Dyer, John M.

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University of Miami School of Law

University of Miami Law SchoolInstitutional RepositoryUniversity of Miami Law Review2-1-1952Trade and Legal Regulations Affecting the Conductof a Foreign Business in ChileJohn M. DyerFollow this and additional works at: http://repository.law.miami.edu/umlrThis Article is brought to you for free and open access by Institutional Repository. It has been accepted for inclusion in University of Miami LawReview by an authorized administrator of Institutional Repository. For more information, please contact library@law.miami.edu.Recommended CitationJohn M. Dyer, Trade and Legal Regulations Affecting the Conduct of a Foreign Business in Chile, 6 U. Miami L. Rev. 221 (1952)Available at: http://repository.law.miami.edu/umlr/vol6/iss2/7TRADE AND LEGAL REGULATIONS AFFECTING THECONDUCT OF A FOREIGN BUSINESS IN CHILEJOHN M. DYER*The increase of trade between the United States and Latin-America hasstimulated the interests of American businessmen and investors in the regula-tions affecting the conduct of business in and with the republics south ofthe border. In 1938, the 130 million people in Latin-America bought about18% of our exports and furnished almost 25% of our imports. In the sameyear, the twelve million people of Canada alone took over 15%o of ourexports and supplied over 13% of our imports, our dollar volume of exportsto Latin-America being roughly 0.5 billion.1 This relatively small trade hadcaused some students of the Latin-American market to refer to the existingtrade between them and the United States and the potential trade thatcould be developed between these two areas as "The Myth of the Latin-American Market."Today, however, the picture has changed. The war and the domesticeconomy of the United States have been felt in Latin-America as its demandsfor raw material assume a faster and faster tempo.2 To capitalize on thisexpansion of trade activity between the two hemispheres, of what factorsshould an American businessman be aware in order to establish a business inone of the Latin-American republics?Operations in the field of international trade and investment are com-plicated by the fact that two legal systems are involved. None of the Latin-American nations have the common law system which we use, but have acivil law system. It is reasonable to assume that much of the increasingbusiness and investments in Latin-America will be done within the respectiveLatin-American republics and will therefore be subject to local law. Gen-erally, the civil law of Latin-Anerica provides four alternatives for businessorganizations, namely:1) Sociedad Colectiva-A simple partnership or an association of twoor more partners, whose liability is itlimited;2) Sociedad en Comandita-A limitcd partnership or an association ofpartners, some of whom have managcrial rights and unlimited liability, whileothers have liability limited to the amount of their contribution to the capi-talization of the partnership, with no rights of management;3) Sociedad Lirnitada-Counterpart of the limited liability company,*A.B., St. Louis University; LL.B., University of Miami; Graduate work, Universityof Pennsylvania; Associated with the Law Firm of Brunstetter, Waldin and Netter;Lecturer in International Trade, University of Miami; Member of Florida Bar Association,Dade County Bar Association, American Bar Association, and American Foreign LawAssociation.1. HORN AND RICE: LATIN-AMERICAN TRADE AND ECONOMICS 182 (1949).2. U. S. Department of Commerce, WORLD TRADE NEws, Sept. 1951.MIAMI LAW QUARTERLYwith liability for all partners limited to the amount contributed to thepartnership; or4) Sociedad Anonima-Civil law counterpart of the corporation.An American firm wishing to engage in business in Latin-America willfind that there are three alternatives:1) It may register the existing American company to conduct the busi-ness in the country in question;2) A subsidiary company may be organized under the laws of thecountry involved; or3) It may organize an American subsidiary to engage in business in thecountry under consideration.Of these alternatives the most popular one is that of organizing anAmerican subsidiary which would then register to engage in business in thecountry selected. Several advantages substantiate this selection: first, favor-able tax treatment; second, directors' and stockholders' meetings can be heldat the subsidiary's home office in the United States; and third, diplomaticprotection is afforded by the United States.In applying these general principles as set out above, and the outstand-ing requirements of Chilean law as considered in the rest of this article, itmust be made evident that the consulting of legal counsel is necessary withregard to any one particular investment or business concern contemplatingdoing business in Chile.IN GENERALArticle 10 of the Chilean Constitution guarantees equality before the lawto all inhabitants of the country. Besides this constitutional provision,Article 57 of the civil code reads: "The law recognizes no difference betweena Chilean and a foreignei in regard to the acquisition and enjoyment of thecivil rights governed by this code." There are, however, certain restrictionsbased upon the nationality of persons. For example: only Chileans andaliens domiciled in Chile may fish in the territorial waters of the Republic;athe practice of law is restricted to Chilean citizens; 4 and the right to import,distribute, and sell oil is reserved to the state.Chilean business organizations are similar to those of the United States,comprising the familiar forms of partnerships and corporations. For thepurpose of this article, a survey of the civil law counterpart of the corporationwill suffice since it is the most popular and satisfactory business form touse. To organize a Chilean corporation (sociedad arnomina)6 a notarial instru-ment (escritura ptiblica) must be submitted. This instrument must includethe following information:1) Names, addresses, and occupations of the promoters;2) Domicile of the corporation;'3. CorMo CIVIL, Art. 611.4. Ley No. 6985 de 10 de julio de 1941 (D.O. 19,032), Art. 62.5. Ley No. 5124 de 16 de mayo de 1932 (D.O. 16,276), Art. 1.6. CODIO DE COMERCJO, Art. 424-469.FOREIGN BUSINESS IN CHILE3) Duration of the corporation;4) Capitalization of the corporation;5) Powers of the directors, shareholders and management;6) Method of dissolution;7) The amount of profits which must be used as reserves;8) The nature of the business to be engaged in and the source fromwhich the corporate name is derived; and9) Any other agreements that the founders may make.To charter the corporation, three copies of the notarized instrument anda prospectus must be submitted to the Superintendent of Insurance Com-panies, Corporations and Commercial Exchanges of the Ministry of theTreasury.7 After this is approved, the corporation is granted its charter bythe Chilean president. No application for the formation of a corporationwill be approved if it is not signed by stock subscribers representing at leastone-third of the shares and accompanied by attested copies of the notarizedinstrument as approved by a general shareholders' meeting. The decree ofthe president authorizing the corporation must be recorded in the commer-cial register for the place where the new enterprise is to be domiciled within60 days of the date of the presidential decree.8 In addition, these samedocuments must be published once in the "Diario Oficial."The directors need not be residents of Chile and the corporate by-lawsmay provide for any number. Directors are usually elected by having eachstockholder vote for a single person, the required number of directors beingthose who obtain the greatest number of votes. If there is a change indirectors, this infonnation must be communicated to the Superintendent ofInsurance Companies, Corporations and Commercial Exchanges.,FOREIN CORPORATIONSForeign corporations may not establish agents in Chile without presi-dential authorization. The corporation's application for authorization mustbe accompanied by:1) A copy of the corporate by-laws in Spanish, authenticated by aChilean consul;2) Documents proving that the corporation was legally formed at itsplace of domicile;3) A general power to a person in Chile to act in behalf of the foreigncorporation;4) Authenticated copy of the last balance sheet; and5) Inscription in the Commercial Register and publication once in the"Diario Oficial" and three times in a local newspaper.107. Decreto No. 4705 de 30 de noviembre de 1946 (DO. 20,669).8. CODICO DE CoMiRcio, Art. 440.9. Ley No. 4657 de 24 septiembre de 1929 (D.O. 15,481).10. Decreto No. 4705, Art. 47.MIAMI LAW QUARTERLYTAXATIONThe Chilean tax system is extremely complicated and there is no annualcodification of tax legislation. This, coupled with multiplicity of rates andkinds of taxes, makes it impossible to determine in advance the probabletotal taxation on any one business venture. To present a full picture of theChilean tax structure would be too lengthy for this article, so for the sake ofbrevity only the highlights of the system will be touched upon.Income taxes apply both to natural and juridical persons resident inChile for more than six months during any year on all their income fromboth domestic and foreign sources."Title IV of the Income Tax Law divides income into six categories:A) Income from real property;B) Income from interest, dividends and pensions;C) Income from commercial or industrial activity, agricultural activities,all income not taxes under the other categories;D) Income from mining and metallurgical activities;E) Income from wages, salaries, premiums and donations; andF) Income from professional and other remunerative occupations notincluded in the other categories. 12There is an additional tax on foreigners 18 which amounts to 10% onprofits on income from all operations or investments which they carry outor maintain in Chile.An excess profits tax 14 is levied on excess profits from industry or com-merce. The first 80,000 pesos of income are exempt from this tax. Profitsover 80,000 pesos are deemed excess where they exceed more than 15% ofthe capital and enterprise. The excess profits tax is as follows:1) 13% on profits in excess of 15% but not in excess of 20% of capital;2) 26% on profits in excess of 20% but not in excess of 25% of capital;and3) 39% on profits in excess of 25% of capital.TAX ExxMP'IONSIn general, those new industries which the president determines to beusing national raw materials, or producing products new to Chile, or whichfulfill a national consumers' need will be exempt from the excess profits tax."5Other tax exemptions may be granted to new Chilean companies producingor processing copper, iron or steel, and which use Chilean ores. Examples ofthese exemptions are:'11. Ley No. 8419 de 27 de marzo de 1946 (D.O. 20,427), as amended by LeyNo. 8311 de 3 de febrero de 1949 (D.O. 21,270).12. Id. at Title 4.13. Id. at Title 6.14. Ley No. 7144 de 31 de dieiembre de 1941 (D.O. 19,151).15. Ley No. 7747 de 23 de diciembre de 1943 (D.O. 19,741), Art 16, as amendedby Ley No. 9311 de 3 de febrero de 1949 (D.O. 21,270).16. Id. at Art. 16.FOREIGN BUSINESS IN CHILE1) Total exemption from realty taxes for a period of 20 years; and2) Total exemption from all export taxes affecting their product.TRADE RESTRICTIONSImport licenses are required for most goods entering Chile. Licensesare good for the year in which granted and may be renewed if goods areshipped before December 31.1 The official rate is 60 pesos to an Americandollar with variations in this rate depending on the type of imports deemednecessary to the Chilean economy.18 Neither certificate of origin nor consularinvoice is required, but exporters must present a "Certificate of Import Per-mit" to a Chilean consulate at the port of shipment.' 9 Besides this, a com-mercial invoice including a signed statement by the exporter showing thecountry of origin and two copies of the bill of ladng filed with the Chileanconsul for certification is required.20CONCLUSIONIn conclusion, passing reference should be made to the Western Hemis-phere trade provisions of the Revenue Act of 1942.21 These provisionsexempted corporations trading solely in the Western Hemisphere from theexcess profit tax and surtax. To qualify under the law as a Western Hemis-phere Trade Corporation:221) The corporation business must be within the Western Hemisphereand outside the United States.2) 95% of the gross income of the corporation must be from WesternHemisphere sources. 233) 90% of the corporation's gross income must be derived from theactive conduct of a trade or business.2 4Emphasis must again be made that this article is a survey of the moreimportant considerations facing a person or firm investigating the possibilitiesof doing business in Chile. The refinements and details of Chilean law haveobviously been ignored or glanced over quickly. But it does provide apanorama of the major factors which must be studied before an intelligentdecision can be reached as to the feasibility of locating in Chile.17. The Chase National Bank, Import and Exchange Regulations of the PrincipalCountries of the World, BULLETIN No. 403, May 1, 1951, p. 3.18. Ibid.19. Roesenthal, Morris S.; TECHNIQUES OF INTERNATIONAL TRADE 201 (1950).20. Id. at 202.21. I.R.C. §109, 15(a) (1); 26(i); see HORN AND RicE, op. cit. supra note I at 436.22. Ibid.23. Ibid.24. Ibid.

Trade and Legal Regulations Affecting the Conduct of a Foreign Business in Chile

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