New Legal Framework for Foreign Direct Investment in Chile
On 1 January 2016, the new legal framework for foreign direct investment in Chile (the “New Law”) was enacted to replace the Decree Law 600 ( ̈DL 600 ̈) that has been in place since 1974.
DL600 regulated the entry of foreign capital as investments into Chile. It provided investors with guaranteed certainties, rights and certain tax advantages. Individuals, legal entities or Chileans residing abroad could bring funds into Chile under this regulation. It was utilised by a wide range of industries but was mostly prominent in the mining industry.
The New Law will guarantee the full validity of the rights and duties acquired by foreign investors under the previous legal regime. Foreign investors that executed foreign investment agreements with the Republic of Chile under DL 600 before January 1, 2016, will preserve all rights and obligations thereunder.
The New Law introduces a series of modifications:
- First, it includes a definition of direct foreign investment, which involves any transfer of foreign capital or assets into Chile, owned by a foreign investor or controlled by it, in an amount equal to or higher than USD$5,000,000, through the transfer of freely convertible foreign currency, the contribution of physical assets, the reinvestment of earnings, the capitalization of credits, or the transfer of technology that may be capitalized or credits associated with foreign investments from related parties.
- Furthermore, the New Law incorporates new criteria to define direct foreign investment. Under the new criteria, investments of at least USD$5,000,000 which are transferred to Chile by means of the acquisition of or participation in the capital or equity of a Chilean company and which result in the control of at least 10% of the voting shares or rights of said company will be considered direct foreign investment
- The New Law specifically defines foreign investors as any individual or legal entity incorporated abroad, not residing or domiciled in Chile, that transfers capital to Chile under the terms stated above. The foregoing determines who will benefit from and who may join the new investment regime.
The New Law establishes a series of rights for the foreign investor: (i) to remit abroad the transferred capital and the net profits generated by the investment, upon fulfilment of the relevant tax obligations; (ii) access to the formal (banking) exchange market to settle or obtain foreign currency; and (iii) not to be discriminated against when compared to domestic investors. The New Law grants the above rights without requiring authorisation from any foreign investment regulatory entities. Such authorisation previously required the execution of a contract between the Chilean Government, represented by the Foreign Investment Committee (FIC), and the investor. The FIC was responsible for approving the entrance of foreign capital and establishing the terms and conditions of each foreign investment contract.
With the New Law, a company will only need to submit an application and a certificate will be only issued if the USD$5,000,000 investment has been materialized or upon the acquisition of assets or participation in the capital or equity of a Chilean company, which grants the control of at least 10% of the voting shares or rights of such company.
The New Law does not change the rights and obligations contained in Chapter XIV of the Compendium of Foreign Exchange Regulations issued by the Central Bank that apply to loans, investments and capital contributions coming from abroad.
In order to facilitate direct foreign investment, the New Law eliminates: (i) the deadline for the entering of foreign capital into the country and (ii) the requirement to wait one year from the time that the investment enters the country before remitting the capital.
Regarding tax matters, the New Law sets forth a more expeditious procedure to request VAT exemptions in the import of capital goods.
In short, the law has been updated and provides investors with the same guarantees they had before. There was some who worried that changing the DL600 could affect inward investment but based on the final passed bill it seems that it is business as usual.
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