Advisory Insights
Accelerate Your Chilean Market Entry: Shelf Companies vs. EOR—The Clear Advantage
By Allan Schulder · · 4 min read
Consider a hypothetical medium-sized Swedish company eager to commence operations in Chile because of a significant business opportunity that cannot be missed. The company has no presence in Chile, so it must act quickly and strategically.
Why a traditional formation is not an option
A traditional company formation process with a Big 4 firm, a Tier 2 consultancy, or a local law firm is not viable here: it would take at least 1.5 months, at best, to establish the company and open a bank account. Our Swedish colleagues are therefore left with two primary fast-track options:
The Employer on Record (EOR) model.
Acquiring a shelf company.
Option 1: The Employer on Record (EOR) model
The EOR option involves engaging a local Chile-based company (the EOR provider) which, typically for a substantial monthly fee, onboards the Swedish company's new hires. On paper, and for all legal purposes, these employees are bound to the EOR provider, not to the Swedish company. The key selling point is clear: there is no need to invest time and money in establishing a local entity, as the international company can begin operations through its newly hired local “employees” from day two or three.
Additionally, the client does not need to worry about labor compliance or payroll, as the EOR provider usually manages these aspects for a comparatively lower fee.
The drawbacks of EOR
The drawbacks are many, and they include:
Few providers: there are few EOR providers in Chile because this model is not expressly recognized or regulated by local laws.
Significant risk for the provider: there are especially few EOR providers due to the significant financial and legal risks involved. Even with thorough screening processes and safety guarantees, the legal exposure for EOR providers remains considerable. Moreover, EOR is often more appealing to small and medium-sized companies that may lack the resources or long-term planning needed for strategic market entry. The financial stability of these companies often depends on market demand, making the EOR provider's position precarious, as it is responsible for paying local salaries and employment taxes for the client’s employees. Hiring in Chile is expensive, costing approximately 25–26% on top of each salary.
Cost: EOR services are expensive. The few providers available typically charge around 15–20% of each employee’s gross salary, primarily to offset the substantial risks involved.
Bureaucracy: the EOR model can hinder operations and increase bureaucracy, often resulting in redundant communications and confusion among employees.
Company culture: it can also negatively impact business and office culture, as EOR employees may struggle to feel a sense of belonging. Remote work, combined with third-party management of various job aspects, can lead to significant turnover, which inevitably affects overall company performance.
No access to public tenders: our Swedish colleagues would be unable to participate in local government tenders, as these are typically reserved for Chilean-based companies.
No formal local presence: even more critically, local private companies often require a formal local presence for legal, business, tax, or compliance reasons. This is a major limitation of the EOR model, which is more suitable for international clients seeking to establish a hub for employees working remotely for headquarters or international clients, rather than directly engaging with local public or private entities. While this approach may leverage higher education and English proficiency compared to other South American labor markets, it also comes with the drawback of higher salary costs.
Option 2: Acquiring a shelf company
Acquiring a shelf company addresses many of the challenges above but does not fully resolve the most critical one: time. While it may shorten setup timelines, the savings are typically limited, as opening a bank account can still take several weeks to a month. In our Swedish example, this delay is problematic because they would be unable to pay local employees or taxes. Legally, they may be ready to operate, but operationally, they cannot proceed until the bank accounts are active and the necessary banking credentials are in place.
The third option: shelf companies with an active bank account
At South Gate Advisory, we offer a third option: shelf companies with active bank accounts in the international division of a reputable bank. By purchasing this product, the Swedish company can, in just two weeks:
Enter into any type of commercial agreement with local vendors or suppliers.
Enter into contracts with public entities.
Make payments to local and foreign vendors.
Recruit and hire local employees.
Process salary payments for local employees.
Remit statutory deductions for local employees.
File and pay local tax obligations.
Contact South Gate Advisory to check availability and pricing, and begin operations in Chile in just two weeks.
