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Chile > Articles

Chile

An Expat Guide To Self-Employment In Chile

Friday October 13, 2017 (08:56:58)

 

Chile has long been considered an attractive destination for foreign investors and expat entrepreneurs, and for good reason. One of the more stable economies in South America, the country is fairly liberal in letting non-nationals set up shop, and has recently made the process of starting a business even simpler.

Chile’s income levels are significantly higher than the average for the rest of the continent. As such, there are strong prospects for service sector and technology-based businesses in particular.

This article will tell you everything you need to know about setting up and running a business in Chile.


Types of Businesses

There are a number of forms a business can take in Chile, and the one you choose will depend on considerations such as how you want to conduct your business, how far you plan to expand, and whether you want to eventually raise capital by issuing shares publicly.

1. Individual limited liability company (EIRL)
An individual limited liability company in Chile can be set up and owned by a single person who is either resident or domiciled in the country (we’ll see exactly this entails when we look at taxes). This makes it an ideal location for small business owners. Companies exist as legal, taxpaying entities in themselves, with assets separate from the owner and/or shareholders. The owner is only held liable for the company’s debts to extent of his or her contributions to its share capital, which means that their personal wealth is not affected.

2. Limited liability company (SRL)
A full-fledged limited liability company needs to have at least two partners or shareholders, who can be individuals or other firms or legal entities. There are no restrictions on the nationality of the shareholders of an SRL or an EIRL, but for an SRL, shareholders don’t need to be residents of Chile either. However, if an SRL does not have a resident director, then the company needs to appoint a lawyer as its legal representative in the country. An SRL can have a maximum of 50 partners, and must have at least one director.

3. Corporation (SA)
A corporation is the most complicated structure, but also offers the most options. It is governed by a board of directors, and has a minimum of two shareholders. The shares of this type of company can be either closely held or publicly traded on Chilean stock exchanges. Both the corporation and the joint stock company (next on the list) are better suited to entrepreneurs who intend to raise funds from the capital markets by selling shares.

4. Company by shares (SpA)
A company by shares, or joint stock company, has the same basic structure and tax status as a corporation, but offers more flexibility. This is a relatively new corporate structure in Chile, and can be set up with just one shareholder. The rules governing the bylaws of a joint stock company are also less strict than those for corporations, and an SpA firm does not need to have a board of directors.

5. General partnership
In the first four business structures, the company’s assets and liabilities are separate from the owner/shareholder’s, and the partners are not held legally liable for the company. However, in a general partnership, two or more partners jointly administer the business and are all held liable, without any limit.

6. Limited liability partnership
This is similar to the general partnership, but the liability of each partner is limited to their contribution to the business’ capital, as is the case with limited liability companies and joint stock companies.

7. Limited partnership
A limited partnership is a middle ground between the last two structures. Most of the partners in a limited partnership with have limited liability; however, at least one partner will be a managing partner or general partner, and this partner (or partners) is liable for the business.


Registering a Business

Previously this process took a month or more, as it does in many other countries. However, since 2013, the Chilean government has made it possible to register a business online, free of charge, and the whole thing will take only about a day or two. However, do note that you will need to spend money on getting your application digitally certified by a notary.

The first step is to draft your firm’s articles of association. This can be done online at this web portal. Following this, your business will be issued an authorization number.

Fill out the registration form online for the type of business you want to start. The registration document has to be digitally signed by each partner, using an advanced electronic signature (FEA). If you do not already have an electronic signature, you can go to registered notaries, who will use their own electronic signature to verify the document.

Your business will then be assigned a taxpayer ID, known as an RUT (Rol Único Tributario).

You will then have to submit a notice of “initiation of activities” to the SII (Servicio de Impuestos Internos), who are the tax authority. This can be done at the SII website.

Previously, your company would need SII-approved receipt and invoice books, printed by an authorized printer. However, Law No. 20.727 (enacted in 2014) set the stage for electronic invoicing. This law mandated that all large businesses switch to e-invoices, meaning that all businesses will have to go electronic by 2018.

If you aren’t using electronic invoices, you will also have to get your books of accounts, invoices and receipts sealed by the SII.

You will also need to obtain a working licence, known as a patente municipal, from the municipality where your business will be located. If your business has offices or establishments across more than one municipality, you will need to apply for licences with the municipal authority in each. This should take just a day.

Finally, you need to register for labour-related insurance, from one of the mutuales de seguridad (accident insurance mutuals). There is one state-run mutuale, called the Instituto de Seguridad Laboral (ISL), and three privately owned ones, Asociación Chilena de Seguridad, Mutual de Seguridad de la Cámara Chilena de Construcción and Instituto de Seguridad del Trabajo.

Once these steps are completed, you have everything you need, legally speaking, to launch your business in Chile.


Taxes in Chile

Income taxes in Chile depend on whether you are a resident or not, and on the source of your income. Individuals who are residents of Chile or are ‘domiciled’ in the country have to pay tax on their worldwide income, not just their Chilean earnings. However, as an expat, you only have to pay income tax on money earned in Chile for the first three years you spend there; after that, the first rule applies to you too.

In order to qualify as a resident of Chile, you need to have spent more than six months over the course of one or two years in the country.

However, you can count as domiciled in the country as soon as you arrive, unless you are on a tourist visa. This is because, under Chilean law, the term domicile implies that a person intends to stay in the country. So, proof of domicile can include buying or renting a house in the country, moving there with your family, or enrolling your children in local schools.

There are four basic categories of income tax:

• First category tax: This tax applies to all business income, and is effectively the corporate income tax in Chile. First category tax is 25% or 25.5%.
• Second category tax: This tax applies to all salaried income or wages earned by an employee. Self-employed individuals do not have to pay second category tax, which varies from 0% to 40%.
• Global complementary tax: This tax is paid by resident/domiciled individuals and applies to both categories of income.
• Additional tax: Similar to the global complementary tax, this applies to both categories of income, but is paid by non-resident individuals or companies.

Businesses can be registered under the Attributed Income System (AIS) or the Partially Integrated System (PIS). Under AIS, a company’s income is attributed to the owners or shareholders as well, and so business owners have to pay the difference between their income tax rate (in this case, global complementary tax or additional tax) as well as the corporate tax rate (first category tax). Under PIS, on the other hand, owners or shareholders are only taxable for the dividends and profits that the company actually pays them.

Taxpayers have to file income tax returns every year (the Chilean fiscal year is the same as the calendar year, January to December).

Apart from income tax, businesses also need to account for Value Added Tax (VAT) of 19%, which is paid on the sale price of goods and services. VAT returns need to be filed monthly. If your business involves imports, bear in mind that all goods brought into Chile are subject to customs duties, which is 6% for most items. The country does, however, have free trade agreements with a number of countries, under which most customs duties are waived.


Running a Business in Chile

The majority of Chileans speak Spanish, and while many people know some English – the government runs programmes to encourage learning the language in schools – it would be a good idea to learn Spanish if you intend to start a business in the country. This is particularly pertinent when it comes to legal matters, since many government offices will operate largely in Spanish.

It’s also advisable to spend some time in Chile, soaking in the culture and the way things work, before deciding on moving there as an entrepreneur. This can help you develop a network of contacts, and possibly find a reliable local partner or two. The advantages this will give you aren’t easily quantifiable, but they can really boost your business’ opportunities.

More useful resources to tap into are the various start-up groups and accelerators in the country, such as Start-up Chile and the Chilean Entrepreneurial Association (ASECH). Groups like these can help you get funding and connect you to mentors and investors, as well as guide you in the initial stages of setting up your business.

Something that may come as a shock in the early stages of your business is the renowned sluggishness of the Chilean bureaucracy. While it’s easy to register a business there, many other legal formalities (such as setting up bank accounts) can take some time. Patience is the key word here.
Furthermore, a good lawyer and a good accountant will be worth their weight in gold. Though the system may seem reasonably straightforward at first glance, you can easily get mired in a maze of regulations and paperwork, especially if you don’t know much Spanish.

Another reason to learn Spanish is that it will be helpful if you intend to apply for permanent residency in Chile. There are a number of advantages to doing this — not least that you can apply for loans. To obtain permanent residency, you need to have spent at least 180 days a year in the country if you entered on a temporary visa (and have held that visa for at least one year), and at least two straight years if you have a work visa. Those who have a student visa can also apply for permanent residency after two years, if they’ve completed their studies.

Ninety days before your existing visa expires, you must submit an application for permanent residency, along with documents including a police certificate on your criminal history, proof of income to show that you can support yourself as a resident, a medical report and a copy of your passport.

Once you obtain permanent residency, it is valid for a period of five years and can be renewed after that. However, if you spend more than a year outside the country, your residency will be cancelled. Additionally, after five years of being a resident, you can apply for Chilean citizenship, or for dual citizenship if you prefer.


Further Reading:

Starting a business in Chile
Registering a company
Types of corporate vehicles in Chile
Income tax
Highlights of Chile's tax system (PDF)
Doing business in Chile (PDF)
Learn about businesses in Chile
Businesses in Chile
Legal considerations
Taxes on corporate income


 

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