Whenever a foreign company want to incorporate a business entity in Chile, for tax purposes, it must first designate a Chilean resident as its representative in Chile and grant a special power of attorney to such person or entity; in your case, your legal representative is Andrea Dawson.
In regard to the partners or shareholders of the company, there are no nationality requirements.
The articles of incorporation for the aforementioned entities take the form of notarized public deeds (escrituras públicas). The articles of incorporation must contain references such as the company’s name and domicile; specific purpose; names, domicile and professions of initial shareholders or partners; duration; initial capital structure; administration and oversight mechanisms; profit distribution; dispute resolution mechanisms; and names of the directors (in the case of corporations).
An excerpt of the incorporation deed, with basic information such as the company’s name, domicile, management structure, initial capitalization, and shareholders or partners names, must be published in the Chilean Official Gazette (Diario Oficial). A copy of this excerpt is then registered in the Registry of Commerce (Registro de Comercio) that pertains to the company’s domicile.
After the incorporation, the law also requires that the business entity (there are some exceptions) must pay, twice a year, a municipal or county business license. The yearly price of this license goes from 0.025% to 0.05% of its capital. Every Municipality (Local Government) establishes its own price within this range. In this sense, it is recommended that the capital of the entity should be kept at the lowest amount possible in order to reduce the amount of the business license.
The transfer of foreign capital into Chile must be done using one of several legal statutes. The statute most frequently used is:
– Title I, Chapter XIV of the Chilean Central Bank’s Compendium of Foreign Exchange Regulations.
• These regulations are applied to investors who make foreign exchange operations related to credits, deposits, investments and capital contributions coming from abroad. The procedure is applied to the operations whenever the amount is greater than USD10, 000 or their equivalent in other foreign currencies.
• Foreign currencies must be brought into the country through the Formal Exchange Market (FEM), composed of banks and authorized exchange houses. The foreign investor must inform the Chilean Central Bank of the investment, through a commercial bank or the intervening financial institution, according to the terms and conditions contained in the Chapter XIV regulations
As to comply with the current regulation, any entity that carries out activities in Chile must meet the following monthly obligations (among others):
• Monthly preparation and calculation of official payroll receipts, commissions and/or bonus slips for your employees, in accordance with the Chilean Labour regulations
• Monthly accounting: sales and purchase journals, payroll entry and professional fees retention among others. In your case would applied the payroll records.
• Preparation of the monthly payroll legal book in order to be included into the accounting and preparation of monthly tax declaration (F. 29).
• Monthly payroll will generate an account to payable to the employees (registered in your monthly accounting)
• Monthly preparation of a Balance Sheet according to the Local GAAP.
• It is common in Chile that Large Enterprises requires the confirmation of the employees’ social security payment as a condition to pay their supplier’s invoices.
• Withholding tax for payments of professional services contracted abroad. This fee will be subjected to current Treaties to Avoid Double Taxation.
According to the previously expressed and considering that you will not have income in Chile, you must see how you will pay all your monthly costs and expenses.
You have the following options:
Loan: The lender shall pay on demand all costs and expenses incurred by the borrower in connection with payroll‘s expenses, accounting services, legal services among others.
Issuance of documents containing credit obligations are subject to Stamp Tax at a 0, 066% per month or fraction thereof, between disbursement and maturity, with a maximum of 0.8%. The rate will be of 0.332% on documented credit operations payable when no fixed maturity is established.
This tax affects all credit operations as loans with third parties related or not. It is applied on the capital amount which is written at the loan agreement for once and has a maximum annual rate of 0.8%: (0.8/12: 0.0667% per month). For example, if your agreement is for 4 months: 0.0667*4: 0.2667%: rate to apply to your amount of loan once.
As general rule, interest on loans coming from abroad is subjected to a withholding tax of 35% (loan from related parties) if there is a Treaty to Avoid Double Taxation, the withholding tax can be 15%. However, the tax decreases to 4% when the loans have been granted from a foreign or international bank located abroad or financial institution, as well as by certain foreign pension funds and insurance companies. (This will only applies for interests’ payment).
The payment of capital, loan’s interest and other obligations related to the loan, must be informed through a commercial bank.
Monthly Bill: If a Chilean company provide services to its headquarter, Chile should generate a profit margin according to the new regulations on transfer pricing, particularly the risk of severe penalties, even in the case of unintentional deviations from the principle of independent parties (arm’s length principle). For these purposes, both Companies should make an agreement and Chile should monthly invoice to its headquarter for the concept of expenses reimburse plus a markup (usually is 4% or 6% but this this depend on you )
In order to avoid possible contingencies with the IRS, I suggest making a mix between loan and monthly invoice.
Capital Contribution: In order to comply with the business license payment you must have an initial capital. You can also add more capital contributions every now and then.