Location: Southern Chile

Business climate in Chile:

From http://www.state.gov/e/eeb/ifd/2008/101854.htm

For the last three decades, Chile has made foreign direct investment (FDI) an essential part of its national development strategy. Chile’s sound, market-oriented policies have created significant opportunities for foreign capital to participate in the country’s steady economic growth. Chile’s business climate is generally straightforward and transparent. Foreign investors receive national treatment in nearly all sectors. There are generally no special exemptions or incentives for FDI, as a matter of policy. A broad political consensus on the advantages of foreign investment means that Chile’s policies towards FDI are unlikely to change.

Chile’s openness and transparency for foreign direct investment is embodied in the country’s 1974 foreign investment statute, known as DL (Decree Law) 600. DL 600 has been the main regulatory norm for foreign direct investment in Chile over the last 30 years. Under DL 600, a foreign investor may sign a contract with the Chilean State. The Foreign Investment Committee (FIC) of the Chilean Government, the entity responsible for administering DL 600, establishes the terms and conditions of the investment. Applications are typically approved within a matter of days and almost always within a month. The authority of the Foreign Investment Committee to reject a foreign investment is severely limited by the Chilean Constitution. The FIC’s decision can be appealed if an investment is rejected.
The contract may not be modified unilaterally by the Chilean State or by the enactment of any legal regulations after it has been signed. Any foreign individual or foreign legal entity, as well as Chilean individuals with residence abroad, can invest in Chile through DL 600.

The contract acknowledges as foreign investment:
• freely convertible currency;
• capital goods;
• technology.

The general regulations, terms, interest and other modalities of foreign credit contracts, as well as surcharges related to total costs to be paid by the debtor, including commissions, taxes and expenses, must also be authorized by the Central Bank of Chile. The investor can, under DL 600, increase the capital of the investment through both the capitalization of credits made under Chapter XIV of Central Bank regulations and the obligations derived from current imports and pending payments. DL 600 allows capital increases through the capitalization of transferable profits.
Foreign investors may request a maximum of three years to implement their investment. Investments of more than USD 50 million for industrial or non-mining extractive projects may request a time limit of up to eight years. In the case of mining projects, the time limit is eight years, but if exploration is required, the FIC can extend it to up to twelve years. In the event that more favorable regulations than those in the contract are subsequently enacted, the investor would have the right to request a relevant amendment.

The contract gives an investor the right:
• to receive non-discriminatory treatment;
•  to participate in any form of investment;
• to hold assets indefinitely;
• to remit or reinvest earnings immediately and to remit capital after one year (or immediately with authorization from the FIC);
• to acquire foreign currency at the inter-bank rate of exchange; and,
• to opt for either national tax treatment, under which local firms are currently taxed at a rate of 35 percent on fully distributed earnings, or for a guaranteed tax rate currently set at 42 percent.
In June 2003, the FIC raised the minimum investment under DL 600 to USD 5 million per investor, and increased it to USD 250,000 in the case of fixed assets, technology, debt capitalization, and profit reinvestments. Capital investments below the new minimum level can still be channeled through Chapter XIV of the Central Bank's Compendium of Foreign Exchange Regulations. Title I, Chapter XIV of the Chilean Central Bank's Compendium of Foreign Exchange Regulations is another mechanism provided for transferring foreign capital into Chile. Chapter XIV establishes regulations applicable to investors that govern foreign exchange operations related to credits, deposits, investments and capital contributions originating abroad. The procedure is applied to operations whenever the amount involved is greater than USD 10,000 or its equivalent in other foreign currencies.
In November 2002, the Chilean Government launched an Investment Platform initiative aimed at attracting international operations headquarters for the Latin American region to Chile. As part of this initiative:
• A company that is set up exclusively as a platform for investments abroad and is located 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 publicly or privately held, but in the latter case must submit to the same regulation as public companies:
• Up to 15 percent of the platform company's shareholders may be resident in Chile; non-resident shareholders may not 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;
• If a platform company invests in Chilean assets, it must pay tax on profits derived from these investments. Similarly, the earnings of the platform company paid 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;
• The platform company may not invest in tax havens;
• Platform companies are not entitled to bank secrecy (as defined under Chilean law).

By exempting platform companies from Chilean tax on overseas earnings, the initiative addresses the problem of three-way taxation and provides foreign investors with additional incentive to invest in Chile. This initiative is meant to foster regional joint ventures between foreign investors and Chilean partners. Also, in order to facilitate the entry of foreign capital into Chile, the initiative allows companies that are already established in the region to move their operation centers to Chile without incurring the transaction costs involved in selling and re-buying assets.
For most of the 1990s, the Chilean economy attracted large inflows of foreign capital, particularly direct investment, especially in the mining sector. According to the United Nations Conference on Trade and Development’s 2006 World Investment Report, the stock of total FDI in Chile reached 64.6 percent of Gross National Product in 2005, up from just 30 percent in 1990. The average world figure for 2005 was 22.7 percent. Chile’s total stock of foreign direct investment between 1974 and 2005 totaled USD 78.1 billion. By 2006, FDI worth USD 63.5 billion had been implemented through DL 600, representing 75.4 percent of total FDI in Chile.

Another USD 17 billion entered through Chapter XIV and USD 3.6 billion through Chapter XIX of Central Bank’s Compendium of Foreign Exchange Regulations, totaling a stock of USD 84.1 billion by 2006. Since 1990, multinational companies have committed more than USD 55 billion to Chile, a significant amount in an economy whose GDP reached USD 146 billion in 2006. Today more than 3,000 companies from 60 countries have operations in Chile. These figures represent the largest stock of FDI per capita and the highest FDI to GDP ratio of the major economies in Latin America.
According to a report by the Government of Chile’s (GOC) Foreign Investment Committee, FDI in Chile totaled $759 million in the first eight months (January – August) of 2007, a 24 percent decrease over the same period of 2006. During the first eight months of 2007, 73 percent of total foreign investment – $552 million – entered via the DL 600 regulatory norm. Investment in the mining sector accounted for 25 percent of DL 600 investment. Financial services accounted for 15 percent, while forestry accounted for 13 percent of total DL 600 investment.

Although Chile clearly encourages foreign investment, some barriers do exist. Foreigners may not invest in Chilean fishing companies or media unless their country has a relevant reciprocity arrangement with Chile. The European Union signed such an agreement in 2002 with regard to commercial fishing companies.
There are no restrictions on foreign investment in telecommunications, but investors must acquire a license, and the number of licenses available is limited in some new sectors of the industry. Certain types of investment projects require additional authorization beyond the FIC. For example, projects in the mining sector require the Chilean Copper Commission’s authorization; for investments in the fishing sector, projects require the approval of the Undersecretariat of Fishing; authorization from the Bank and Financial Institutions Regulatory Agency is required to operate in the banking sector, and the Securities and Exchange Commission for activities in insurance and investment funds. Other authorizations are required from the Pension Funds and Private Health Insurance regulatory agencies to participate in those sectors. For projects with a potential environmental impact, authorization is required from the National Environmental Commission (CONAMA) and/or the Regional Environmental Commission (COREMA).
The United States-Chile Free Trade Agreement (FTA) entered into force on January l, 2004. The chapter on investment is modeled on the standards found in agreements throughout the world such as the investment chapters in Chile’s FTAs with Mexico and Canada, U.S. bilateral investment treaties as well as customary international law. It incorporates innovations and improvements based on the experiences of both countries in implementing investment agreements and responds to new U.S. objectives set forth in the Trade Promotion Act (TPA) of 2002. The main objective of the FTA chapter is to provide stability and security to investors. It provides six basic forms of protection:
• Non-discriminatory treatment, based on national treatment and most-favored-nation treatment, relative party investors;
• Freedom from performance requirements;
• Free transfer of investment funds;
• Expropriation only when done consistent with international law;
• A minimum standard of treatment in customary international law;
• The ability to hire key managerial and technical personnel without regard to nationality.

Conversion and Transfer Policies
In the late 1980s and early 1990s, the GOC imposed strict controls on short-term capital inflows. In May 2000, the one-year withholding period requirement for foreign capital entering Chile under Chapter XIV was eliminated. This type of investment capital may now be repatriated immediately without penalty.
A second major move in 2000 was the virtual removal of the "encaje" or lock-in, which required foreign investors to deposit 30 percent of foreign-sourced loan funds and portfolio investment with the Central Bank in a non-interest-bearing account for up two years. The Central Bank reserves the right to re-impose the "encaje" mechanism in the future.
Additional reforms in 2001 and 2002 eliminated controls on flows of foreign capital into Chilean debt and equity markets and freed outflows associated with capital returns, dividends, and other investments from the need for Central Bank approval. In June 2003, the GOC sent to Congress a package of incentives for the development of local venture capital. This measure has not yet received Congressional approval.
Pursuant to recent changes in regulations governing foreign exchange, investors, importers, and others are guaranteed access to foreign exchange in the official inter-bank currency market without restriction.
The Central Bank reserves the right to deny access to the inter-bank currency market for royalty payments in excess of five percent of sales. The same restriction applies to payments for the use of patents that exceed five percent of sales. In such cases, firms would have access to the informal market. The Chilean tax service reserves the right to prevent royalties of over five percent of sales from being counted as expenses for domestic tax purpose.
Under the Investment Chapter of the U.S.-Chile FTA, each government must allow transfers of covered investment to be made freely and without delay into and out of its territory. These include transfers of profits, royalties, sales proceeds, and other remittances related to the investment. However, for certain types of short-term capital flows, the chapter allows Chile to impose transfer restrictions for 12 months, as long as those restrictions do not substantially impede transfers. If restrictions are found to impede transfers substantially, damages accrue from the date of the initiation of the measure.

Expropriation and Compensation
Chilean law grants the government authority to expropriate property, including property of foreign investors, only for public or national interests, on a non-discriminatory basis and accordance with the due process of law.
The law requires the payment of compensation without delay at fair market value, in addition to any applicable interest. The 1973-1990 military regime and the four subsequent democratically-elected governments have not nationalized any private firm, and nothing suggests that any form of expropriation is likely in the foreseeable future.

Dispute Settlement
Except for U.S. investment covered by Overseas Private Investment Corporation (OPIC) insurance, disputes involving U.S. investors have been typically settled in negotiations between the investor and the concerned government entity. Disputes have been referred to the local judiciary system, although the time required for resolution may make this an unattractive option for foreign investors. Accordingly, litigants often chose to settle out of court. Suit may also be brought under expedited procedures involving the abrogation of constitutional rights.
Chile has signed several bilateral investment protection agreements with other countries allowing for binding international arbitration. The different agreements contain varying procedures; some allow the investor to choose either the host country’s legal system or international arbitration but not both, while others specify that disputes must pass through the host country's legal system before recourse to international arbitration. Chile joined the International Center for Settlement of Investment Disputes (ICSID) in 1991.

Although the U.S. and Chile do not have a bilateral investment treaty (BIT), many issues normally covered in a BIT are addressed in the FTA. Section C of the Investment Chapter provides a mechanism for investors to pursue a claim against a host government that is in breach of the FTA’s investment obligations, an investment agreement, or an investment authorization. Investment authorizations under DL 600 are not subject to this mechanism, and only agreements signed anytime after two years from the treaty’s entry into force may make use of this dispute settlement mechanism. Under this section, the investor pursuing a claim may choose an arbitral forum - including the International Center for Settlement of Investment Disputes (ICSID), the Additional Facility of the Center - under the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules, or any other mutually agreed upon arbitral institution. The rules chosen will govern the proceedings except to the extent modified by the FTA. An investor may initiate a proceeding up to six months after the event which gave rise to the claim, and all claims must be brought within three years of the date when the claimant acquired knowledge of the breach and/or injury.

The chapter on investments encourages consultations or negotiations before recourse to dispute settlement mechanisms. If the parties fail to resolve the matter, a claim for arbitration can be submitted by the investor. Arbitration must be by mutual consent. Provisions in Section C ensure that the proceedings are transparent by requiring that all documents submitted to or issued by the tribunal be available to the public, and by stipulating that proceedings be public. The tribunal must also accept amicus curiae submissions. The section establishes clear and specific terms for making proceedings more efficient and avoiding frivolous claims. Domestic law is to be applied to all contracts. However, arbitral tribunals decide disputes in accordance with FTA obligations and applicable international law.

The judicial system in Chile is generally transparent and independent. The likelihood of government intervention in court cases is low, although in Chile’s highly-centralized presidential system the courts often look to the Presidency for policy direction. If a state-dependent firm is involved in the dispute, the Government of Chile may become directly involved through the State Defense Council (Consejo de Defensa del Estado). In cases where courts determine a firm is bankrupt, a receiver is named to distribute the debtor’s remaining assets to the creditors.

Performance Requirements/Incentives
The Foreign Investment Committee does not apply performance requirements in its review of projects. The investment chapter in the FTA establishes the rules prohibiting performance requirements that apply to all investments, whether by third party or domestic investors.
The chapter also regulates the use of mandatory performance requirements as a condition for receiving incentives and explicitly states relevant exceptions. These include: government procurement, qualifications for export and foreign aid programs, and non-discriminatory health, safety and environmental requirements.

Chile does not subsidize foreign investment nor does it offer any special tax exemptions. There are, however, some regional incentives linked to isolated geographical zones and to the information technology sector. These benefits relate to co-financing of feasibility studies as well as to incentives for the purchase of land in industrial zones, the hiring of local labor and facilitation of project financing. Other important incentives include accelerated depreciation accounting for tax purposes, special tax treatment for retained earnings, and legal guarantees for remitting profits and capital.
Chile’s Development Promotion Agency (CORFO, www.corfo.cl ) has implemented the “Chile Invests” plan aimed at providing support and promoting FDI outside the Metropolitan Region (Santiago) in key sectors. An important objective of the plan is to encourage investments in areas of non-traditional high technology such as biotechnology, research and development of new materials, electronics and engineering processes, and new production techniques to increase the value added to natural resources. The plan also promotes investments in the energy sector mainly for non-conventional renewable energy projects. CORFO provides co-financing programs to pre-investment feasibility studies for projects using renewable non-conventional energy resources.

Chile has the 17th best business environment in the world

 
The ranking published in the newspaper La Tercera shows the country improving by 2014 thanks to its effective policies, labor market and infrastructure.

Chile ranks 17th in the world and first in Latin America on The Economist Intelligence Unit (EIU) index measuring “business environment.”

The country obtained a score of 7.43 out of a maximum of 10 for the five-year period spanning 2005-2009, in a ranking that measures the quality or the attractiveness of the business environment in 82 of the world’s largest economies, the national daily La Tercera reported this Monday, 5 April, 2010

When consulted by journalist Miguel Bermeo, EIU senior analyst for Latin America Robert Wood said that Chile “was a pioneer in consolidating macroeconomic stability and promoting structural changes,” in addition to the fact that “it also enjoys greater political stability and effectiveness and its institutions are solid.”

“Wood explains that, despite the fact that Chile has a small economy, the quality of the business environment and the ease with which people can engage in business, thanks to the reforms that have been implemented, make it deserving of this first place,” added the report in the newspaper headquartered in Santiago.

According to the EIU, Chile’s situation could improve by 2014 and it could rise to 15th place with 7.94 points, as the country “will continue to progress, improving its high global standing, (because) the ranking is based on its long-term commitment to economic freedom, something that will not likely be called into question.”

“Chile obtained a score of 9.6 points on the 2005-2009 and the 2010-2014 rankings in the variable on foreigninvestment policies, while in commercial exchange it scored 9.1 points,” the report added.

“According to the EIU survey published this month, Chile has improved its policy effectiveness, market opportunities, labor market, and infrastructure. Meanwhile, there has been a downward trend in the assessment of areas like political stability (which measures the relationship between government and opposition, among other issues) and commercial exchange. The areas of politics, economic stability, and tax system, among others, show no variation in their scores between the two periods that were analyzed,” La Tercera concluded.

From http://www.thisischile.cl/

You may wonder why we are leaving such beautifil place and a prosperous business.

I am from California and retired as captain of the schooner Victory after having sailed for over 50 years.