Finding a Local Partner
Even though starting a company in Chile is relatively easy and straightforward, it is highly recommended that foreign companies enter the Chilean market by appointing a local agent, distributor, or wholesaler. Commissions normally range from 5-10%, depending on the product. The key to good market presence – in a relatively small market like Chile where relationships are highly important – is finding the right contact with good access to relevant buyers and solid technical expertise. Different institutions, such as the UK’s local Department of International Trade (DIT) team, and the British Chamber of Commerce (Britcham) can assist foreign companies to find the right candidate.
Key points to find the right match
• If possible, arrange meetings at the company’s office, to get a feel for the size and quality of the organisation. If a market visit is impossible, and more recently under COVID constraints, successful meetings have happened virtually.
• Evaluate qualifications, skills, contact network and work experience through supporting documentation where possible and references.
• Check if the agent has representatives or distributors in cities other than Santiago.
• If your products/services are normally contracted or delivered through a bidding process, ensure the candidate has comprehensive knowledge of all tender procedures. To sell to government entities, the supplier must be listed in the bidding platform www.mercadopublico.cl.
• The agent should have adequate knowledge of import/export documentation, transportation, customs, and bank transactions. The ideal situation in Chile is to have a representative, importer and distributor all concentrated in the same organisation. If the selected candidate is a registered importer, request their registration number from the Chilean customs office.
• Request a complete list of the companies the agent represents and ask about the contractual obligations the agent has with these companies to avoid conflicts of interest.
• Consider a representation agreement that contains a time limit and/or initial agency arrangement for a specific trial period only. Local law firms can assist in drawing up a representation document valid under Chilean law. DIT and Britcham can assist in identifying suitable legal contacts.
The franchise model has developed rapidly in Chile throughout the past two decades and today there are over 200 operating franchises in a market worth approximately US$3 billion. 39% of franchises operating in Chile are concentrated in the fast food and restaurant industry.
Chile has no special laws on franchises which are subject to the normal trade laws. The interested party must pay an initial fee to the franchisor to set up and operate the franchise. This gives access to the brands know-how, marketing, and methods of business operation. The franchisee pays a monthly royalty (6%) and a fee (2%) for corporate advertising, calculated as a percentage of sales. The initial payment, royalty and advertising fees are subject to VAT of 19%.
Establishing a Chilean Entity
The most frequently used legal structures used by overseas investors entering Chile are:
- Corporation – known locally as Sociedad Anonima (SA) – is a company formed with capital funding from a minimum of two shareholders. Each shareholder is responsible for only their own respective capital. This main interest in this type of entity is the contribution of capital.
- Stock Company – known as Sociedad por Acciones (SPA) – which is a simpler form of the Corporation and often used by start-ups and smaller companies. A SpA can have a single shareholder for its duration and add other shareholders at any time.
- Limited Liability Partnership (SRL) – which has a minimum of two and a maximum of 50 shareholders. This type of entity is usually used where the identity of the partners and the relation between them is important.
For more detailed information on how to establish different types of entities in Chile, refer to the InvestChile’s Foreign Investment Guide.
In Chile, there are basically two ways to start a company:
- Small businesses can be created quickly in a simple online process that is free of charge. This system can be used to set up Stock Companies, Limited Liability Companies, and a simple form of company used by individuals called an Individual Limited Liability Company (EIRL). For details go to Tu Empresa en un Día: (Your Company in One Day). The only expenses have to do with the use of the Advanced Electronic Signature (FEA). Those who do not have FEA can sign electronically through a notary, which comes to about US$12 per transaction.
- Traditional method: Companies must, in general, be established by public deed. The deed specifies matters such as the type of company, its field of activity, its partners, and their respective capital contribution, how profits will be distributed and how the partners will answer for any losses. An extract of the deed must be published in the Diario Oficial (Official Gazette) and be included on the Public Land Registry (Registro de Comercio del Conservador de Bienes y Raíces) corresponding to the company’s domicile.
Working with an attorney to form a corporation takes about three weeks. The direct costs can run to roughly US$1,700 for legal fees and US$350 for expenses that include notary public, commercial registry, and publication in the official gazette. Chile has no minimum local participation requirement, and the inclusion of local partners is guided only by commercial considerations.
Setting up a local Branch of a Foreign Corporation
Any foreign corporation wishing to set up a branch must appoint a representative to act based on a mandate, contained in a contract that the non-resident principal confers to a Chilean resident individual or entity. In practice, the law firm working with the company usually acts as your representative.
The incorporation documents of the overseas parent company must be translated into Spanish and registered with a Chilean notary. The deed describing the formation of the branch must state a) the capital assigned to the Chilean branch and the way and dates that this capital will be brought into the country; b) that the corporation will have sufficient liquid assets in the country to cover local liabilities; c) the domicile of the main agency or branch in Chile. The deed of incorporation must be published in the Official Gazette (Diario Oficial) and be registered with the Commercial Registry within 60 days.
The basic concept is that the partners in a joint venture contribute to costs in an agreed percentage, distribute the profit in-kind and offset the corresponding share of expenditure against revenue. As there are no legal provisions, these ventures should be regulated by a carefully drafted and enforceable agreement to avoid potential problems between the parties.