How to best fund a Subsidiary Company in Chile

Key things to consider: 

• There is no need to transfer the initially stated social capital.

• There is no need to register the Company in any “Public Investor Registry.”

There are essentially (3) basic ways to fund a Subsidiary Company in Chile:

#1 Loan Agreement

#2 Cost-Plus Service Structure

#3 Capital Increases

---

#1: Loan Agreement

Recommended for those cases where the local subsidiary company will generate and declare revenue and profits in the country. In other words, a loan agreement is a great way to finance capex in Chile if the subsidiary's business model foresees local sales and payments for services and/or goods.

Key things to consider:

1. Stamp Duty: Applies to all loans at a 0.066% monthly rate, assessed on the total amount for each month or fraction thereof between the issuance and expiration of the loan agreement, with a maximum cap of 0.8%.

2. Withholding taxes: Applicable when paying back overseas interest and capital. The existence, interpretation, and specific applicability of Double Taxation Treaties need to be analyzed.

3. The loan agreement does not require many formalities: it can be drafted and signed in English without involving a Notary Public or apostilles.

#2: Cost Plus Invoicing and Service Agreement

Recommended for business models in which local companies will not generate revenue and profits in the country. In other words, it is used when a local Chilean company will not issue local invoices or when its employees provide services to foreign taxpayers. (Either the Parent Company or foreign clients)

Key things to consider:

1. An Intercompany Service Agreement needs to be signed between the Chilean Company and its foreign Parent company. (English is OK, however it is recommended to have it translated into Spanish in case of audits by local Tax Authorities)

   
   

2. The Chilean entity will issue “Cost-Plus Invoices” to:

   
   

   1. Cover all monthly operational expenses

   2. Declare to local Tax Authorities a small profit margin of around 3-5%

      
      

3. The local entity should file and obtain the authorization to issue exportation exempt invoices, allowing its Parent Company to avoid overpaying /losing VAT (19%)

   
   

#3: Capital Increases

Done either by issuing new shares or increasing the value of the existing ones.

Important to note that it implies Notary expenditures and some expenses – such as the biannual commercial license - are directly proportional to the company capital.