Chile has rightly gained a reputation for being one of the most business-friendly countries in the world. Its stable political climate, its strong and consistent rule of law, and its fundamental openness to foreign investment have attracted entrepreneurs and businessmen.
From a legal perspective, Chile’s constitution is welcoming to foreign individuals and businesses, with rules and regulations that allow people to do business legitimately within its borders regardless of their nationality.
Consequently, whether you wish to open a branch of a foreign company, incorporate a subsidiary, or launch a new venture as a partnership, corporation, or limited liability company, it is essentially a question of understanding the laws and completing the right procedures correctly.
The only catch is that those laws and procedures can be complex and – particularly to the unprepared – confusing, and many a foreign business has lost significant money, time, or worse, simply for failure to comply correctly and understand some basic rules of the game.
The purpose of this guide is to help you avoid those pitfalls and understand everything necessary to start and incorporate a business in Chile.
The other books in the LegalFácil series will, of course, help you with other aspects of running your business. This one aims to help you get started. After reading it, you should know exactly what kind of business is best for you to set up and what exactly you need to do (and not do!) to get it off the ground.
In the chapters that follow, we’ll cover:
- Small partnerships and sole proprietorships: how to get your small business off the ground;
- Branches of foreign companies: how to determine whether a branch is best for your company, and if it is, how to register one;
- Incorporating as a sociedad anonima (SA), sociedad de responsibilidad limitada (SRL), or sociedad por acciones (SPA), and the differences between the three;
- Importing and Exporting: important considerations for businesses that rely on foreign products and markets.
Lawyers, Accountants & Notaries
Starting, running, and incorporating a business is relatively complex, and our mission at LegalFácil is to help you understand the law and complete the necessary procedures without having to pay expensive fees. Nevertheless, we believe that hiring professional help, if it’s within your budget, is a good idea in some situations.
Hiring a lawyer may not be entirely necessary for getting a sole proprietorship or partnership up and running. For companies that plan to incorporate as an SA, SRL, or SpA, however, it is highly recommendable that you hire a lawyer; it is well worth the extra cost to avoid mistakes and misunderstandings down the road.
Also, as we’ll see in the chapters that follow, starting and running any kind of business Chile requires a fair amount of notarized paperwork. For that reason, LegalFácil recommends that you make your local notary, or escribano, your best friend right away.
Power of Attorney
While only an escribano can notarize your paperwork, a lawyer or accountant can help you with other essential aspects of registering your business. If you provide any of these professionals with the necessary information and documents pertaining to you and your business, and grant them power of attorney, they can even do the entire registration process for you.
In order to incorporate your business or register a branch in Chile, you must register with the Registro Público de Comercio (Public Commerce Registry) within the Ministerio de Justicia (Ministry of Justice). The Ministry of Justice will oversee the legal incorporation and other corporate aspects of the business.
Public companies must also register with (and will be regulated by) the Superintendencia de Valores y Seguros, Chile’s equivalent of the U.S. Securities and Exchange Commission (SEC).
Companies and individuals must obtain their R.U.T. (tax identity number) from, and file tax returns to, the Servicio de Impuestos Internos (Internal Revenues Service, or SII).
The main law regulating sociedades anónimas (SAs) is Ley 18046; for sociedades de responsabilidad limitada (SRLs), it’s Ley 3918.
Sociedades por acciones (SPAs), as well as some of the company types that we do not discuss in this book, are regulated by the Codigo de Comercio (Commerical Code).
For foreign investors, there is a very important law, referred to as DL 600, which essentially establishes a contract between long-term investors and the Chilean government insuring that any investment will not be subject to tax regime changes and can be withdrawn intact at any time.
Commercial vs. Civil
Legally, there is an essential divide between commercial and civil corporations in Chile. The civil and the commercial spheres have been treated separately here historically, and they continue to be governed by distinct legal codes. Civil corporations include professional organizations and guilds (such as for lawyers, engineers, architects), associations, non-profit organizations, and foundations. This book is concerned with commercial organizations, as they are the most relevant to the majority of foreign businessmen and entrepreneurs who want to do business in Chile.
Types of Business Entity
There are several main business types in Chile. A chapter of the book is devoted to each important kind.
- Simple partnerships and sole-proprietorships: Natural individuals can start doing business with nothing more than a R.U.T. (tax identification number) obtained from the SII, without registering or incorporating with the Commercial Registry. Such an individual is termed an empresario individual (individual businessman).
- Sucursal (branch): Though this option is viable for foreign companies and has the advantage of being generally cheaper (in terms of expenses and taxes) than incorporating a subsidiary, it presents significant problems in terms of legal liability.
Opening a branch in Chile should be evaluated carefully, since it is generally only convenient for very short-term projects (of only a few months) and/or if you and your accountant determine that it is economically advantageous when weighed against legal liability risk. For long-term ventures, companies generally find that it is better to incorporate instead.
- Empresario unipersonal, basically a sole-proprietorship. It is non-incorporated but registered with the SII.
- Sociedad de responsabilidad limitada (SRL), basically equivalent to the limited liability company in the U.S. and other countries. It is more expensive to incorporate an SRL than it is to run a simple partnership or sole proprietorship or register a branch, but it is much preferred in terms of liability and general operations within Chile. It’s most common for new startups to incorporate as SRLs.
- Sociedad anónima (SA), equivalent to the corporation in the U.S. and other countries. It is very common for large companies and/or companies that intend to raise significant amounts of capital to incorporate as SAs, and it is mandatory for corporations offering publicly traded shares to do so.
- Sociedad por Acciones (SpA): Unlike the SA or the SRL, the SpA can have one one shareholder, and it is the most common form for individuals to incorporate and the best form for sole-proprietors who want to raise capital, avoid paying high personal taxes on profits, and protect their personal liability.
- Empresa Individual de Responsibilidad Limitada (EIRL): The other form for sole-proprietors to incorporate is as an EIRL. Though the EIRL is common, we do not cover it in this book, as we believe the SpA is the better option, primarily because the SpA is more flexible (allowing additional shareholders to join the company, for instance). Be warned, however, that the legislation allowing for the SpA in Chile is newer, and there are some lawyers who have little or no experience dealing with them.
There are some other types of companies that we do not treat in this book, such as the sociedad colectiva, sociedad en comandita por acciones, and sociedad en comandita simple.
You may encounter those names, but in our opinion, they’re not worth your consideration, as they require the same or more paperwork-heavy procedures as SAs and SRLs without providing any particular benefits to the foreign businessman. Locals and foreigners rarely choose these types of corporation.
What’s Right for You?
Choosing the right form for your business depends on the unique details of your situation; it is impossible to say, “If you do X, and are Y size, you should incorporate as an SRL.”
Nevertheless, we can say that businesses should incorporate when
- The activity involves some level of risk
- The company needs to raise capital
- The owner(s) is/are paying more than 20% personal income tax on their business-related income
Restaurants, Hotels & Tourism Companies
Many foreign entrepreneurs coming to Chile will want to build companies in its burgeoning tourism and hospitality sectors. Hotel owners do not need any special license to operate, unless there is a kitchen in the hotel that serves meals to guests, in which case authorization is needed from the local municipality and health authority. Restaurants need the same license, as well as a patente de alcoholes if they serve wine, beer, or liquor. Tour companies do not need any licenses to operate (except on Easter Island).
The Right Time and Place
Fundamental to LegalFacil’s philosophy is that every individual and business should create and maintain as much legitimacy and legality as possible when starting and running a business in Chile. It is generally better to be incorporated than not, and it is always important to pay the necessary taxes.
Nevertheless, as the incorporating process and the maintenance of an SRL, SA, and/or SAP are relatively laborious and expensive, we recommend that you avoid incorporating until your business has the success (preferably in the form of cash flow) to justify it.
If you are already incorporated in your home country, and your operations are mobile (if you’re in e-business, for example), you may consider carrying out certain operations via that entity.
A Note on Taxes
It is extremely important that businesses pay taxes that they owe to the Chilean tax authority, the SII; failure to do so is illegal, can be costly, and will increase the risk that you’ll fall afoul of the government – not a destiny we’d wish on anyone. Therefore, please see The LegalFacil Guide to Tax Law in Chile for essential information and advice regarding taxes on you and your company.
Preparing Your Paperwork Early and Correctly: Some Key Points
Whether you are registering a branch, incorporating your company, or doing any bureaucratic procedure in Chile that requires documents from abroad, you must legalize all of your non-Chilean documents at a Chilean consulate in the country where the documents originated. (Though there is new legislation before the Chilean senate, currently Chile does not accept or grant Apostille certifications.)
In addition, all documents that are not originally in Spanish must be translated into Spanish by an official translator (traductor) in Chile.
Finally, if you have not yet arrived in Chile, do your best to obtain and prepare all of your non-Chilean documentation before you travel. It will be much more difficult to obtain and prepare them from abroad. And before bringing any documents into the country, we recommend that you scan them and send a digital copy to your local lawyers and/or accountant and/or notary, so they can confirm that each document has the stamps and certifications required to be valid before the Chilean authorities.
A Note on the New Law Meant to Expedite Incorporation
In early 2013, the Chilean business and entrepreneurial community celebrated the passage of a new law intended to allow businesses to incorporate in a single day, online, without the intervention of lawyers or notaries. As of this writing, in April 2013, the law has not been finalized, let alone put into successful practice, so it is impossible for us to comment on its consequences.
Nevertheless, we can give one warning and make one recommendation.
Exciting as the law seems, it is important to maintain a healthy skepticism. There is a big difference between passing a law and putting it into practice, especially when it involves a substantial technological feat. There may well come the day when business can incorporate online, easily, in a matter of hours, but we have by no means reached it yet.
If and when the new procedure does become a reality, we still recommend that businesses with the budget hire lawyers to help them incorporate “the oldfashioned way.” The reason is simple: mistakes can be made; in fact, it is very common for mistakes to be made; and it is much better to avoid mistakes in the first place than to spend the time and money fixing them after the fact. Bear in mind, too, that the current incorporating procedure takes about 10 days, and for most businesses, the difference between 10 days and one, especially if it means avoiding crucial mistakes, is not that great.
In our view, the new procedure is most relevant to small startups with limited budgets.