Non-compliance with Investment Regulations
Offering economic and political stability alongside strong global trade connections, international investors in Chile can now benefit from high returns and long-term growth. However, navigating the country’s regulatory framework can be challenging and overlooking legal requirements can lead to financial penalties or business closure. It is essential for foreign investors to be aware of key legal risks to ensure compliance and keep their investments safe. This article outlines the five key legal pitfalls that foreign investors should avoid upon entering the Chilean market to assure regulatory compliance.
1. Problems When Hiring Employees in Chile
The Chilean Labor Code outlines that at least 85% of a company’s workforce must be Chilean citizens. This applies to companies with 25 or more employees and is intended to protect local workers by ensuring that the majority of job opportunities remain open to Chilean nationals in an attempt to promote employment stability and economic growth within the country. It is also designed to prevent an overreliance on foreign labor yet still permitting businesses to benefit from international expertise.
This 85% threshold is calculated based on the total number of employees that are under contract. However, there are exemptions to this rule which state that companies which require specific skills or expertise not readily available in the country can hire foreign professionals beyond the limit, as long as they can justify the necessity of doing so. Business areas such as mining and technology which often require niche expertise are permitted to apply for exemptions when hiring foreign specialists.
The law also does not discriminate against long-term foreign workers. For example, an employee who has resided in Chile for more than five years, whether this be continuously or intermittently, is considered equivalent to a Chilean resident under this regulation. As a result, long-term foreign residents are able to integrate into the workforce. This is particularly valuable since it allows companies to benefit from the expertise of international workers without affecting the company’s compliance with the labor law.
This law is not intended to deter foreign investment or limit economic growth. Instead, it looks to strike a balance between maintaining job opportunities for Chileans and recognising the positive contribution of international talent. Therefore, the law allows businesses to address skill shortages whilst remaining competitive in the global market.
It is important to note that employment contracts in Chile must be drafted in Spanish and specify the essential terms of employment including the duration, the tasks they will perform and the working conditions. Benefits, such as health insurance, vacation and leave entitlements, should also be clearly outlined.
Labor unions play a pivotal role in Chile, exerting significant influence over labor relations and workplace conditions. Businesses must comply with collective bargaining agreements (CBAs), legally binding agreements which establish terms of employment such as wages and working hours. These are negotiated between unions and employers, making compliance essential to avoid conflicts and maintain a productive work environment.
2. Tax and Contractual Risks
Tax and contractual risks are crucial considerations for businesses in Chile. Failure to comply with local tax laws, including incorrect reporting of income can cause tax risks to arise.
Chile applies a 27% corporate tax rate for businesses that pay under the semi-integrated or partial use of the first category tax credit. The first category tax applies to companies’ that pay the first category tax on their earnings. Individuals residing in Chile for up to three years are only taxed on their Chilean-source income. This means that income they earn within Chile, such as wages from a local employer or profits made from a business operating in Chile, is taxable by tax authorities. However, they are not required to pay taxes on foreign-source income. This includes salaries from an overseas employer or business profits earned outside Chile. After this period, individuals are subject to worldwide taxation.
Corporate Tax
Income from activities that involve the use of capital are subject to taxation of 27%, this is applicable to all businesses. Financial statements and accounting records are usually used to determine taxable income. Corporate tax paid by the company is noted down in a special tax account called the accumulated credit balance (SAC) and can be used as a credit against the owner’s personal income tax.
Small and medium-sized businesses can benefit from a 25% tax system. Instead of using financial statements, their taxes are based on actual cash flow and if a business has more expenses than income, it can carry those losses forward to reduce future taxes. From 2020 to 2023, an exception allowed businesses to use these losses to reduce taxes on dividends and profit withdrawals, but the benefit decreased each year.
Personal Income Tax (IRPF)
Employees are subject to a progressive tax calculated monthly on income from employment. This has a maximum rate of 40%. It is also possible for residents to be subject to a global complementary tax, assessed on total income, also with a maximum rate of 40%.
Non-Resident Income Tax (IRNR)
Non-Chilean residents and foreign companies pay an additional tax on their income from Chile. A 15% tax, known as flat tax, is generally applied on activities including technical or engineering work, or professional services. In other instances, for example if the company paying tax is based in a tax haven, different rates will apply.
Wealth Tax
Wealth tax, a tax levied on the total value of a person’s assets, rather than their income, does not exist in Chile.
Value Added Tax (VAT)
VAT in Chile is currently 19% of the transaction value, paid by the supplier of goods or services. For imports, the taxable base is dependent on the CIF (cost, insurance and freight) value, as established by the Customs Service, “Servicio Nacional de Aduanas”. Taxpayers must file a monthly tax return and can carry forward any used VAT credit for future months.
Non-Chilean resident service providers offering certain services in Chile must also register with the Internal Revenue Service (SII). They must charge and collect VAT from non-VAT-paying users in Chile and file their taxes every quarter. However, exports of all goods and certain services are not subject to VAT. Businesses can deduct or receive a refund for VAT paid on necessary expenses.
3. Visas and Permits in Chile
Foreign investors working in Chile must ensure they have the appropriate visa and work permit to legally operate in the country. There are various visa options offered, including the Investor Visa, Work Visa and Temporary Residence Visa. It is important to note that a tourist visa does not allow for business operations and this can result in fines or deportation.
Below are some of the most common visa-related pitfalls for foreign investors:
Using a Tourist Visa for Business Purposes
A tourist visa does not permit engaging in regular business operations or hiring employees.Entering Chile Without Arranging Proper Work Authorization
Foreign investors must have a work visa or investor visa before arrival.Failure to Register with Chilean Immigration Authorities
Once they have received a visa, foreigners must register with the Immigration Office (Extranjería) and obtain a Tax Identification Number (RUT).Not Considering Time Necessary to Process Visa
As of 2025, Chilean visa applications can take many months to process.Not Renewing Visas on Time
Overstaying a visa will result in fines, re-entry bans and future complications.Not Fulfilling Residency Requirements
Spending too much time outside Chile can complicate visa renewal or permanent residency.
Investor Visa
Obtaining an Investor Visa is a strategic move for those looking to gain both business security and long-term residency. A well-crafted business plan and clear financial projections are required to demonstrate long-term potential. Consulting with legal or tax advisors is recommended.
4. Failing to Comply with Labor Laws
Chilean labor laws are enforced to guarantee worker protection and fair treatment in the workplace. As a foreign investor, it is crucial to understand and comply with these laws to maintain a healthy relationship with employees and smooth operation of your business.
For example, all employees are entitled to severance pay if they are dismissed under certain conditions, typically one month of salary per year of service, capped at 11 years. The salary used is capped at approximately USD 3,500.
Employees are entitled to a minimum of 15 business days of paid vacation per year. Employers must contribute to the health system (FONASA) or to private plans (Isapre), with payments handled by the employer and deducted from salaries.
It is advisable that employees are educated on their health insurance options, offering assistance in selecting the appropriate plan.
5. Failure to Comply with Foreign Investment Regulations
Foreign investors should familiarise themselves with the regulatory environment prior to establishing or expanding their business in Chile.
Registration Requirements
All foreign investments must be registered with InvestChile or the Central Bank. This allows investors to transfer funds legally and access tax benefits. Failure to register on time can delay profit repatriation.
Industry Restrictions on Foreign Investment
Certain sectors such as nuclear energy and media have restrictions or require local partnerships.
Currency Exchange and Profit Repatriation
Chile permits profit repatriation but has strict currency exchange reporting regulations, especially for large foreign transactions.
Business Structure and Corporate Governance
Businesses in Chile can be structured as subsidiaries, branches, or joint ventures. The correct structure is essential due to differences in tax and liability obligations.
Foreign investors in Chile should familiarise themselves with the legal framework to ensure compliance and avoid setbacks which could affect their company’s reputation and financial stability. Key pitfalls include issues related to hiring employees, tax obligations, visa requirements, labor law compliance and foreign investment regulations. It is important to be aware that there are restrictions on certain industries and complexities regarding employee contracts and workplace regulations. Seeking professional legal advice from firms like Becker Abogados can help navigate these areas and ensure smooth operations, allowing your business the best chance for success in Chile’s dynamic market.
