As the seventh largest economy in the Western Hemisphere, Chile has historically enjoyed levels of stability and prosperity among the highest in the region. In October 2019, widespread civil unrest broke out in Chile in response to perceived systemic economic inequality. The unrest had a significant impact on Chile’s economy and some U.S. businesses operating in Chile. Pursuant to a political accord in response to the civil unrest, Chile plans to hold a plebiscite in October 2020 on whether or not to draft a new constitution. Chile’s solid macroeconomic policy framework has provided the fiscal space to respond to the economic effects of the social unrest and the COVID-19 pandemic through an economic stimulus package of about USD16.75 billion, which is expected to increase the fiscal deficit to 8 percent in 2020. Chile boasts one of the strongest sovereign bond ratings in Latin America. The country’s economy grew 1.1 percent in 2019, and the Chilean Central Bank forecasts Chile’s economic growth in 2020 will be in the range of -1.5 to -2.5 percent due to the impact of the COVID-19 pandemic.
Chile has successfully attracted Foreign Direct Investment (FDI) despite its relatively small domestic market. The country’s market-oriented policies have created significant opportunities for foreign investors to participate in the country’s economic growth. Chile has a sound legal framework and there is general respect for private property rights. Sectors that attract significant FDI include mining, finance/insurance, chemical manufacturing, and wholesale trade. Mineral, hydrocarbon, and fossil fuel deposits within Chilean territory are restricted from foreign ownership, but companies may enter into contracts with the government to extract these resources. Corruption exists in Chile but on a much smaller scale than in most Latin American countries, ranking of 26 out of 180 countries worldwide and second Latin America in Transparency International’s 2019 Corruption Perceptions Index.
Although Chile is an attractive destination for foreign investment, challenges remain. Legislative and constitutional reforms proposed in response to the social unrest and the pandemic have generated concern about the potential impact on investments in the energy, healthcare, insurance, and pension sectors. Despite a general respect for intellectual property (IP) rights, Chile has not fully complied with its IP obligations set forth in the U.S.-Chile FTA. Environmental permitting processes, indigenous consultation requirements, and cumbersome court proceedings have made large project approvals increasingly time consuming and unpredictable, especially in cases with political sensitivities. The current administration prioritizes attracting foreign investment and continues to implement measures to streamline the process.
|TI Corruption Perceptions Index||2019||26 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report||2020||59 of 190||http://www.doingbusiness.org/
|Global Innovation Index||2019||51 of 129||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, historical stock positions)||2018||26,146||http://apps.bea.gov/international/
|World Bank GNI per capita||2018||14,670||http://data.worldbank.org/indicator/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
For nearly four decades, promoting FDI has been an essential part of the Chilean government’s national development strategy. The country’s market-oriented economic policy creates significant opportunities for foreign investors to participate. Laws and practices are not discriminatory against foreign investors, who receive treatment similar to Chilean nationals. While Chile’s business climate is generally straightforward and transparent, the permitting process of infrastructure, mining, and energy projects has become increasingly contentious, especially regarding politically sensitive environmental impact assessments and indigenous consultations.
InvestChile is the government agency in charge of facilitating the entry and retention of FDI into Chile. It provides services related: to investment attraction (information about investment opportunities); pre-investment (sector-specific advisory services, including legal); landing (access to certificates, funds and networks), and after-care (including assistance for exporting and re-investment).
Regarding government-investor dialogue, in May 2018, the Ministry of Economy created the Sustainable Projects Management Office (GPS). This new agency provides support to investment projects, both domestic and foreign, serving as a first point of contact with the government and coordinating with different agencies in charge of evaluating investment projects.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign investors have access to all productive activities, except for the domestic maritime freight sector, in which there is a cap on foreign ownership of companies of 49 percent. Maritime transportation between Chilean ports is open since 2019 to foreign cruise vessels of more than 400 passengers capacity. Some international reciprocity restrictions exist for fishing.
Most enterprises in Chile may be 100 percent owned by foreigners. Chile only restricts the right to private ownership or establishment in what it defines as certain “strategic” sectors, such as nuclear energy and mining. 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. However, Chilean law allows the government to grant concession rights to individuals and companies for exploration and exploitation activities, and to assign contracts to private investors, without discrimination against foreign investors.
FDI is subject to pro forma screening by InvestChile. Businesses in general do not consider these screening mechanisms barriers to investment because approval procedures are expeditious and investments are usually approved.
Other Investment Policy Reviews
The World Trade Organization (WTO) has not conducted a Trade Policy Review for Chile since June 2015 (available here: https://www.wto.org/english/tratop_e/tpr_e/tp415_e.htm). The Organization for Economic Co-operation and Development (OECD) has not conducted an Investment Policy Review for Chile since 1997, and the country is not part of the countries covered to date by the United Nations Conference on Trade and Development’s (UNCTAD) Investment Policy Reviews.
The Chilean government took significant steps towards business facilitation during the last decade, including the use of digital means to start up a new company. On 7 June 2019, Chile’s Ministry of Economy launched the Unified System for Permits (SUPER), a new online platform intended to simplify and speed up the process of obtaining permits for investment projects. The platform aims at creating a single-window system, bringing together 182 license and permit procedures, previously spread across 29 different public institutions. The new online platform will allow users to access all required documentation, start online procedures, check application status and receive online updates on its progress.
According to the World Bank, Chile has one of the shortest and smoothest processes among Latin American and Caribbean countries -11 procedures and 29 days – to establish a foreign-owned limited liability company (LLC). Chile made starting a business easier in 2019 by enabling online registration of closed corporations. Drafting statutes of a company and obtaining an authorization number can be done online at the platform https://www.registrodeempresasysociedades.cl/. Electronic signature and invoicing allow foreign investors to register a company, obtain a tax payer ID number and get legal receipts, invoices, credit and debit notes, and accountant registries. A company needs typically to register with Chile’s Internal Revenue Service, obtain a business license from a municipality, and register either with the Institute of Occupational Safety (public) or with one of three private nonprofit entities that provide work-related accident insurance, which is mandatory for employers. In addition to the steps required of a domestic company, a foreign company establishing a subsidiary in Chile must authenticate the parent company’s documents abroad and register the incoming capital with the Central Bank. This procedure, established under Chapter XIV of the Foreign Exchange Regulations, requires a notice of conversion of foreign currency into Chilean pesos when the investment exceeds $10,000. The registration process at the Registry of Commerce of Santiago is available online.
The Government of Chile does not have an active policy of promotion or incentives for outward investment, nor does it impose restrictions on it.
3. Legal Regime
Transparency of the Regulatory System
Chile’s legal, regulatory, and accounting systems are transparent and provide clear rules for competition and a level playing field for foreigners. They are consistent with international norms; however, environmental regulations –which include mandatory indigenous consultation required by the International Labor Organization’s Indigenous and Tribal Peoples Convention (ILO 169)- and other permitting processes have become lengthy and unpredictable, especially in politically sensitive cases.
Four institutions play key roles in the rule-making process in Chile: the General-Secretariat of the Presidency (SEGPRES), the Ministry of Finance, the Ministry of Economy, and the General Comptroller of the Republic. However, Chile does not have a regulatory oversight body in its institutional set up. Most regulations come from the national government; however, some, in particular those related to land use, are decided at the local level. Both levels get involved in environmental permits. Regulatory processes are managed by governmental entities. NGOs and private sector associations may participate in public hearings or comment periods. The OECD’s April 2016 “Regulatory Policy in Chile” report asserts that Chile took steps to improve its rule-making process, but still lags behind the OECD average in assessing the impact of regulations, consulting with outside parties on their design, and evaluating them over time.
In Chile, non-listed companies follow norms issued by the Accountants Professional Association, while publicly listed companies use the International Financial Reporting Standards (IFRS). Since January 1, 2018, IFRS 9 entered into force for companies in all sectors except for banking, in which IFRS 15 will be applied. IFRS 16 entered into force in 2019.
The legislation process in Chile allows for public hearings during discussion of draft bills in both chambers of Congress. Draft bills submitted by the Executive Branch to the Congress are readily available for public comment. Ministries and regulatory agencies are required by law to give notice of proposed regulations, but there is no formal requirement in Chile for consultation with the general public, conducting regulatory impact assessments of proposed regulations, requesting comments, or reporting results of consultations. For lower-level regulations or norms that do not need congressional approval, there are no formal provisions for public hearing or comment. As a result, Chilean regulators and rulemaking bodies normally consult with stakeholders, but in a less regular manner.
All decrees and laws are published in the Diario Oficial (National Gazette), but other types of regulations will not necessarily be found there. There are no other centralized online locations where regulations in Chile are published, similar to the Federal Register in the United States.
According to the OECD, compliance rates in Chile are generally high. The approach to enforcement remains punitive rather than preventive, and regulators still prefer to inspect rather than collaborate with regulated entities on fostering compliance. Each institution with regulation enforcement responsibilities has its own sanction procedures. Law 19.880 from 2003 establishes the principles for reversal and hierarchical recourse against decisions by the administration. An administrative act can be challenged by lodging an action in the ordinary courts of justice, or by administrative means with a petition to the Comptroller General of the Republic. Affected parties may also make a formal appeal to the Constitutional Court against a specific regulation.
Chile still lacks a comprehensive, “whole of government” regulatory reform program. The World Bank´s Global Indicators of Regulatory Governance project finds that Chile is one of the countries that have improved their regulatory governance framework since 2017.
Chile’s level of fiscal transparency is excellent. Information on the budget and debt obligations, including explicit and contingent liabilities, is easily accessible online.
International Regulatory Considerations
Chile does not share regulatory sovereignty with any regional economic bloc. However, several international norms or standards from multilateral organizations (UN, WIPO, ILO, among others) are referenced or incorporated into the country’s regulatory system. As a member of the WTO, the Chile notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).
Legal System and Judicial Independence
Chile’s legal system is based on civil law. Chile’s legal and regulatory framework provides for effective means for enforcing property and contractual rights.
Laws governing issues of interest to foreign investors are found in several statutes, including the Commercial Code of 1868, the Civil Code, the Labor Code, and the General Banking Act. Chile has specialized courts for dealing with tax and labor issues.
The judicial system in Chile is generally transparent and independent. The likelihood of government intervention in court cases is low. If a state-owned firm is involved in the dispute, the Government of Chile may become directly involved through the State Defense Council.
Regulations can be challenged before the court system, the National Comptroller, or the Constitutional Court, depending on the nature of the claim.
Laws and Regulations on Foreign Direct Investment
Law 20,848, of 2015, established a new framework for foreign investment in Chile and created the Agency for the Promotion of Foreign Investment (APIE), successor to the former Foreign Investment Committee and which also acts under the name of “InvestChile.” InvestChile’s website (https://investchile.gob.cl/) provides relevant laws, rules, procedures, and reporting requirements for investors. For more on FDI regulations and services for foreign investors see the section on Policies Towards Foreign Direct Investment.
Competition and Anti-Trust Laws
Chile’s anti-trust law prohibits mergers or acquisitions that would prevent free competition in the industry at issue. An investor may voluntarily seek a ruling by an Antitrust Court that a planned investment would not have competition implications. The National Economic Prosecutor (FNE) is a very active institution conducting investigations for competition-related cases and filing complaints before the Free Competition Tribunal (TDLC), which rules on those cases.
In February 2019, the TDLC fined supermarket chains Walmart, Cencosud, and SMU with USD 4.2 million, USD 5.1 million, and USD 3.1 million, respectively. The TDLC ruled in a collusion case introduced by the FNE in 2016 establishing that these retailers set up a minimum price accord in the market for fresh poultry meat.
In April 2019, the FNE asked the Supreme Court to reverse a decision from the TDLC on October 2018 authorizing alliances between the Chilean airline Latam with British Airways, Iberia, and American Airlines. The FNE considers that such alliance would allow the formation of a monopoly in the main air routes used by Chileans to travel to Europe and North America, significantly reducing competition in other routes. On May 25, the Supreme Court unanimously accepted the request from the FNE and prohibited the alliances.
In June 2019, the FNE approved without conditions IBM’s acquisition of Red Hat Inc., an IT company that provides IT solutions for corporate clients, on the grounds that, according to FNE’s risk analysis, this operation does not reduce substantially competition in the market.
In December 2019, the FNE asked the TDLC to issue fines of USD 70 million on three foreign companies – Denmark-based Biomar; Netherland-based Skretting, and Peru-based Salmofood – that provide salmon feed in Chile. The FNE alleged that these companies, together with U.S. based Ewos, established an agreement to fix salmon feed prices between 2003 and 2015. FNE asked the TDLC to exempt Ewos from fines due to its cooperation with authorities.
Expropriation and Compensation
Chilean law grants the government authority to expropriate property, including property of foreign investors, only on public interest or national interest grounds, on a non-discriminatory basis and in accordance with due process. The government has not nationalized a private firm since 1973. Expropriations of private land take place in a transparent manner, and typically only when the purpose is to build roads or other types of infrastructure. The law requires the payment of immediate compensation at fair market value, in addition to any applicable interest.
ICSID Convention and New York Convention
Since 1991, Chile has been a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention). In 1975 Chile became a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).
National arbitration law in Chile includes the Civil Procedure Code (Law Num. 1552, modified by Law Num. 20.217 of 2007), and the Law Num. 19.971 on International Commercial Arbitration.
Investor-State Dispute Settlement
Apart from the New York Convention, Chile is also a party to the Pan-American Convention on Private International Law (Bustamante Code) since 1934; the Inter-American Convention on International Commercial Arbitration (Panama Convention) since 1976; and the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States since 1992.
The U.S.-Chile FTA, in force since 2004, includes an investment chapter that provides the right for investors to submit claims under the ICSID Convention; the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules; or any other mutually agreed upon arbitral institution. So far, U.S. investors have filed no claims under the agreement.
Over the past 10 years, there were only two investment dispute cases brought by foreign investors against the state of Chile before the World Bank’s International Center for Settlement of Investment Disputes (ICSID) tribunal. The first relates to a Spanish-Chilean citizen regarding the expropriation of Chilean newspaper El Clarín in 1975 by Chile’s military regime. On September 13, 2016, ICSID issued a final ruling in favor of the Chilean state, rejecting the claimant’s request for financial compensation. However, the same person brought a new case in April 2017, related to the State’s actions following a 2008 judgment of the Santiago court in relation to the confiscation of the Goss printing press, as well as the alleged lack of remedy for the deprivation of their property rights in El Clarín. The amount of compensation claimed by the investor is USD 338.3 million. The case is now pending resolution.
The second case was brought in 2017 by Colombian firm Alsacia, which holds concession contracts as operators of Transantiago, the public transportation system in Santiago de Chile. The firm claims USD 347 million for Government actions in relation to Transantiago that allegedly created unfavorable operating conditions for the claimants’ subsidiaries and resulted in bankruptcy proceedings. The case is pending resolution.
Local courts respect and enforce foreign arbitration awards, and there is no history of extrajudicial action against foreign investors.
International Commercial Arbitration and Foreign Courts
Mediation and binding arbitration exist in Chile as alternative dispute resolution mechanisms. A suit may also be brought in court under expedited procedures involving the abrogation of constitutional rights. The U.S.-Chile FTA investment chapter encourages consultations or negotiations before recourse to dispute settlement mechanisms. If the parties fail to resolve the matter, the investor may submit a claim for arbitration. 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 FTA investment chapter establishes clear and specific terms for making proceedings more efficient and avoiding frivolous claims. Chilean law is generally to be applied to all contracts. However, arbitral tribunals decide disputes in accordance with FTA obligations and applicable international law. The tribunal must also accept amicus curiae submissions.
In Chile, the Judiciary Code and the Code of Civil Procedure govern domestic arbitration. Local courts respect and enforce foreign arbitral awards and judgments of foreign courts. Chile has a dual arbitration system in terms of regulation, meaning that different bodies of law govern domestic and international arbitration. International commercial arbitration is governed by the International Commercial Arbitration Act that is modeled on the 1985 UNCITRAL Model Law on International Commercial Arbitration. In addition to this statute, there is also Decree Law Number 2349 that regulates International Contracts for the Public Sector and sets forth a specific legal framework for the State and its entities to submit their disputes to international arbitration.
No Chilean state-owned enterprises (SOEs) have been involved in investment disputes in recent decades.
Chile’s Insolvency Law from 1982 was updated in October 2014. The current law aims to clarify and simplify liquidation and reorganization procedures for businesses to prevent criminalizing bankruptcy. It also established the new Superintendence of Insolvency and created specialized insolvency courts. The new insolvency law requires creditors’ approval to select the insolvency representative and to sell debtors’ substantial assets. The creditor also has the right to object to decisions accepting or rejecting creditors’ claims. However, the creditor cannot request information from the insolvency representative. The creditor may file for insolvency of the debtor, but for liquidation purposes only. The creditors are divided into classes for the purposes of voting on the reorganization plan; each class votes separately, and creditors in the same class are treated equally.
4. Industrial Policies
The Chilean government generally does not subsidize foreign investment, nor does it issue guarantees or joint financing for FDI projects. There are, however, some incentives directed toward 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 and legal guarantees for remitting profits and capital. Additionally, the Start-Up Chile program provides selected entrepreneurs with grants of up to USD 80,000, along with a Chilean work visa to develop a “startup” business in Chile over a period of 4 to 7 months. Chile has other special incentive programs aimed at promoting investment and employment in remote regions, as well as other areas that suffer development lags.
Foreign Trade Zones/Free Ports/Trade Facilitation
Chile has two free trade zones: one in the northern port city of Iquique (Tarapaca Region) and the other in the far south port city of Punta Arenas (Magallanes Region). Merchants and manufacturers in these zones are exempt from corporate income tax, value added taxes (VAT) – on operations and services that take place inside the free trade zone – and customs duties. The same exemptions also apply to manufacturers in the Chacalluta and Las Americas Industrial Park in Arica (Arica and Parinacota Region). Mining, fishing, and financial services are not eligible for free zone concessions. Foreign-owned firms have the same investment opportunities in these zones as Chilean firms. The process for setting up a subsidiary is the same inside as outside the zones, regardless of whether the company is domestic or foreign-owned. Zofri is the main FTZ located in Iquique.
Performance and Data Localization Requirements
Chile mandates that 85 percent of workers must be local employees. Exceptions are described in Section 11. The costs associated with migration regulations do not significantly inhibit the mobility of foreign investors and their employees.
Chile does not follow “forced localization.” A draft bill that is pending in Chile’s Congress could result in additional requirements (owner’s consent) for international data transfers in cases involving jurisdictions with data protection regimes below Chile’s standards. The bill, modeled after the European Union’s General Data Protection Regulation (GDPR) also proposes the creation of an independent Chilean Data Protection Agency that would be responsible for enforcing data protection standards.
Neither Chile’s Foreign Investment Promotion Agency nor the Central Bank applies performance requirements in their reviews of proposed investment projects. The investment chapter in the U.S.–Chile FTA establishes rules prohibiting performance requirements that apply to all investments, whether by a 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 certain exceptions. These include government procurement, qualifications for export and foreign aid programs, and non-discriminatory health, safety, and environmental requirements.
5. Protection of Property Rights
Property rights and interests are recognized and generally enforced in Chile. Chile ranked 63 out of 190 economies in the “Registering Property” category of the World Bank’s 2020 Doing Business report. There is a recognized and generally reliable system for recording mortgages and other forms of liens.
There are no restrictions on foreign ownership of buildings and land, and no time limit on the property rights acquired by them. The only exception, based on national security grounds, is for land located in border territories, which may not be owned by nationals or firms from border countries, without prior authorization of the President of Chile. There are no restrictions to foreign and/or non-resident investors regarding land leases or acquisitions. In the Doing Business specific index for “quality of land administration” (which includes reliability of infrastructure, transparency of information, geographic coverage and land dispute resolution), Chile obtains a score of 14 out of 30.
Unoccupied properties can always be claimed by their legal owners and, as usurpation is criminalized, several kinds of eviction procedures are allowed by the law.
Intellectual Property Rights
According to the U.S. Chamber of Commerce’s International IP Index, Chile’s legal framework provides for fair and transparent use of compulsory licensing; extends necessary exclusive rights to copyright holders and maintains a voluntary notification system; and provides for civil and procedural remedies. However, IP protection challenges remain. Chile’s framework for trade secret protection has been deemed insufficient by private stakeholders. Pharmaceutical and agrochemical products suffer from relatively weak patenting procedures, the absence of an effective patent enforcement and resolution mechanism, and some gaps in regulation governing data protection.
Two important IP-related laws made progress in 2019 in the Chilean Congress and are pending passage. A draft bill submitted to Congress in October 2018 would reform Chile’s Industrial Property Law. The new IP bill aims to reduce timeframes, modernize procedures, and increase legal certainty for patents and trademarks registration. On April 9, 2019, the bill was passed by the Lower Chamber and sent to the Senate. Meanwhile, a reform bill on Chile’s pharmaceutical drugs law named “Ley de Fármacos II”, originated in the Senate but was extensively amended by the opposition-controlled Lower Chamber, and is currently at its final stage before passage. The pharmaceutical industry contends that the bill, in its current version, could put Chile in non-compliance with its international trade obligations. Their main IP concerns about the current version of the bill are related to: a labeling requirement by which a medication must include its International Nonproprietary Name (INN) in a size that occupies at least one-third of one of the main faces of its package, while limiting the size of the trademark to one-fifth of the space used by the product´s INN; a requirement that physicians prescribe a pharmaceutical product exclusively by INN, prohibiting them from using trademarks; a requirement that drugs may only be distributed if they are double registered under both generic and brand names; and a provision allowing the government to issue compulsory licenses permitting the sale of generics based on unspecified “economic or financial considerations.” The different provisions of the bill are currently being voted by a mixed committee of senators and deputies to reconcile their respective amendments.
The Intellectual Property Brigade (BRIDEPI) of the Chilean Investigative Police (PDI) reported that it seized 80,793 counterfeit products in 2019, worth a total of USD 11.3 million, and arrested 25 individuals on charges related to IPR infringement. Additionally, the National Customs Service reported that, as of December 27, it had seized more than 11.6 million counterfeit products in 2019 (an increase of 65 percent compared to 2018), worth a total of USD139.5 million (an increase of 35 percent compared to 2018.) Customs seized also 14 million smuggled cigarette boxes worth USD54.7 million in terms of tax evasion, as well as 5.05 million products (32 percent more than in 2018) that infringed health regulations, especially medical devices cosmetics, and toys.
Chile’s IPR enforcement remains, according to the WIPO report mentioned above, relatively lax, particularly in relation to piracy, copyright and patent protection, while prosecution of IP infringement is hindered by gaps in the legal framework and a lack of expertise in IP law among judges. Rights holders indicate a need for greater resources devoted to customs operations and a better-defined procedure for dealing with small packages containing infringing goods. The legal basis for detaining and seizing suspected transshipments is also insufficiently clear.
Chile has been included on the Special 301 Priority Watch List (PWL) since January 8, 2007 and remains on the 2019 Priority Watch List. In October 2018, Chile’s Congress successfully passed a law that criminalizes satellite piracy. However, other big challenges remain, related to longstanding IPR issues under the U.S.-Chile FTA: the implementation of measures against circumvention of technological protection; pending implementation of UPOV 91; the implementation of an effective patent linkage in connection with applications to market pharmaceutical products; adequate protection for undisclosed data generated to obtain marketing approval for pharmaceutical products; and amendments to Chile’s Internet Service Provider liability regime to permit effective action against Internet piracy.
Chile is not listed in the USTR’s Notorious Markets List. For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
6. Financial Sector
Capital Markets and Portfolio Investment
Chile’s authorities are committed to developing capital markets and keeping them open to foreign portfolio investors. Foreign firms offer services in Chile in areas such as financial information, data processing, financial advisory services, portfolio management, voluntary saving plans and pension funds. Under the U.S.-Chile FTA, Chile opened up significantly its insurance sector, with very limited exceptions. The Santiago Stock Exchange is Chile’s dominant stock exchange, and the third largest in Latin America. However, when compared to other OECD countries, it does not rank high in terms of market liquidity.
Existing policies facilitate the free flow of financial resources into Chile’s product and factor markets and adjustment to external shocks in a commodity-dependent economy. Chile has accepted the obligations of Article VIII (sections 2, 3 and 4) and maintains a free floating exchange rate system, free of restrictions on the making of payments and transfers for current international transactions. Credit is allocated on market terms and its various instruments are available to foreigners. The Central Bank reserves the right to restrict foreign investors’ access to internal credit if a credit shortage exists. To date, this authority has not been exercised.
Money and Banking System
Nearly one fourth of Chileans have a credit card from a bank and nearly one third have a non-bank credit card, but less than 20 percent have a checking account. However, financial inclusion is higher than banking penetration: a large number of lower-income Chilean residents have a CuentaRut, which is a commission-free card with an electronic account available for all, launched by the state-owned Banco Estado, also the largest provider of microcredit in Chile.
The Chilean banking system is healthy and competitive, and many Chilean banks already meet Basel III standards, which are part of a reform to the General Banking Law which was enacted in January 2019 (Basel III standards will be introduced gradually over the next several years). Capital adequacy ratio of the system is above 13 percent as of October 2019 and remains robust even when including discounts due to market and/or operational risks. Non-performing loans are below 2 percent when measured by the standard 90 days past due criterion.
The Chilean banking system’s total assets, as of March 2020, amounted to USD 386.6 billion, according to the Superintendence of Banks and Financial Institutions. The largest 6 banks account for 88 percent of the total banking system assets (Banco Santander-Chile, Banco de Credito e Inversiones, Banco de Chile, Banco Estado, Scotiabank Chile and Itaú-Corpbanca). Chile’s Central Bank conducts the country’s monetary policy, is constitutionally autonomous from the government, and is not subject to regulation by the Superintendence of Banks.
Foreign banks have an important presence in Chile, with 3 out of the 6 largest banks of the system. Out of 18 banks currently in Chile, 5 are foreign owned but legally established banks in Chile and 4 are branches of foreign banks. Both categories are subject to the requirements set out under the Chilean banking law. There are also 21 representative offices of foreign banks in Chile. There are no reports of correspondent banking relationships withdrawal in Chile.
In order to open a bank account in Chile, a foreigner must present his/her Chilean ID Card or passport, Chilean tax ID number, proof of address, proof of income/solvency, photo, and fingerprints.
Foreign Exchange and Remittances
Law 20.848, which regulates FDI (described in section 1), prohibits arbitrary discrimination against foreign investors and guarantees access to the formal foreign exchange market, as well as the free remittance of capital and profits generated by investments. There are no other restrictions or limitations placed on foreign investors for the conversion, transfer or remittance of funds associated with an investment.
Investors, importers, and others are guaranteed access to foreign exchange in the official inter-bank currency market without restriction. The Central Bank of Chile (CBC) 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 purposes.
Chile has a free floating (flexible) exchange rate system. Exchange rates of foreign currencies are fully determined by the market. The CBC reserves the right to intervene under exceptional circumstances to correct significant deviations of the currency from its fundamentals. This authority was used in 2019 following an unusual 20.5 percent depreciation of the Chilean peso (CLP) after six weeks of civil unrest, an unprecedented circumstance that triggered a similarly unusual USD20 billion intervention (half of the CBC foreign currency reserves) announced on November 28. In the near term, this intervention successfully arrested the currency slide (between December 2-11, the CLP appreciated 10.2 percent against the U.S. dollar) but left the CBC with less room to respond to the subsequent impact of the COVID-19 pandemic on Chile’s currency.
Remittances of profits generated by investments are allowed at any time after tax obligations are fulfilled; remittances of capital can be made after one year following the date of entry into the country. In practice, this permanency requirement does not constitute a restriction for productive investment, because projects normally need more than one year to mature. Under the investment chapter of the U.S.–Chile FTA, the parties must allow free transfer and without delay of covered investments 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 flows this chapter allows Chile to impose transfer restrictions for up to 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. In practice, these restrictions have not been applied in the last two decades.
Sovereign Wealth Funds
The Government of Chile maintains two sovereign wealth funds (SWFs) built with savings from years with fiscal surpluses. The Economic and Social Stabilization Fund (FEES) was established in 2007 and was valued at USD 12.3 billion as of March 2020. The purpose of the FEES is to fund public debt payments and temporary deficit spending, in order to keep a countercyclical fiscal policy. The Pensions Reserve Fund (FRP) was built up in 2006 and amounted to USD 9.9 billion as of March 2020. The purpose of the FRP is to anticipate future needs of payments to those eligible to receive pensions, but whose contributions to the private pension system fall below a minimum threshold.
Chile is a member of the International Working Group of Sovereign Wealth Funds (IWG) and adheres to the Santiago Principles.
Chile’s government policy is to invest SWFs entirely abroad into instruments denominated in foreign currencies, including sovereign bonds and related instruments, corporate and high-yield bonds, mortgage backed securities from U.S. agencies, and stocks.
7. State-Owned Enterprises
Chile had 28 state-owned enterprises (SOEs) in operation as of 2018. They are all commercial companies. Twenty-five SOEs are not listed and are fully owned by the government. The remaining three are majority government owned. Ten Chilean SOEs operate in the port management sector; seven in the services sector, three in the defense sector, three in the mining sector –including CODELCO, the world’s largest copper producer and; ENAP, an oil and gas company-, two in transportation, one in the water sector, one is a TV station, and one is a state-owned bank (Banco Estado). The state also holds a minority stake in four water companies as a result of a privatization process. In 2018, total assets of SOEs amounted to USD 72.5 billion, while their total net income was USD 255.8 million. SOEs employed 51,749 people in 2018.
Twenty SOEs in Chile fall under the supervision of the Public Enterprises System, a state holding in charge of overseeing SOE governance. The rest -including the largest SOEs such as CODELCO, ENAP and Banco Estado- have their own governance and report to government ministries. Allocation of seats on the boards of Chilean SOEs is determined by the SEP, as described above, or outlined by the laws that regulate them. In CODELCO’s corporate governance, there is a mix between seats appointed by recommendation from an independent high-level civil service committee, and seats allocated by political authorities in the government.
A list of SOEs made by the Budget Directorate, including their financial management information, is available in the following link: http://www.dipres.gob.cl/599/w3-propertyvalue-20890.html.
In general, Chilean SOEs work under hard budget constraints and compete under the same regulatory and tax frameworks as private firms. The exception is ENAP, which is the only company allowed to refine oil in Chile. As an OECD member, Chile adheres to the OECD Guidelines on Corporate Governance for SOEs.
Chile does not have a privatization program in place.
8. Responsible Business Conduct
Awareness of the need to ensure corporate social responsibility has grown over the last two decades in Chile. However, NGOs and academics who monitor this issue believe that risk mapping and management practices still do not sufficiently incorporate its importance.
The government of Chile encourages foreign and local enterprises to follow generally accepted Responsible Business Conduct (RBC) principles and uses the United Nations’ Rio+20 Conference statements as its principal reference. Chile adhered in 1997 to the OECD Guidelines for Multinational Enterprises. It also recognizes the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy; the UN Guiding Principles on Business and Human Rights; the UN Global Compact’s Ten Principles and the ISO 26000 Guidance on Social Responsibility. The government established a National Contact Point (NCP) for OECD MNE guidelines located at the General Directorate for International Economic Relations, and recently created the Responsible Business Conduct Department, whose chief is also the NCP. In August 2017, Chile released its National Action Plan on Business and Human Rights based on the UN Guiding Principles. Separately, the Council on Social Responsibility for Sustainable Development, coordinated by Chile’s Ministry of Economy, is currently developing a National Policy on Social Responsibility.
Regarding procurement decisions, ChileCompra, the agency in charge of centralizing Chile’s public procurement, incorporates the existence of a Clean Production Certificate and an ISO 14001-2004 certificate on environmental management as part of its criteria to assign public purchases.
No high profile, controversial instances of corporate impact on human rights have occurred in Chile in recent years.
The Chilean government effectively and fairly enforces domestic labor, employment, consumer, and environmental protection laws. There are no dispute settlement cases against Chile related to the Labor and Environment Chapters of the Free Trade Agreements signed by Chile.
Regarding the protection of shareholders, the Superintendence of Securities and Insurance (SVS) has the responsibility of regulating and supervising all listed companies in Chile. Companies are generally required to have an audit committee, a directors committee, an anti-money laundering committee and an anti-terrorism finance committee. Laws do not require companies to have a nominating/corporate governance committee or a compensation committee. Compensation programs are typically established by the board of directors and/or the directors committee.
Independent NGOs in Chile promote and freely monitor RBC. Examples include NGO Accion RSE: http://www.accionrse.cl/, the Catholic University of Valparaiso’s Center for Social Responsibility and Sustainable Development VINCULAR: http://www.vincular.cl/, ProHumana Foundation and the Andres Bello University’s Center Vitrina Ambiental.
Chile is an OECD member, but is not participating actively in the implementation of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.
Chile is not part of the Extractive Industries Transparency Initiative (EITI).
Chile applies, in a non-discriminatory manner, various laws to combat corruption of public officials, including the 2009 Transparency Law that mandated disclosure of public information related to all areas of government and created an autonomous Transparency Council in charge of overseeing its application. Subsequent amendments expanded the number of public trust positions required to release financial disclosure, mandated disclosure in greater detail, and allowed for stronger penalties for noncompliance.
In March 2020, the Piñera administration proposed new legislation aimed at combatting corruption, as well as economic and electoral crimes. The four new pieces of legislation, part of the Piñera administration’s “anti-abuse agenda” launched in December 2019 in response to societal demands to increase penalties for white-collar crimes, seeks to strengthen enforcement and increase penalties for collusion among firms; increase penalties for insider trading; provide protections for whistleblowers seeking to expose state corruption; and expand the statute of limitations for electoral crimes.
Anti-corruption laws, and in particular mandatory asset disclosure, do extend to family members of officials. Political parties are subject to laws that limit campaign financing and require transparency in party governance and contributions to parties and campaigns.
Regarding government procurement, the website of ChileCompra (central public procurement agency) allows users to anonymously report irregularities in procurement. There is a decree that defines sanctions for public officials who do not adequately justify direct contracts.
The Corporate Criminal Liability Law provides that corporate entities can have their compliance programs certified. Chile’s Securities and Insurance Superintendence (SVS) authorizes a group of local firms to review companies’ compliance programs and certify them as sufficient. Certifying firms are listed on the SVS website.
Private companies have increasingly incorporated internal control measures, as well as ethics committees as part of their corporate governance, and compliance management sections. Additionally, Chile Transparente (Chilean branch of Transparency International) developed a Corruption Prevention System to provide assistance to private firms to facilitate their compliance with the Corporate Criminal Liability Law.
Chile signed and ratified the Organization of American States (OAS) Convention against Corruption. The country also ratified the UN Anticorruption Convention on September 13, 2006. Chile is also an active member of the Open Government Partnership (OGP) and, as an OECD member, adopted the OECD Anti-Bribery Convention.
NGO’s that investigate corruption operate in a free and adequately protected manner.
U.S. firms have not identified corruption as an obstacle to FDI.
Resources to Report Corruption
Andrea Ruiz Rojas
Consejo para la Transparencia
Morande 360 piso 7
Chile Transparente (Chile branch of Transparency International)
Perez Valenzuela 1687, piso 1, Providencia, Santiago, Chile
Holanda 895, Providencia, Santiago, Chile
Santa Lucía 188, piso 7, Santiago, Chile
Observatorio Anticorrupción (Run by Espacio Publico and Ciudadania Inteligente) https://observatorioanticorrupcion.cl/
Jeannette von Wolfersdorff
Observatorio Fiscal (focused on public spending)
Don Carlos 2983, Oficina 3, Las Condes, Santiago, Chile
10. Political and Security Environment
In October 2019, widespread civil unrest broke out in Chile in response to perceived systemic economic inequality. The unrest had a significant impact on Chile’s economy and some U.S. businesses operating in Chile. Protesters targeted metro stations, police stations, banks, pharmacies, and installations associated with pension funds. Pursuant to a political accord in response to the civil unrest, Chile plans to hold a plebiscite in October 2020 on whether or not to draft a new constitution. If Chileans vote to draft a new constitution, the process to create and ratify it would take until at least mid-2022. Uncertainty over what changes could be made to Chile’s political and regulatory environment could negatively impact investor confidence. The coronavirus pandemic and government measures in response to it have led to a large reduction of vandalism and attacks on businesses.
Prior to 2019, there were generally few incidents of politically motivated attacks on investment projects or installations, with the exception of the southern Araucania region and its neighboring Arauco province in the southwest of Bio-Bio region. This area, home to nearly half a million indigenous inhabitants, has seen a growing trend of politically motivated violence. Land claims and conflicts with forestry companies are the main grievances underneath the radicalization of a relatively small number of indigenous Mapuche communities, which has led to the rise of organized groups that pursue their demands by violent means. Incidents include arson attacks on churches, farms, forestry plantations, and forestry contractors’ machinery and vehicles, as well as occupation of private lands, resulting in over a half-dozen deaths (including some by police forces), injuries, and damage to property. In 2018, the government announced special measures and policies towards the Araucania region. However, the indigenous issue has been further politicized due to anger among landowners, forestry transport contractors, and farmers affected by violence, as well as the illegal killing of a young Mapuche activist by special police forces in 2018 and the controversy over accusations of fraud by the police during the investigation of indigenous organized groups.
Since 2007, Chile has experienced a number of small-scale attacks with explosive and incendiary devices, targeting mostly banks, police stations, and public spaces throughout Santiago, including ATM’s, metro stations, universities and churches. Anarchist groups often claim responsibility for these acts, as they also have been involved in incidents during student and labor protests. In January 2017, an eco-terrorist group claimed responsibility for a parcel bomb that detonated at the home of the chairman of the board of Chilean state-owned mining giant CODELCO. The same group detonated bombs of similar characteristics during 2019 at a bus stop in downtown Santiago, causing five injuries, and at a police station in the Santiago metro area, wounding 8 police officers. They also sent letter bombs to a former Interior Minister and the president of the Metro at their offices, both of which were defused by police. One suspect was arrested in 2019 and the investigation of the crimes is ongoing at the time of this report.
On occasions, illegal activity by striking workers resulted in damage to corporate property or a disruption of operations. Some firms have publicly expressed concern that during a contentious strike, law enforcement has appeared to be reluctant to protect private property.
Chilean civil society is active and demonstrations occur frequently. Although the vast majority of demonstrations are peaceful, on occasion protestors have veered off pre-approved routes. This tendency has increased since widespread civil unrest began in October 2019. In a few instances, criminal elements have taken advantage of civil society protests to loot stores along the protest route and have clashed with the police. Demonstrations on March 29, the Day of the Young Combatant, and September 11, the anniversary of the 1973 coup against the government of President Salvador Allende, have in the past resulted in damage to property.
11. Labor Policies and Practices
Unemployment in Chile averaged 7.2 percent of the labor force during 2019, while the labor participation rate was 63.4 percent of the working age population. Immigrants account for 7.6 percent of the labor force. Chilean workers are adequately skilled and some sectors such as mining, agriculture, and fishing employ highly skilled workers. In general, there is an adequate availability of technicians and professionals. Recent estimates made by the National Institute of Statistics (INE) suggest informal employment in Chile constitutes 28.4 percent of the workforce.
Article 19 of the Labor Code stipulates that employers must hire Chileans at least for 85 percent of their staff, except in the case of firms with less than 25 employees. However, Article 20 of the Labor Code includes several provisions under which foreign employees can exceed 25 percent, independent of the size of the company.
In general, employees who have been working for at least one year are entitled to a statutory severance pay, upon dismissal without cause, equivalent to 30 days of the last monthly remuneration earned, for each year of service. The upper limit is 330 days (11 years of service) for workers with a contract in force for one year or more. The same amount is payable to a worker whose contract is terminated for economic reasons. Upon termination, regardless of the reason, domestic workers are entitled to an unemployment insurance benefit funded by the employee and employer contributions to an individual unemployment fund equivalent to three percent of the monthly remuneration. The employer’s contributions shall be paid for a maximum of 11 years by the same employer. Another fund made up of employer and government contributions is used for complementary unemployment payments when needed.
Labor and environmental laws are not waived in order to attract or retain investments.
Labor Directorate data indicates that 21.7 percent of Chilean workers belonged to a trade union as of October 2019. Information on the current number of active unions and collective bargaining agreements is not available. During the last quarter of 2016 (latest data available), 11,653 unions were active. In the same period, 347,142 workers (4.2 percent of Chilean workers) were covered by collective bargaining agreements. Collective bargaining coverage rates are higher in the financial, mining, and manufacturing sectors. Unions can form nationwide labor associations and can affiliate with international labor federations. Contracts are normally negotiated at the company level. Workers in public institutions do not have collective bargaining rights, but national public workers’ associations undertake annual negotiations with the government.
The Labor Directorate under the Ministry of Labor is responsible for enforcing labor laws and regulations. Both employers and workers may request labor mediation from the Labor Directorate, which is an alternate dispute resolution model aimed at facilitating communication and agreement between both parties.
According to a report from the Center for Social Conflict and Cohesion Studies (COES), during 2018, 269 legal strikes took place in sectors where collective bargaining is permitted (a smaller number in comparison to 2017 when there were 325 strikes). Labor Directorate data on the total number of workers who engaged in strikes during 2019 is still pending. As legal strikes in Chile have a restricted scope and duration, in general they do not present a risk for foreign investment.
Chile has and generally enforces laws and regulations in accordance with internationally recognized labor rights of: freedom of association and collective bargaining; the elimination of forced labor; child labor, including the minimum age for work; discrimination with respect to employment and occupation; and acceptable conditions of work related to minimum wage, occupational safety and health, and hours of work. The maximum number of labor hours allowed per week in Chile is 45. In March 2019, Chile raised its monthly minimum wage to CLP 301,000 – USD 444 – for all occupations, including domestic servants, more than twice the official poverty line. There is a special minimum wage of CLP 224,704 (USD 331) a month for workers age 65 and older and age 18 and younger. There are no gaps in compliance with international labor standards that may pose a reputational risk to investors.
Collective bargaining is not allowed in companies or organizations dependent upon the Defense Ministry or whose employees are prohibited from striking, such as in health care, law enforcement, and public utilities. Labor courts can require workers to resume work upon a determination that a strike causes serious risk to health, national security, the supply of goods or services to the population, or to the national economy.
The United States-Chile Free Trade Agreement (FTA) entered into force on January 1, 2004. The FTA requires the United States and Chile to maintain effective labor and environmental enforcement.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs
Since 2013, Overseas Private Investment Corporation (OPIC) partnered with U.S. solar energy developers to finance five large-scale power facilities throughout the Atacama Desert in northern Chile. Other OPIC-financed projects in the country include the run-of-river hydropower project Alto Maipo, and the toll road Vespucio Norte Express.
An OPIC Bilateral Investment Agreement between Chile and the United States took effect in 1984. Chile is a party to the convention of the World Bank’s Multilateral Investment Guarantee Agency (MIGA).
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source*||USG or international statistical source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($M USD)||2018||298,718||2018||298,238||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country (USD million, stock positions)||2018||36,848||2018||26,146||BEA data available at
|Host country’s FDI in the United States (USD million, stock positions)||2018||13,224||2018||3,066||BEA data available at
|Total inbound stock of FDI as % host GDP||2018||92.4%||2018||90.3%||UNCTAD data available at
* Source for Host Country Data: Central Bank of Chile, year-end data is published in March 31 of the following year.
Table 3: Sources and Destination of FDI
According to the IMF’s Coordinated Direct Investment Survey (CDIS), total stock of FDI in Chile in 2018 amounted to USD 251.9 billion, compared to USD 274.7 billion in 2017. The United States remains the main source of FDI to Chile with USD 36.1 billion, representing 14.3 percent of the total.
The following top sources (Spain, Canada, the Netherlands, and the UK) accounted for 39.2 percent of Chile’s inward FDI stock. Chile’s outward direct investment stock in 2018 remains concentrated in South America, where Panama, Brazil, and Peru together represented 33.4 percent of total Chilean outward FDI. The United States accounted for 10.5 percent of the total.
The data below is consistent with host country statistics. Although not included in the table below, tax havens are relevant sources of inward FDI to Chile, with the British Virgin Islands, Cayman Islands and Bermuda ranking sixth, seventh and eighth in inbound sources of FDI respectively, according to the Central Bank of Chile. The Cayman Islands and Luxembourg rank eighth and ninth, respectively, among Chile´s main outward FDI destinations.
|Direct Investment from/in Chile Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||251,867||100%||Total Outward||119,036||100%|
|United Kingdom||11,951||4.7%||British Virgin Islands||8,787||7.4%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
According to the IMF’s Coordinated Portfolio Investment Survey (CPIS), total stock of portfolio investment in Chile as of June 2019 amounted to USD 186.6 billion, of which USD 147.7 billion were equity and investment funds shares, and the rest were debt securities. Luxembourg (a tax haven) and the United States were the main sources of portfolio investment to Chile with US $57.9 billion and $56.9 billion, representing 31 percent and 30 percent of the total, respectively. Both countries also represent 68 percent of the total of equity investment. Ireland, the United Kingdom and Germany are the following top sources of equity portfolio investment to Chile, while the United States, Mexico and Japan are the top sources of debt securities investment.
|Portfolio Investment Assets|
|Top Five Partners (Millions, current US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||186,654||100%||All Countries||147,722||100%||All Countries||38,932||100%|
|United States||56,880||30%||United States||42,255||29%||Mexico||4,723||12%|
|United Kingdom||6,425||3%||United Kingdom||5,366||4%||Germany||38,932||5%|
14. Contact for More Information
Avenida Andrés Bello 2800, Las Condes, Santiago, Chile
T: (+56)-(9)-4268 9005