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U.S. Department of State

Diplomacy in Action

2011 Investment Climate Statement - Chile


2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2011
Report
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Overview of Foreign Investment Climate

For the last three decades, Chile has made foreign direct investment (FDI) an essential part of its national development strategy. Chile's sound, market-oriented policies have created significant opportunities for foreign investors to participate in the country's steady economic growth. Chile's business climate is generally straightforward and transparent. Foreign investors receive treatment similar to Chilean nationals in nearly all sectors. There are generally no special exemptions or incentives for FDI as a matter of policy. A broad political consensus on the advantages of foreign investment means that Chile's policies towards FDI are unlikely to change.

FDI in Chile must enter through either of the following mechanisms: the Foreign Investment Statute Decree Law 600 (DL600) or Chapter XIV of the Central Bank’s Compendium of Foreign Exchange Regulations (CFER). The minimum investment under DL600 is USD 5,000,000 in currency and USD 2,500,000 in the case of fixed assets, technology, debt capitalization, and profit reinvestments. FDI valued below these levels but above USD 10,000 is made through Chapter XIV of the Central Bank's CFER.

Chile's openness and transparency to FDI is embodied in the foreign investment statute, known as DL600. This law has been the main regulatory norm for FDI in Chile during the last 40 years. Under DL600, a foreign investor may sign a contract with the Government of Chile (GOC). The general regulations, terms, interest, and other modalities of foreign credit contracts as well as surcharges related to total costs to be paid by the debtor, including commissions, taxes, and expenses must also be authorized by the Central Bank of Chile. DL600 allows for capital increases in a given investment.

Chile's Foreign Investment Committee (FIC), the entity responsible for administering DL600, establishes the terms and conditions of the investment. Applications are typically approved within a matter of days and almost always within a month. The FIC's authority to reject a foreign investment is severely limited by the Chilean Constitution. The FIC's decision can be appealed if an investment is rejected.

Chapter XIV establishes regulations that govern foreign exchange operations related to credits, deposits, investments, and capital contributions originating abroad. Investments made under Chapter XIV do not involve signing a contract with the Chilean state. Instead, the Central Bank grants authorization for a given investment. FDI made under Chapter XIV must be in a foreign currency and does not convey any special rights to the investor, such as access to a guaranteed tax rate. The investor must inform the Chilean Central Bank of the investment through a commercial bank or other authorized financial institution. FDI valued at less than USD 10,000 does not require Central Bank approval.

In November 2002, the Chilean Government launched an Investment Platform Initiative aimed at attracting international corporations' Latin American headquarters to Chile. As part of this initiative:

– A company that is set up exclusively as a platform for investments abroad and is located in Chile is exempt from Chilean tax on the profits that overseas shareholders derive from investments outside Chile. These platform companies can be either publicly or privately held, but in the latter case must submit to the same regulation as public companies;

– Up to 15 percent of the platform company's shareholders may be resident in Chile but non-resident shareholders may not reside in tax havens;

– Shareholders in the platform company can contribute capital either in the form of shares or equity in other companies as well as in foreign currency;

– If a platform company invests in Chilean assets, it must pay tax on profits derived from these investments. Similarly, the earnings of the platform company paid to Chilean shareholders are liable for the same tax (and have the same right to tax credits) as an investment abroad that repatriates profits to Chile;

– Platform companies that invest in Chile must distribute earnings in the order in which they were obtained, starting with the oldest. As a result, separate accounting is required for earnings from investments abroad and on assets in Chile;

– There are no restrictions on domestic borrowing by a platform company, but its overseas debt cannot exceed the value of the capital contributed by overseas shareholders;

– The platform company may not invest in tax havens.

The Initiative addresses the problem of three-way taxation by exempting platform companies from Chilean tax on overseas earnings and provides foreign investors with additional incentives to invest in Chile. This Initiative is meant to foster regional joint ventures between foreign investors and Chilean partners. To facilitate the entry of foreign capital into Chile, the Initiative also allows companies that are already established in the region to move their centers of operation to Chile without incurring the transaction costs involved in selling and re-buying assets.
 

Although Chile clearly encourages foreign investment, some restrictions do exist. Foreigners may not invest in Chilean fishing companies or media unless their country has a relevant reciprocity arrangement with Chile. The European Union signed such an agreement in 2002 with regard to commercial fishing companies.
 

There are no restrictions on foreign investment in telecommunications, but investors must acquire a license, and the number of licenses available is limited in some new sectors of the industry. Certain types of investment projects require additional authorization beyond that of the FIC. For example, projects in the copper mining sector require the Chilean Copper Commission's authorization; investments in the fishing sector require the approval of the Undersecretariat of Fishing; authorization from the Bank and Financial Institutions Regulatory Agency is required to operate in the banking sector; and the Securities and Exchange Commission must authorize projects related to insurance and investment funds. Additional authorizations are required from the Pension Funds and Private Health Insurance regulatory agencies to participate in those sectors. For projects with a potential environmental impact, authorization is required from the National Environmental Commission (CONAMA) and/or the Regional Environmental Commission (COREMA). Chile also maintains national security related restrictions on investments in the areas of nuclear energy, defense, maritime transportation, real estate, and mining.

The United States-Chile Free Trade Agreement (FTA) entered into force on January l, 2004. The chapter on investment is modeled on the standards found in agreements throughout the world such as the investment chapters in Chile's FTAs with Mexico and Canada, U.S. bilateral investment treaties as well as customary international law. It incorporates innovations and improvements based on the experiences of both countries in implementing investment agreements and responds to new U.S. objectives set forth in the Trade Promotion Act (TPA) of 2002. The main objective of the FTA chapter is to provide stability and security to investors. It provides six basic forms of protection:

– Non-discriminatory treatment, based on national treatment and most-favored-nation treatment, for investors from either country;
– Freedom from performance requirements;
– Free transfer of investment funds;
– Expropriation only when consistent with international law;
– A minimum standard of treatment in customary international law; and
– The ability to hire key managerial and technical personnel without regard to nationality.

Measure

Year

Index/Ranking

TI Corruption Index

2010

7.2/21

Heritage Economic Freedom

2010

77.2/10

World Bank Doing Business

2010

43

MCC Gov’t Effectiveness

N/A

N/A

MCC Rule of Law

N/A

N/A

MCC Control of Corruption

N/A

N/A

MCC Fiscal Policy

N/A

N/A

MCC Trade Policy

N/A

N/A

MCC Regulatory Quality

N/A

N/A

MCC Business Start Up

N/A

N/A

MCC Land Rights Access

N/A

N/A

MCC Natural Resource Mgmt

N/A

N/A

Conversion and Transfer Policies

Chile’s regulation ensures that capital markets are well developed and open to both foreign portfolio investors and FDI. Most of the legal framework regulating capital markets in Chile was introduced in the early 1980s and then reformed and revamped especially after the severe economic crisis in 1983. In the late 1980s and early 1990s, the GOC imposed strict controls on short-term capital inflows. In May 2000, Chile eliminated the one-year withholding period requirement for foreign capital entering the country under Chapter XIV. This type of investment capital may now be repatriated immediately without penalty.
A second major move in 2000 was the virtual removal of the "encaje" or lock-in, which required foreign investors to deposit 30 percent of foreign-sourced loans and portfolio investment with the Central Bank in a non-interest-bearing account for up two years. The Central Bank reserves the right to re-impose the "encaje" mechanism if needed in the future.
 

About a decade ago the Chilean government implemented important reforms and measures aimed at promoting savings in investment securities including the exemption of capital gain tax on highly traded stocks of publicly traded companies, lowering taxes for foreign investors on interest payments, and advancing the integration of Chilean capital markets to the international financing market.


A second set of reforms aimed at promoting broader financing alternatives of high growth, emerging companies (small- to medium-sized enterprises, SMEs) and tax incentives for the development of a local risk capital fund management industry. In June 2007, the GOC passed Law 20.190 that introduced tax incentives to promote venture capital. The law improves the availability of financial resources for small- to medium-sized enterprises (SMEs) and provides tax benefits to public as well as private venture capital funds. Law 20.190 authorizes CORFO (Chile’s Development Promotion Agency, www.corfo.cl ) to take an equity position of up to 40 percent in specialized venture capital funds. It also allows banks to invest up to the equivalent of one percent of their asset base in venture capital through investment fund administrators and subsidiaries.

Another move towards reforming the Capital Market has been aimed at increasing security levels of financial transactions, stronger custodial, clearing and payment, and reinforcing regulatory and supervision capabilities. These improvements involved guidance on investment funds, derivatives and insurance companies. In 2009, Capital Market Reforms III was introduced in Congress but had not yet reached a vote by the end of the year. This latest set of reforms aims to improve current levels of competition in the credit market by increasing available credit instruments and to improve consumer information. The bill also increases liquidity, deepens credit markets, improves flexibility for investment funds, creates Exchange Traded Funds (ETFs), allows access to secondary markets, and fosters investment in mutual and investment funds.

Pursuant to changes in foreign exchange regulations, investors, importers, and others are guaranteed access to foreign exchange in the official inter-bank currency market without restriction.

The Central Bank reserves the right to deny access to the inter-bank currency market for royalty payments in excess of five percent of sales. The same restriction applies to payments for the use of patents that exceed five percent of sales. In such cases, firms would have access to the informal market. The Chilean tax service reserves the right to prevent royalties of over five percent of sales from being counted as expenses for domestic tax purpose.

Under the Investment Chapter of the U.S. – Chile FTA, each government must allow transfers of covered investment to be made freely and without delay into and out of its territory. These include transfers of profits, royalties, sales proceeds, and other remittances related to the investment. However, for certain types of short-term capital flow, the chapter allows Chile to impose transfer restrictions for 12 months as long as those restrictions do not substantially impede transfers. If restrictions are found to impede transfers substantially, damages accrue from the date of the initiation of the measure.

Expropriation and Compensation

Chilean law grants the government authority to expropriate property, including property of foreign investors, only for public or national interests, on a non-discriminatory basis and in accordance with due process of law.

The law requires the payment of compensation without delay at fair market value, in addition to any applicable interest. The 1973-1990 military regime and the five subsequent democratically-elected governments have not nationalized any private firm, and nothing suggests that any form of expropriation is likely in the foreseeable future.
 

Dispute Settlement

Chile has signed several bilateral investment protection agreements with other countries allowing for binding international arbitration. The different agreements contain varying procedures. Some allow the investor to choose either the host country's legal system or international arbitration but not both while others specify that disputes must pass through the host country's legal system before recourse to international arbitration. Chile joined the International Center for Settlement of Investment Disputes (ICSID) in 1991.

Although the U.S. and Chile do not have a bilateral investment treaty (BIT), many issues normally covered in a BIT are addressed in the FTA. Section C of the Investment Chapter provides a mechanism for investors to pursue a claim against a host government that is in breach of the FTA's investment obligations, an investment agreement, or an investment authorization. Investment authorizations under DL600 are not subject to this mechanism, and only agreements signed two years after the FTA's entry into force may make use of this dispute settlement mechanism. Under this section, the investor pursuing a claim may choose an arbitral forum: ICSID, United Nations Commission on International Trade Law (UNCITRAL), or any other mutually agreed upon arbitral institution. The mechanism chosen will govern the proceedings except to the extent modified by the FTA. An investor may initiate a proceeding six months after the event which gave rise to the claim, and all claims must be brought within three years of the date when the claimant acquired knowledge of the breach and/or injury.

The FTA chapter on investments encourages consultations or negotiations before recourse to dispute settlement mechanisms. If the parties fail to resolve the matter, a claim for arbitration can be submitted by the investor. Provisions in Section C of the FTA ensure that the proceedings are transparent by requiring that all documents submitted to or issued by the tribunal be available to the public, and by stipulating that proceedings be public. The tribunal must also accept amicus curiae submissions. The FTA chapter on investments establishes clear and specific terms for making proceedings more efficient and avoiding frivolous claims. Domestic law is to be applied to all contracts. However, arbitral tribunals decide disputes in accordance with FTA obligations and applicable international law.

The judicial system in Chile is generally transparent and independent. The likelihood of government intervention in court cases is low. If a state-dependent firm is involved in the dispute, the GOC may become directly involved through the State Defense Council (Consejo de Defensa del Estado). In cases where courts determine a firm is bankrupt, a receiver is named to distribute the debtor's remaining assets to the creditors.

Performance Requirements/Incentives

Chile's Foreign Investment Committee does not apply performance requirements in its review of projects. The investment chapter in the U.S. – Chile FTA establishes rules prohibiting performance requirements that apply to all investments whether by third party or domestic investors.

The FTA investment chapter also regulates the use of mandatory performance requirements as a condition for receiving incentives and spells out the exceptions. These include government procurement, qualifications for export and foreign aid programs, and non-discriminatory health, safety, and environmental requirements.

Chile does not subsidize foreign investment nor does it offer any special tax exemptions. There are, however, some regional incentives linked to isolated geographical zones and to the information technology sector. These benefits relate to co-financing of feasibility studies as well as to incentives for the purchase of land in industrial zones, the hiring of local labor, and the facilitation of project financing. Other important incentives include accelerated depreciation accounting for tax purposes, special tax treatment for retained earnings, and legal guarantees for remitting profits and capital.

Chile has other special incentive programs aimed mostly at promoting investment and employment in remote or disadvantaged regions, the development of new businesses, support for micro-, small-, and medium-sized enterprises, and promotion of technological innovation.

CORFO has implemented the "Chile Invests" plan with the goal of fostering FDI outside the Santiago Metropolitan Region in certain sectors. A key objective of the plan is to encourage investment in areas of non-traditional technology such as biotechnology, research and development of new materials, electronics and engineering processes, and new production techniques to increase the value added to natural resource exports. The plan also promotes investments in the energy sector mainly for non-conventional renewable energy projects. CORFO provides co-financing programs to pre-investment feasibility studies for projects using renewable non-conventional energy resources.

The Arica Law of 2001 grants tax credits to companies in the provinces of Arica and Parinacota. Investment projects amounting to over 2,000 UTM (about USD 145,000) in Arica are eligible for a tax credit of 30 percent of the value of the fixed physical assets (40 percent for tourism projects). Investment projects totaling more than 1,000 UTM (about USD 72,500) in Parinacota are eligible for a tax credit of 40 percent of the value of the fixed physical assets. These incentives will be applied until December 31, 2011 and may be repaid up to 2034. [NOTE: The Unidad Tributaria Mensual (UTM) is similar to the UF. It is an inflation-indexed measure of value, adjusted on a monthly basis. On January 5, 2011, 1 UTM was equivalent to about CHP 36,679 and USD 1 was equivalent to about CHP 506.]

A third investment promotion plan (Austral Plan) for the province of Tierra del Fuego in Region XII (Magallanes) is available for mining, manufacturing, transport, fishing and tourism companies that produce goods or services made up of at least 25 percent of local labor and inputs.
 

According to data provided by the Chilean Internal Revenue Service (SII), tax credits granted in 2008 for investments under the Arica Law totaled about USD 24 million and those granted under the Austral Plan totaled about USD 126 million.

Other investment incentives have been introduced through the “Chile Competes Plan.” The Plan includes an exemption from the income tax normally paid by institutional investors, such as mutual funds and pension funds, on earnings from the transfer of corporate stock that is publicly traded, or bonds or other publicly offered securities representing debt issued by the Central Bank of Chile, the Chilean Government, or by companies incorporated in Chile.
 

Right to Private Ownership and Establishment

Except for the limitations in the fisheries and media sectors noted above, Chile does not, in general, restrict the right to private ownership or establishment. Section 24 of Article 19 of the Constitution establishes the “absolute, exclusive, inalienable and permanent domain” of the Chilean state over all mineral, hydrocarbon, and fossil fuel deposits within Chilean territory. Under Chilean law, the Government may grant concession rights to individuals and companies for exploration and development of these natural resources for a finite period. There are also national security-related measures regarding the purchase of real estate by foreigners in certain geographic areas.
 

Protection of Property Rights

Chile has undertaken a number of legislative reforms to strengthen its IPR regime and bring it in line with international commitments, including the U.S. – Chile FTA. However, there are still substantive deficiencies in Chile's IPR laws and enforcement of existing IPR protections. The main concerns involve patent and test data protection in the pharmaceutical sector and copyright piracy of movies, music, and software.

On January 8, 2007, the U.S. placed Chile on the Special 301 Priority Watch List (PWL) due to concerns about its commitment to the protection of intellectual property rights (IPR). Chile had been on the Special 301 Watch List since 1989 and was subject to an Out-of-Cycle Review during much of 2006, which ultimately resulted in the PWL designation. Chile remained on the PWL in 2008 and 2009.

Chile was listed on the Priority Watch List in the 2010 Special 301 Report. Although the report noted positive steps taken by the Chilean Government in 2009 and early 2010, including the creation of the National Institute for Industrial Property to oversee industrial property registration and protection, several FTA commitments remained outstanding. In May 2010, the Chilean Government implemented a new intellectual property law, which includes language amending its copyright law. However, the legislation falls short of fully addressing Chile’s bilateral commitments. For example, the legislation does not include protections against the circumvention of technological protection measures.

Key concerns highlighted in the report also included inadequate protection against unfair commercial use of undisclosed test and other data generated to obtain marketing approval for pharmaceutical products, as well as the lack of an effective system to address patent issues expeditiously in connection with applications to market pharmaceutical products. The report noted the need to enact legislation to ratify the 1991 Act of the International Convention for the Protection of New Varieties of Plants and the Trademark Law Treaty. The Chilean Congress ratified the Trademark Law Treaty in September 2010, but implementation is still pending.

The Chilean Government is making an effort to publicly promote the value of protecting IPR, emphasizing the benefits this can bring to innovation, investment, and economic growth. In 2010, the United States and Chile held several meetings to exchange information and review implementation of the IPR provisions of the FTA IPR Chapter.

Chile has been a member of the World Intellectual Property Organization (WIPO) since 1975 and adhered in April 2001 to the Treaties on Copyright and Performances and Phonograms. Chile approved legislation to comply with TRIPS obligations related to industrial property in December 2004. The new law provides for, among other things, expedited court proceedings and the authority to seize illegal copies of patented products. In 2008, Chile ratified the Patent Cooperation Treaty (PCT), which came into force in June 2009.

In April 2008, the Chilean congress passed a law that created the National Institute of Industrial Property (INAPI), replacing the Department of Industrial Property. INAPI began operations in January 2009 and is a technical and legal agency in charge of all the administrative actions related to industrial property registration and protection. INAPI is overseen by the President of Chile, through the Ministry of Economy.
 

Transparency of the Regulatory System

Chilean regulatory systems tend to be transparent, and government regulators generally have little discretion. The U.S. – Chile FTA creates some additional obligations for transparency in regulatory processes.

Efficient Capital Markets and Portfolio Investment

Chile's capital markets are well-developed and open to foreign portfolio investors. Credit is allocated on market terms and is available to foreigners although the Central Bank does reserve the right to restrict foreign investors' access to internal credit if a credit shortage exists. To date, this authority has not been exercised.
Publicly traded Chilean companies attract substantial international investment. In late 2000, the Chilean Congress approved legislation on public stock tenders that provides greater legal protection of minority shareholder rights.

In November 2001, the core measures in a far-reaching Capital Market Reform I came into force. The reform created an agricultural commodities exchange and allowed administrators of Chile's private pension funds (AFP for Administradora de Fondos de Pensiones) to operate five funds with different risk-return profiles instead of one single fund. The reform to the pension funds also promoted alternative voluntary pension plans (mirroring the U.S. 401K option).

Capital market reform leveled the playing field for foreign investors in the local market and those who invest in Chilean bonds abroad. This has slowly increased demand for local debt instruments among foreign investors. The reform also solved issues related to commercial paper and the stamp tax (a tax on all credit operations by individuals and companies), and created a new tax exemption for cross-border bank lending that allows foreign banks to compete on more equal terms.

Capital Market Reform I eliminated capital gains taxes related to short selling of shares and offered a capital gains tax exemption on the sale of widely-traded equities purchased after April 19, 2001. The reform also created an emerging markets stock grouping whereby investors can claim exemption from capital gains taxes for the first three years after a company's initial offering.

In June 2007, Capital Market Reform II entered into force, which aims to promote the development of the venture capital industry, strengthen the stock and exchange markets, and deepen other Chilean financial markets. In September 2009, the GOC introduced Capital Market Reform III aimed at providing better levels and quality of credit to SMEs and internationalizing the Chilean capital market.

Under the U.S.-Chile FTA, U.S. insurance firms have full rights to establish subsidiaries or joint ventures for all insurance sectors, with limited exceptions. Chile also committed to phase in insurance branching rights and to modify its legislation to open cross-border supply of key insurance sectors such as marine, aviation, and transport (MAT) insurance, and insurance brokerage of reinsurance. U.S. banks and securities firms are allowed to establish branches and subsidiaries and may invest in local firms without restriction, except under very limited circumstances. U.S. financial institutions are also able to offer financial services to citizens participating in Chile's privatized voluntary saving plans, and they have gained increased market access to Chile's mandatory social security system. U.S.-based firms are allowed to offer services in Chile in areas such as financial information, data processing, and financial advisory services, with limited exceptions. Chilean mutual funds will be permitted to use foreign-based portfolio managers.

The main institutional investors and suppliers of capital to local companies are the pension fund administrators (AFP) as well as insurance companies, mutual funds and banks. More than half of the instruments issued in the fixed-income market are held by institutional investors. In 2009, insurance companies managed more than USD 33 billion. Insurance companies invest a major share of their portfolio in very low-risk fixed-income securities.

Pension funds (AFPs) are the largest institutional investors followed by insurance companies. As of December 2010, Chile's six AFPs managed a total investment portfolio of USD 148.4 billion, representing about 75 percent of Chile's GDP. The pension funds administered by the AFP belong to 8.7 million contributors. As of December 2010, the total resources under administration were distributed in five different funds of varying degrees of risk. As of September 2010, accumulated savings in the voluntary contributions system (APV) of the AFP system totaled USD 3.3 billion that belong to 546,955 contributors.

The GOC has been consistently raising the percentage of pension funds that can invest overseas. In 2008, a reform package of the pension system was approved by Congress increasing the threshold for pension fund administrators to invest abroad (from 30 to 60 percent of their funds). The reform package also set the foundation on which to build a “solidarity pillar” to increase coverage among lower-income contributors and self-employed workers and expand social security assistance coverage. From July 2008 to September 2010 total spending on “solidarity pension payments” reaches USD 972.3 million.

The Chilean banking system is sound and competitive and meets Basel standards. There are currently 25 banks operating in Chile, and 12 are foreign-owned representational branches. As of June 2009, the Chilean banking industry had a Basel capital ratio of 14%. Only one bank is completely owned by Chilean economic interests (BCI). The rest have some level of incorporation with foreign institutions. Foreign banks can compete on the same terms as their domestic rivals. There are also five local Savings and Loan Corporations, and one state-owned bank, Banco Estado, which is the nation’s third largest. Private banks manage most corporate business.

The Chilean banking industry is characterized by the quality of its loan portfolio, due partly to strict limits on lending to a single debtor or group of related companies. This is capped at five percent of the capital and reserves of a bank for collateral-free loans and at 25 percent for collateralized loans (fixed assets).

In 2009, Chile enacted several critical reforms as part of the process to join the Organization for Economic Cooperation and Development (OECD). One of these reforms was a law that Chile enacted in 2009 allowing for the exchange of tax information between tax authorities, including information based on bank account activity.
 

Summary of Chilean Banking System (November 2010) :
(USD millions, USD 1 = CHP 482.3)

Total Loans – 240,549
Deposits – 133,580
Net Income – 3,237
Total Assets – 225,312
Capital and Reserves – 17,714

Loan Lost Position – (-) 3,921

Source: Chile's Association of Banks and Financial Institutions
 

General Information on the Financial Market (November 2010)

– Banks and Financial Institutions: 25 participants. Total Loans: USD 240,549).

– Pension Funds: 6 administrators. Funds under management: USD 148.4 billion corresponding to 8.7 million contributors as of December 2010.

– Insurance Companies: 51 (21 general insurers, 30 life insurers).

According to the World Economic Forum's Global Competitiveness Report for 2009-2010, Chile is the most competitive country of South America and the third most competitive of the Americas after the U.S. and Canada. Chile is ranked 30th in the world.

Competition from State-Owned Enterprises (SOEs)

Many state-owned enterprises (SOEs) in Chile were privatized during the military government's economic reforms between 1974 and 1989. Notable remaining SOEs include the national copper company, CODELCO, the national petroleum company, ENAP, the National Postal System (Correos de Chile), and the state-owned bank, Banco Estado.

In general, private enterprise is allowed to compete with public enterprise under the same terms and conditions (e.g., there are many private copper mines and private banks). However, there are specific areas where this does not hold and SOEs enjoy special advantages. For example, ENAP is the only refining company in Chile.

Most SOEs in Chile are structured so that the company management reports to a board of directors, which includes the relevant government minister (e.g., the Minister of Mining sits on ENAP's board of directors). Most board members are independent representatives from the private sector and academia, or from that industry's main labor union or trade association. Board members are usually designated by the President of Chile.

Chile passed a law in October 2009, which modifies CODELCO's corporate governing structure. The law removes the Ministers of Finance and Mining and a representative of the military from the board of directors. It also expands the board to nine members, three of whom are designated by the President of Chile, two of whom are nominated by CODELCO's labor unions and approved by the President of Chile, and four of whom are elected by a vote of the Consejo de Alta Dirección Pública (Chile's independent committee that makes high-level civil service appointments) and subsequently approved by the President of Chile.
 

Chile has two sovereign wealth funds constituted principally from state copper revenues. The Economic and Social Stabilization Fund (FEES) was established in 2007 and was valued at USD 12.5 billion in November 2010. The Reserve Pension Fund was established in 2006 and was valued at USD 3.8 billion in November 2010. The stated purpose of this fund is to assist the Government with payments to those eligible to receive pensions but who remain indigent (Chile uses a privatized pension system). A third sovereign wealth fund, called the Bicentennial Fund, is planned in the future to encourage Chileans to study abroad through the use of government funded scholarships.

The sovereign wealth funds are administered by the Chilean Central Bank, at the direction of the Ministry of Finance. The Ministry of Finance receives advice on policy related to the funds from an external Finance Committee made up of independent advisors. The Ministry of Finance publishes monthly, quarterly, and yearly reports on the funds.

Corporate Social Responsibility (CSR)

There is general awareness of corporate social responsibility among both producers and consumers in Chile. As part of the OECD accession process, Chile passed a law in September 2009 setting out new rules to help bolster corporate social responsibility.

Political Violence

The potential for terrorist activity and civil disturbance is low in Chile. Crime rates are low to moderate throughout the country. During the last 10 years there have been relatively few incidents of politically motivated attacks on investment projects or installations. Incidents of anti-American sentiment and civil disorder are rare, and there have been no incidents involving international terrorist groups. However, since 2007 Chile has experienced a number of small-scale bombings targeting mostly local service providers but also banks, a police station, and the U.K. Embassy. Anarchist groups have claimed credit for some of the bombs. There have also been violent incidents in forestry plantations in southern Chile. These incidents in southern Chile are related to the land claims of indigenous people (the Mapuche) in the VIII and IX Regions.

Corruption

Corruption in Chile is generally limited although a number of cases have occurred in recent years. The GOC responded with vigor in 2003 to a succession of uncharacteristic public and financial sector scandals related to corruption and influence peddling in the government's domestic development agency (CORFO), the Ministry of Public Works (MOP), and the Central Bank. In 2003, Law 19.882 came into effect to establish a more efficient and professional civil service. The law introduced new performance-based incentives for in-service promotion on merit; reduced the number of political appointees in public service positions; established a new selection procedure; clarified and modernized public employee payments; and reformed the MOP's procedure for awarding government contracts. In 2005, Congress passed Law 20.054 to regulate political party and candidate financing, and established caps on election spending.

Chile has signed and ratified the Organization of American States (OAS) Convention against Corruption. Chile is also a signatory to the OECD Convention on Combating Bribery. In 2009, as part of the OECD accession process, Chile passed a law that completed the implementation of its Anti-Bribery Convention obligations. Bribery investigations are conducted by the GOC's General Comptroller’s Office.

In 2007, a new law came into force that provides protection for public employees who denounce irregularities or violations in accountability standards and at the same time, Chile ratified the United Nations Convention against Corruption.

Bilateral Investment Agreements

In 1991, Chile became a signatory of the Washington Convention of 1965, which created the International Center for Settlement of Investment Disputes (ICSID). Since then, Chile has negotiated numerous Bilateral Investment Treaties (BITs) through which Chile provides additional protection to foreign investment flows. According to Chile's Foreign Investment Committee, as of the end of 2010, Chile had signed 51 BITs, of which 38 are in force. There are agreements in force with Argentina, Australia, Austria, Belgium, Bolivia, China, Costa Rica, Croatia, Cuba, Czech Republic, Denmark, Ecuador, El Salvador, Finland, France, Germany, Greece, Guatemala, Honduras, Iceland, Italy, Malaysia, Nicaragua, Norway, Panama, Paraguay, Peru, Philippines, Poland, Portugal, Romania, South Korea, Spain, Sweden, Switzerland, Ukraine, the United Kingdom, Uruguay, and Venezuela. The Government of Chile has begun bilateral investment protection agreement negotiations with 15 others countries, including India, Morocco, Russia, Israel, and Thailand.

Chile has a number of double taxation treaties in force: Argentina, Brazil, Canada, Colombia, Croatia, Denmark, Ecuador, France, Ireland, Malaysia, Mexico, New Zealand, Norway, Paraguay, Peru, Poland, Portugal, South Korea, Spain, Sweden and the United Kingdom.

In January 2010, the United States and Chile announced the successful conclusion of negotiations on a bilateral tax treaty; as of January 2011 the treaty was pending approval by the Chilean and U.S. congresses.

OPIC and Other Investment Insurance Programs

A Bilateral Investment Agreement with the Overseas Private Investment Corporation (OPIC) took effect in 1984. Chile is a party to the convention of the World Bank's Multilateral Investment Guarantee Agency (MIGA).

Labor

Chile has enjoyed generally calm labor relations over the last decade, but strikes do occur. Strikes and public protests have been concentrated in the mining, health, education, transportation, and civil service sectors.

Union membership is voluntary, and approximately 13 percent of the workforce is unionized. Multiple unions exist in many companies, and management can negotiate collective agreements with any of the unions or with ad hoc groups of workers. Unions can form confederations or nationwide labor centrals and can affiliate with international labor federations. Contracts are normally negotiated at the company level. Multi-company bargaining is permitted on a voluntary basis. Minimum wage, working hours, overtime, paid annual vacations, and holidays are all established by law. Women are entitled to state-funded maternity leave for a period of six weeks before and 12 weeks after childbirth. Layoffs are not permitted between conception and one year after the female employee has returned from maternity leave.

Top executive salaries are on a par with European countries, although well below those in the U.S. Chile allows companies to deduct set training costs (up to one percent of annual payroll) from corporate tax payments. A company can also use 10 percent of the rebate to finance an analysis of its training needs, and 15 percent to run a training department.

On January 1, 2005, the maximum number of labor hours per week was reduced from 48 to 45 without any loss of salary to the employees.

A new subcontracting (outsourcing) law passed in 2006 took effect in January 2007. Initially it caused some uncertainty in the labor market due to differing interpretations by the GOC's Labor Directorate and Chilean companies. The new law has also prompted new labor movements and related protests seeking better job conditions for outsourced workers. This has been particularly true in the mining and forestry sectors.

The subcontracting law defines outsourcing as two different activities: subcontracting and the supply of outside labor. Subcontracting is when a company permanently outsources a specific process to another firm which takes full responsibility for it, carrying it out with its own employees. However, the law does not permit companies to outsource its main economic activity. Regarding outside workers, the law limits this to "temporary" labor, defined as those employed for periods of up to 90 (or 180 days in some cases) for the duration of an "emergency." Additionally, only firms that register as suppliers of temporary labor and set up guarantees against their obligations to their own workers are allowed to fulfill this function. The law also sets limits on the number of staff, depending on the size of the company, that can be used on short-term jobs.

Foreign Trade Zones/Free Ports

Chile has two tax-free zones, one is in the northern port of Iquique (Region I) and the other in the southern city of Punta Arenas (Region XII). Merchants and manufacturers in these zones are exempt from corporate tax, VAT, and customs duties. Goods can be re-exported without paying taxes, but products that are sold within Chile must pay VAT (19 percent) and import duties upon leaving the zone (except to immediate geographical areas for which a lower tax rate applies, 0.8 percent of the c.i.f. value). The same exemptions also apply to manufacturers in the Chacalluta and Las Americas Industrial Park in Arica (Region XV) created in October 2007. Mining, fishing and financial services are not eligible for free zone concessions. Management companies and firms established in the free zone are exempt from payment of tariffs, VAT, other charges on imports, first category income tax under the Income Tax Law, and payment of VAT on goods and services for all their operations in the free zone.
 

Foreign Direct Investment Statistics

For most of the 1990s, the Chilean economy attracted large inflows of foreign capital, particularly FDI, especially in the mining sector. According to the United Nations Conference on Trade and Development's 2009 World Investment Report, the stock of total FDI in Chile totaled more than USD 100 billion or 59.6 percent of Gross Domestic Product in 2008. The Report showed the world average for inward FDI in 2008 was 24.5 percent. Since 1990, multinational companies have committed more than USD 55 billion in investments to Chile, a significant amount in an economy whose GDP reached about USD 170 billion in 2008. Today more than 3,000 companies from 60 countries have operations in Chile. Over the last decade, annual FDI inflows have represented an annual average of 6.5 percent of Chile’s GDP.

The FIC reported that the country's net accumulated FDI made under DL600 totaled USD 70.6 billion between 1974 and 2009. In 2009, the mining sector attracted 33percent of FDI through DL600, followed by services (with 22 percent), with electricity, gas and water accounting for 20 percent and manufacturing for 12 percent. Net accumulated FDI made under Chapter XIV of the Central Bank's CFER totaled USD 30.3 billion between 1974 and 2008.

In 2010, authorized FDI in Chile reached records at USD 13.3 billion. This figure is the highest in years, up by 201% on the same period in 2009. In 2010, the mining sector accounted for 82.9 percent of total authorized FDI (USD 10.9 billion), followed by the service sector with 9.1 percent, electricity, gas and water at 4.1 percent, and transport and communications at 3.4 percent.

In 2010 Canada accounted for 60.8 percent of total FDI with 12 projects for US$8.6 billion, followed by Japan with four projects for USD 2.7 billion (20.8 percent) Spain with eight projects for USD 623 million (4.7 percent) and Mexico with USD 490 million (3.7 percent). The United States was Chile's main investment partner in 2009, accounting for USD 3.7 billion, or 59.4 percent of FDI inflows that year. In 2010, implemented U.S. foreign investment to Chile totaled USD 208 million.

Between 1974 and 2009, the following sectors accounted for foreign investment realized through DL600:

Mining – 25.7%
Electricity, Gas, and Water – 20.7%
Manufacturing – 10.9%
Transportation/Communication – 11.9%
Construction – 2.2%

Services – 26.7%
Agriculture, Forestry, and Fishing - 1% each

Within the service sector, the most important components were:

Cultural and entertainment – 2.7%

Retail – 26.1%

Sewage and similar services – 3.2%

Business services – 5.6%

Other services – 5.7%

Banks – 17.9%

Investment Companies – 17.3%

Insurance – 13%

Other financial services – 8.5%


The U.S. remains the single largest direct investor, accounting for 26.4 percent of inflows from 1974 – 2010, totaling USD 20 billion. The service sector represent about 33 percent of U.S. FDI to Chile, followed by the mining sector (27.6 percent), electricity, gas and water (14 percent), manufacturing (12.5 percent), transport and communication 10.5% and others 2.1%.

The following represent the inflows of FDI under DL600 by country from 1974 – 2009 (through 12/31/2009):

United States – 26.4%
Spain – 19.4%
Canada – 17.4%
United Kingdom – 8.4%
Australia – 4.7%
Japan – 3%
Ita1y – 3%
The Netherlands – 3%
France – 2%
Switzerland – 2%
Others – 11%

According to Central Bank statistics between 1990 and June 2010, Chilean investment abroad totaled USD 54.2 billion distributed over 70 countries in the world. Ten countries account for 93 percent of Chilean investment abroad: Argentina, Brazil, Peru, Colombia, United States, Mexico, Panama, Australia, Uruguay and Venezuela.

Argentina is the main recipient of Chilean FDI abroad representing 32 percent of total outward FDI (USD 15.6 billion), followed by Brazil (18 percent, USD 10.6 billion), Peru (15 percent, USD 9.4 billion), and Colombia (13 percent, USD 6.7 billion). The United States is the fifth largest destination for Chilean FDI with a 7 percent share totaling USD 3.7 billion. Chilean investment abroad has been divided as follows:
Services – 39.8%
Energy – 28.4%
Manufacturing – 23.7%
Agriculture and livestock – 3.5%
Mining – 4.6%

Statistical Annexes

FDI 1974-2009 (USD billion)

Mechanism

1974-2003

2004

2005

2006

2007

2008

2009

DL600

53.6

4.6

1.8

3.2

1.4

5.2

5.1

– Equity

40.2

4.0

1.6

2.1

1.3

4.6

2.4

– Other capital

13.4

612

153

1.1

66

645

2.7

Chapter XIV

10.3

2.1

2.1

2.7

6.1

6.9

6.1

– Equity

7.9

1.1

1.5

2.5

5.7

5.7

2.7

– Other Capital

2.4

0.98

0.60

0.30

0.37

1.2

3.3

Total FDI

63.9

6.8

3.9

5.9

7.4

12.2

11.2

Remittances

             

DL600

13.1

4.9

2.6

3.3

1.0

0.81

1.1

– Repatriation

             

Of Capital

5.3

3.2

1.9

1.9

0.59

0.50

453

– Repayments

7.8

1.7

0.58

1.3

0.42

0.31

694

Chapter XIV

2.7

1.0

0.91

1.4

1.3

1.6

2.1

– Repatriation
of Capital

0.91

0.46

0.29

0.09

0.88

1.3

2.2

Total Remittances

15.8

5.9

3.5

4.8

2.3

2.4

5.4

Source: Foreign Investment Committee (www.cinver.cl)
 


FDI (DL600) by Country of Origin (USD million, nominal)

Country

1974-2008

2008

2009*

2010*

Argentina

543,199

-41,272

0

0

Australia

3,130,796

193,821

395,258

85,705

Austria

23,773

5,300

0

0

Bahamas

104,233

0

0

0

Barbados

5,917

0

0

0

Belgium

1,016,927

245,000

0

0

Bermuda

475,794

0

0

0

Bolivia

1,249

0

0

0

Brazil

429,677

67,910

26,778

0

Canada

12,926,462

2,210,124

88,12

536,085

Cape Verde

167

0

0

0

Cayman Islands

304,356

0

0

0

China

84,537

0

249

376

Colombia

257,646

780

4,071

279,046

Costa Rica

4,038

0

0

0

Cyprus

6,000

0

0

0

Denmark

17,037

0

0

0

Dominican Republic

76

0

0

0

Ecuador

1,335

0

0

0

Egypt

349

0

0

0

El Salvador

250

0

0

0

Finland

100,332

0

0

0

France

1,537,039

144,885

53,293

5,193

Germany

734,732

22,200

1,276

0

Greece

6,522

0

0

0

Guatemala

20

0

0

0

Honduras

7,261

0

0

0

Iceland

4,965

0

0

0

India

27,107

0

0

0

International Org.

349,766

0

8,334

0

Ireland

17,722

0

0

0

Israel

4,635

0

0

0

Italy

1,657,094

0

50,680

6,250

Japan

2,257,138

626,678

257,536

187,720

Jordan

205

0

0

0

Korea, Republic of

40,371

0

0

0

Liberia

22,275

0

0

0

Liechtenstein

138,500

0

0

0

Luxembourg

109,20

0

0

0

Malaysia

22,923

0

0

0

Malta

0

0

27,150

0

Mexico

1,253,875

246,599

86,972

330,498

Monaco

3,893

0

0

0

Netherlands

1,829,693

2,660

1,458

16,000

Netherland Antilles

32,312

-2,300

0

0

New Zealand

158,791

0

0

0

Norway

439,686

54,718

325,280

12,580

Panama

313,922

90,705

7,672

3,560

Papua New Guinea

0

0

0

0

Paraguay

618

0

0

0

Peru

23,618

0

342,500

57,500

Portugal

25,412

24,850

0

0

Romania

3,360

0

0

0

Singapore

4,352

0

0

0

South Africa

405,121

1,236

2,667

1,344

Spain

14,512,061

562,613

23,714

14,312

Sweden

253,424

1,393

11,848

0

Switzerland

1,284,934

10,402

5,166

8,421

Taiwan R.O.C.

10,578

744

0

555

United Arab Emirates

180

0

0

0

United Kingdom

5,802,099

142,465

503,652

25,117

United States

16,944,808

550,718

2,858,324

208,157

Uruguay

107,867

0

0

0

Venezuela

126,733

0

0

0

TOTAL

69,900,476

5,162,229

5,082,000

1,778,419

Source: Foreign Investment Committee figures as of September, 2010

(*estimated figures; 2010 corresponds to January-September)
 

FDI (DL600) by Year: 1998-2009* (USD million, nominal)
(*January to October 2009)

Year

Jan-Oct

Annual Total

1998

4,565.3

6,038.4

1999

8,359.4

9,229.3

2000

2,349.8

3,039.5

2001

3,855.3

5,023.3

2002

1,316.8

3,381.1

2003

952.1

1,236.4

2004

4,557.1

4,637.0

2005

1,379.0

1,799.4

2006

2,242.1

3,181.3

2007

877.2

1,358.9

2008

4,322.4

5,242.5

2009

4,042.4

 

Source: Foreign Investment Committee
 

FDI (DL600) by Sector (USD million, nominal)

Sector

1974-2008

2008*

2009*

2010*

Agriculture

268,918

940

0

2,000

Forestry

455,984

80,386

29,081

12,061

Fishing/aquiculture

319,226

10,998

0

0

Mining

23,538,324

2,366,188

1,010,926

732,078

Food, beverages and

       

Tobacco

2,347,441

49,850

55,186

4,000

Wood and paper

1,201,922

53,851

1,474

6,560

Chemicals

2,929,661

1,469

33,142

0

Other manufacturing

1,622,855

112,165

367,950

73,413

Electricity, gas, water

14,363,530

1,409,913

305,976

87,806

Construction

1,426,955

2,121

0

7,308

Wholesale, retail trade

1,586,591

2,702

2,702

2,702

Transport, storage

1,159,345

425,985

8,028

276,294

Communication

6,891,408

283,225

194,547

63,051

Financial services (1)

6,937,828

207,571

317,374

43,058

Insurance

2,130,174

26,158

400

20,627

Engineering – business

       

Services

847,857

113,628

60,486

34,005

Sewage, sanitation

       

And similar services

522,644

0

0

0

Other Services (2)

1,349,813

14,461

16,606

6,505

Total

69,900,476

5,162,229

5,082,000

1,778,419

Source: Foreign Investment Committee

(*estimated figures; 2010 corresponds to January-September)

(1) Includes: banking, investment companies, investment and risk capital funds and other financial services.
(2) Includes: restaurants and hotels, real estate activities, social and related community services, recreation.
 

United States FDI to Chile (DL600): 1974-2009
(USD thousand, nominal)

Period

U.S.A. Total Value

%

DL600 U.S.A. Value

%

Total

1974-90

2,462,409

12.4

6,391,345

8.53

38.53

1991

350,245

1.77

982,122

1.31

35.66

1992

299,888

1.51

992,316

1.32

30.22

1993

606,159

3.06

1,740,256

2.32

34.83

1994

995,783

5.03

2,516,800

3.36

39.57

1995

1,498,332

7.57

3,027,466

4.04

49.49

1996

2,279,315

11.51

4,855,501

6.48

46.94

1997

887,366

4.48

5,227,495

6.98

16.97

1998

1,343,719

6.79

6,038,390

8.06

22.25

1999

1,388,730

7.01

9,229,321

12.32

15.05

2000

788,563

3.98

3,039,446

4.06

25.94

2001

1,808,061

9.13

5,023,270

6.71

35.99

2002

550,951

2.78

3,381,140

4.51

16.29

2003

373.374

1.89

1,236,431

1.65

30.20

2004

124,537

0.63

4,637,026

6.19

2.69

2005

9,242

0.05

1,799,351

2.40

0.51

2006

337,573

1.70

3,181,125

4.25

10.61

2007

290,123

1.47

1,358.567

1.81

21.36

2008*

550,718

2.78

5,162,229

6.89

10.67

2009*

2,858,324

14.43

5,082,000

6.78

56.24

TOTAL

19,803,412

100

74,901,600

100

26.44

Source: Foreign Investment Committee

(*estimated figures as of December 31, 2009)



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