Is Chile a Hub for International Finance and Commerce?
International agreements represent one of many relevant aspects to be taken into consideration when deciding to do business, invest, or get involved in any operation on foreign soil. Agreements regarding commerce and taxing are probably those with the greatest importance in these matters because they take into consideration the flows and movements of goods, services, incomes, payments and taxes between 2 countries. Below we will lay out information you should keep in mind on the free trade agreements and tax regulations that you can take advantage of in Chile.
Corporate International Business Law: Free Trade Agreements
Statistics and estimates show that the population of Chile sits around 18 million which in commercial terms constitutes a rather small internal market. However, Chile’s growing population and desire to expand economically has pushed for an increase in the trade of national products. For years, local authorities have been implementing negotiation processes that will allow for international commerce barriers to decrease- for example the decrease in custom tariffs. Nevertheless, there are also non-custom tariff barriers, which fall in different forms on the legal side of things. These barriers make it significantly harder for merchandise, goods and investments to move around and flow between different countries. Corporate International Business Law: Free Trade Agreements Trading Goods. Negotiations regarding free trade agreements between countries usually consider the following aspects:
- Trading Services.
- Commerce disciplines or practices. (competition policies, antidumping etc.)
- Solutions against controversy.
- Investments: These agreements give way to those known as Agreements on Reciprocal Promotion and Protection of Investments. (APPI in Spanish)
- Various issues such as intellectual property, environmental topics, electronic commerce and so on.
Chile has signed free trade agreements with the following countries: Thailand, Hong Kong, Vietnam, Malaysia, Turkey, Australia, Panama, China, USA, Canada, Mexico, South Korea, Peru, Colombia, Costa Rica, El Salvador, Honduras, Nicaragua and Guatemala.
Furthermore, Chile has signed economic agreements within the European Community, Japan, New Zealand, Singapore and Brunei, and other kinds of economically beneficial agreements with Cuba, Bolivia, Ecuador, Venezuela, India and the MERCOSUR countries. (Argentina, Brazil, Uruguay and Paraguay)
Tax management: Avoidance of Double Taxation
Income, taxes, and bookkeeping are issues that have been historically kept away from free trade agreements discussions and regulations in the pursuit of avoiding double taxation. This is the nomenclature used by the Chilean equivalent of the Internal Revenue Service.
These agreements determine which country has the legal right to apply taxes and burdens to certain incomes, individuals, companies, payroll processes, tax declarations, tax management etc.
The clear and previously known rules stated in these conventions favor investments and commercial flow between country members because they provide legal certainty in these matters as long as accountancy management benefits. Although conventions for the avoidance of double taxation mainly consider income taxes, they tend to refer to tax issues altogether.
Chile has signed these types of conventions with the following countries: (All currently in force) Argentina, Australia, Austria, Belgium, Brazil, Canada, Colombia, South Korea, China, Croatia, Denmark, Ecuador, Spain, France, Ireland, Italy, Japan, Malaysia, Mexico, Norway, New Zealand, Paraguay, Peru, Poland, Portugal, UK, Czech Republic, Russia, South Africa, Sweden, Switzerland and Thailand.
Conventions with Uruguay and the United States of America have been signed but are not in force yet.
In other words, these conventions are international legal instruments signed by 2 countries which become legally binding in their internal legal system. They ultimately seek to eliminate or lower double taxation which facilitates trade with a freer flow of goods, services, capital, people and technologies. This is the sole benefit of individuals and companies that are based or reside in one of the signing states.
As it was previously mentioned, these conventions usually regulate income tax in its different forms. They consider the following procedures, guidelines or scenarios:
- Only one of the two signing states has the legal right to apply and collect income tax; the country where the company has its domicile or residency OR the country where the income is produced or generated.
- Both signing states have the right to apply and collect income tax but a cap is enforced upon the State where the income is being produced or generated.
- Both states have the right to apply and collect income tax but a system of credit concessions or exceptions is in place.
The finance and growth of trade in Chile offers a great deal of opportunity. If you want more information about laws and regulations in Chile, or you are planning to proceed with company formation in South America, please do not hesitate to our expert David at [email protected].