry of Finance, stating those locations
referred to as “tax havens” or preferential tax systems that are harmful, according to the criteria of
the Organization for Economic Co-operation and Development32.
For the above purposes, the competent regional office of the IRS may make well-founded
objections against the prices charged between parties that are related in the terms described in the
preceding paragraph, if such prices differ from normal market prices among non-related entities. As
reference basis can be considered the following parameters:
(a)
reasonable profitability taking into consideration the particulars of a given
transaction; and
(b)
production costs plus a reasonable profit margin;
Initially, prices are determined considering both reasonable profitability and
production costs, comparing the prices charged between related companies with
those of non-related companies with respect to similar transactions and conditions.
For these purposes, it is important to consider, among other things, the
characteristics of the asset or service, the type of transaction and the economic
environment.
With regard to the production cost plus a reasonable profit margin, the acquisition
price of the asset, according to authentic documentation, can be used as basis,
adding the costs incurred and an estimated profit margin, using as basis equal or
similar transactions among independent companies; and
(c)
Prices of assets acquired from an associated company and resold to third parties,
minus the profit margin observed in similar transactions with or among independent
companies.
For these purposes, resale price shall mean the price of a product sold to an independent
company and acquired by the seller from an associated company. This resale price is reduced by a
resale price margin, which covers sale costs, operational expenses and an adequate profitability.
The resale price margin may be obtained from comparable non-controlled transactions,
based on, for example, purchases of similar assets by reseller from independent companies, sales of
similar assets by the related provider to independent companies located in the same or other
markets, within or outside its tax jurisdiction, or sales of similar assets by independent companies to
other independent companies.
Should the seller or service provider not carry out such transactions with independent
companies, the regional IRS office may make well-founded objections against the prices,
considering the values of the respective products and services in the international market. For such
32
See footnote 29.
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purposes, the regional office must request a report from the Chilean National Customs Service, the
Central Bank of Chile or other entities having such information.
It is important to note that taxpayers must maintain a register containing the data of the
persons with which they carry out transactions or in which they participate, in the terms described
above, maintaining both this register and the documentation evidencing such transactions at the
IRS’s disposal.
4.6 Double Taxation Treaties
The double taxation treaties entered into by Chile may affect some of the rules set forth
above. The income tax treaties for the avoidance of double taxation currently in force are those
with:
(a)
the Federative Republic of Brazil;
(b)
the Republic of Austria;
(c)
Canada;
(d)
the Republic of Croatia;
(e)
the Kingdom of Denmark;
(f)
the Republic of Ecuador;
(g)
the French Republic;
(h)
Republic of Korea;
(i)
the United Mexican States;
(j)
New Zealand;
(k)
the Kingdom of Norway;
(l)
the Republic of Peru;
(m)
the Republic of Poland;
(n)
the Kingdom of Spain;
(o)
the Kingdom of Sweden;
(p)
the United Kingdom of Great Britain and Northern Ireland;
(q)
the Kingdom of Thailand;
(r)
the Swiss Confederation;
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(s)
the Kingdom of Belgium;
(t)
the Republic of Paraguay;
(u)
the Republic of Colombia;
(w)
the Republic of Ireland;
(x)
Malaysia;
(y)
the Portuguese Republic;
(z)
the Russian Federation; and
(a’)
the Commonwealth of Australia.
The Chilean Congress has not yet ratified the treaties signed with:
(a)
the Republic of South Africa;
(b)
the Republic of Argentina, and
(c)
the People's Republic of China.
The treaty with United States of America has been ratified by the Chilean Congress, but is
awaiting ratification by the American Congress.
Regarding this matter, it is important to point out that most double taxation treaties are
based on the Organization for Economic Co-operation and Development (“OECD”) directions.
Although treaty shopping is not an issue that has been expressly addressed in the abovementioned double taxation treaties, the principle that those treaties cannot be used or construed in
such a manner as to provide benefits not contemplated or not intended thereby, is embedded in
several provisions thereof.
4.7 Tax Elusion vs. Tax Evasion
As stated before, the bureau in charge of the surveillance and enforceability of Chilean tax
laws and regulations is the IRS. Tax evasion is fiercely punished in Chile, with penalties ranging
from fines to even imprisonment. In fact, in recent years the IRS has adopted a more determined
and aggressive approach against tax evasion, in an effort to maximize tax collection. Moreover, the
IRS has made important efforts to persuade and encourage Chilean Courts to look for the “true
intention” underlying a given transaction, instead of just focusing on the legality of each of the acts
or steps taken in connection therewith, arguing that on tax matters “substance shall always prevail
over form”.
Although Chilean tax law has not clearly established the difference between tax evasion and
tax elusion, the majority of Chilean scholars define tax evasion as the performance of fraudulent
conducts that are aimed at:
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(a)
obtaining the assessment of a lower tax than would otherwise be due; or
(b)
hiding or altering the amount of taxable operations already performed; or
(c)
dodging the particular taxes that must be paid.
On the other hand, tax elusion is defined as the use of lawful strategies that avoid meeting
the circumstances that trigger a particular tax. Such use is not illegal since it employs the elements
granted by the law. Based on the foregoing, we may conclude that the main difference between tax
elusion and tax evasion is given by the lawfulness of the mechanisms employed to avoid the
payment of the relevant tax.
In this regard, it is important to consider that all acts, contracts or agreements in
contravention of the law (fraude a la ley) are null and void under Chilean law, which invalidity
needs be sanctioned by a court judgment before the statute of limitations of 10 years have elapsed
from the date the voidable act, contract or agreement was executed.
Pursuant to Chilean scholars, the requirements to be met in the case of tax evasion are the
following:
(a)
the filing of incomplete or false tax returns, the omission of accounting books or
book entries, the alteration of balance sheets or inventories, the undue use of
supporting documentation, or the employment of any other fraudulent proceeding;
(b)
that the actions mentioned above are aimed at:
(c)
(i)
obtaining the imposition of a lower tax;
(ii)
hiding or altering the amount of taxable operations already carried out; or
(iii)
dodging the tax which must be paid; and
direct fraud, i.e., the intention of (i) altering the amount of taxes; or (ii) dodging the
taxes that must be paid. The existence of this requirement cannot be presumed and
shall be demonstrated by legal evidence.
In recent years important amendments aimed at hindering and deterring tax evasion have
been introduced to the Income Tax Act. Such amendments included, among others, broadening the
definition of Chilean source income, limiting the amount a Chilean company could borrow from
related entities in order to eliminate a well spread practice used to reduce the WHT rate from 35
percent to 4 percent rate, and imposing important restrictions to the use of accelerated depreciation.
In line with this objective, the Tax Reform also establishes a new broad General Tax Antiavoidance Rule (“GAAR”) to prevent tax avoidance and strengthens the surveillance and
assessments powers of the Chilean IRS, allowing the latter to determine whether a transaction
qualifies as an “abuse” of the legal structures (“substance over form” principle). Thus, the risk of re-
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characterization or questioning by the Chilean IRS of tax planning structures will clearly increase
once the GAARs enters into effect.33
In addition, measures to prevent or counteract tax evasion measures comprise new
limitations to the use of tax-accumulated losses. In general, tax losses incurred by a company in any
given year may be deducted from such company’s retained earnings, or be carried forward to the
next year. Should such profits may be still not large enough to absorb all such company’s tax losses,
the balance may be used to offset the profits of the next immediately succeeding year and so on.
If a company undergoes a change of ownership or change in its profit distribution method, it
shall be prevented from deducting tax losses incurred prior to such a change from any income
accrued or received after such event, provided that:
(a)
as a result of the referred change of ownership or profit distribution method, or
within the twelve-month period preceding or following such event, the company
has changed its line of business or has broaden it as to include other lines of
business, unless it has effectively kept its main line of business; or
(b)
at the time of the change of ownership or profit distribution method, the company:
(i)
did not have capital assets or other assets related to its line of business
sufficient to develop its commercial activities;
(ii)
did not have assets which value is proportionate to the value of the
ownership rights or shares of stock acquired; or
(iii)
started receiving income only from its participation, whether as partner or
shareholder, in other companies or from profit-reinvestment.
For this purpose, a change of ownership is deemed to exist in any given year, whenever the
new partners or shareholders acquire or reach, whether directly or indirectly through related
companies, at least 50 percent of the ownership rights, shares of stock or equity participation in
another company.
33
In accordance with the Tax Reform, this amendment will become effective after one year from the publication of the
law (i.e. September 30, 2015). In addition, please note that the transitory provisions of the Tax Reform states that the
amendments to the Tax Code –related to the new GAAR provisions– would only be applicable with respect to transactions
made or finalized as of the date on which these new provisions become effective.
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5.
Labor Matters
5.1 Introduction
In general, the Chilean Labor Code (the “Labor Code”) governs individual employment
agreements and legal benefits for employees, trade unions and collective bargaining agreements,
subcontracting and supply of personnel, as well as, the special labor jurisdiction and legal procedure
applicable to judicial actions.
Additional separate legislation exists in connection with social security and health
insurance, as well as, welfare and the pension system.
5.2 The Employment Agreement
Employment agreements are governed by the Labor Code. The Labor Code defines the
employment agreement as a contract by which the employer and the employee are reciprocally
committed: the employee to render personal services under dependence and subordination to the
employer, and the employer, in turn, to pay a certain remuneration to the employee for the services
thus rendered. Whenever such a relationship exists de facto between two persons, the Labor Code
assumes that an employment agreement exists between them, even if no written evidence of such
agreement can be produced.
The employment agreement must be set forth in writing within a period of 15 days from the
first day in which the employee starts to work (although in some special cases the period is 5 days)
and must contemplate, at least, such matters as: place and date of execution of the employment
agreement; name of employer; name, nationality and birth date of the employee, as well as the date
of initiation of work; description of the nature of the services and place or city where the services
must be rendered; amount of the salary or remuneration agreed, and payment system; length and
distribution of daily working hours, except when the employer has a shift system in place, in which
case its own internal regulations shall apply; and the term of the employment agreement.
If no written contract is produced within the referred fifteen-day term, or five-day term, as
the case may be, the employer could be punished with a fine of 1 to 5 UTM (approximately USD
68.96 to USD 344.8). If the employee refuses to sign, the employer can send the written contract to
the Inspección del Trabajo (the government agency in charge of labor compliance). If the employee
maintains his refusal to sign, he can be fired without compensation, unless he provides evidence
that the written contract does not reflect the conditions in which he was hired. If the written contract
is not signed in the referred fifteen-day term, or five-day term, as the case may be, and the employer
does not exercise its right to send it to the Inspección del Trabajo, then the law presumes that the
stipulations of the agreement are those alleged by the employee. In the latter case, the employer
shall bear the burden to prove otherwise.
5.3 Nationality of Employees
In case of companies with more than 25 employees, at least 85 percent of the employees
hired by any employer must be Chilean, such percentage must be calculated as a fraction of their
total labor force in Chile. This restriction, however, does not apply to foreign technical experts and,
therefore, such category of foreign employees is excluded from the percentage mentioned above.
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For these purposes, those foreigners whose spouse or children are of Chilean nationality (or who are
a widow or widower of a Chilean citizen) are considered Chileans. Similarly, foreigners with
residence in Chile for more than 5 years are also considered Chileans for the purpose of this special
rule.
5.4 Remunerations
In the Labor Code, remuneration is understood to be any payment of money or in kind that
the employee receives from his employer pursuant to an employment agreement. The following
items, among others, are considered remuneration: salary in cash, payment for overtime,
commissions over sales or purchases, or over such operations which the employer performs with the
employee’s collaboration, participation bonuses or a proportion of profits; and voluntary bonuses.
Employees must be paid for any overtime worked with a 50 percent premium over the regular
salary.
The monthly amount of remuneration must be equal to or higher than the minimum monthly
salary, that currently is stated at CLP 225,000 (approximately USD 354.7). Part time work must be
remunerated proportionately.
Employers who are obliged to keep accounting books and which obtain profits or net
returns in their businesses, have the obligation to pay annual bonuses (gratificación) to their
employees.
The Labor Code offers to the employer the option of paying the annual bonus as a
proportion of the net returns obtained in its business (a proportion that must be equal to or higher
than 30 percent of the net returns obtained in its business) or, alternatively, paying to the employee
25 percent of the total annual remuneration of such employee. In this last case, however, the bonus
is capped at 4.75 minimum monthly salaries (approximately USD 1,804), unless the employer and
the employee have agreed to a higher amount. As a matter of fact, this last alternative has become
widespread practice in the labor market.
Remunerations are to be paid as stated in the employment agreement in local currency,
though a part may be paid with items, and for periods not exceeding one month.
The employer must deduct from the remuneration any taxes, social security and health
insurance contributions, unemployment insurance, trade union payments according to current
legislation on the subject, mortgage payments due for purchase of housing units and any
contributions to pension funds or public institutions, depending on the circumstance.
As a general rule, regular working hours shall not exceed 45 hours per week, distributed in
no less than five days and no more than six days, from Monday through Saturday. Furthermore, a
regular working day cannot exceed ten hours, and shall include a lunch break of at least 30 minutes,
which shall not be considered when calculating the hours worked.
An employee who has worked for at least 1 year for the same employer shall have 15
working days (without considering, for these purposes, Saturday as a working day) as paid
vacations. In other words, for each year worked with the same employer, an employee can take a 21
calendar days-vacation period.
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5.5 Termination
In Chile, employment agreements can only be terminated in the cases and manner provided
by the Labor Code. The grounds for termination provided by the Labor Code are:
(a)
mutual agreement;
(b)
resignation of the employee, with at least 30 days in advance notice;
(c)
death of the employee;
(d)
expiration of the term of the employment agreement;
(e)
conclusion or completion of the work or service that gave origin to the employment
agreement;
(f)
force majeure or acts of God;
(g)
expiration, in cases specifically indicated by law and referring to faults incurred by
the employee or by the employer in the performance of their respective duties;
(h)
needs of the business, such as those required for the rationalization or
modernization of systems, fall in productivity, changes in market conditions or the
national economy that make the dismissal of one or more employees necessary;
and
(i)
unilateral termination by the employer of employees who are entitled with the
authority to represent their employer, such as managers, assistant managers, agents
or attorneys-in-fact and, in general, employees who enjoy the exclusive confidence
of the employer.
Generally, if the grounds for termination are those described in (a) to (g) of the preceding
paragraph, the employee has no right to severance payment. However, if the employee does not
agree with the ground on which termination was based, he can file a suit for improper dismissal
before a labor court. The employer has the burden to prove that the ground for termination existed.
If the employee succeeds in the claim, the employee shall be entitled to the severance payment
explained below, increased between 30 and 100 percent, depending on the grounds wrongly
invoked by the employer.
If the employment agreement is terminated pursuant to letters (h) or (i) of the paragraph
above, and the employment relationship lasted without interruption for at least 1 year, the employee
shall be entitled to a severance payment equal to 30 days of remuneration per year of service (or
fraction in excess of 6 months), if rendered without interruption to the same employer which is
terminating the employment agreement. This severance payment has a limit of 330 days of
remuneration. The maximum limit does not apply, however, to employees hired before August 14,
1981.
If the employment relationship terminates for any of the causes stated in (h) and (i) above,
regardless of the duration of the employment relationship, the employer shall give the employee a
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thirty-day advance notice before material separation. Notice is not required, however, when the
employer pays an indemnity in cash equivalent to the last monthly remuneration.
Severance payment is calculated on the basis of the last monthly remuneration, which for
these purposes has a legal ceiling of UF 90 (approximately USD 3,543.3) even though parties may
agree on a higher severance payment.
Please note that the aforementioned rules set forth the minimum rights an employee is
entitled to upon discharge. The parties may agree, individually or collectively, on better severance
benefits.
Employment agreements of union leaders and pregnant women cannot be terminated,
except with the approval of a court. Moreover, courts can only approve the termination of an
employment agreement in these cases if the relevant contract’s term has expired, if the required
services have been completed or if the relevant employee has incurred in certain specific unlawful
conducts.
Upon termination of an employment agreement there are other payments that may
correspond, whichever the cause for termination. Such payments are the proportional vacations and
the legal annual bonus, payments that may or may not apply depending on each case.
5.6 Social Security and Insurance
5.6.1
Pension
Each employee shall save 10 percent of its monthly remuneration not exceeding UF 72.3
(approximately USD 2,846.5) in an individual account administered by a pension fund, to finance
its retirement plan (men at 65, women at 60 years old). The employer shall withhold such 10
percent from the employee’s monthly remuneration and deposit it in the respective pension fund to
be credited in its personal capitalization account. An additional percentage is also withheld to pay
for disability and life insurance and the commissions of the relevant pension fund manager. This
amount varies. Currently, the portion of insurance is at 1.49 percent and it is borne by the
employer. Commissions vary depending on the manager and are currently at around 1.5 percent.
5.6.2
Health Insurance Contributions
The employer shall also withhold 7 percent of the employee’s monthly remuneration not
exceeding UF 72.3 (approximately USD 2,846.5) to finance a private or state health insurance plan.
The employer shall withhold such 7 percent from the employee’s monthly remuneration and pay it
to the respective health care provider.
5.6.3
Unemployment Insurance
During the first 11 years of employment, the employer shall withhold 0.6 percent of the
employee’s monthly remuneration not exceeding UF 108.5 (approximately USD 4,271.6) to fund an
Individual Unemployment Account, from which withdrawals may be made by the beneficiary as
unemployment benefits. The employer (and not the employee) shall contribute with 2.4 percent of
the monthly remuneration of the respective employees, not exceeding UF 108.5 (approximately
USD 4,271.6), to the same unemployment insurance system.
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5.6.4
Insurance Against Work Accidents
The employer (and not the employee) shall pay a compulsory insurance against work
accidents and occupational diseases. The premium equals 0.95 percent of the taxable remuneration
–UF 72.3 (approximately USD 2,846.5)– of each employee. Nonetheless, this percentage may be
higher in the case of companies or activities involved in abnormal degrees of risk and danger.
5.7 Unions and Collective Bargaining
To establish a union in a company that has more than 50 workers, a minimum of 25 workers
that represent at least 10 percent of the total number of the company’s employees is required. If the
company has 50 or less workers a union may be established with only 8 workers. Nevertheless, and
regardless of the percentage that the workers may represent, a union can be established with 250 or
more workers of the same company.
Considering that the right to establish or join a union belongs to the workers, the employer
cannot force its employees to establish or join a particular union. It would be an unfair labor
practice for a company to interfere in the election of a union to represent its workers.
A company may not engage in any activity to restrain, limit or coerce its employees in the
exercise of their self-organization rights.
Since membership or non-membership cannot be imposed as a condition of employment, a
company may not engage in any discrimination on account of membership or participation in union
activities nor interfere, restrain or coerce any employee to join or withdraw membership from any
labor organization.
Unions are managed by a board of directors which has a different number of representatives
according to the number of union members. For instance, for a union that has between 25 and 249
members, the board of directors shall be composed of 3 representatives, one of which shall be
appointed president, one secretary and the last one treasurer.
The scope of the bargaining unit is defined in the law and is generally restricted to a
company and its unions (including transitory associations of workers for the purpose of bargaining).
Only through mutual agreement among the parties may collective bargaining embrace more than
one company and unions belonging to different employers.
The right to collective bargaining is granted in the Constitution and the labor statutes. The
following workers are, however, excluded from this right:
(a)
workers subject to apprenticeship contracts, temporary workers and those hired for
a particular and definite work, task or assignment;
(b)
managers, executives, agents and officers provided that all of them have general
powers of administration;
(c)
employees empowered to hire and lay off workers; and
(d)
workers that according to the internal organization of the company occupy upper
positions of authority and inspection, provided that all of them have decisive
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powers over the company’s policies and productive or trading process. Please note,
however, that the Dirección del Trabajo (government agency in charge of labor
matters) uses restrictive criteria on the application of these legal provisions.
The collective bargaining starts with the submission of a project or draft of a collective
agreement by one or more unions, or bargaining groups of the same company. Any union of a
company, plant or facility may submit a collective agreement project. Bargaining groups not
organized as a union may also present collective agreement projects provided that such a group
meets the numbers and percentages required for the establishment of a union.
All the negotiations between an employer and its different unions or bargaining groups shall
take place at the same time, unless, it is otherwise agreed by the parties. The unions may, at their
option, either jointly present a common collective agreement project or present one or more projects
embracing one or more unions or bargaining groups.
The Labor Code expressly sets the limits within which collective bargaining must take
place, as well as, the matters subject to collective bargaining. In this regard, there are considered to
be matters of collective bargaining those referring to wages and other monetary and fringe benefits,
and in general, common conditions of employment. Those matters that restrict or limit the
employer’s authority to organize, direct and manage its business and those matters not related to the
company cannot be subject to collective bargaining.
In general, the length of bargaining cannot exceed 45 days. At the end of this forty-five-day
term, workers have two options:
(a)
carry on the negotiations with the agreement of the employer; or
(b)
vote on whether to reject or accept the last employer’s proposal or go to strike.
If the employer believes that it will be unlikely to reach an agreement, it shall make a final
proposal within certain term before the expiration of the forty-five-day term. Provided this final
proposal is timely made, and that it basically grants the workers their existing benefits plus
consumer price index escalation, an annual adjustment of consumer price index for the duration of
the contract (excluding the last 12 months) and a replacement bonus of UF 4 (approximately USD
157.5) per replaced worker, if workers still decide to go on strike, the company will have the right
to hire replacements from the first day the strike is made effective. During the strike, the workers
have the right to individually go back to work 15 days subsequent to the date the strike became
effective. If the employer does not make such final proposal on time, he can only hire replacements
upon 15 days following the date the strike begun, provided the employer pays the replacement
bonus.
On the other hand, workers may only individually go back to work 30 days after the date
the strike became effective.
Once the strike has been approved and made effective, the employer may temporarily close
all or part of its operations (“lockout”). However, the lockout can only be declared by the employer
when the strike affects more than 50 percent of the total number of employees of the company or
plant; or if the strike causes the paralyzing of imperative activities for the employer’s operations
regardless of the percentage of workers on strike.
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Needless to say, the company may not interfere with or force the employees to accept the
employer’s last proposal. Notwithstanding the above, the company may always inform the workers
of the advantages and benefits of his last offer.
5.8 Subcontracting and Supply of Temporary Personnel
The Labor Code provides rules on subcontracting and supply of temporary personnel.
The Labor Code defines subcontracting work as that performed by an employee for an
employer called contractor or subcontractor, who in turn is entrusted with performing certain works
or rendering certain services at its own risk, using its own employees, for a third party who is the
owner of the work or premises, called principal company. Sporadic works or services are expressly
excluded.
On subcontracting, the Labor Code provides that the principal company is jointly and
severally liable for labor and social security obligations of the subcontractor vis-à-vis its employees
unless the principal company takes certain steps to ascertain that such employees’ obligations are
complied with. For this reason, the principal company is legally allowed to request the
subcontractor information on its employees and even withhold payments to the subcontractor to pay
the subcontractor’s employees. Generally, when these steps are taken the principal company
becomes only severally liable.
On the supply of temporary personnel, the Labor Code requires, among other things, that it
be carried out only by certain single-purpose registered companies and in the cases indicated in the
law, which are:
(a)
the suspension of the employment agreement of one or more employees, due to
sickness, maternity leave or vacations;
(b)
extraordinary events, such organization of seminars, conferences, and others of
similar nature;
(c)
new and specific projects, such as the construction of new installations, the
expansion of existing ones or expansion to new markets;
(d)
the period of initiation of activities of a new company;
(e)
extraordinary or occasional increases, periodic or not, of activity of a certain sector
or establishment; or
(d)
jobs that are urgent and cannot be postponed, such as repairs in installations.
The supply of personnel can only be made for terms of up to 90 days in the case of letters
(b) and (e) above; 180 days in the case of letters (c) and (d) above and the amount of the suspension
in the case of letter (a). The law does not specifically provide a term for letter (f) but it should be the
amount need to make the repair.
The breach of this law will result:
(a)
in fines for the supplied company and, most importantly; or
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(b)
in the supplied personnel being deemed employees of the supplied company for all
legal purposes.
The latter is the most important effect of the law. It means that temporary employees who are
employed for a longer period of time than indicated or in cases beyond those set forth above will be
entitled to claim statutory rights of employees.
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6.
Immigration
6.1 Visas
The Chilean immigration laws provide that all foreigners coming into the country shall
obtain a visa from the competent authority.
Tourist visas allow foreigners to perform minor business activities, such as participating in
meetings. Also tourist could ask for a special permit to allow them to work in Chile for up to 30
days.
In general there are two different types of resident visa available for business people:
(a)
a temporary-resident visa; and
(b)
a working visa.
Temporary-resident visas are granted to foreigners with family links or business interests in
Chile; or to foreigners whose residency in Chile may qualify as useful or advantageous for the
country (typically, businessmen coming into Chile for business purposes for a period longer than 90
days). Foreigners holding this type of visa may undertake all kinds of lawful activities within Chile.
Temporary-resident visas are granted for a one-year period, renewable at the end thereof for another
year. At the end of the second term, a permanent-residence visa shall be requested by the interested
party in order to be able to remain resident in Chile.
On the other hand, working visas are only granted for a maximum two-year period,
renewable at the end thereof, for an equivalent two-year period. Nevertheless, at the end of the
period a permanent-residence visa may be requested. The purpose of this type of visa is to enter
Chile to fulfill the stipulations of an employment agreement.
In order to obtain a working visa, the following conditions must be considered:
(a)
the institution, individual or company acting as employer shall have domicile in
Chile;
(b)
the foreign employee shall enter into an employment agreement with the relevant
institution, individual or company. If executed in Chile, this employment
agreement shall be executed by the employer and the employee (or a lawful
representative of the employer and the employee) before a notary public. But if this
contract is executed abroad, it shall be executed before the Chilean Consul sitting in
the city where the same is executed. Once executed, it shall then be legalized with
the Chilean Ministry of Foreign Affairs in Santiago;
(c)
in the case of technicians or other specialized professionals, their capacity shall be
evidenced with a true and accurate copy of their university titles, which shall also
be legalized with the Chilean Consul and then with the Ministry of Foreign Affairs
in Santiago. Otherwise, evidence of their capacity shall be submitted to the
authorities by means of special working certificates or other supporting
documentation;
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(d)
that the employee’s profession, activity or services are indispensable or necessary
for the development of Chile. Please note that for these purposes (even though
unusual) a written report may be requested by the authorities from the relevant
professional or technical local association or any other local authorities;
(e)
that the profession, activity or services that the foreign employee will perform in
Chile are not dangerous or otherwise perilous for the national security; and
(f)
the employment agreement’s terms and conditions regarding the services shall be
within standard labor and social security practices.
With regard to the procedure, such may be carried out before the Ministry of Foreign
Affairs, if the foreigner is abroad, or before the Ministry of Interior, if the foreigner is in Chile. The
advantage of the former procedure is the fact that it is less time consuming, depending on the
consulate.
While the foreign business person is abroad, the steps to obtain his temporary-resident visa
or working visa, as the case may be, can be carried forward in Chile, with the Ministry of Foreign
Affairs. Once approved by said Ministry, a cable or other similar communication is immediately
sent to the relevant Chilean Consul. The visa thus obtained gives the foreigner a 90-day term, after
the granting thereof, to enter the country. Nonetheless, the term of the relevant visa will start only
upon actual entrance into Chile.
On the other hand, if the foreigner is in Chile, (i.e. with a tourist visa) the procedure will be
carried forward with the Immigration Department of the Chilean Ministry of Interior. Despite its
delay, this procedure requires the actual presence of the foreigner who will suffer in person the
consequent bureaucratic procedures.
Finally, it is important to underline that family members of the foreign business person will
be granted the same visa obtained thereby, although it will not allow remunerated activities.
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7.
Fundamentals of Private Law
7.1 Contract Law
All contracts, under Chilean law, must comply with certain minimum conditions of
existence and validity. These requirements are both general to all contracts, as well as, particular for
each type of contract (e.g. a purchase agreement needs to identify the purchased asset and the
relevant price). If these conditions are not accomplished, the contract will be subject to be declared
null or void. Nonetheless, some defects can be cured after the contract’s execution.
Foreigners are generally capable to enter into any kind of contracts, except for certain cases
where the foreign party must comply with a specific condition. In other cases, it is totally forbidden.
7.2 Liability
The Chilean legal system makes a distinction between contractual liability and extra –
contractual liability (“torts”).
7.2.1
Contractual Liability
Contractual liability will arise only if all of the following requirements are fulfilled:
7.2.2
(a)
existence of a valid and binding contract between two or more parties;
(b)
negligent or intentional breach of contract by one of the parties. This condition
involves two requirements. Firstly there must be a contractual breach, which
corresponds to lack of performance, imperfect or late performance. Secondly, the
contractual breach must have been caused by the debtor’s negligence or willful
misconduct;
(c)
damage caused to the compliant and suing party;
(d)
the damage must have necessarily, directly and immediately arisen out of the
contractual breach; and
(e)
the damaged party must have performed or be willing to perform its obligations
under the contract.
Torts
According to the Civil Code provisions and what Chilean authors have proposed, whoever
has committed an action or omission that has caused damage to another, is obliged to indemnify,
whenever such person has acted or failed to act with negligence (cuasidelito) or with willful
misconduct (delito), to the extent the following requirements are fulfilled:
(a)
free and voluntary action or omission by a person endowed with legal capacity.
Where the perpetrator is devoid of legal capacity, liability may be ascribed to
his/her parent(s), guardian or caretaker;
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(b)
absence of a valid and binding contract between the defendant and the plaintiff;
(c)
action or omission perpetrated with negligence or willful misconduct;
(d)
plaintiff must have suffered a damage or harm; and
(e)
the action or omission perpetrated by the defendant must be the proximate, direct
and objective cause of the damage or harm suffered by the plaintiff.
Accordingly –and save certain extremely few exceptions– Chilean legal system is based on
subjective (i.e. not objective) principles. In addition note that there are no punitive damages in
Chile.
7.2.3
Differences Between Both Regimes
Even though negligence is not qualified in Chilean Torts Law as in contractual liability (i.e.
different levels of negligence distinguished –gross negligence, light negligence (which is the
general rule) and very light negligence– with different consequences), an individual is only liable,
as long as, the harmful act or omission was executed with ordinary negligence.
Secondly, in torts the plaintiff bears the burden to prove the defendant’s negligence or
willful misconduct, except for those provisions where negligence is presumed or where the law
provides strict liability.
Whilst in contractual liability the conduct of the breaching party is taken into account when
determining the indemnified damages, in torts the defendant may be obliged to respond for all
damages caused to the plaintiff. Unlike the case of contractual liability, moral damages are usually
granted in non-contractual cases.
7.3 Property Law
As a matter of public policy, the transfer of ownership and the constitution of a right in rem
over any asset located in Chile shall necessarily comply with all Chilean legal requirements.
In the case of a real estate, in order to enter into a valid contract, the purchase agreement
must be executed by means of a public deed granted before a Notary Public. Although the purchase
agreement may be valid, the real estate property has not been transferred yet. In order to do so, the
real estate must be registered under the purchaser’s name in a public registry.
Real estate may also be acquired by the operation of the acquisitive prescription
(prescripción adquisitiva) and by succession in mortis causa.
In general, there is no governmental permission required for foreign investors to acquire
real estate in Chile. Furthermore, the Chilean Constitution entitles all individuals the freedom to
acquire all kinds of goods, except the cases where the law provides certain requirements or forbids
it in order to achieve national interests. Also, the Constitution excludes due to their nature those
goods that are purposed to belong to all individuals, such as air.
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For example, nationals of bordering countries (Peru, Bolivia and Argentina)34 are prevented
from acquiring the ownership, other ius ad rem, or holding possession or tenancy of a real estate
that is totally or partially located in an area that had been declared "national border land" by the
authority.
Finally, it is important to note that certain categories of goods such as motor vehicles, ships
and airplanes, are also subject to a system of registration.
34
Note that for the purpose of this regulation legal entities are considered as nationals of a bordering country when their
main offices are located in one of them or when the nationals of those countries own 40 percent or more of their capital or
have their effective control.
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8.
Data Protection
8.1 Introduction
The Chilean Personal Data Protection Act (the “Personal Data Protection Act”) governs the
treatment and management of personal data of identified or identifiable individuals by public
agencies and private entities in data banks and registries.
In addition, several laws and regulations set restrictions and limitations to the access and
disclosure of private information (e.g. General Banking Act and Labor Code).
8.2 Personal Data Protection Act
8.2.1
Treatment and Management of Personal Data
According to the Personal Data Protection Act, any person can engage in the treatment and
management of personal data, as long as it complies with the following rules:
(a)
the treatment and management of personal data must be authorized by law; or
(b)
the treatment of personal data must be authorized in writing by relevant information
owner. This authorization may be revoked (with no retroactive effect) at any time.35
In the case of “sensitive data”, it cannot be subject to treatment, unless it has been
authorized by law or the owner (e.g. health purposes). For the purpose of the Personal Data
Protection Act, “sensitive data” means the personal information of an individual which refers to its
physical and moral characteristics, or the circumstances related to its private life and intimacy, such
as personal habits, race, ideology and political opinions, religion, physical and psychological heath
and sexual life.
8.2.2
Rights of the Owner of Personal Data
In general, the owner of personal data is entitled to demand from any person engaged in the
treatment and management of it, to reveal any information pertaining to the former kept in the
relevant data bank, and to amend, block or cancel such information, when applicable, at no cost.
The owner may also request personal data to be blocked or cancelled, whether permanently or
temporarily, with no expression of cause, when the information has been provided to the data bank
35
Please note, that no authorization from the owner of personal data is required in the following situations: (i) information
of economic, financial, banking or commercial nature collected from sources accessible to the public; (ii) information
contained in lists regarding a category of people limited to indicate the correspondence of a person to such category, its
profession or activity, its education level, address or date of birth; (iii) information which is required for direct response
commercial communications or direct sales of goods and services; and (iv) treatment made by a private company for its
own use or the use of its members with tariff, statistic or general benefit purposes.
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voluntarily, or when such information is used for commercial communications. These rights cannot
be curtailed by any covenant or agreement.
8.2.3
Commercial and Financial Data Banks
Persons engaged in the treatment of personal data may disclose economic, financial,
banking or commercial information, when such information is evidenced by protested bills of
exchange, promissory notes or checks, or refers to the breach of commercial, mortgage, bank or
government loans, and other obligations determined by the President of the Republic by Executive
Decree. Public utility debts cannot be in any event disclosed.
Information on a specific obligation cannot be disclosed after five years from the date in
which such obligation became enforceable, nor after such obligation has been fully paid or
otherwise discharged. Furthermore, no information on unpaid debts or delinquencies may be
disclosed when such events take place during a period of unemployment of the debtor.
8.3 Data Export
There is no regulation on data export in Chile. However, there is a bill of law under
discussion in the Congress which intends to regulate it.
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9.
Consumer Protection
9.1 Introduction
The main rules on consumers’ rights protection are contained in the Chilean Consumer
Protection Act (the “Consumer Protection Act”).
The Consumer Protection Act sets forth the rights and obligations of suppliers and
consumers, governs their relationship, describes the conducts that are considered to infringe
consumers’ rights, and establishes a procedure to seek the reparation of their injured rights.
According to a recent amendment, it also regulates the provision of financial services to consumers.
It defines “consumers” as the individuals or entities, who because of a non-gratuitous act
acquire, use or enjoy goods or services as end-user.
On the other hand, “suppliers” are defined as the individuals or entities, whether public or
private, who regularly produce, manufacture, import, assemble, distribute or commercialize goods
or render services to end-users in exchange of a price or tariff. This concept does not include the
individuals or entities who independently practice a liberal profession.
Under Consumer Protection Act, suppliers may never be considered as “end-user”.
9.2 Main Rules
9.2.1
Suppliers’ Obligations
The Consumer Protection Act provides the following suppliers’ general obligations:
9.2.2
(a)
suppliers must respect the terms, conditions and modalities under which the goods
or services were offered or agreed with the consumer;
(b)
they cannot deny without justification either the sale of goods, or rendering services
included in its business line under the offered conditions;
(c)
certain disclosing requirements; and
(d)
adhesion agreements (contratos de adhesión) have certain specific requirements and
restrictions.
Product Liability
The law describes several circumstances which entitle the consumer, in addition of being
indemnified for the damage caused, to claim whether the repair of the product without any cost, its
replacement or the return of the price paid.
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9.2.3
Electronic contracts
The Consumer Protection Act also regulates contracts that have been entered into by
electronic means or when the offer has been made via catalogues, public notices or distance
communication media. Hence , the law provides that there is no consent if the consumer did not
have a clear, comprehensive and unequivocal previous access to the general conditions of the
agreement or could not save or print them. Furthermore, once the agreement has been entered into,
the supplier must submit to the consumer a confirmation in writing with a complete, clear and
legible copy of the contract. The law also provides that the relevant provider shall inform in an
unequivocal and easily accessible manner the steps that must be followed to actually enter into such
contract.
As a guarantee, the consumer is entitled to terminate the agreement until 10 days counted
from the receipt of the goods or the conclusion of the contract of service provision.
In order to address the problem of spam, the law states that any marketing or promotional
communication sent by e-mail must comply with the several requirements. For example, the
message must be submitted by a valid address so that the suspension of the supplier’s messages can
be requested by the recipient.
9.3 Collective Actions
Provided certain requirements, the actions arising out of a breach of the Consumer
Protection Act can be exercised in benefit of collective or diffuse interests (interés colectivo o
difuso). The first are defined as the actions promoted in defense of the rights shared by a determined
or determinable group of consumers who are contractually bound to a provider. The latter are
defined as the actions promoted in defense of an undetermined group of consumers whose rights
have been affected.
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10. Intellectual Property
10.1 Legal Framework
Chile’s industrial property system (i.e., patents, trademarks, etc.) is principally defined by
the Chilean Industrial Property Act (the “Industrial Property Act”) and its corresponding regulations
(the “Industrial Property Regulations”). The country’s intellectual property rules are essentially set
out in the Chilean Intellectual Property Act (the “Copyright Act”) and its corresponding regulations
(the “Copyright Regulations”), both of which in fact refer to copyright and related rights only.
Chile is a party to or applies the rules of the following relevant international treaties:
(a)
Paris Convention for the Protection of Industrial Property (the “Paris Convention”);
(b)
Patent Cooperation Treaty (“PCT”);
(c)
Convention Establishing the World Intellectual Property Organization (“WIPO”);
(d)
Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”);
(e)
Convention for the Protection of New Varieties of Plants (“1978 Act”);
(f)
Universal Copyright Convention (“Geneva Act”);
(g)
WIPO Copyright Treaty;
(h)
Inter-American Copyright Convention;
(i)
Berne Convention for the Protection of Literary and Artistic Works (“Paris Act”);
(j)
Convention for the Protection of Producers of Phonograms Against Unauthorized
Duplication of their Phonograms;
(k)
International Convention for the Protection of Performers, Producers of
Phonograms and Broadcasting Organizations;
(l)
WIPO Performances and Phonograms Treaty;
(n)
Nairobi Treaty on the Protection of the Olympic Symbol; and
(o)
Nice Classification Agreement (even though Chile is not a party, goods and
services are categorized as per the Nice Classification, 10th Edition).
Chile is also a member of Asociación Latinoamericana de Libre Comercio (“ALALC”),
associated partner of Mercado Común del Sur (“MERCOSUR”), member of the Asia-Pacific
Economic Cooperation (“APEC”) and member of the Organisation for Economic Co-operation and
Development.
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In addition to these conventions, Chile has signed free trade agreements with the European
Union and with the United States of America, among other countries (see Section 13.3 on
“International Commerce Treaties”). Each of these agreements contains intellectual property
related provisions and creates certain obligations.
10.2 Industrial Property
10.2.1 Trademarks
10.2.1.1 Unregistered Marks
The use of unregistered marks does not give rise to industrial property rights per se.
However, the Industrial Property Act states that a trademark shall not be admitted for registration if
it is identical or confusingly similar to a mark that is already in active use by another person or
entity within Chilean territory, for identical or similar goods, services, or commercial or industrial
establishments, in the same class or in related classes. Accordingly, the user of an unregistered mark
may file an opposition (vs. a pending application) or annulment action (vs. an already granted
registration) on such grounds.
In both of the above cases (i.e. registration is prevented via an opposition or invalidated via
an annulment action) the plaintiff (i.e. the user of the unregistered mark) must himself apply for
registration of the disputed mark within 90 business days from the date of the favorable decision
and will enjoy a right of priority during that term. If the user fails to do so, the mark will again
become publicly available and the priority will in fact revert– for a period lasting another 90
business days– to the person or entity affected by the rejection or invalidation.
10.2.1.2 Other Effects of Use
In Chile, use is not a requirement for obtaining or maintaining ownership of a trademark. It
is thus not necessary to file applications based either on actual use of, or intent to use, a mark.
Accordingly, a granted registration cannot be cancelled due to lack of use. However, this may soon
change, as an amendment to the Industrial Property Act is currently under discussion in Congress,
which –among many other changes– will likely introduce the mandatory use of trademarks.
Actual use may, on the other hand, support an application for a generic or descriptive mark
that could otherwise be rejected, provided that such use has allowed the mark to acquire
distinctiveness within the Chilean market.
10.2.1.3 Ownership and Scope of Protection of Registered Trademarks
In Chile, any person or entity that has the general ability to acquire and exercise rights can
apply for and own trademark registrations. Chilean applicants may act independently or through a
representative, whereas foreign applicants must be represented by an appointed local agent
bestowed with sufficient authority.
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According to the Industrial Property Act, a trademark is any sign that can be represented
graphically (including sounds) and is capable of distinguishing marketed products, services, industrial establishments (e.g. factories) or commercial establishments (e.g. stores)36 from others.
Despite this broad definition, the Industrial Property Act expressly excludes certain items
from being registered as trademarks in Chile. Notable examples are 3D shapes, the name or
acronym of any state, technical or scientific denominations, the name, pseudonym or portrait of any
person, except with the consent of such person or his/her heirs, if such person is deceased, etc.
Owners of well-known foreign trademarks that are registered abroad but not in Chile, may
oppose pending applications or start annulment actions against registrations for identical or
confusingly similar marks in Chile covering the same goods, services or commercial or industrial
establishments.
If registration is refused or annulled on such grounds, the owner of the foreign mark must
apply for registration in Chile within 90 business days, and will enjoy a right of priority during such
term. If this is not done, the mark will again become publicly available and the priority regarding
new applications for the same mark will revert– for a period lasting another 90 business days– to
the person or entity affected by the refusal or invalidation.
Trademark coexistence agreements are admissible, in principle, but the Chilean Trademark
Office may dismiss them if it deems that they can mislead consumers or violate the rights
previously acquired by third parties.
10.2.1.4 Registration
Registration is granted after substantive examination of the trademark application, provided
that no opposition or office action ensued, or that any oppositions or office actions raised have been
dismissed by the Trademark Office or by the Industrial Property Court of Appeals (the tribunal that
hears appeals filed against the decisions of the Trademark Office). For registration to be granted the
pertinent mark must comply with the general definition of a trademark, as indicated above, and
must not fall into one or more of the categories of non-registrable marks, including those identical
or confusingly similar to marks previously registered.
If the application is admitted for registration, an official registration fee must be paid. The
registration date is the day on which this payment is made. The certificate of registration is issued
thereafter.
10.2.1.5 Opposition/Invalidation/Cancellation by Third Parties
A pending trademark application may be opposed, and a granted trademark registration may
be invalidated, if it was granted in contravention of applicable exclusions. It may not be cancelled
due to lack of use. An action initiated by a third party on the grounds of invalid or incorrect
registration is therefore, the only means for trademark annulment, according to Chilean law.
Invalidation claims are subject to a five-year statute of limitations, which commences on the
36
Trademarks for industrial establishments and commercial establishments are special kinds of marks provided by the
Chilean Industrial Property Act.
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trademark’s registration date. In the case of registrations obtained in bad faith, the five-year
limitation does not apply and the action can be brought at any time after the granting of the
registration.
10.2.1.6 Marking
Trademarks must be displayed along with the Spanish words Marca Registrada, the initials
“M.R.” or the sign “”. Failure to include this marking will prevent the owner from pursuing
criminal actions for infringement, but civil remedies may still apply.
10.2.1.7 Duration
The duration of a trademark is 10 years as from the date of registration. Trademark
registrations are renewable for additional periods of ten years. Neither registration nor renewal
depend on actual use of the mark. Every time it is renewed, a trademark will be given new
application and registration numbers.
10.2.2 Patents
10.2.2.1 Procedure and Timeframe
After the PCT became effective in Chile on June 2, 2009, patent applications can be filed
locally in any of the following contexts:
(a)
as an independent Chilean application;
(b)
as a Chilean application claiming priority from a foreign patent application,
according to the Paris Convention; or
(c)
as an international application to be processed in Chile within the national phase of
the PCT procedure.
Chilean applications for patents must be made in Spanish using forms supplied by the
Patent Office of the National Institute for Industrial Property (the “Patent Office”) and must
include:
(a)
an abstract;
(b)
specification;
(c)
claims;
(d)
drawings, if applicable;
(e)
a power of attorney; and
(f)
a certified copy of the priority documentation, if Paris Convention priority is
claimed.
Additional documents or information may be necessary depending on the circumstances.
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If the applicant is not the inventor, the patent application must be assigned to the applicant,
but the name(s) of the inventor(s) must be stated all the same.
The patent application must be published in the Official Gazette and is thereafter available
for public review. A third party may lodge an opposition within 45 business days of the date of
publication. Within the next 45 business days, the applicant may respond to any opposition filed.
The entire registration process may take approximately 2 to 5 years. Oppositions can cause
substantial delays in certain cases.
10.2.2.2 Subject Matter and Patentability
Inventions are defined as solutions to technical problems posed by industrial activity. The
subject matter can be a product or a process, or something related to any of the aforesaid. Inventions
are patentable if they are novel, involve an inventive step and are industrially applicable.
Certain matters shall not be considered inventions and are thus excluded from patent
protection. This is the case, among several others, of:
(a)
discoveries, scientific theories and mathematical methods;
(b)
plants and animals, except microorganisms that comply with general conditions of
patentability. Plant varieties shall only have the protection provided for in the
Chilean Rights of Breeders of New Plant Varieties Act;
(c)
economic, financial, commercial or business systems, methods, plans or principles;
systems, methods, plans or principles for simple verification and supervision; and
those that refer to pure mental or intellectual activities or gambling matters;
(d)
methods for diagnostics and for the surgical or therapeutic treatment of the human
or animal body, except for the products designed to put such methods into practice;
(e)
inventions whose commercial use must necessarily be prevented to protect public
order, State security, morality and good manners, to protect human, animal or plant
life or health, or to preserve the environment.
10.2.2.3 Marking
Patented products must visibly display the patent number and the Spanish words Patente de
Invención or the initials “P.I.”. Failure to mark marketed products in this way does not affect the
validity of the patent, but prevents the owner from pursuing criminal actions for infringement. Civil
remedies may still apply, though.
10.2.2.4 Duration and Invalidation
The duration of a patent is 20 years as from the date of filing of the application. Patents are
not renewable and are subject to payment of annuities.
A patent is vulnerable to annulment actions only during the first five years following its
registration.
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10.2.3 Utility Models
Applications for utility models are more or less similar to those for patents. They must
include, among other documentation or information that may be relevant:
(a)
an abstract;
(b)
specification;
(c)
claims;
(d)
drawings; and
(e)
a prototype of the model, where appropriate.
The entire registration process may take approximately 2 to 4 years. Oppositions may cause
substantial delays in certain cases.
10.2.3.2 Subject Matter and Patentability
The subject matter for utility model registration includes instruments, apparatuses, tools,
devices and objects or parts of them, the shape of which can be claimed regarding its external
appearance as well as its functioning, as long as such shape produces utility, that is, provides an
advantage, benefit or technical effect to the functions of said items that did not exist before.
Utility models are patentable if they are novel and industrially applicable, unless they
feature only minor and irrelevant differences in respect of earlier inventions or utility models.
10.2.3.3 Marking
Registered utility models must visibly display their registration number and the Spanish
words Modelo de Utilidad or the initials “M.U.” This indication can be placed on the container, as
long as the container is sealed in such a manner that the seal must be broken in order to access the
product. Failure to comply with this requirement does not affect the validity of the registration, but
prevents the owner from pursuing criminal actions for infringement. Civil remedies may still apply,
though.
10.2.3.4 Duration and Other Provisions
Registered utility models are protected for ten years as from the date of filing of the
application, and are not renewable. They are subject to payment of annuities.
General patent provisions, including those that address registration annulment, are
applicable to utility models where appropriate.
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10.2.4 Industrial Drawings and Designs
The application is similar to that for a utility model. Among the few differences is the fact
that applications for industrial drawings and designs do not require the filing of claims. The entire
registration process may take approximately 2 to 3 years. Oppositions can cause substantial delays
in certain cases.
10.2.4.2 Subject Matter and Requirements for Protection
Industrial drawings include all arrangements, collections or combinations of figures, lines
or colors developed on a two-dimensional surface for incorporation onto an industrial product for
the purpose of ornamentation, which give such product a novel appearance.
Industrial designs include all three-dimensional shapes, whether associated or not with
colors, and any industrial or handcrafted article that can be used as a pattern for the manufacturing
of additional units and that can be distinguished from other patterns by its shape, geometric
configuration, ornamentation or any combination thereof, so long as these characteristics give them
a unique appearance perceptible by sight, thus resulting in a novel physiognomy.
The Industrial Property Act expressly clarifies that containers are eligible for protection as
industrial designs; and that printed fabrics, cloths or any laminated materials are eligible for
protection as industrial drawings.
Industrial drawings and designs must be novel to qualify for registration. They will be
considered novel if they significantly differ from known industrial drawings or designs, or from
combinations of characteristics of known industrial drawings or designs.
10.2.4.3 Marking
Registered industrial drawings and designs must visibly display their registration number
and the Spanish words Dibujo Industrial (for drawings) or Diseño Industrial (for designs) or the
initials “D.I.” (for any of the aforesaid). This indication can be placed on the container, as long as
the container is sealed in such a manner that the seal must be broken to access the product. Failure
to comply with this requirement does not affect the validity of the registration, but prevents the
owner from pursuing criminal actions for infringement. Civil remedies may still apply, though.
Registered industrial drawings and designs are protected for 10 years as from the date of
filing of the application, and are not renewable. They are subject to payment of annuities.
General patent provisions, including those that address registration annulment, are
applicable to industrial drawings and designs where appropriate.
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10.2.5 Layout-Designs or Topographies of Integrated Circuits
The application process and timeframe involved are similar to the procedure and timeframe
of an application for industrial drawings and designs.
10.2.5.2 Subject Matter and Requirements for Protection
An integrated circuit is defined by the revised Industrial Property Act as a product in its
final or intermediate form, that performs an electronic function, whose elements –at least one of
which must be active– as well as some or all of the interconnections form an integrated part of the
body or surface of a piece of material.
Layout-designs or topographies of integrated circuits are characterized as three-dimensional
arrangements of the integrated circuits’ elements, expressed in any form, designed for the
manufacturing of such integrated circuits.
In order to qualify for registration and protection under the Industrial Property Act, layoutdesigns or topographies of integrated circuits must be original. A layout-design or topography of
integrated circuits is original when it is the result of the intellectual effort of the creator, but not
when it is part of the ordinary knowledge shared by creators and manufacturers of layout-designs or
topographies of integrated circuits at the moment of its creation.
10.2.5.3 Marking
Registered layout-designs or topographies of integrated circuits must display in a visible
manner an encircled capital letter “T”. This indication can be placed on the container, as long as, the
container is sealed in such a manner that the seal must be broken to access the product. Failure to
comply with this requirement does not affect the validity of the registration, but prevents the owner
from pursuing criminal actions for infringement. Civil remedies may still apply, though.
Registered layout-designs or topographies of integrated circuits are protected for 10 years as
from the date of filing of the application or the date of their first commercial exploitation anywhere
in the world, whichever occurs first. They are subject to payment of annuities and are not
renewable.
Although– as with utility models, industrial drawings and industrial designs– general patent
provisions are declared to be applicable, layout-designs or topographies of integrated circuits are
governed by several more specific rules than utility models, industrial drawings and industrial
designs.
10.2.6 Geographical Indications and Appellations of Origin
10.2.6.1 Subject Matter
A geographical indication is defined by the Industrial Property Act as an indication that
identifies a product as originating in the territory of Chile, or a Chilean region or locality, when the
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quality, reputation or other characteristics of the product are essentially attributable to its
geographical origin.
Appellations of origin, in turn, are understood to be designations that identify a product as
originating in the territory of Chile, or a Chilean region or locality, when the quality, reputation or
other characteristics of the product are essentially attributable to its geographical origin (as with
geographical indications), but taking into consideration also other natural or human factors that
have an impact on the characteristics of the product.
Any person or legal entity can request the registration of a geographical indication or
appellation of origin, provided that general requirements for registration are met and that such
person or entity represents a significant group of producers, manufacturers or artisans whose lands,
or establishments for extraction, production, processing or manufacturing, are located within the
delimited area corresponding to the relevant geographical indication or appellation of origin.
National, regional, provincial or local authorities may also request registration of
geographical indications or appellations of origin that refer to territories within their respective
jurisdictions.
Foreign geographical indications and appellations of origin may also be registered in Chile.
However, they shall not be protected locally– or they shall forfeit protection, if already granted in
Chile– when they are no longer protected or have fallen into disuse in their country of origin.
In addition, foreign geographical indications and appellations of origin identifying wines
and spirits in connection with goods and services cannot be registered in Chile if they were used
continuously, and in good faith, by Chilean nationals or residents, to identify those same (or similar)
products or services in Chile, by April 15, 1994 or for at least ten years prior to that date, unless
there is any stipulation to the contrary in an international treaty ratified by Chile.
10.2.6.2 Procedure
The application for recognition of a geographical indication or appellation of origin must
contain a detailed description of the relevant product and its essential characteristics or qualities, a
technical study showing that such characteristics or qualities are primarily attributable to the
product’s geographical origin, and a draft of the specific regulations for use and control of the
requested indication or appellation, among other information and documentation.
10.2.6.3 Use and Marking
All producers, manufacturers or artisans who conduct their activity inside the delimited
geographical zone, including those who did not take part in the registration process, are entitled to
use the geographical indication or appellation of origin in relation to the products indicated in the
registration, provided that they comply with the applicable regulations.
Only the aforementioned people may use the Spanish expressions Indicación Geográfica or
Denominación de Origen or the initials “I.G.” or “D.O.”, respectively, to identify their products.
These markings may be placed on the container, as long as the container is sealed in such a manner
that the seal must be broken to access the product.
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The protection of a geographical indication or appellation of origin does not have a fixed
duration. The registration may be modified at any time when any of the relevant circumstances
changes. Such modification must follow the registration procedure described above, to the extent
applicable.
10.2.7 Trade Secrets and Sanitary Information
10.2.7.1 Trade Secrets
A trade secret is defined as any knowledge of products or industrial procedures that, if kept
secret, gives the owner of such information a competitive advantage, enhancement or step forward.
The unlawful acquisition of a trade secret, its disclosure or use without authorization of the
owner, or the disclosure or exploitation of a trade secret legitimately accessed under a confidentiality obligation, constitute a violation of the trade secret, if such action has been done with intent,
for the perpetrator’s own benefit or that of a third party, or to harm the owner.
10.2.7.2 Information Disclosed to Authorities to Obtain Health Registrations or Authorizations
When the Chilean Institute of Public Health (Instituto de Salud Pública or “ISP”) or the
Chilean Agriculture and Livestock Service (Servicio Agrícola y Ganadero or “SAG”) requires the
submission of undisclosed test data or other undisclosed information on the safety and efficacy of a
pharmaceutical or agricultural chemical product that utilizes a new, still unapproved chemical
entity, such information must be held confidential by said authorities, provided that the confidential
nature of the data was expressly stated in the corresponding application for sanitary registration or
authorization.
The requirement of non-disclosure is satisfied if the information is subject to reasonable
measures to maintain its secrecy and is not generally known nor easily accessible to persons within
circles that normally use the kind of information in question.
The competent authority may only disclose such information, or use it in granting other
registrations or approvals to people not authorized by the owner of the information, after a period of
five years for pharmaceutical products and ten years for agricultural chemical products, following
the first health registration or authorization granted by the ISP or the SAG to the owner of the
information.
The previously mentioned “new chemical entity” is defined as any active principle that has
not been previously included in other health registrations or authorizations granted by the ISP or by
the SAG, or that has not been commercialized in Chile prior to applying for the health registration
or authorization. The aforesaid “active principle” is understood to be a substance endowed with one
or more pharmacological effects or agricultural chemical uses, regardless of its form, manifestation
or arrangement, including its salts and complexes.
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10.3 Copyright
10.3.1 Formalities and Duration
The rights of an author in an original or derivative work are recognized upon the independent creation of the work. No additional action by the author is necessary. Copyright notice and
copyright registration are thus not mandatory, but are advisable because both raise a presumption of
ownership of the rights. Moreover, if a copyright notice appears in the work, the pertinent provisions of the international copyright conventions to which Chile is a party apply as well.
To register a copyrighted work, a tangible copy of such work must be filed with the
Intellectual Property Department.
The duration of the copyright is the author’s life, plus 70 years. The copyright on
collaborative works lasts for 70 years after the last co-author died. In the case of anonymous works,
the duration is 70 years from the date of their first publication. Software companies also count the
70-year duration of their copyright on the software written by their hired programmers from the
date of the software’s first publication. The copyright of performing artists lasts for 70 years from
the first publication of their performances as well. A copyright cannot be renewed.
10.3.2 Subject Matter
Any original literary, artistic, dramatic, musical, cinematographic or scientific work in a
tangible form is subject to protection by copyright, including books, newspapers, lectures, dramatic
works, musical compositions, paintings, audiovisual material, authorized adaptations and translations, computer programs, compilations of data that due to the selection or disposition of their
contents constitute intellectual creations, textile drawings or patterns, etc.
10.3.3 Exceptions
Pursuant to the Chilean Copyright Act, certain uses of copyrighted material of others–
mainly for non-commercial purposes of education, preservation or aiding people with disabilities–
do not constitute infringement.
Another notable example of allowable use is the reverse engineering of computer software
for the sole purpose of achieving compatibility with other computer programs, or for research and
development. However, information thus acquired cannot be used to produce or commercialize
similar software or for other conducts that may constitute copyright infringement.
10.3.4 Moral Rights and Other Related Rights
The Constitution and the Copyright Act recognize and protect not only the economic or
pecuniary rights of the author, but also the author’s moral rights. These rights include the right of
attribution and the right to claim authorship of a work; the right regarding the work’s integrity as to
avoid disrespect or unapproved adulteration; the right to keep the work unpublished; the right to
authorize a third party to complete an unfinished work; and, finally, the right to maintain the work’s
anonymity or to maintain a pseudonymous identity during the term of the copyright protection.
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10.4 Licensing
In Chile, it is not mandatory to record license agreements with the pertinent offices. In the
case of licensed industrial property rights (trademarks, patents, etc.), however, recordation with the
National Institute for Industrial Property is necessary if such rights are to be invoked against third
parties by the licensee. In order to be admissible for recordation, license agreements should be made
by way of notarized documents. Sublicensing is permitted.
10.5 Domain Names
10.5.1 Registration
In Chile, Internet domain names may be registered within the country-code top-level
domain “.CL” managed by NIC Chile, the local network information center. NIC Chile acts both as
domain name registrar and domain name registry operator.
Any combination of words, letters (including Spanish characters such as á, é, í, ó, ú and ñ)
or numbers may be registered as “.CL” domain names. No formal domestic trademark rights are
acquired upon registration. There are no restrictions regarding the number of domain names that an
individual may register, nor are there restrictions concerning the registration of generic expressions.
10.5.2 Duration and Use Requirements
Domain names can be registered and renewed for any number of years between 1 and 10
years, as the owner may choose. The longer the term of protection, the higher the registration or
renewal fee, as applicable.
Even though there are no use restrictions, the lack of use of a domain name may, under
certain conditions, be considered evidence of having obtained registration in bad faith or even for
wrongful purposes.
10.5.3 Disputes
NIC Chile has a local alternative dispute resolution system similar to, but somewhat broader
than, the Uniform Dispute Resolution Policy (“UDRP”) system. In dealing with domain name
disputes, the “first come, first served” principle is altered when industrial property rights are
invoked and no strong counterarguments exist. NIC Chile’s system is broader than the UDRP
because both registered and unregistered marks can potentially be relevant when deciding the
matter.
10.6 Enforcement of Industrial and Intellectual Property Rights
The enforcement of registered industrial and intellectual property rights is similar to the
enforcement of most other rights under Chilean law. The enforcement of unregistered rights
presents a different scenario. In fact, the fundamental difference between registered and unregistered rights is the greater difficulty of enforcing the rights that are not registered.
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Registered industrial property rights owners are protected by the possibility of starting
criminal actions (infringements are currently sanctioned with a fine of about USD 1,700 up to
approximately USD 70,000) and civil actions, pre-trial motions, injunctions, border measures and
rules that determine the damages caused by infringers. Registered intellectual property owners have
available a more limited number of remedies. However, criminal penalties are more severe in the
intellectual property arena: prison is a possibility in cases of copyright infringement, whereas it is
less of an option in cases of industrial property rights violations.
Damages are available to the plaintiff in the event of infringement. However, such damages
are limited to the amount of loss that was a direct consequence of the infringement.
A few years ago, a new police unit specialized in intellectual and industrial property crime
(the Brigada Investigadora de Delitos de Propiedad Intelectual, or “BRIDEPI”) was created, which
is contributing to enhance the protection and enforcement of intellectual and industrial property
rights in Chile.
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11. Antitrust Law
11.1 Introduction
The Chilean antitrust system’s backbone is set out in the Chilean Competition Act (the
“Antitrust Act”). In 2009, Law No. 20,361 amended certain provisions of said act, most
importantly, to grant further and more expedite tools for the antitrust authorities to investigate and
prosecute alleged anticompetitive practices, especially cartels.
The President recently sent a bill to the Congress (March 2015) to amend the Antitrust Act
in order to strengthen the prosecutor’s powers, change the structure and amount of the fines,
criminalize cartelization and to enact a mandatory merger control proceeding.
11.1.1 Anti-competitive practices
The purpose of the Antitrust Act is to protect competition in the markets, punishing any
person that enters into or executes, individually or collectively, any action, act or convention that
impedes, restricts or hinders competition, or sets out to produce said effects. According to Article 3
of the Antitrust Act, the following will be considered as, among others, actions, acts or conventions
that impede, restrict or hinder competition or which set out to produce said effects:
(a)
the agreements, whether express or tacit, entered into between competitors, or
concerted practices agreed thereby, aimed at conferring market power upon them
and consisting in fixing sale or purchase prices or other commercialization
conditions, limiting production, allocating market quotas or zones, excluding
competitors or affecting the result of bidding processes;
(b)
the abuse by one company or a group of companies under common control, of a
dominant market position, through price-fixing impositions (resale price
maintenance), tying arrangements, the allocation of market quotas or zones, or
imposing similar abuses; and
(c)
predatory or unfair practices aimed at attaining, maintaining or increasing a
dominant market position.
11.1.2 Antitrust Court
The Tribunal de Defensa de la Libre Competencia (the “Antitrust Court”), which is
composed by lawyers and economists, determines if a conduct is anti-competitive and breaches the
Antitrust Act. It also resolves consultations from anyone with a legitimate interest or the Antitrust
Prosecutor about acts, facts or contracts, whether existing or intended, which might breach the
Antitrust Act, being able to set forth the conditions that such acts, facts or contracts shall meet in
order to be deemed consistent with the Antitrust Act. In addition, the Antitrust Court may issue
mandatory general instructions over acts or contracts related to market competition, and propose to
the President of the Republic the enactment, modification, abrogation of laws or regulations to
enhance competition or regulate economic activities carried out in non-competitive conditions.
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11.1.3 Antitrust Prosecutor
Besides the Antitrust Court, there exists the Fiscalía Nacional Económica (the “Antitrust
Prosecutor”), an independent agency whose main purpose is to investigate, with broad and strong
powers –including intrusive measures-, violations to the Antitrust Act and to pursue such violations
before the Antitrust Court and the Supreme Court.
11.2 Sanctions Regime
The Antitrust Act provides that any person that enters into or executes, individually or
collectively, any action, act or convention that impedes, restricts or hinders competition, or sets out
to produce said effects, may be subject to the following sanctions:
(a)
the amendment or the termination of acts, contracts, agreements, systems or
arrangements contrary to the Antitrust Act; and/or
(b)
the amendment or dissolution of the legal entities involved in an anti-competitive
conduct; and/or
(c)
the application of fines for the benefit of the State’s treasury up to the amount of
UTA 20,000 (approximately equivalent to USD 16.6 million), or UTA 30,000
(approximately equivalent to USD 24.8 million) in the case of coordinated practices
among competitors (cartels). Such fines may be imposed to legal entities and to the
individuals involved.
The Congress is currently discussing a bill proposing the addition of other sanctions and
changing the structure of fines. The proposal may increase the maximum fine to up to two times the
economic benefit obtained (if the Antitrust Court is able to determine) or 30 percent of the entity’s
turnover during the period of the breach.
11.3 Merger and Acquisition Transactions
In Chile, there is no mandatory merger notification37, except for certain industries that have
a particular regulation. There are special regulations for mergers involving securities, banks and
financial institutions, insurance, media, and water utilities. Therefore, unless the transaction is
related to some of these industries, there is no obligation to notify in Chile.
Even though there is no mandatory antitrust merger control, there are some specific
characteristics of our legal system that needed consideration and that make advisable for the parties
of a transaction to analyze their alternatives thoroughly and based on a factual case-by-case
analysis.
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Please note that Congress is currently discussing enactment of a mandatory merger control regime. Beside other
relevant proposals, the bill proposes the creation of a mandatory merger control regime using turnover thresholds (the bill
states that the actual figure will be set by the Ministry of Economy). It is not possible to predict if the proposed bill will
passed or the timing of its approval, so the situation should be checked regularly.
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Before the merger is completed, the Antitrust Court may, upon request of the Antitrust
Prosecutor or other entities or individuals with legitimate interest, review any act or transaction that
tends to impede, restrict or hinder competition, or tends to produce such effect, through a “nonlitigious” consultation proceeding (“Consultation”). Therefore, a Consultation for merger control
purposes may be started voluntarily either by someone with legitimate interest or by action of the
Antitrust Prosecutor. Note that a recent ruling of the Antitrust Court limited the scope of legitimate
interest for a proposed transaction only to the parties to the transaction (the “Parties”), opposing a
precedent that interpreted the term broadly. The issue is currently being discussed before the
Supreme Court on an appeal.
Also, before the merger is completed, a merger control procedure may start by actions of
the parties who may decide to subject the merger to a Consultation (before the Antitrust Court) or to
an administrative proceeding as set forth in the “Internal Guide for the Analysis of Horizontal
Concentration Operations” issued by the Antitrust Prosecutor on 2012 (“Guidelines”, and the
proceeding set forth therein, the “Administrative Notification”). Such Consultation, but not the
Administrative Notification, has a suspensory effect on the transaction and it cannot be carried out
before final ruling. If the merger is approved under a Consultation (with or without remedies), the
final decision provides a safe harbor for future challenges (within the limits of the ruling). The
Consultation may take up to 18 months (including the Supreme Courts’ review).
As mentioned, instead of filing a Consultation, the Parties may initiate an Administrative
Notification before the Antitrust Prosecutor in order to obtain its assessment, but the result of such
administrative procedure (as the Guidelines themselves) is not binding on the Antitrust Court, the
Supreme Court, the parties involved in the transaction or third parties. The Guidelines provide some
detailed information on how the Antitrust Prosecutor intends to analyze mergers, notwithstanding
such thresholds are not binding on the Antitrust Court, the Supreme Court, the parties involved in
the transaction or third parties. As an objective threshold, the Guidelines use the Herfindahl
Hirshman Index (“HHI”). As a result, the Antitrust Prosecutor will not further analyze mergers
where:
(a)
post-merger HHI is under 1500;
(b)
post-merger HHI is between 1500 and 2500 and the HHI increases in less than 200
as a result of the merger; or
(c)
post-merger HHI is over 2500 and the HHI increases in less than 100 as a result of
the merger.
Notwithstanding the mentioned thresholds, the Antitrust Prosecutor will carefully analyze
the merger if special circumstances concur (potential competition, “maverick” company or evidence
of coordination exists or has existed).
According to the Guidelines, the Administrative Notification’s decision shall be issued
within 60 working days (plus possible extensions) from the date on which the notification is
deemed complete and the formal investigation is initiated.
In the final decision, the Antitrust Prosecutor may:
(a)
dismiss the investigation (decide not to pursue, not formally a clearance);
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(b)
explore an Out-of-Court Settlement (which requires Antitrust Court’s approval); or
(c)
initiate a Consultation.
Besides the Administrative Notification discussed above, the Antitrust Prosecutor may
initiate an administrative investigation by its own initiative or due to a private complaint. This kind
of investigation has no deadline to issue a final decision and, as the Administrative Notification
proceedings, has no suspensory effect (nevertheless, perfection of the transaction switches the
investigation to an antitrust violation investigation). With respect to the substantive analysis (but not
with respect to the procedure) the Guidelines and all the substantive principles set forth therein
apply. In the final decision, the Antitrust Prosecutor has the same alternatives that it has under the
Administrative Notification.
After the merger is completed, it has been argued by the Antitrust Prosecutor that itself or
any third party may file a claim before the Antitrust Court arguing that the merger impeded,
restricted or hindered competition, or set out to produce said effects. There are no precedents
sanctioning a party based on this position of the Antitrust Prosecutor, but, if accepted, the Antitrust
Court may apply fines or other preventive or correctional measures. The final ruling is subject to the
Supreme Court’s review.
11.4 Statutes of limitation
In general, actions contemplated by the Antitrust Act are subject to a statute of limitation of
3 years from the execution of the infringing conduct, term which is interrupted by a lawsuit filed
before the Antitrust Court by the Antitrust Prosecutor or a third party. In the case of coordinated
practices among competitors (cartels and similar practices), the statute of limitation is of 5 years and
this term will only commence once the effects of the questionable conduct have disappeared. Civil
actions for damages expire in 4 years from the relevant conduct (as a general rule) or 4 years from
the final ruling of the Antitrust Court or Supreme Court that punishes the violation to the Antitrust
Act (if such ruling exists).
11.5 Leniency Program
Law No. 20,361 introduced a leniency program pursuant to which companies that provide
the Antitrust Prosecutor with information about a cartel (or coordinated practice) in which they
participated might receive full or partial immunity from fines. The Antitrust Act provides, subject to
certain conditions, full immunity of the corresponding fine for the first collaborating entity.
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12. Security Interests
12.1 Introduction
The most common form of creating a security interest over an asset under Chilean is by a
mortgage or pledge. Both of them do not transfer ownership to the security holder, but they entitle
him or her with the following general rights:
(a)
the right to foreclose in accordance to the proceedings established by law and to
obtain payment of the obligations secured by a pledge or mortgage. Thus, Chilean
Law does not allow the execution of a pactum comissorium (repossession) by the
security holder as an alternative to collateral’s foreclosure. This means that under
Chilean Law, the security holder does not become owner of the mortgaged or
pledged good if the debtor does not pay its obligation;
(b)
subject to insolvency provisions, the right to be paid with priority to other creditors
provided that the foreclosure has taken place under the terms of the law. This right
also extends to the insurance proceeds or any indemnification paid in connection
with the secured asset;
(c)
In case of creditors who are holding the same kind of collateral (mortgage or
pledge) the priority to be paid is commonly given –but not always– by the date of
the relevant deed evidencing the security or if its registration is needed, by the date
of such registration; and
(d)
a right in rem which entitles the security holder to claim the relevant collateral
against whoever is in possession of it.
12.2 Pledges
12.2.1 Types of Pledges
There are several kinds of pledges that can be created in order to secure either specific or
general obligations. Depending on the nature and type of pledge, the possession of the collateral
may remain in the hands of the pledger or needs to be delivered to the secured party. In case of a
pledge without conveyance, the collateral remains in the hands of the pledger, who is liable for the
secured asset’s conservation.
Furthermore, commercial papers, bills of exchange, promissory notes and drafts can also be
subject to a pledge which is executed by the mere endorsement of the document with the delivery of
the same to the creditor. This means that the mere stamp of the debtor’s signature indicating the
creation of a guarantee in this case is enough.
12.2.2 Law No. 20,190
The Law No. 20,190, which came into effect on January 24th of 2011, amended several laws
and regulations in order to promote the development of risk capital industry and modernize the
capital market.
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Among these amendments, Law No. 20,190 created a new centralized system of pledges
without conveyance, and abrogated the old system which consisted of a variety of regulations. The
rules that governed the abrogated pledges are still applicable as long as they had been created before
the Law No. 20,190 came into force and parties have not agreed to submit them to the new regime.
The main characteristics of the new pledge without conveyance can be summarized as
follows:
(a)
it may be created over all kinds of corporeal or incorporeal moveable goods, except
vessels and aircraft which are subject to special regulations;
(b)
all kinds of obligations may be secured by the new non-conveyance pledge,
whether they’re current or future or even if they have not been determined at the
time that the contract was entered into (it admits general guarantee clause);
(c)
the pledge agreement may be executed by means of a public deed or a notarized and
registered private deed containing the elements indicated in Law No. 20,190 and the
Pledge Regulations;
(d)
each pledge must be registered in the Pledge without Conveyance Registry under
the liability of the notary public who authorized the public deed or registered the
private deed. However, the lack of the register does not mean that the pledge
contract is not valid, yet the secured party does not have any in rem rights over the
collateral.
This law also created a new institution called Loan or Guarantee Agent (Agente de Créditos
o Garantías) who is empowered to represent the two or more designating creditors to grant or
administrate certain credits, and/or create, amend or terminate a security interest. The Loan or
Guarantee Agent is also entitled to jointly exercise the rights arising from its principals’ credits or
security interests. The law also provides that that agent may represent the later creditors who adhere
to the appointment agreement.
12.2.3 Termination of Pledges
In general terms, pledges terminate:
(a)
when the secured obligation is fully paid;
(b)
when the secured party acquires ownership of the pledged asset; and
(c)
in case of total destruction of the pledged asset.
12.3 Mortgages
The main difference between a mortgage and a pledge in Chilean Law is that the former one
is created over real estate (or certain very specific assets such as vessels and aircrafts), while the
second one over movables. Thus, the mortgagor remains in possession of the real estate, will the
pledger may not depending on the case.
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The main characteristics of the mortgage are the following:
(a)
a mortgage is indivisible, this means that the security has been created over the
whole real estate. Thus, if the debt is partially paid the property as a whole shall still
remain subject to the mortgage;
(b)
it may be granted over ownership rights and usufruct regarding an immovable,
water rights, vessels and aircrafts in the terms established by law;
(c)
a mortgage may be created with a general guarantee clause; and
(d)
the secured creditor does not have the right to gain the real estate’s ownership in
case the debt is not paid as an alternative to foreclosure. However, in the court
biding for foreclosure the creditor may participate and, if awarded the property,
may set off the price against its credit.
12.4 Tax
Mortgages and pledges themselves are free of all sorts of taxes (i.e. not the obligation that
they guarantee). A fee may however apply in case of registration of the relevant security interest
with the appropriate registries.
12.5 Ancillary Nature of Security Interests
It is important to note that both, the mortgage and the pledge, are ancillary to the obligations
secured, and as such do not have an independent existence from the latter. Thus, if the secured
obligation is terminated, annulled or ceases to exist for any reason the mortgage or pledge shall
have the same fate.
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13. International Trade
13.1 Import/Export Regulations
The Central Bank Act provides that any merchandise can be freely exported from or
imported into Chile, the only condition is that all of the applicable laws and regulations in force as
of the date of the relevant transaction are duly complied with. No mandatory cash deposit
requirements may be imposed by any authority as a prerequisite to perform any of them, nor can
quotas or limitations of other class or nature be established in connection therewith. Also, due to the
foregoing “freedom principle”, no import or export licenses are required.
Nevertheless, the President of the Republic, by means of an Executive Decree issued
through the Ministry of Finance, may prohibit the exportation or importation of goods to or from
countries that have established restrictions on merchandise coming in or going out of Chile.
In addition, certain regulatory restrictions may be imposed upon the import of certain
goods, such as items hazardous for health or consisting in weapons, cattle, vegetables, pornography,
etc.
As a general rule and absent any free trade or commercial agreement applicable thereto
(please refer to Section 13.3 on this matter), imports of new products are subject to a 6 percent
customs duty (ad valorem) and a 19 percent VAT, calculated on the customs value of the good. In
addition, some “luxury” goods are subject to higher taxes in the form of VAT.
The importation of used assets is allowed subject to a 50 percent recharge over the
applicable customs duty, unless an exception is applicable to specific goods.
Notwithstanding the foregoing, reduced ad valorem rates apply, in several cases until 0
percent due to the provisions of the free trade or commercial agreements entered into by Chile.
On the other hand, in the case of exports they are not subject to any custom duties or taxes;
instead, Chilean Law provides certain incentives which will be analyzed below.
Regarding clearance of the goods through customs, the National Customs Service has
issued general regulations requiring all importers and exporters to submit in advance certain
documents named “Entry Statement” (Declaración de Ingreso) and “Exit Statement” (Declaración
Única de Salida), respectively. Some of these documents must evidence the relevant invoice and
detailing applicable information regarding the concerned transaction, inter alia, information
regarding the types of goods imported/exported and their value, their country of origin,
classification on schedule of customs duties, place of acquisition, port of embarkation or
destination, as the case may be, etc. Once these documents are received and approved by customs’
authorities, the import or the export will be deemed accepted and registered as such.
Exportation shall be deemed as performed when the merchandise exported under the
relevant Exit Statement has been legally and effectively sent abroad, with the purpose of being used
or consumed. In turn, importation shall be deemed when all the formalities established by the law
are complied. For this purpose, Chilean Law provides two different proceedings. If the
merchandise’s value does not exceed USD 1,000 then, the interested party may directly submit the
documentation required by law to the relevant Custom. However, if the merchandise exceeds the
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former value the interested party must hire a Custom Agent (Agente de Aduana) who will receive
the relevant documents.
Valuation of the goods is one of the most important issues to be kept in mind under local
legislation. Pursuant to the rules on imports contained in Law No. 18,525 on the “Importation of
Merchandise into the country” (“Merchandise Act”) customs duties are generally levied on the
relevant product’s “transaction value”.
On the other hand, the customs value of a merchandise shall be determined in accordance
with the applicable international standards in the matter, particularly, in compliance with the rules
of the Agreement on Implementation of Article VII of the GATT (the “Customs Valuation Code”).
Based on these principles, the acceptable customs value for determining customs duties and taxes
on import shall be the “transaction value”, that is, “the price actually paid or payable for the
relevant good, including insurance, freight and similar expenses incurred until the place or location
where the import into Chile is made.
Among the various rules set forth in the Customs Valuation Code for defining an acceptable
“transaction value” there is one requisite which relies on the buyer and seller to be independent
from each other; provided that the transaction value may be still accepted for customs purposes if
such relationship had not influenced or did not affect the price.
If the local customs authorities determine that the above mentioned rules are not met, such
authorities may reject the relevant transaction value as the basis for assessing the customs duties
and may re-assess such value.
In addition, the Central Bank is also vested with powers to verify that the value of imported
or exported goods is consistent with their current value in the international market being authorized
to determine whether it is coherent with the international arms’ length conditions. However, the
interested party may file a claim against the determination before an administrative commission.
Pursuant to Merchandise Act, if the circumstances described in Article XIX of the GATT
and in the WTO Agreement on Surcharges exist (mainly, increase in the imports in such an amount
and conditions that causes or threaten to cause damage to national production), ad valorem
surcharges may be imposed by the President of the Republic by means of an Executive Decree and
upon previous recommendation on the relevant merchandise by a special commission.
These surcharges may be levied for a period of one year, renewable for another year if the
referred circumstances still exist and remain at the end of the first year.
Moreover, compensation duties and anti-dumping measures may also be imposed locally
regarding those imports that may cause serious present or imminent damage to national production,
when low prices are a consequence of artificial circumstances existing in the original market. In
such case, the President of Chile must determine which merchandises are subject to the application
of such compensating duties and anti-dumping measures, their percentages, and their effective
duration.
13.2 Export Incentives
Chilean legislation provides for several incentives on exports, which can be summarized as
follows.
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13.2.1 Simplified drawback
The simplified drawback system established by the Chilean Drawback in Minor Non
Traditional Exports Act (the “Minor Non Traditional Exports Drawback Act”) applies with regard
to the cost of the items forming part of exports that are conceived as:
(a)
“minor” (up to a ceiling of CLP 20,368,495,008 (approximately equivalent to USD
32,097,600) determined on an annual basis); and
(b)
“non-traditional”.
Generally, the goods that qualify for this benefit are those that contain at least 50 percent of
imported pieces or parts, and have been classified in the Custom Schedule at the time the Export’s
Statement was accepted. Also, the merchandise shall correspond to a category submitted to this
regime as of December 31, 1990.
On the other hand, a decree is issued on a yearly basis, listing certain goods that shall be
considered excluded from the benefit.
The drawback is equivalent to 3 percent of the FOB value of the goods being exported,
excluding, however, commissions and other expenses that may be deducted from the export’s final
result.
This benefit is not compatible with other special systems provided by local laws.
13.2.2 Customs duties drawback of the Customs Duties Drawback Act
Under the Customs Duties Drawback Act, any exporter shall be entitled to obtain the
drawback of the duties and other customs charges previously paid in connection with raw material,
elements partially produced or spare parts imported by the exporter or third parties, provided that,
such items have been incorporated or consumed in the manufacture of the exported good.
13.2.3 Customs duties deferred payment regime set forth by the Deferred Customs Duties
Act
The Deferred Customs Duties Act provides an incentive on imports regarding certain goods
qualified as “productive/capital goods” by a special Decree, provided that the relevant capital goods
have a minimum CIF value currently of CLP 3,819,981.23 (approximately equivalent to USD
6,019.70) or the equivalent thereof in other currencies, except in the case of land transportation
vehicles, where said minimum value is CLP 4,838,640.77 (approximately equivalent to USD
7,624.95).
Even though this incentive was established in reference to imports, it has ultimately turned
into a benefit for the export industry. Thus Chilean products can be manufactured with those
imported “productive/capital goods” and as a consequence exported to international markets on a
competitive basis.
Goods imported under the Deferred Regime cannot be sold, unless,
(a)
the total debt arising from the custom duties so deferred are fully paid; or
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(b)
the buyer assumes or undertakes in writing the obligation to pay for the outstanding
balance.
In this latter case, however, the relevant transfer of the goods must be authorized by the
National Customs Service, and executed by public deed.
13.2.4 Fiscal Credit
On the other hand, the Deferred Customs Duties Act also contemplates a fiscal credit
available for purchasers who acquire new capital goods (first transference) locally manufactured (in
the country) for an amount equivalent to 73 percent of the customs duties currently in effect and
calculated on the net price of the invoice. The payment of the referred fiscal credit is subject to the
same rules and modalities contemplated for the customs duties deferred payment regime, including
deferred payment of the credit up to seven years. As a consequence, this policy has turned into an
incentive for national production in general, including exportations.
13.2.5 Export credits
Documents evidencing a credit facility that is to be used in the finance of an export shall be
exempted from stamp tax. The Chilean Superintendence of Banks and Financial Institutions shall
determine the documents that qualify for this exemption. In addition, the Chilean Internal Revenue
Service has issued various resolutions referred to this matter, providing for the appropriate rules
aimed at avoiding the misuse of this benefit.
13.2.6 Governmental insurance/guaranties for exports
Decree Law No. 3,472, as amended by Law No. 19,677, created the so-called “Guaranty
Fund for Small Entrepreneurs” (the “Small Entrepreneurs’ Fund”), which is formed, among other
sources, by a contribution from the State. Its purpose is to secure the credits granted by public or
private financial institutions to “small entrepreneurs”. In other words, those exporters “needing
working capital or investment projects” and who have exported an amount not exceeding a FOB
value of CLP 10,597,486,000 (approximately equivalent to USD 16.7 million) on average during
the two preceding calendar years.
13.2.7 Other benefits
The Customs Rule (Ordenanza de Aduanas) provides that the National Customs Director,
with the approval of the Ministry of Finance, and only for export activities may allow the temporary
admission of certain goods in the premises/warehouse located in the plants or industries of the
interested parties. This provision is applicable to goods such as raw materials, parts, pieces or
elements that are to be transformed, assembled, integrated, manufactured or processed in the
foresaid plant or industries.
As a consequence, by means of this temporary admission, the interested party can suspend
the payment of the customs duties and VAT up to 180 days, which is the maximum term for their
assembly and exportation of the national final product abroad. The exporter is finally and
definitively exempted from the referred “suspended” customs duties and VAT if the finished good
is exported within the referred time frames.
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In addition, there are legal provisions setting free trade zones in the first and twelfth
Regions of Chile (collectively, the “Zones”), allowing the entrance of goods to these Zones free
from taxes. The exit of the goods from these Zones abroad is also exempted from taxes.
Finally note that it is not required that Chileans participate in the local enterprise in order
for the investor to benefit from the incentives described in this Chapter 13.
13.3 International Commerce Treaties
13.3.1 Free Trade Agreements
(a)
Currently in effect
Canada (“Free Trade Agreement Chile-Canada”), executed on December 5, 1996
and effective from July 5, 1997.
Mexico (“Free Trade Agreement Republic of Chile-United Mexican States”),
executed on April 17, 1998 and effective from August 1, 1999.
Central America (“Free Trade Agreement between Chile and Central America”
i.e. Republics of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua),
executed on October 18, 1999. The bilateral protocols with Costa Rica, El
Salvador, Honduras and Guatemala became effective on February 14, 2002, June 3,
2002, July 19, 2008 and March 23, 2010, respectively. The bilateral protocol with
Nicaragua was concluded on February 22, 2011.
EFTA (“Free Trade Agreement between the Republic of Chile and the Member
States of the European Free Trade Association” i.e. Republic of Iceland,
Principality of Liechtenstein, Kingdom of Norway and Swiss Confederation),
executed on June 26, 2003 and effective from December 1, 2004.
United States (“Free Trade Agreement Chile-United States of America”), executed
on June 6, 2003 and effective from January 1, 2004.
South Korea (“Free Trade Agreement between the Government of the Republic of
Chile and the Government of the Republic of Korea”), executed on February 15,
2003 and effective from April 1, 2004.
China (“Free Trade Agreement between the Government of the People’s Republic
of China and the Government of the Republic of Chile”) ,executed on November
18, 2005 and effective from October 1, 2006).
Panama (“Free Trade Agreement between the Republic of Panama and the
Republic of Chile”), executed on June 27, 2006 and effective from March 7, 2008.
Peru (“Free Trade Agreement between the Republic of Peru and the Republic of
Chile”) executed on August 22, 2006 and effective from March 1, 2009.
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Australia (“Free Trade Agreement between the Republic of Chile and the
Commonwealth of Australia”) executed on July 30, 2008 and effective from March
6, 2009.
Colombia (“Free Trade Agreement between the Republic of Colombia and the
Republic of Chile”), executed on November 27, 2006 and effective from May 8,
2009.
Turkey (“Free Trade Agreement between the Republic of Chile and the Republic
of Turkey”) executed on July 14, 2009 and effective from March 1, 2011.
Hong Kong (“Free Trade Agreement between the Republic of Chile and Hong
Kong”), executed on September 7, 2012 and effective from November 29, 2014.
Vietnam (“Free Trade Agreement between the Republic of Chile and the Socialist
Republic of Vietnam”), executed on November 11, 2011 and effective from
February 4, 2014.
Malaysia (“Free Trade Agreement between the Republic of Chile and Malaysia”),
executed on November 15, 2010 and effective on April 18, 2012.
(b)
Pending formalities
Thailand (“Free Trade Agreement between the Republic of Chile and the
Kingdom of Thailand”), executed on October 4, 2012 and which has not been
ratified yet by the Chilean Congress.
(c)
Under negotiation process
Transpacific Partnership (between Australia, Brunei Darussalam, Canada, Chile,
Malaysia, Mexico, New Zealand, Peru, Singapore, United States of America and
Vietnam).
Indonesia
Pacific Alliance (between Chile, Colombia, Peru and Mexico)
13.3.2 Partial Agreements
India (“Partial Scope Agreement between the Republic of Chile and the Republic
of India”), executed on March 8, 2006 and effective from August 18, 2007.
Cuba (“Partial Scope Agreement between the Republic of Chile and the Republic
of Cuba”), executed on December 12, 1999 and effective from June 27, 2008.
13.3.3 Association Agreements
European Union (“Association Agreement between the European Community and
its Member States, on one hand, and the Republic of Chile, on the other”), executed
on November 18, 2002 and effective from February 1, 2003.
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P4 (“Transpacific Strategic Agreement for Economic Association” among the
Governments of Brunei Darussalam, the Republic of Chile, New Zealand and the
Republic of Singapore), executed on July 18, 2005 and effective on November 8,
2006.
Japan (“Agreement between the Republic of Chile and Japan for a Strategic
Economic Association”), executed on March 27, 2007 and effective on September
3, 2007.
13.3.4 Complementation Agreements
Bolivia (“Economic Complementation Agreement between the Republic of Bolivia
and the Republic of Chile”), executed on April 6, 1993 and effective from July 7,
1993.
Ecuador (“Economic Complementation Agreement for the Establishment of a
Broader Economic Space between Chile and Ecuador”), executed on March 10,
2008 and effective from January 25, 2010.
Mercosur (“Economic Complementation Agreement between the Republic of Chile
and the Mercado Común del Sur” i.e. Republic of Argentina, Federative Republic
of Brazil, Republic of Paraguay and the Eastern Republic of Uruguay), executed on
June 25, 1996 and effective from October 1, 1996.
Venezuela (“Economic Complementation Agreement between the Government of
the Republic of Chile and the Government of the Republic of Venezuela”), executed
on April 2, 1993 and effective from July 1, 1993.
Argentina (“Economic Complementation Agreement between the Government of
the Republic of Chile and the Government of the Republic of Argentina”), executed
on August 2, 1991 and effective from November 12, 1991.
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14. Certain Financial Activities
14.1 Certain Governmental Authorities
14.1.1 The Central Bank
The Central Bank is an autonomous legal entity created by the Constitution. The legal
purpose of the Central Bank is to maintain the stability of the Chilean peso and the orderly
functioning of Chile’s internal and external payment system. The Central Bank’s powers include
setting reserve requirements, regulating the amount of money and credit in circulation, imposing
limits and/or requirements for certain operations, establishing regulations for financial companies
and certain institutional investors, and regulating foreign exchange transactions (including the
formal exchange market) and banks’ activities.
14.1.2 The Superintendence of Banks and Financial Institutions
Banks and certain other financial entities (e.g. credit card issuers) are supervised and
regulated by the Chilean Superintendence of Banks and Financial Institutions (Superintendencia de
Bancos e Instituciones Financieras, or “SBIF”), an independent Chilean governmental agency. The
SBIF authorizes the creation of new banks (and certain non-banking financial institutions), the
merger or acquisition of a substantial steak on them, and has broad powers to interpret and enforce
legal and regulatory requirements applicable to banks and non-banking financial institutions.
Furthermore, in case of non-compliance with such legal and regulatory requirements, the
SBIF has the ability to impose sanctions. In extreme cases, it can appoint, with the prior approval of
the board of directors of the Central Bank, a provisional administrator to manage a bank or even
revoke a banks’ license. It must also approve any amendment to a bank’s bylaws or any increase or
reduction in its capital.
14.1.3 The Superintendence of Securities and Insurance
The Chilean Superintendence of Securities and Insurance (Superintendencia de Valores y
Seguros, the “SVS”), an independent Chilean governmental agency, is in charge of the regulation
and supervision of public corporations, persons and entities that issue publicly traded securities,
stock exchanges, stock brokers, funds managers, insurance companies, rating agencies,
securitization companies, and the operations and transactions carried out by these entities, among
others.
The SVS has broad authority to interpret existing laws and regulations, issue instructions on
their application and order their compliance; investigate claims against any of the supervised
persons and entities; examine transactions, books, records, accounts and assets; set standards and
rules for the preparation of financial statements, balance sheets and other records; and impose fines
and other sanctions in the event of infractions and violations of the applicable laws and regulations
and of the instructions, rules and orders issued by the SVS. The SVS also manages several registries
that list, and maintain updated information on, the supervised persons, entities and activities, and
other complementary registries.
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Certain companies, such as insurance companies, stock exchanges and mutual funds
administrators, require the authorization of the SVS to be created and operate. The SVS has the
authority to revoke such authorization and, consequently, dissolve any such company.
14.1.4 The Superintendence of Pensions
The Chilean Superintendency of Pensions (Superintendencia de Pensiones, or “SdP”) is the
main regulator of Pension Funds Managers (Administradoras de Fondos de Pensiones, or “AFPs”).
It has complete personal jurisdiction over the AFPs and exercise an extremely detailed regulation
and oversight on all matters relating to their investments, both domestic and off-shore. It may
impose administrative sanctions and fines on the AFPs and, in extreme cases (i.e. self-dealing,
insider trading, and other serious and repeated infringements of laws) it may revoke the
authorization of existence of AFPs and decide their dissolution and liquidation.
AFPs are also subject to the regulation by the Central Bank on foreign exchange matters,
limits for investments in specific securities and the markets where they can be made.
14.2 Banks
14.2.1 The Banking Business
The Chilean Banking Act of 1997 (the “Banking Act”) governs banks. The Banking Act
provides that no individual or legal entity not specially authorized by law may:
(a)
engage in the business reserved by law to banks and, particularly, in the business of
receiving or soliciting money or other repayable funds from the public on a regular
basis, whether in the form of deposits, loans or in any other manner; or
(b)
engage, for its own account or for the account of other persons, in the business of
money brokerage or in the intermediation or brokerage of credits evidenced by
securities, commercial papers or any other type of debt instruments.
The Banking Act prohibits any advertisement, publicity, mailing, press or other media
release on this matter. Furthermore, the Banking Act presumes that an individual or legal entity has
violated its provisions in this regard whenever it has an office or any premises where the public is
invited or solicited to bring in money at any title (whether as deposits or other repayable funds
whatsoever), or whenever any publicity is made therefor. Any violation to the foregoing constitutes
a criminal offence punishable with imprisonment.
The Banking Act specifies all those operations and activities in which local banks may
lawfully engage. It sets out an exhaustive list of such operations and activities including, among
others, deposit-taking and acceptance of other repayable funds from the public; issuance of bonds or
debentures; lending (in its various forms, including discount of commercial papers and issuance of
mortgage bonds); money brokerage; intermediation or brokerage of commercial papers and debt
instruments; issuance of letters of credit and performance bonds; money collection, payment and
transmission services; issuance and administration of means of payment (e.g., bankers drafts,
travelers checks, credit, debit and payment cards, etc.); issuance of guaranties; trading in money
market instruments, foreign exchange, financial futures and options, exchange and interest
instruments; acquisition, sale and trading in debt or fixed income transferable instruments and
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provision of underwriting services in connection with the issuance and placement of such securities,
and acting as placement agent and underwriter in connection with offerings of newly issued shares
of public corporations. It also determines the kind of assets that banks are allowed to acquire and
hold; in this regard, the most important limitation is the prohibition for banks to acquire and hold
equity securities or equity investments, unless in very few qualified exceptions (e.g. for acting as
underwriters or permanent investments in certain special purpose subsidiaries).
Banks are also authorized by law to grant certain fiduciary services to their clients,
including, among others, to act as general or special attorneys-in-fact for the administration of
assets of third parties; as administrators of assets that have been bequeathed or passed on as
inheritance subject to the condition that they be administered by a bank; and as administrators of
fiduciary property when such administration has been stipulated in the act of constitution of the
fiduciary property.
The SBIF may authorize foreign banks to establish representation offices in Chile to act as
business agents for their foreign parents. But in no case, may these offices engage in the activities
indicated above except for promoting the credit products and services offered by their parents, in
the conditions set forth by the SBIF.
A foreign financial institution may organize or acquire a bank in Chile or organize a branch
in Chile to the extent:
(a)
it is subject to an adequate surveillance in its jurisdiction of incorporation;
(b)
it has been previously authorized by the relevant authorities of its jurisdiction of
incorporation;
(c)
there exist adequate channels for the exchange of information between Chilean
authorities and the relevant authorities of the jurisdiction of incorporation of the
foreign financial institution; and
(d)
it obtains the SBIF’s approval.
In case of foreign investment companies that desire to organize or acquire a bank in Chile
or to organize a branch in Chile, the Banking Act has different rules depending on whether the
investment company is organized in a jurisdiction that applies the regulations of the Basel
Committee or not. If the investment company is organized in a jurisdiction which does not apply the
regulations of the Basel Committee, the same may organize or acquire a bank in Chile or organize a
branch in Chile to the extent it ensures the SBIF it shall comply with the same requirements
described in the preceding paragraph, should such investment company have or thereafter acquire a
significant equity ownership in a bank of its jurisdiction of incorporation or elsewhere. If the
investment company is organized in a jurisdiction which applies the regulations of the Basel
Committee, such institution may organize or acquire a bank in Chile or organize a branch in Chile
to the extent it undertakes to deliver to the SBIF the information issued by the authorities of its
jurisdiction of incorporation or, if no such information exists, information issued by independent
auditors of recognized international standing.
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14.2.2 Ownership Restrictions
The Banking Act states that no person or company may acquire, directly or indirectly,
shares of a bank that, solely or together with shares previously owned, represent more than 10
percent of the capital stock of the bank without the prior authorization of the SBIF, which may only
be withheld in case such person or company does not comply with the requirements set forth by the
Banking Act to be a founding shareholder of a bank.
The Banking Act also sets forth certain restrictions in respect of certain transactions that
may affect the ownership of a Bank, (e.g. the merger of two banks), applicable when the relevant
transaction would result in the acquiring bank or the resulting group of banks owning a significant
market share in loans (currently defined by the SBIF to be more than 15 percent of all loans in the
Chilean banking system).
The Banking Act further provides that the individuals or legal entities which, individually
or together with other people, directly control a bank and who individually own more than 10
percent of its shares shall provide the SBIF reliable information on their financial situation as
requested by the SBIF.
14.2.3 Minimum capital and capital adequacy requirements
Under the Banking Act, a bank must have a minimum paid-in capital and reserves of UF
800,000 (approximately equivalent to USD 31,496,000).
According to the Banking Act, each bank should have an effective equity of at least 8
percent of its risk-weighted assets, net of required allowances. Effective equity is defined as the
aggregate of:
(a)
a bank’s paid-in capital and reserves;
(b)
its subordinated bonds, considered at the issuing price (but decreasing 20 percent
for each year during the period commencing 6 years prior to maturity), but not
exceeding 50 percent of its Net Capital Base (as defined below); and
(c)
its voluntary allowances for loan losses, up to 1.25 percent of risk weighted assets.
Banks should also have capital básico, or Net Capital Base, of at least 3 percent of its total
assets, net of allowances. Net Capital Base is defined as a bank’s paid-in capital and reserves and is
similar to Tier 1 capital, except for the fact that it does not include net income for the period.
The calculation of risk-weighted assets is based on a five-category risk classification system
to be applied to a bank asset that is based on the Basel Committee recommendations.
14.2.4 Reserve requirements and deposit insurance
Deposits are subject to a reserve requirement of 9 percent for all demand deposits and
obligations a bank has acquired in its financial business that are payable on demand, and 3.6 percent
for time deposits and any repayable funds of a term up to one year, any time deposit of any term,
judicially ordained deposits, and certain other obligations. The Central Bank has statutory authority
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to increase these percentages up to 40 percent for demand deposits and up to 20 percent for time
deposits, to implement monetary policy.
According to the Banking Act and the regulations issued by the Superintendency and
Central Bank, Chilean banks must hold 100 percent of the amount of all demand deposits and
obligations a bank has acquired in its financial business that are payable on demand, except for
obligations with other banks, whenever the aggregate sums owed thereunder exceed 2.5 times such
bank’s effective equity. In case of insolvency of a bank, demand obligations are paid in full.
The State of Chile guarantees up to 90 percent of the principal amount of certain time
deposits held by natural persons. The State’s guarantee covers those obligations with a maximum
value of UF 120 per person (approximately equivalent to USD 4,724.4) for each calendar year, with
respect to applicable time deposits held by such person at any one Chilean bank.
14.2.5 Confidentiality
The Banking Act provides that deposits and other repayable funds of any type whatsoever
received or taken by banks are subject to strict banking secrecy and no information or data in
connection therewith may be disclosed or furnished to any person except the depositor or customer
itself, its agents or representatives or such other persons expressly authorized to access or receive
such data by the customer or such agents or representatives. Contravention constitutes a criminal
offence punished with imprisonment.
It further provides that all other banking transactions are subject to “reserve”, which is a
form of confidentiality of lesser degree. However, these other banking transactions may be
disclosed by the banking institutions to any third parties showing a legitimate interest thereon,
provided that there is no reason to believe that knowledge of the same by such third parties may
result in pecuniary damage to the customer. Detailed disclosure of these other banking transactions
may be made to professional firms engaged in the evaluation of the relevant bank, but such firms
are also subject to the same confidentiality duty.
Chilean Courts may order the disclosure or audit of specific transactions directly related to
the pertinent trial facts, about deposits or other repayable funds of any type carried out by persons
being a party to, or being charged or indicted at, the relevant civil or criminal proceedings. Chilean
Courts may also order the disclosure or audit of specified transactions in the course of a civil or
criminal action directly related therewith.
14.3 Securities
14.3.1 Public Offer of Securities
Chilean Securities Market Act (the “Securities Act” or “LMV”) provides that a public offer
of securities can only be done upon the prior registration of the securities and their issuer before the
SVS, unless an exception applies. Such registration shall be done in the Securities Registry
(Registro de Valores) or the Foreign Securities Registry (Registro de Valores Extranjeros), and
requires the issuer to provide to the SVS extensive information on its legal, economic and financial
status and on the main features of the securities to be listed In the case of shares of stock, such
registration obliges the relevant corporation to also list its shares in at least one Chilean stock
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exchange38 (for details on regulations applicable to listed corporations please see Chapter 3 on
“Investment Vehicles”).
The registration of equity or debt securities with the SVS subjects the issuer to a continuing
duty to report and disclose to the SVS, the stock exchanges and the general public, as the case may
be, the legal, economic and financial data required under the LMV and the regulations enacted
thereunder.
A public offer of securities is defined as an offer addressed to the public in general or to a
certain sector or a specific group of the public. Any other offer is private, hence out of the scope of
the Securities Act. In turn, securities are defined as any transferrable title, including shares of stock,
options for the purchase and sale of shares of stock, bonds, debentures, quotas in mutual funds,
saving plans, commercial papers and, in general, any title of credit or investment.
14.3.2 Intermediation
Generally, the Securities Act provides that shares of stock listed in the Securities Registry
may only be transacted on the floor of the Chilean stock exchanges where listed and by
stockbrokers members of such stock exchanges. Securities listed in the Securities Registry of the
SVS other than shares of stock may be traded by both broker-dealers and stockbrokers, as well as
by banks and financial institutions; provided, however, that stockbrokers can only participate in
transactions thereon if such securities are listed in the stock exchange of which they are member.
This same rule applies to governmental debt instruments (i.e. treasury bills, Central Bank notes,
etc.), but these instruments do not need to be listed in the Securities Registry of the SVS.
The participation in a public offering of non-registered securities constitutes a criminal
offense under the LMV and is, accordingly, punished with imprisonment. Fines may be also
applied by the SVS. Similar sanctions are also applicable upon persons who unlawfully engage in
the business reserved by law to stockbrokers or broker-dealers
14.3.3 Disclosure Requirements
Article 12 of the Securities Act makes it mandatory for any person or entity who directly or
indirectly holds 10 percent or more of the capital stock of a public corporation, or achieves such
percentage through a stock purchase (as well as certain other qualified persons— e.g. members of
the board and manager— regardless their holdings) to disclose to the SVS and to each stock
exchange on which the corporation’s shares are listed the following information:
(a)
any purchase or sale of the relevant corporation’s shares; and
(b)
any contract or security which price or result depends or is conditioned upon the
price of the said shares.
38
Note that there are three stock exchanges in Chile: Bolsa de Comercio de Santiago, Bolsa Electrónica de Chile and
Bolsa de Corredores.
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This notice must be sent at latest the day immediately following the transaction’s
conclusion and in the case of those shareholders, shall include a statement as to whether the
acquisition is aimed at the taking control or was made only as financial investment.
14.3.4 Investment Advice
As opposed to many jurisdiction, investment advice is not a regulated activity in Chile. It is
important to note that this concept corresponds to mere counseling and advice on financial and
investment matters, with neither participation in the execution of the investment nor any decision
authorities to act on behalf of the client.
14.3.5 Acquisition of 10 percent or more of a company
Article 12 of the Securities Act makes it mandatory for any person or entity who directly or
indirectly holds 10 percent or more of the capital stock of a public corporation, or achieves such
percentage through a stock purchase (as well as certain other qualified persons— e.g. members of
the board and manager— regardless their holdings) to disclose to the SVS and to each stock
exchange on which the corporation’s shares are listed the following information:
(a)
any purchase or sale of the relevant corporation’s shares; and
(b)
any contract or security which price or result depends or is conditioned upon the
price of the said shares.
This notice must be sent at latest the day immediately following the transaction’s
conclusion and in the case of those shareholders, shall include a statement as to whether the
acquisition is aimed at the taking control or was made only as financial investment.
14.4 Insurance Activities
14.4.1 General
The insurance business may be carried out in Chile only by corporations organized in the
country for the sole and specific purpose of existing either as a life insurance company or as a
general insurance company. Therefore, with the sole exceptions indicated below, foreign insurance
companies are prevented from marketing insurance of any kind in Chile. Insurance companies are
forbidden from insuring both life and general risks simultaneously (note that credit risk may only be
offered by SPVs of the general insurance group), and need be organized with, and maintain at all
times, a minimum capital of UF 90,000 (approximately equivalent to USD 3,543,300).
Despite the above, any individual or legal entity residing or domiciled in Chile may freely
contract any kind of insurance policy abroad, except for certain mandatory insurance.
Foreign insurance companies may not offer, sell, contract or otherwise market insurance
policies in Chile, whether directly or through local or foreign intermediaries, brokers or distributors
except for insurance for international maritime transportation, commercial air transportation,
merchandise in international transit, satellites and the cargo transported in them.
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Foreign insurance companies may establish in Chile branches and obtain the relevant
license from the SVS, subject to compliance with certain conditions.
Insurance companies are subject to debt to equity ratios set by law, as well as to investment
limits per instruments and issuers. The SVS has authorities to regulate these matters in detail.
14.4.2 Reinsurance
Foreign reinsurance companies are authorized to operate in Chile, provided they are
registered in the registry of reinsurers kept by the SVS; are rated at least BB or its equivalent by two
risk rating agencies of international repute; and they appoint an attorney-in-fact in Chile, which
designation shall not be necessary if the reinsurance is hired through one of the reinsurance brokers
registered with the SVS, whom shall be deemed as the reinsurer’s representative.
Foreign reinsurance brokers or intermediaries registered in a special ledger kept by the SVS
may engage also in the intermediation of reinsurance business in Chile.
Reinsurance premiums or contributions payable abroad are subject to a 2 percent
withholding income tax.
The reinsurance business may be carried out in Chile also by:
(a)
insurance companies organized in Chile, subject to the general restriction that they
may reinsure only those types of risks in which they are authorized to insure; and
(b)
corporations organized in Chile for the sole and specific purpose of engaging in the
reinsurance business regarding life or general insurance, or both. Domestic
reinsurance companies must maintain at all times a minimum capital of UF 120,000
(approximately equivalent to USD 4,724,400).
If any individual or legal entity engages in the insurance business or its intermediation in
Chile infringing the above-mentioned rules, such infringement is punishable with imprisonment.
14.5 Pension Funds
14.5.1 Introduction
Chile’s social security system was deeply reformed in 1981. The reformed system is based
on two basic principles:
(a)
individual capitalization by each member of the system; and
(b)
management of the funds by private companies called Pension Fund Managers
(Administradoras de Fondos de Pensiones or “AFPs”), freely selected by each
member.
14.5.2 Members of the system
Each person who becomes an employee (i.e. a person who begins working under
subordination and dependence) becomes automatically a member of the social security system.
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Pursuant to the last amendment of the system, independent workers are also obliged to make
contributions from year 2015 (previously, they had the right to voluntarily become members of the
system). Workers who were members of the system in effect prior to 1981 may voluntarily decide
to become members of the system. An AFP may not reject an application made in compliance with
the law.
14.5.3 Contributions and individual capitalization
Each mandatory member who has not turned 65 years of age in the case of men or 60 years
of age in the case of women has to make mandatory contributions to the AFP selected by him/her,
equivalent to 10 percent of his/her monthly salary or income plus an additional amount determined
by the AFP as a percentage of the monthly salary or income to cover the administrative costs of the
AFP and the insurance premium payable by the AFP to obtain disability and survivorship insurance
for each of its members.
Each member may make additional voluntary contributions if he/she chooses, contributions
which are accorded tax benefits to prompt them.
Mandatory contributions shall be paid within the first ten business days of the month
following the one for which payment is being made. As to employees the mandatory contribution is
withheld and paid by the member’s employer, while independent workers have to make them on
their own.
Upon receiving the funds from each member, the AFP shall deposit the same in the
individual account it has opened for such member with the fund that such member has selected or is
deemed to have selected. These funds are capitalized in such account and earn the yield of the
investments made by such AFP. At the end of the member’s active life, these amounts are paid to
the member or his/her beneficiaries in the form of a pension as explained in Section 14.5.4.6 below.
14.5.4 AFPs
14.5.4.1 Organization
AFPs are corporations which exclusive purpose is to manage pension funds and to grant and
manage the services and benefits stipulated in Decree Law No. 3,500 (the “Pension Funds Act”).
The AFPs collects the social security contributions, deposits them in the personal account of each
member and invests the resources in a wide, but limited, range of investment opportunities in Chile
and abroad in order to be able to provide the corresponding benefits at a later date.
The organization of an AFP, any amendment to its by-laws and its dissolution has to be
approved by the SdP.
The formation of an AFP as well as the acquisition of a material equity stake (i.e. more than
10 percent) requires the authorization from the SdP.
Under article 25 of the Pension Funds Act, it is a criminal offence to act as an AFP without
having been organized as such.
The board of directors of an AFP must be comprised by at least five members, two of whom
must be autonomous (note that requirements for this are different than those applicable for
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independent directors of corporations), i.e. have no link with the AFP, the companies conforming its
business conglomerate, its controller or any of their respective main officers.
14.5.4.2 Minimum Capital, Agencies and Advertisement
The minimum capital required for an AFP commences in UF 5,000 (approximately
equivalent to USD 191,000) and increases gradually with the number of members up to UF 20,000
(approximately equivalent to USD 764,000) for an AFP with 10,000 or more members. If at any
point in time the capital falls below such threshold, the AFP shall increase the capital within six
months, or otherwise the SdP shall revoke its license and the AFP shall be dissolved.
14.5.4.3 Funds
Each AFP manages at least four different funds (called B, C, D and E) and may have a fifth
fund (called A). The main difference between each of these funds is the risk as to which the
investment portfolio of each of these funds is exposed. For instance, while Fund A could have up to
80% of its investment portfolio in equity securities, Fund E may not have any equity securities in its
investment portfolio.
The assets of each of these funds are independent of the AFP’s net worth or of the assets of
the other funds managed by the AFP. In other words, the resources accumulated in each fund are
owned by the members of such fund (i.e. the persons affiliated to the system who have chosen to
allocate their contributions to such fund). Members are free to determine the fund where they prefer
to allocate their contributions (and to change it), subject to certain restrictions. The AFP shall keep
separate accounting for it and each of its funds.
Under the Pension Funds Act each AFP is responsible for ensuring that every month each
of the pension funds administered by it achieves a real annual yield for the past 36 months equal to
or higher than the thresholds established using as a benchmark the average real annual yield of all
the funds of the same type in the system minus certain basis points and/or a percentage of the
absolute value of such average yield. If an AFP fails to meet the minimum yield for any of its funds
it shall supplement the shortfall.
14.5.4.4 Regulation of Investments
Investments of pension funds are heavily regulated in the Pension Funds Act and in rules
and regulations enacted by the SdP and the Central Bank.
There are laws and regulations governing the type of instruments which an AFP may
acquire with each of the funds it manages; requirement that certain instruments be approved by the
Risk Rating Commission (Comisión Clasificadora de Riesgo or “CCR”); the minimum credit rating
of certain instruments; diversification requirements and investment limits per type of instrument and
groups of instruments for each of the funds managed by an AFP; diversification requirements
regarding investments in Chile and abroad, issuers and instruments; and the markets in which those
instruments shall be acquired and other matters relating these investments, both onshore and
offshore.
The law provides for an investment regime (Régimen de Inversión) established and
periodically updated by the SdP with the assistance of the Technical Investment Council (Consejo
Técnico de Inversiones), which, among other things,
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(a)
determines the characteristics, conditions and criteria that certain instruments must
comply with to be acquired by AFPs with the resources of the pension funds;
(b)
establishes and regulates the maximum (and minimum in certain cases) limits of
investments of pension funds, per type of instrument, issuer, risk rating or
otherwise;
(c)
regulates indirect investments of the pension funds;
(d)
establishes investment limits different than those set forth by the Pension Funds Act
for the 12 first months of operation of an AFP; and
(e)
establishes mechanisms and terms to eliminate excesses of investment and cover
investment shortfalls.
14.5.4.5 Fees charged by the AFPs
Each AFPs may freely establish the fees that it shall charge to its members, provided that
such fee shall be uniform for all its members and that certain services cannot be subject to a fee (for
instance, in connection with the individual capitalization account the AFP may only charge for
periodic deposits, but not for transfer of balance to another AFP).
14.5.4.6 Benefits
Members of the system are entitled to the following benefits to the extent that they fulfill
the requirements set forth in the Pension Funds Act and in the applicable rules and regulations:
(a)
retirement pensions for members who fulfill the legal age requirement, i.e. 65 years
of age for men and 60 years of age for women, provided that members are not
required to retire upon reaching the legal age. The Pension Funds Act, however,
allows for early retirement to the extent the member complies with certain
capitalization requirements;
(b)
disability pensions for total or partial disability, which are financed by AFPs
through disability and survivorship insurance;
(c)
survivorship pensions which are awarded to surviving beneficiaries upon the death
of the member (spouse, offspring or parents, depending on the case);
(d)
retirement and disability pensions under a solidarity regime for certain qualifying
individuals who have no right to pensions under other regimes or systems; and
(e)
other minor benefits in case of death.
In the case of members who have opted for the programmed withdrawal or temporary
income with deferred life annuity during the temporary income period, if he/she dies without
leaving beneficiaries for a survivorship pension, the balance remaining in the member’s individual
capitalization account shall go to increase the total estate of the deceased, constituting inheritance.
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14.5.4.7 Bidding Process
The SdP shall make public bids to grant the management of individual capitalization
accounts, every 24 months. The bid shall include the management of accounts of all persons
affiliated to the pension system within the 24 months following the six-month anniversary of the
relevant grant. All existing AFPs, as well as any other national or foreign entities which have a
provisional authorization from the SdP, shall be entitled to participate in each bid.
The bid shall be granted to the entity that offers the lowest commission for the deposit of
contributions. Any offered commission must be lower than the lowest commission currently
available in the market.
All persons assigned to the successful bidder shall remain affiliated therewith for the period
established in the bidding conditions which may not exceed 24 months from their date of affiliation,
except in the event of certain defaults by the AFP.
14.5.4.8 Role of the State
In this system the role of the State is limited to issue the required regulations, ensure
compliance with those regulations and guarantee certain minimum benefits.
The authority of the SdP is extremely broad, and covers basically every aspect of the AFP
and its activities, from authorizing its formation to declaring its liquidation.
The State also,
(a)
finances the pensions under solidarity regime; and
(b)
guarantees certain benefits (i) upon bankruptcy of an AFP or an insurance
company, and (ii) upon an AFP failing to meet the minimum yield required by law
and supplementing the shortfall as outlined above.
14.6 Investment and Mutual Funds
14.6.1 General
Law 20,712 (the Ley Única de Fondos or “LUF”), enacted on January 7, 2014, changed the
entire mutual and investment funds regulations, by unifying the rules applicable to all funds,
previously governed by a number of different laws. This law is also the first legal regulation of
portfolio management business.
The LUF defines a fund as separate estate (patrimonio de afectación) (i.e. not a legal entity)
formed by contributions made by participants and destined exclusively for their investment in the
securities and assets permitted by this law, whose management is responsibility of an administrator
(“Manager”). Such contributions are evidenced in participations or quotas.
Under the LUF, funds can be either redeemable or non-redeemable. The former are those
which allow participants the total and permanent redemption of their quotas, paying the relevant
cash in less than 180 days. All other funds are considered non-redeemable. Redeemable funds that
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pay redemptions up to ten days are called “Mutual Funds”; all other funds are named “Investment
Funds”.
After one year from its creation, a fund must have a minimum net worth of UF 10,000
(approximately equivalent to USD 393,700) and at least 50 participants, unless there is an
institutional investor among them, in which case the second requirement shall not apply. In
addition, no participant may concentrate quotas representing more than 35 percent of the total net
worth of a fund.
14.6.2 Funds Managers
Managers are special purpose corporations authorized, regulated and supervised by the SVS
and responsible for managing the resources of a fund for the account and risk of the participants.
They must:
(a)
be organized as corporations with the exclusive purpose of administering
investment funds, which organization must be authorized by the SVS;
(b)
have a paid-in capital of at least UF 10,000 (approximately equivalent to USD
393,700);
(c)
include in their name the phrase “Administradora General de Fondos”;
(d)
permanently keep at least one fund under their management;
(e)
must keep at all times a guarantee in benefit of the participants of the funds under
their management, for the higher amount between UF 10,000 (approximately
equivalent to USD 393,700) and a percentage of the assets under their management;
and
(f)
are entitled to receive a commission deducted from the fund.
Managers are authorized to act on behalf of the investment fund. Managers, their directors,
officers or other related persons are responsible for acting with the due care in pursuing the
purposes set forth by the internal regulations of the fund, in terms of returns and security of the
investments, and are liable for the damages caused to the funds due to their negligence and/or
willful misconduct.
Managers, their directors, officers or other related person, may not acquire, lease or take in
usufruct, directly or through other individuals or entities, securities or assets owned by, or lend
money to, or grant guaranties in favor of, the funds they manage, nor transfer or lease their own
securities or assets to, or receive loans from, or benefit from guaranties granted in their favor by,
said funds.
Managers may not own more than 5 percent of the quotas of each of the funds they manage,
and in any event shall dispose of them within 90 days from their acquisition.
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14.6.3 Internal Regulations
Each fund is governed by its own internal regulations (“Internal Regulations”), which set
forth the rights, obligations and policies applicable to the Manager, the fund and its participants.
Prior to commercialization of the fund, its Internal Regulations shall be deposited with the SVS,
who holds a Public Registry of Internal Regulations Deposit.
The Internal Regulations shall include, among other things, an investment policy, a liquidity
policy, an indebtedness policy, a diversification policy, a voting policy and an expenses policy.
In addition, in case a Manager administrates more than one fund, then it shall deposit with
the Superintendence a General Funds Regulation, determining the allocation of the management
expenses among the funds, aggregated investment limits, conflicts of interest, benefits for the
participant of the funds who redeems participations for investing them immediately in another fund
managed by the same Manager, and other matters.
14.6.4 Investments
The LUF and its regulations issued by the SVS contain rules regarding the investments that
may be carried out by the Manager with the fund’s resources, including:
(a)
which type of instruments and securities may be acquired by the fund;
(b)
limits and restrictions on those investments,
(c)
markets where the investments can be done, eligible counterparties and custody;
(d)
valuation of those investments; and
(e)
treatment of investment excesses.
The assets and securities acquired by the fund may not be subject to encumbrances or
prohibitions of any kind, except with the purpose of securing the fund’s own obligations or, subject
to approval by the participants meeting, obligations undertaken by companies in which the fund
participates.
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15. Environmental Matters
15.1 Governing rules
The main rules of the Chilean environmental legislation are contained in Article 19 No. 8 of
the Chilean Constitution, which guarantees to all persons the right to live in a pollution-free
environment; the Chilean Environmental Act (the “Environmental Act”), which introduced the
Environmental Impact Assessment System (“EIAS”) for projects or activities capable of causing
environmental impact in any of their phases; Law No. 20,417, which, among other matters, created
the Chilean Environmental Superintendence (the “Environmental Superintendence”); and Law No.
20,600, which creates and regulates the Environmental Courts.
The Environmental Act created the Ministry of the Environment, supreme authority
responsible of cooperating to the President of Chile in the design and implementation of the
environmental policies, plans and programs and responsible of national environmental protection;
and the Environmental Assessment Service (the “SEA”), responsible for the assessment of every
project that, according to the Environmental Act, must be environmentally assessed prior its
execution through the EIAS; with its Executive Director (the “Executive Director”) having
jurisdiction over national and multi- regional projects, and its regional departments; and the
Regional Assessment Commissions (the “Assessment Commissions”) having jurisdiction over
regional projects or activities.
The Environmental Superintendence is responsible for the oversight of environmental
qualification resolutions, quality and emission norms, prevention and decontamination plans,
management plans, and any other environmental instrument established by the law, and, in general,
the fulfillment of the obligations established in the EIAS. As an oversight authority, it is entitled to
inspect facilities and initiate sanctioning proceedings that could result in the imposition of sanctions
that range from fines up to approximately USD 9 million per breach, closure of facilities and
revocation of the environmental qualification resolution.
The Environmental Courts are special courts with jurisdiction over environmental matters.
Its main competences are to rule claims filed against environmental qualification resolutions; to rule
environmental damage claims; and to rule claims filed against the resolutions of the Environmental
Superintendence imposing sanctions. Their decisions on these competences are appealable before
the Supreme Court of Justice.
15.2 Environmental Impact Assessment System
15.2.1 General Considerations
The basic principle of the EIAS is that projects or activities that may have an environmental
impact in any of their phases can only be executed or modified upon assessment of their
environmental impact in accordance with the provisions set forth in the Environmental Act and the
EIAS Regulations.
In general, Article 10 of the Environmental Act provides a list of activities that are subject
to the EIAS. Among others, this list includes energy generating centrals in excess of three
megawatts; ports, sailing ways, shipyards and maritime terminals; industrial or real estate projects
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that are to be located in zones declared as latent or saturated; mining projects under certain
characteristics; oil, gas, mining and other kinds of pipelines; industrial facilities, such as
metallurgical, chemical, textile, producers of building materials, metallic and tanning equipment
and products, of industrial size; production, storage, transportation, disposal or recycling, on a
regular basis, of toxic, explosive, radioactive, flammable, corrosive or reactive substances; and
certain sanitary projects.
Depending on the effects, characteristics or circumstances of the project or activity
concerned, the petitioner shall submit to the authority a Statement of Environmental Impact (a
“Statement”) or a Study of Environmental Impact (a “Study”) regarding the environmental impact
that the relevant project or activity shall have.
If the environmental impact caused by the relevant project or activity does create or present
at least one of the effects, characteristics or circumstances mentioned in Article 11 of the
Environmental Act (i.e.: risk to the population’s health; significant adverse effects on the quantity
and quality of the renewable natural resources, including ground, water and air; resettlement of
human communities; alteration of areas belonging to the cultural patrimony) the petitioner shall
submit a Study. In all other cases, the petitioner shall submit a Statement.
In case of a project or activity amendment, the environmental assessment must be pursued
over such amendment (not over the existing project or activity); however, the environmental
assessment shall consider the combined effects of the amendment and the existing project or
activity.
15.2.2 Procedure
A Study is a detailed, ample and comprehensive report and must contain the information
described in the Environmental Act. The Assessment Commissions or the Executive Director, as the
case may be, have 120 days (which may be extended under qualified circumstances) to issue a
decision regarding the Study.
A Statement is a sworn affidavit whereby the petitioner represents that the proposed project
or activity complies with the applicable environmental laws and regulations, and must contain the
information described in the Environmental Act. The Assessment Commission or the Executive
Director, as the case may be, has 60 days (which may be extended under qualified circumstances) to
issue a decision regarding the Statement.
In both cases, the relevant authority may request additions, rectifications or extensions to
the contents of the Statement or Study, requirements with which the petitioner shall comply within a
term given by the authority. The corresponding authority shall, after due analysis, issue a resolution
approving or rejecting the relevant Statement or Study (the “Environmental Qualification
Resolution”). The Environmental Qualification Resolution may provide, when applicable,
conditions or environmental requirements that must be complied with in order to execute the project
or the activity and those necessary in order to obtain the permits that according to the law have to be
issued by the corresponding governmental entities.
The Environmental Qualification Resolution will expire when a period of more than five
years elapsed prior to beginning the execution of the project or activity.
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The petitioner can appeal the resolution that rejects a Statement or Study or establishes
conditions and requirements to the project or activity before the Executive Director or before a
Committee of Ministers, respectively. The resolution of the Executive Director and of the
Committee of Ministers may be appealed before the Environmental Courts.
Notwithstanding the rejection of a Statement or a Study, the petitioner is entitled to file a
new Statement or Study for the same project or activity.
15.3 Participation of Community
The Environmental Act contemplates the community’s participation in the environmental
impact assessment procedure of a Study or a Statement (as the case may be). In case of a Study, the
community’s participation is contemplated always, allowing any person or legal entity to submit
objections to the same.
In case that a Study has been subject to additions, rectifications or extensions that affect
substantially the environmental impacts of the project, a new community’s participation period will
be opened.
In the case of a Statement, the Environmental Act contemplates the community’s
participation during its environmental assessment, when:
(a)
the Statement refers to projects that generate environmental burdens to communities
around; and
(b)
it is required in written by at least two citizen organizations organized as legal
entities or ten people directly affected.
In case that a Statement has been subject to additions, rectifications or extensions that affect
substantially the environmental impacts of the project, a new community’s participation period will
be opened.
These community objections to a Study or a Statement will be part of the environmental
impact assessment procedure and the relevant authority must duly consider such objections when
explaining the rationale for its decision. If these objections are not properly addressed, claimants
may appeal before the Committee of Ministers or the Executive Director, as the case may be.
During this review process, the effects of the decision being challenged are not suspended.
15.4 Environmental Liability
The Environmental Act punishes negligent and willful actions that cause environmental
damages. In general, indemnification shall only apply in cases when a “cause and effect” relation
between such violation and the damage has been proven. However, the liability of the originator for
the environmental damage is legally presumed when the environmental laws, regulations or norms
have been violated.
If an environmental damage is caused (such damage being defined as “any significant loss,
decrease, detriment or impairment caused to the environment or to one or more of its
components”), an acción ambiental or “environmental action” –the sole purpose of which is to
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obtain the restoration of the damaged environment– may be filed before the Environmental Courts
by:
(a)
the individuals and entities which have suffered the damage;
(b)
by the municipalities, for the situations occurred in their territories; and/or
(c)
by the State. This environmental action is notwithstanding the possibility to file –if
applicable– the damages indemnification action according to general Chilean Civil
Code rules, after the environmental damage has been declared by decision of the
Environmental Courts.
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16. Mining
16.1 Introduction
The Chilean Constitution sets forth the fundamental provisions of State ownership of all
mines. This is also provided in the Chilean Mining Code (the “Mining Code”), where State
ownership is defined as follows: “The State has the absolute, exclusive, inalienable and
imprescriptible ownership of all mines, [...] notwithstanding the ownership by individuals or entities
of the surface land in which they may be situated.”
The Chilean Mining Concessions Act (the “Mining Concessions Act”) adds that “metallic
and non-metallic mineral substances […] are subject to concession, with the exception of liquid or
gaseous hydrocarbons, lithium, and deposits in territorial waters.”
Authors and scholars are basically in agreement that the provisions contained in the
Constitution, in the Mining Concessions Act and in the Mining Code set forth the system which,
while contemplating State ownership (dominium directum) of all mines, establishes the principle
that the purpose of State ownership is principally to assign or grant concessions as original title
(dominium utile) in favor of the discoverer of the mine.
This means that a mining investor is not, technically speaking, the owner of the mine or of
the mineral deposit, but rather is the owner of a concession or right in rem, which enables the
investor to exploit the deposit, to acquire title to the ores which have been mined, and to sell them at
his/her discretion. Therefore, the mining investor is in fact the owner of a non-tangible or
incorporated asset, the mining concession, which exists by virtue of a judicial judgment and which
is treated as the equivalent of immovable property.
16.2 Mining Legislation
16.2.1 Introduction
The Mining Concessions Act provides that any person whatsoever, individuals or
companies, nationals or foreigners, may request and obtain, exploration or exploitation mining
concessions over grantable ores, provided that the legal procedures therefor are duly complied with.
No discrimination is made in this regard between nationals and foreigners.
Pursuant to the Mining Concessions Act, a mining concession represents a real and
immovable right different and independent from ownership of the surface land, even if it belongs to
one and the same owner; enforceable against the State and any other person; transferable and
transmissible; subject to mortgage and other in rem rights and, in general, to any act or contract.
Mining concessions are granted by a judicial decision rendered by a competent court of
justice in the context of a non-litigious proceeding filed with such court, the purpose of which is to
identify, define and create the concession. No administrative agency of the government whatsoever
is directly involved in the procedure whereby a mining concession is created, except for the
National Geological and Mining Bureau (Servicio Nacional de Geología y Minería, or
“SERNAGEOMIN”), which has only a technical advisory role in such procedure.
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The territorial extension of a mining concession consists of a solid shape, the surface of
which is a horizontal parallelogram of right angles, and the depth of which is indefinite within the
vertical planes that bound it. Both the length and width of the parallelogram shall have a NorthSouth orientation based on U.T.M. coordinates.
16.2.2 Mining Concessions
The mining concessions can be either for exploration or exploitation.
Neither the Mining Concessions Act nor the Mining Code defines the mining exploration
and exploitation concessions. Legal scholars have defined exploration concession as a real and
immovable right of limited duration, which grants its holder –in its territorial extension– the
exclusive rights of investigating the existence of grantable mineral substances and of requesting one
or more mining exploitation concessions. The term of an exploration concession is 2 years from the
date of the court’s decision. Such term may be extended for another 2 years, provided that the
exploration concession holder requests the extension thereof and abandons at least half of the total
surface granted.
Legal scholars have defined exploitation concession as a real and immovable right of
indefinite duration, which grants its holder –in its territorial extension– the exclusive rights of
investigating the existence of grantable mineral substances, extracting such grantable mining
substances and becoming the owner of such substances at the time of their extraction. The term of
an exploitation concession is indefinite.
16.2.3. Mining Duties
The holder of a mining concession, whether for exploration or exploitation, must pay
annually, in advance, a royalty in order to maintain the ownership over such concession. Such
royalty is designated as patente minera (the “Mining Duties”).
Whereas for the exploitation concession the amount of the Mining Duties is equivalent to
1/10th of a UTM for each complete hectare; in the case of the exploration concession, the Mining
Duties are 1/50 of a UTM (approximately equivalent to USD 1.38) for each complete hectare.
Exceptionally, exploitation concessions the main economic interest of which is a non-metallic
substance or the metal placers existent therein, or any exploitation concessions over substances
existent in salt mines, are subject to an annual Mining Duty equivalent to 1/30 of a UTM
(approximately equivalent to USD 2.3) for each complete hectare, provided that certain
requirements are met.
16.2.4 Mining Tax
In addition to the Mining Duties the so-called Royalty Act (the “Royalty Act”) establishes a
specific tax on mining activities (the “Mining Tax”), levied on mining companies whose annual
sales are greater than the equivalent value of 12,000 metric tons of fine copper (“MFT”). The value
of MFT shall be determined according to the London Metal Exchange Grade A copper cash
quotation, which shall be published, in domestic currency, within the first 30 days of each year by
the Chilean Copper Commission.
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The Mining Tax shall be levied on the “taxable operational income” of the “mining
exploiters” (whoever extracts and sells mining products which could be subject to mining
concessions), as follows:
Annual Sales of the Mining Exploiters
Rate
1.- Mine operator with annual sales equal to or less than the
equivalent of 12,000 MFT.
Not subject
to the tax
2.- Mine operator with annual sales equal to or less than the
equivalent of 50,000 MFT, and greater than the equivalent of
12,000 MFT.
--
2.1 Regarding that portion between 12,000 and15,000 MFT.
0.5 percent
2.2 Regarding that portion between15,000 and 20,000 MFT.
1.0 percent
2.3 Regarding that portion between 20,000 and 25,000 MFT.
1.5 percent
2.0 percent
2.5 percent
3.0 percent
2.7 Regarding that portion in excess of 40.000 MFT.
4.5 percent
3.- Mine operator with annual sales greater than 50,000 MFT.
--
3.1 Mining operational margin39 equal to or lower than 35.
5.0 percent
3.2 Mining operational margin higher than 35 and lower than
40.
8.0 percent
45.
10.5 percent
50.
13.0 percent
55.
15.5 percent
60.
18.0 percent
65.
21.0 percent
39
Result of multiplying by 100 the quotient from dividing the taxable liquid income by all revenues directly arising from
the sale of mining products.
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Annual Sales of the Mining Exploiters
Rate
70.
24.0 percent
75.
27.5 percent
80.
31.0 percent
85.
34.5 percent
3.12 Mining operational margin higher than 85.
14.0 percent
The “taxable operational income” is defined in the Royalty Act, in general terms, as the
value obtained after deducting from annual sales those costs and expenses associated to sales that
would qualify as deductible costs and expenses under the general rules of the Income Tax Act.
However, certain expenses that are normally accepted as tax expenses are explicitly excluded from
the calculation of the Mining Tax (e.g. interests, accumulated losses, accelerated depreciation
(regular depreciation is admitted, though) and amortization for start-up expenses for a period
exceeding 6 years). In 2010, specific rules for determining the taxable operational income of mining
companies were included in the Income Tax Act, which differ from the general rules of such norm,
particularly in the treatment of interests, depreciation and fees for mining contracts.
The Royalty Act also amended the Chilean Foreign Investment Statute (please also see
Section 2.2 on “Foreign Investment Regulations”). Pursuant to this amendment, in cases of
investments of amounts of no less than USD 50 million, the Mining Tax would be invariable for a
period of 15 years, in terms that foreign investments would be exempt from new mining taxes.
Moreover, for the same period of time the Mining Tax may not be applied in less favorable terms,
as to rate and calculation mechanism. The invariability of the Mining Tax is not compatible with the
invariability currently contained in Decree Law 600, so that foreign investors must select the
invariability regime to which they will be subject.
16.2.5 Mining Easements
The owners of mining concessions are entitled to create rights of way or easements over
surface land and/or over mining concessions owned by third parties, for the purpose of facilitating
mineral exploration and exploitation, provided that a proper compensation is paid. This right
includes easements for mining facilities and plants, tailing deposits, power and communications
facilities, pipelines, roads, etc.
Easements in favor of mining concessions are essentially temporary, may not be utilized in
purposes other than those for which they were created and shall cease when their utilization is
discontinued. Easements may be expanded or restricted according to the development of the work
connected therewith.
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16.2.6 Companies that operate in mineral business activities
In addition to the different types of companies described under Chapter 3 on “Investment
Vehicles” above, the Mining Code provides for the existence of two specific company types
available for the mining industry, the “legal” and the “contractual” mining companies.
The first (the “legal” mining company) is designed to provide less sophisticated mining
businesses with a simple mandatory company structure. By the mere fact that two or more persons
or entities jointly register an interest or claim on a mining field, a separate legal entity is thereby
automatically incorporated. The Mining Code provides for a comprehensive body of rules for its
governance, shareholders’ rights and duties, among others, that are essentially the company’s bylaws.
The second type, the “contractual” mining company (sociedad contractual minera, or
“SCM”), is intended to allow for a more sophisticated corporate structure. The Mining Code states
that venturers willing to perform mining activities (the statutory language specifically describes the
purpose of these companies in terms of “exploration [...] exploitation [...] processing [the mine’s]
minerals” and excludes any mention to mere investments in mining interests) may agree on a
corporate structure based in the fundamental characteristics of the “legal” mining company.
16.2.7 Mining activities in certain restricted areas
As a general principle, any person is entitled to freely prospect (catar) and excavate (cavar)
in open land owned by any person with mining purposes. In all other cases, a written authorization
shall be obtained from the owner, the possessor or the holder of the land concerned, as the case may
be, or from the relevant governor or mayor when the State or a municipality, respectively, is the
owner of the land concerned.
Whenever such authorization to prospect and excavate is denied or the exercise thereof
hindered, an action may be brought in court requesting the competent judge to resolve.
Notwithstanding the above, mining works (labores mineras) in certain restricted areas–
including but not limited to cities or towns, national parks, shores and military premises– can only
be executed upon special authorizations issued by the competent authority.
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17. Energy
Generation, transmission and distribution of electricity are mainly regulated by the General
Law of Electricity Services (the “Electricity Act”).
The Electricity Act promotes and regulates the interconnection of electricity systems and
their efficient operation. Chile has four interconnected systems. The main two are the Sistema
Interconectado del Norte Grande or “SING”, in the northernmost regions providing services
primarily to the mining industry, and the Sistema Interconectado Central or “SIC”, which serves
90% of the population in the north, center and south of Chile. A project to interconnect both in one
single large system is currently under execution.
The operation of each system is determined and coordinated by the relevant economic
dispatch center (“CDEC”) with the objective of satisfying the demand with secure, constant and low
cost energy. The CDEC is comprised by all electricity firms interconnected to each system as well
as the main clients, but its coordination decisions are taken autonomously, applying the Electricity
Act and the governmental regulations. If there is a conflict between a member of the CDEC and its
authorities or between different members of the CDEC among themselves, such conflict is to be
adjudicated by an independent and permanent Expert Panel which decision is final and enforceable.
Generation, transmission and distribution of electricity are subject to different regulations.
Generation is not regarded as a public service and the prices of electricity are freely negotiated by
the parties involved. On the other hand, transportation of electricity through the main trunks and its
distribution is defined as a public service and subject to tariffs fixed by the technical authorities and
reviewable by the Experts Panel.
Generation activities do not require a concession from the government, but companies may
apply for a concession to facilitate access to third-party properties for the development of
hydroelectric or geothermal power plants by means of easements. Once a generator is
interconnected to the CDEC, however, it is not free to decide when to operate its plant. In each
electric system the CDEC minimizes the operating costs by dispatching plants in the order of their
respective variable cost of production, starting with the lowest cost plants, such that electricity is
supplied at the lowest available cost. Power generation companies satisfy their contractual sales
requirements with dispatched electricity, whether produced by them or purchased from other more
efficient generation companies in the spot market at the spot price. The Electricity Act requires that
generation companies which operate in electric systems of more than 200 MW (i.e. SIC and SING)
and which withdraw energy from such systems for sale to distributors or end-users, either regulated
or not, shall guarantee that an amount equal to a percentage of their annual energy withdrawal was
injected to such systems from non-conventional renewable energy (or “NCRE”) sources (either
produced by themselves or purchased from third parties). The percentage of NCRE is 7 percent for
2015 and shall be 20 percent in 2025, although the percentage is different for contracts executed
before July 1, 2013, and does not apply to contracts executed before August 31, 2007. Any
generation company which fails to comply with this obligation shall pay a fine of approx. USD 28
for each MW/hour of deficit, which fine increases to approx. USD 42 for reiterated non-compliance
within a three-year period.
The transmission system is divided into three systems: trunk transmission, sub-transmission
and additional transmission. Each such system has its own regulatory framework in the Electricity
Act. The trunk transmission system is compromised by the transmission lines and electric
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substations which are economically efficient and necessary to supply all the demand of the relevant
electric system. The sub-transmission system is compromised of the installations that are
interconnected to the electricity system and are available only to the supply of end-consumers
(whether regulated or unregulated) located in concession areas of distribution companies. The
additional transmission system is compromised by those facilities dedicated primarily to the supply
of electricity to unregulated customers and those whose main objective is to allow generators to
inject their production into the electricity system. The use of trunk transmission and subtransmission systems is subject to a regime of “open access”, and prices are regulated through
tariffs which are established every four years after a complex process with the participation of the
concerned firms, technical authorities and finally, the Experts Panel. The use of additional
transmission systems is only subject to the “open access” regime if such systems use easements
created pursuant to a transmission concession or national property reserved for the public use
(bienes nacionales de uso público) and the prices are negotiated by the parties.
The distribution system is comprised of lines, substations and equipment that enable the
distribution of electricity to end-users located in a certain limited geographical area. The
distribution is a public service operated by companies that have been awarded with a distribution
concession by the Ministry of Energy. Under the concession, the distribution company will have a
service obligation and regulated tariffs for the supply of regulated customers.
Companies which are concessionaires of a trunk transmission system cannot participate, as
a matter of Chilean law, in the generation or distribution segments.
The electricity consumption in Chile is divided into two main groups: regulated and
unregulated (free) customers. Unregulated customers are those who have a maximum hourly
demand for electricity supply of at least 5,000 kW or those consumers with a demand of at least 500
kW that opt to be subject to an unregulated regime. The tariffs and conditions in contracts with
unregulated customers are negotiated freely between the generator and the customer. All other
consumers are considered to be regulated customers. Distribution companies are subject to a legal
obligation to have enough power purchase contracts with generators to satisfy its current and near
future demand. These contracts are the result of public bidding processes directed by the energy
authorities. The contract is adjudicated to the generator bidding the lowest price.
The Chilean Government recently published an electricity agenda which sets out public
directives (not directly enforceable) regarding the future development of the Chilean electricity
industry. This agenda or program includes relevant changes to the Chilean electricity framework
that may alter the conditions under which we currently develop our business.
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18. Water Law
18.1 Introduction
Water rights are mainly governed by the Chilean Water Code of 1981, as amended (the
“Water Code”).
The Water Code firstly classifies waters in land (aguas terrestres), maritime (aguas
marítimas) and river (aguas fluviales). The provisions of the Water Code do not apply to maritime
waters. Furthermore, land waters are classified in surface waters (aguas superficiales), i.e. such
waters that are naturally within sight of men, and underground waters (aguas subterráneas), i.e.
such waters that are hidden underneath the ground and have not been extracted.
According to the Water Code, land waters are national property reserved for the public use
(bienes nacionales de uso público), i.e. land waters cannot be subject to private property, they are
owned by the Nation as a whole and their use pertains to all its inhabitants.
18.2 Water rights
Notwithstanding the public character of land waters, all persons are entitled to obtain and in
rem right over such waters in compliance with the legal requirements (derecho de aprovechamiento
de aguas, or “water rights”). Water rights are originally granted by means of a Resolution of the
Chilean General Waters Bureau, upon request of the interested party. Water rights do not grant
ownership over the relevant waters, but only the right to use and exploit them. On the other hand,
the holder of a water right is the owner of said right and may use, exploit and dispose of the same
(including, among others, by means of sale, lease, mortgage or contribution to companies) in
accordance with the law.
18.2.1 Classifications
(a)
consumptive: entitle the right-holder to consume the waters without limitations in
any activity;
non-consumptive: entitle the right-holder to use the waters without consuming them
and compel him/her to return the waters in the manner established by the relevant
administrative act that created the right. The extraction and restitution of water must
be carried out in a manner that does not harm the right of third parties granted over
the same waters;
(b)
permanent exercise: water rights that are granted with such title in non-exhausted
sources. This type of right enables the holder to use water in the required amount,
unless the source does not carry enough water to satisfy all granted rights, in which
case the river flow shall be distributed in proportional quotas;
potential exercise: any water right not granted as permanent. It only enables the
holder to use the water in times where the main flow has a surplus, after the
permanent exercise rights have been satisfied. Their exercise is subordinated to the
preferential exercise of the rights of the same kind previously granted;
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(c)
continuous exercise: water rights that allow uninterrupted use of the water during
24 hours per day. Absent any reference in the administrative act that grants the
water right, its exercise shall be deemed to be continuous;
discontinuous exercise: water rights that only allow use of the water during certain
periods;
alternate exercise: water rights in which the use is distributed among two or more
persons in successive turns.
18.2.2 Water tax
Holders of water rights must pay an annual tax proportional to the amount of water not used
from the relevant flows.
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19. Privatization of Infrastructure
19.1 Legal Framework of Public Works Concessions
The most relevant provisions applicable to public works concessions (“Concessions”) are:
(a)
the Decree No. 900 of 1996 (“Concessions Act”) which was enacted by the
Ministry of Public Works (“MOP”) and modified on October 10, 2014;
(b)
the Chilean Public Works Concession Regulation; and
(c)
the Tender Terms for the corresponding project (“Tender Terms”) established by
the MOP.
19.2 Regulatory Authority
Under the Concessions Act and the Concessions Regulation, the MOP is the Chilean
governmental entity responsible for supervising, implementing and awarding the Concessions and
executing the corresponding public works concessions agreements. Whether a project is proposed
by an interested party or prepared by the MOP, the Concessions Act and the Concessions
Regulation require that the award of the Concession be carried out through a transparent tender
process. Thus, the public works concession regime does not contemplate bilateral negotiations
between the State of Chile and private investors without a public bidding process.
Generally, the bidder with an acceptable technical offer and the best economic offer, as
determined by the MOP, shall be awarded the Concession.
The Concession is awarded by means of a Supreme Decree issued by the MOP, which is
also executed by the Ministry of Finance. Once awarded, the successful bidder enters into the
Concession Agreement with the State of Chile, represented by the MOP.
19.3 Amendments to the Concession Agreement
After the execution of the Concession Agreement, the MOP may, in cases of public interest,
modify the characteristics of the works and services included in the Concession. The term “public
interest” is not defined in the Concessions Act or the Concessions Regulation, thereby giving the
MOP considerable latitude for discretion. However, in such cases, the MOP shall indemnify the
Concessionaire of any damage it might suffer due to the modification.
19.4 Force Majeure Risk
Unless otherwise provided in the Bidding Terms, the Concessionaire shall bear the risk of
construction and shall pay all the amounts required to complete the works, including those arising
from force majeure or any other cause.
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19.5 Termination
The Concession shall terminate due to the following circumstances:
(a)
effluxion of the Concession and its later amendments;
(b)
mutual agreement between the Concessionaire and the MOP. However, if the
concessionaire has granted a non-conveyance pledge to secure one of its obligations
with one or more creditors, the MOP will not be able to execute such agreement,
unless the pledge is released or the creditors consent to such agreement; and
(c)
any cause of termination described in the Tender Terms.
In addition, in case of material breach of the concessionaire’s obligations, the MOP is
entitled to publicly tender the relevant concession for its remaining term. In this situation, the
concessionaire’s debts secured with a non-conveyance pledge will be immediately due; thus, the
former secured credits will be paid with the proceedings obtained from the tender with priority to
any other credit against the concessionaire, excepting first class credits according to the Chilean
Civil Code rules (please see Chapter 21 on “Insolvency”).
Additionally, under the circumstances described above the concessionaire either its related
individuals or entities will not be allowed to enter to any public tender or acquire a new Concession
for five years
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20. Telecommunications
20.1 Introduction
Telecommunications are governed by the Chilean General Telecommunications Act (the
“Telecommunications Act”), and various decrees issued by the Chilean Ministry of Transportation
and Telecommunications (the “Ministry of Telecommunications”) and some other governmental
agencies.
Telecommunications are defined as the transmission, broadcast or reception of signs,
signals, data, images, sounds and information of any kind by physical, radioelectric, optical or other
electromagnetic means.
The use and exploitation of the spectrum shall be given by the State through concessions,
permits or licenses, which are usually granted by the Subsecreteriat of Telecommunications
(“Subtel”).
Under the Telecommunications Act, telecommunication services are divided as follows:
(a)
services that require for their installation, operation and exploitation a concession
granted by Subtel (i.e. radio broadcasting and other free reception and transmission
telecommunications services; public services, to satisfy the telecommunications
needs of the population in general; intermediate services, which are; transmission
and switching services offered by third parties to other telecommunication service
provider; and long-distance telephone services to end-users);
(b)
services that require for their installation, operation and exploitation a concession
granted by the National Television Council (broadcast television services);
(c)
services that require for their installation, operation and exploitation a permission
granted by Subtel (i.e. limited services, to satisfy the telecommunications needs of
specific companies, entities and persons; and amateur telecommunications
services); and
(d)
services that require a license granted by Subtel (i.e. limited services using
experimental stations; limited services using stations that operate with local or
community bands).
20.2 Telecommunications Concessions
20.2.1 Key Aspects
(a)
Concessions may only be granted to legal entities organized and domiciled in Chile,
regardless of their capital structure. Hence, foreign companies are eligible via their
Chilean.
(b)
Duration: (i) concessions for public and intermediate services last for 30 years, and
are renewable; and (ii) concessions for radio broadcasting and broadcast television
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services last for 25 years, at the end of which the current holder shall have a
preferential right to opt for its renewal.
(c)
In order to enable the access of all users to all public services, concession holders
must establish and accept interconnection with other concession holders, in
accordance with certain technical requirements set forth by Subtel.
(d)
Subject to certain technical conditions, concession holders for public services or
third parties may provide complementary services through the public network,
without requiring any governmental consent.
20.2.2 Amendments and Transfers
All concessions may be amended except for its essential elements determined by the
Telecommunications Act.
Prior approval of the authority is required for the transfer, assignment, lease or granting a
right of use, under any title, of a concession or permit. The authority cannot deny these acts without
a justified cause. In the case of radio concessions, no authorization is needed before two years
counted from the commencement of the service.
20.2.3 Antitrust Requirements
The Chilean Freedom of Opinion and Information Act provides certain obligations that
must be complied by “social media”. “Social media” are defined as those that by any mean or
instrument are capable of transmitting, broadcasting, disseminating or propagating, in a stable and
periodical manner, texts, sounds or images addressed to the public.
Any change in the ownership or control of social media prior to its execution must be
informed to Fiscalía Nacional Económica (“FNE”) which will submit a report regarding the
operation’s impact in the relevant market. If the FNE identifies any risk it will communicate it to
the Competition Court (for more information on Antitrust Law, please refer to Chapter 11).
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21. Insolvency
21.1 Introduction
On October 10, 2014 came into effect the Entrepreneurship and Liquidation Act
(“Insolvency Act”) replacing the former Bankruptcy Law.
The new law distinguishes two types of proceedings, one of them are only applicable to
insolvent enterprises, while others are only applicable to insolvent individuals.40
For the purpose of this law, insolvent enterprise means any non-profit or profit seeking
private legal entity or individual who is a taxpayer of First Category Tax or the tax applied to
individuals rendering professional services (please refer to Chapter 4 on “Tax Considerations”).
On the other hand, insolvent individual means any individual who does not comply with the
requirements described above.
21.2 Reorganization Proceeding
The purpose of this proceeding is to reorganize and restructure an insolvent enterprise’s
liabilities and assets by means of agreements entered into between the former and its creditors.
21.2.1 Financial and Insolvency Protection
Once the court pronounces the initial reorganization proceeding, the insolvent enterprise
will be under Financial and Insolvency Protection (Protección Financiera Concursal) for the
following thirty days counted from its notice. This term may be extended though, up to 60
additional days.
The Financial and Insolvency Protection Period involves, generally speaking, the following
effects or advantages:
40
(a)
it is forbidden to declare the insolvent enterprise’s liquidation nor to file
liquidation, foreclosure, or restitution proceedings against it. Any of the prior
proceedings will be suspended, as well as, the statute of limitations;
(b)
the term of all contracts entered by the insolvent enterprise shall not be altered,
either its payment conditions. As a consequence, its creditors are not entitled to
terminate any of these agreements, accelerate or enforce any guarantee based on the
commencement of insolvency proceedings;
(c)
if the insolvent enterprise appears in a public registry as a subcontractor or supplier
of a service, it may not be discriminated by the authority with its deletion or
Note that for the purpose of this review, only the proceedings applicable to insolvent enterprises will be outlined.
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forbiddance to participate in public tenders, as long as it has complied so far with its
related obligations;
(d)
the insolvent enterprise management will be under an observer (Veedor)
supervision;
(e)
the insolvent enterprise is unable to create security interests over its assets or to
alienate them, except within its ordinary course of business; and
(f)
in case the insolvent enterprise is a legal entity, it will not be able to amend its
social agreements, articles of association or power regime. Also, the transfer of
shares in order to be registered in the entity’s register will require the observer’s
authorization. This last restriction does not apply in the case the insolvent enterprise
is a public corporation which makes a public offer of its shares.
21.2.2 Reorganization Proposal
In the Reorganization resolution the court will order the insolvent enterprise to publish a
reorganization agreement proposal.
The law does not specify the proposal’s content, instead it provides that the insolvent
enterprise may propose any measure to restructure its liabilities and assets.
Furthermore, the law entitles the insolvent enterprise to propose different agreements to its
secured and non-secured creditors or even propose one or more alternatives to a specific category of
creditors. The only limitation established by the Insolvency Act is that the agreement proposal and
its conditions or modalities must be the same for all creditors of the same category.
However, the Insolvency Act mandates to appoint an observer for at least one year since the
conclusion of the agreement, who will be in charge of supervising its compliance.
The proposal shall be voted in a creditors’ meeting and its approval requires the debtor’s
consent and the favourable vote of the creditors representing 2/3 of the total debt with right to vote
attending the meeting corresponding to the relevant category. Once the agreement has been
approved and not been challenged by one of the due to a cause established by the law (or the
challenges have been dismissed by the court), the debtor and all creditors of the relevant category
(whether they noted or not) will be bound by it, except for secured creditors who did not attend the
meeting.
21.2.3 Enforcement
Any of the creditors affected by the debtor’s lack of performance or conduct that has
aggravated its poor state of business is entitled to file a lawsuit against it. However, the law allows
the debtor to comply in a specific time frame in order to avoid the consequences of lack of
compliance.
If the court declares that there was lack of compliance or that the agreement was void, once
the sentence is final and conclusive it will pronounce a Liquidation Resolution.
117
C L A R O & C I A.
21.2.4 Proposal’s Rejection
If the agreement’s proposal is rejected by the creditors, the court will immediately
pronounce a Liquidation Resolution, unless creditors representing at least 2/3 of the total credits of
the debtor agree in allowing the latter to submit a new proposal.
21.2.5 Out of Court or Simplified Reorganization Agreement
Any insolvent enterprise can enter a simplified reorganization agreement with its creditors
and submit it to the competent court for its approval.
Once the simplified reorganization agreement is submitted to the court, it will pronounce a
Simplified Reorganization Resolution. Its effects are more limited than the Reorganization
Resolution.
Note that the law provides that an observer’s report is required regarding mainly to the
agreement’s compliance probability and how much the insolvent enterprise’s creditors would
receive if it was liquidated instead.
Finally, the Insolvency Act is stricter with the creditor’s support required for its approval,
because it requests the signature of two or more creditors who represent at least three quarters of the
total credits of a category (i.e. not only of those attending the meeting).
21.3 Liquidation Proceedings
The purpose of the Liquidation Proceeding is to liquidate an insolvent enterprise’s assets to
pay its creditors.
The Insolvency Act distinguishes between a voluntary and a compulsory liquidation
proceeding.
On the other hand, mandatory liquidation request must be filed by the enterprise, it can also
be requested by a creditor in certain cases and even declared by the court ex-oficio under certain
circumstances.
If the enterprise’s liquidation is voluntarily requested fulfilling the requirements provided
by the law, the court will proceed to pronounce a Liquidation Resolution which will produce the
same effects described below.
21.3.1 Compulsory Liquidation Proceeding
The Liquidation Resolution produces the following effects, among others:
(a)
management forbiddance: the insolvent enterprise is immediately inhibited to
manage its current assets, instead a liquidator (liquidador) will be in charge of it,
except for the assets acquired by the debtor pursuant to non-gratuitous tittle after
the Liquidation Resolution;
118
C L A R O & C I A.
(b)
determination of creditors’ rights: the Liquidation Resolution irrevocably
determines the rights of all creditors as of date it was issued. This means that the
credits’ quantities or their guarantees or securities may not be modified thereafter;
(c)
maturity and enforceability of all debts: all debts become due and payable for the
sole purpose of enabling the creditors to intervene in the liquidation proceeding and
perceive the dividends up to the current value of their respective credits;
(d)
voluntary set-off prohibition: any set-off of reciprocal obligations between the
insolvent enterprise and the creditors which would not have operated by virtue of
law prior to the Liquidation Resolution is forbidden. Exceptionally it may operate
over related liabilities derived from the same agreement or negotiation41;
(e)
accumulation of trials: all pending civil cases against the insolvent enterprise before
any court shall join to the liquidation proceeding, except for those contemplated by
law (e.g. compulsory arbitral proceedings). After the Liquidation Resolution notice
all civil lawsuits shall be tried with the enterprise’s liquidation;
(f)
extinction of precautionary measures and seizes: all precautionary measures and
seizes ordered prior to the Liquidation Resolution will become immediately void;
and
(g)
suspension of the creditors’ right to foreclose the insolvent enterprise’s assets: since
the Liquidation Resolution is declared the right of all creditors to individually
foreclose the enterprise’s assets is suspended. Despite this, the secured creditors
will –in general– still be able to continue with its individual foreclosure proceeding
or to commence a new one. These creditors may also exercise this right in the
context of the liquidation proceeding. In all cases, the foreclosure proceeding is
only limited to the secured asset and receiving the proceeds of foreclosure is subject
to the requirement of guaranteeing their contribution to the payment of certain
preferred credits in case the other assets are insufficient to cover them.
21.4 Preferential Transfers
The Insolvency Law provides that subject to certain conditions all acts, agreements or
payments that had been entered into or performed within a time frame prior the commencement of a
reorganization or liquidation proceeding and which jeopardize the liquidation estate, may be
challenged with the aim of its unenforceability being declared. The relevant lawsuits may be filed
by any of the creditors or, under certain circumstances, by the liquidator or the observer within one
year counted from the reorganization or liquidation resolution.
Conditions for this challenge action depend on the nature of the acts, agreements or payments which
may be subject to an objective (i.e. without defenses such as good faith and lack of knowledge
being available) or subjective (i.e. admitting such defenses) regime.
41
Note that this category includes derivative transactions entered into under the same master agreement, provided that the
latter is one of the forms recognized by the Central Bank and subject to certain restrictions imposed by the latter to some
institutional investors.
119
C L A R O & C I A.
The following acts are subject to the objective regime, as long as, they were executed
within one year previous to the commencement of the insolvency proceedings:
(a)
all anticipated payments, whichever manner they were executed;
(b)
all payments of a matured debt made in a manner different from the original terms
of the contract;
(c)
all the mortgages, pledges and antichresis created to secure previously existing
obligations; and
(d)
acts and agreements for no consideration42.
Finally, all the amendments to the articles of association of the debtor in liquidation which
have meant a decrease of the debtor’s equity, executed within the six months prior to
commencement an insolvency procedure, are also subject to this regime.
On the other hand, any other acts or contracts that had been entered into, performed or
executed within two years before the reorganization or liquidation proceeding was initiated, may be
declared unenforceable against the debtor’s creditors in case the plaintiff proves the fulfillment of
each and all of the following requirements:
42
(a)
knowledge of the counterparty of the poor state of the debtor’s business; and
(b)
that the act or contract has jeopardized the creditors or altered their equal position in
the insolvency proceedings. The Insolvency Law considers that an act or contract
which was not entered into arm’s length conditions causes damages to the creditors.
Note that in this case the term is extended up to 2 years in case the act or agreement was in favor of a related party.
120
C L A R O & C I A.
22. Enforcement of Foreign Judgments
22.1 Procedure
The recognition and enforcement of a final and conclusive decision rendered by a
competent foreign court or arbitral tribunal is subject to the Chilean Supreme Court’s approval
under the procedure established by law (exequatur). The procedure to obtain such leave
encompasses the following steps:
(a)
filing of a request for the enforcement of the decision before the Supreme Court;
(b)
service of process on the party against whom enforcement is sought. A term of
usually 15 days is granted to such party in order to object the enforcement;
(c)
delivery of the court records to the Fiscal43so that he/she suggests the Supreme
Court on whether granting the enforcement requested is advisable or not based
exclusively in compliance with the requirements outlined below; and
(d)
rendering of a decision by the Supreme Court granting or denying such
enforcement.
22.2 Substantive Requirements
In order to decide whether a foreign court decision may be enforced in Chile, the Supreme
Court shall follow the following criterions:
(a)
apply any existing international convention on enforcement of awards entered into
between Chile and the State where the decision was rendered;
(b)
in absence of a treaty, apply the principle of reciprocity and grant enforcement
unless there is evidence that the relevant State does not enforce decisions issued by
Chilean courts; and
(c)
in the event that neither of the preceding criteria apply, grant enforcement of the
foreign court decision provided that:
(i)
(i)
(ii)
such decision is not contrary to Chilean public policy;
it does not conflict with the jurisdiction of Chilean courts;
the party against whom enforcement is sought has been given due notice of
the claim and adequate opportunities of defense; and
43
An officer of the court in charge of defending the public interest in certain matters who is heard before the Supreme
Court.
121
C L A R O & C I A.
(iii)
the decision is final and binding pursuant to the rules of the State where it
was issued.
With regard to the enforcement of final arbitral awards, please note that Chile is a party to
the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Indeed, Chile ratified the Convention with no reservations. Furthermore, Chile adopted in 2004 the
UNCITRAL Model Law on International Commercial Arbitration.
122

Chile: Guide to Doing Business

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