Incorporated a Company in Chile – Now what?
Last week we touched on the steps needed to incorporate a company in Chile. See here.
We focused on the actual steps and provided realistic timelines based on 18 years of helping hundreds of foreign companies (from big to small) make the jump into Chile. So as a brief summary, you should have already:
- Registered as a foreign investor and have a tax number
- Incorporated the company
- Have a tax number (RUT) for the company and initiated activities.
- Obtained the company´s business license before the local municipality.
- Opened a bank account
This week we are going to touch on everything you need to think about after you have incorporated the company. Some of these steps will be done concurrently to each or some will be skipped over depending on the circumstances of the company.
Accounting in Chile is a challenge for foreign clients. Your typical accountants in Chile tend to be more like bookkeepers. They will file your taxes and do payroll but do not expect much value add beyond that. If you want more detailed assistance than you will need a ¨Analista Tributario¨ or in English ¨Tax Analyst¨ or a ¨Auditor Internal¨or in English ¨Internal Auditer¨. These last two types of accountants would be more closely aligned with what we know as chartered accountants.
Here a few tips and comments:
- It can be difficult to find accountants who speak English and understand international reporting standards. Take the time to find someone good and make sure to get references. A good accountant will save you a lot of headaches, especially for companies who have limited in-country management teams to monitor the accounting.
- Accounting in Chile is done monthly with an end of year tax declaration. Payroll services will be needed if you have employees.
- Chile uses electronic invoicing. All invoices must be sent through the tax office. There is a basic system offered for free by the tax office or you can pay a small fee to have a more comprehensive program.
- Understand what can be expensed and what you need to prove the expenses. Rejected expenses carry large penalties.
This is a subject that we will devote more blogs to in March. There are a lot of details and tips that companies should take into account.
Most foreign companies will either hire staff locally or they will bring someone from their home country. Regardless, labor laws are extremely pro-worker in Chile so it is important to have a good grasp of local laws.
Here are a few tips and comments:
- In our experience, when assisting foreign clients who are in the process of hiring employees, certain questions and recurring situations seem to arise which often slow the negotiating and signing of the employment contracts. For example, Chileans tend to negotiate their salaries on the net amount and not the gross. Here is a blog that outlines these considerations.
- When drafting work contracts, remember that labor laws are enforced through the labor code so you won’t often see 40-page contracts like in Australia or the United States. Labor contracts tend to be only a few pages. When drafting contracts for foreign companies, we will often look at their standard home country templates, advise them on what can be included (or not included), and then make add the agreed on points to a standard Chilean contract.
- Work contracts by law need to be Spanish but there can be an English version as well.
- Dismissing workers in Chile can be expensive. We always recommend to take extra due diligence when hiring workers to ensure they are the right fit and when someone is not working out, dismiss them. The reason is that severance pay is one month for every year the worker has been with the company and an extra month if you do not give them 30 days notice of their dismissal.
- Companies with more than 10 workers need to have a Reglamento Interno in place. It consists of two different regulatory areas. The first one is what is more commonly known as the Reglamento Interno de Orden, Hygiene, y Seguridad (Internal Regulations on Organization, Health, and Safety), which is defined and regulated by the Chilean Labour Code. The second one is established by the Industrial Accidents and Occupational Hazards in the Workplace law. Every company should have a Reglamento Interno that references this, regardless of how many workers it has. The regular practice is to combine both into one single handbook. Here is a detailed blog.
Again, hiring staff and labor laws is an area that we regularly blog about because it tends to be a sore area for foreign companies operating in Chile.
Most foreign companies expand into international markets so that they can increase revenues and bring profits back to their shareholders. Most companies expect to lose money the first while but it is always important to start thinking about how you will repatriate funds from the very beginning. This will not only protect you from the tax office but it will set you up for success for when the new entity becomes profitable.
- Once a company is legally established and bank accounts are opened, most companies start thinking about bringing money into Chile in order to fund the purchase of equipment, office space, projects, and employees. Most foreign companies will need to put in place Intercompany agreements. Here is a blog.
- Chile follows OECD guidelines regarding transfer pricing (TP). This is particularly important when discussing intercompany agreements. Here is a blog.
- Stamp tax in Chile on foreign loans – Here is a blog
- Tax Planning through Thin Capitalisation Rules – Here is a blog.
Mining engineering, technology, and service companies (METS) need to register to a Mining suppliers’ association. There are 2 associations that a company can register to – REGIC and/or SICEP. The mining companies in Chile use the different systems so depending on the client you are selling to, you may need to register with one or the other. For example, REGIC is used by Codelco and SICEP is used by BHP.
We highly recommend checking out our 2 part blog post that covers typical clauses found in Chilean contracts, Bank guarantees, and an overview of the mining suppliers’ associations in Chile.
- METS Practical Advice: Basics about contracting with Chilean mining companies Part 1
- METS Practical Advice: Basics about contracting with Chilean mining companies Part 2
Harris Gomez Group is a Common Law firm, with offices in Santiago, Bogotá, and Sydney. We also have legal teams in Mexico, Bolivia, Ecuador, Peru, Brazil, and Argentina. Over the last 18 years, we have been supporting foreign companies with their growth in Latin America. Many of our clients are technology companies, service providers and engineering companies that focus on the mining, energy and infrastructure markets.
To better understand how we can support your management team in the Region, please contact Cody Mcfarlane at firstname.lastname@example.org