INVESTMENT LAW & REPATRIATION OF FUNDS:ESSENTIALS TO KNOW
At the Harris Gomez Group, we have the chance to work with companies who are expanding into Chile, who are all at various stages of growth. Usually, a company’s expansion into Chile starts simply enough. The executives make a few trips to visit a trade show or attend a couple of meetings. If their product or service piques enough interest, they may receive a contract and after that generally look to open a small sales office as their next step. As these companies become established it requires an increasing amount of investment into their operations, from establishing a full team to office space and manufacturing facilities.
Most companies understand that there are various ways to transfer money into Chile but often they forget to incorporate these basic investment vehicles into their overall business strategy.
We believe any company who is operating in the region should have a basic understanding of both the Decree Law 600 and Chapter XIV.
DECREE LAW 600
Decree Law 600 ( ̈DL 600 ̈) regulates the entry of foreign capital as investment into Chile. It provides investors with guaranteed certainties, rights and certain tax advantages. Individuals, legal entities or Chileans residing abroad may bring funds into Chile under this regulation. The minimum investment required is USD$5,000,000 for investments in currency, and USD$2,500,000 for other forms of investment (in other words, tangible assets, technology and capitalisation of profits or credits).
Investors using the DL 600 effectively enter into a “contract” with the Chilean Government. This “contract” cannot be amended unilaterally by the Government or by subsequent changes in legislation. Investors may, however, request changes to the contract to increase the amounts invested, change their purpose or bequeath its rights to another foreign investor.
Some benefits include:
There are no limitations on the repatriation of benefits and capital, subject to payment of applicable taxes.
Capital may be repatriated after one year, and benefits may be repatriated as soon as they are generated.
Free access to formal currency exchange markets at the most favorable available rate.
Chapter XIV (of the Central Bank of Chile and its Compendium of Foreign Exchange Regulations) (“ChapterXIV”) is a capital placement mechanism where the Chilean Foreign Investment Statute does not apply. Credit transactions, deposits, investments and capital contributions from abroad, which are regulated under Chapter XIV, are only affected by the restrictions of the international exchange market through which they are made. It sets out the rules governing foreign exchange transactions related to loans, deposits, investments and capital contributions originating abroad, for amounts more than USD$10,0 0 0 or its equivalent in foreign currency. Chapter XIV however does not apply to operations made by banks.
Amongst other things, Chapter XIV provides that in the case of foreign exchange income, whether liquidated or not, or in the case of using it abroad, the relevant rules can be either those (historical) rules applicable and current at the date that the exchange was made, or the rules applicable at the present date. Therefore, if at the time of the repatriation of capital the rules which govern Chapter XIV are more restrictive than those rules applicable at the time of the initial transaction, the investor may choose to use the previous rules and derive the benefits therein.
It is absolutely imperative that if you do business in Chile that you understand this regime, laws and the instruments available. We have seen in too many cases when it comes to repatriated funds/ profits to Australia and/or offshore that these laws have not been considered, causing concern for, inter alia, possible unexpected “triggers” of tax and ancillary implications.
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