Chile, a business platform
Chile as business platform programme was created to aware foreign potential investors to clearly realise about the unique advantages that they could take in comparison with other investment destinations. The programme consists in the preparation and supply of the information needed to make comparisons and to size these advantages before a visit to the country. Chile as business platform programme is tailor made under specific request and according to the foreign person or group business interest in a particular field.
Introduction to Chile as business platform (1)
On November 23, 2002 Chile’s government introduced a law to encourage foreign investors to increase the use of the country as a platform for investing in other Latin American and world markets. The law constitutes a powerful tool for economic growth promotion and fostering investment in Chile and other countries by both, local and overseas players.
The legal initiative is part of the Chilean government programme in alliance with the Chilean private sector. This joint agenda includes the ratification of the double-taxation treaties that Chile has already signed with the United Kingdom, Denmark, New Zealand, Poland and, most recently, Croatia. Chile has double-taxation treaties now in force with Argentina, Canada, Mexico, Brazil, Ecuador, Peru, Norway, South Korea and Spain. In line with Chile’s rules-based approach to economic management, the new law offers investors the guarantee of clarity and fairness in the treatment of their investments.
The government, political parties, foreign investors and tax experts co-operated closely in the design of this law, helping to improve the government’s original project. While offering new incentives for the use of Chile as an investment platform, the resulting law does so without endangering its low country-risk level or exposing it to use as a tax haven. Similarly, the law includes safeguards to prevent loss of tax revenue and its use as a tax loophole.
The main provisions of the law can be concise as follows:
A company that is set up exclusively as a platform for investments abroad and in Chile is exempt from Chilean earnings tax on the profits that overseas shareholders derive from its investments outside Chile. These platform companies can be either public or private companies but, in the latter case, must submit to the same regulation as public companies.
Up to 75% of the platform company’s shareholders can be resident in Chile; non-resident shareholders cannot reside in tax havens.
Shareholders in the platform company can contribute capital either in the form of shares or equity in other companies, as well as in foreign currency.
In regards to taxes on local shareholders and on investments in Chile, the platform company is treated as a foreign company. As a result, if it invests in Chilean assets, it must pay tax on profits derived from these investments.
Similarly, the earnings of the platform company that correspond to Chilean shareholders are liable for the same tax – and have the same right to tax credits – as an investment abroad that repatriates profits to Chile.
Platform companies that invest in Chile must distribute earnings in the order in which they were obtained, starting with the oldest. As a result, separate accounting is required for earnings from investments abroad and on assets in Chile.
There are no restrictions on domestic borrowing by a platform company, but its overseas debt cannot exceed the value of the capital contributed by overseas shareholders. In either case, the company must pay the corresponding taxes (stamp tax in the case of Chilean borrowing or a 4% tax on interest payments in the case of overseas debt).
The platform company cannot invest in tax havens. The Chilean Finance Ministry based on a list prepared by the OECD defines tax havens. This restriction does not apply if, once shares have been purchased or an investment has been made, a country is subsequently classed as a tax haven.
Platform companies are not entitled to bank secrecy. Any information that is required must be made available through the Chilean Internal Revenue Service (www.sii.cl ), following procedures established by law and law regulations.
By exempting platform companies from Chilean tax on overseas earnings, the law addresses the problem of three-way taxation and provides foreign investors with an additional incentive for taking advantage of Chile’s economic and institutional stability, its high-standard infrastructure and top-quality human resources. In addition, because a platform company can include Chilean shareholders, it can capitalize on their familiarity with other Latin American countries and their ability to detect regional business opportunities.
Therefore, the new law is expected to foster regional joint ventures between foreign investors and Chilean partners. Moreover, in a bid to facilitate the entry of foreign capital into Chile, the law allows companies that are already established in the region to move their centre of operations to Chile, without incurring the transaction costs involved in selling and re-buying assets.
In preparing this new law, the government took special care to prevent Chile’s use as a tax haven. It is for this reason that platform companies are not allowed to source equity or hold investments in countries that fall into this category. Similarly, in order to ensure transparency and proper use of the new law, platform companies must renounce bank secrecy, while Chile’s Internal Revenue Service has been authorized to provide information about platform companies to its counterparts in the countries in which the companies’ headquarters are located.
Similarly, while encouraging investment in Chile and allowing local residents to participate in platform companies, the new law guards against a loss of revenue from taxes on Chileans and on earnings obtained in Chile.
A platform company, it is assumed, for tax purposes, to be registered abroad, thereby protecting fiscal revenue, without limiting the flexibility that a platform company requires in order to exploit the full potential of local assets and investors. In addition, the government was concerned to prevent an increase in foreign borrowing which, if significant, could damage one of Chile’s most valuable assets – its low country-risk rating. Chile’s sound macroeconomic fundamentals – reflected in its risk rating – increasingly set it apart internationally and the government of Chile is determined not to endanger this key competitive edge for foreign investors.
(1) Extracted from Foreign Investment Committee official publications.