Chile

Merchandise Trade

• Chile has been a member World Trade Organization (WTO) since January 1, 1995. Importers are not subject to any registration requirements. However, they are required to hire an accredited customs broker to enter the merchandise if the free on board (FOB) value of such merchandise is higher than USD500. The use of a customs broker is not mandatory in several other instances, including merchandise entering a free trade zone (FTZ).


• Chile adopts the Harmonised System and affords most favoured tariff treatment to all its trading partners. Virtually all imports are subject to a most favoured nation duty of 6.0% ad valorem. Apart from import duties, products imported or circulated in Chile are essentially subject to a value-added tax (VAT) of 19% on domestic goods as well as excise taxes and other charges, including an airport tax.


• Chile does not have any import quotas in place, neither does it impose any licensing requirements on imports or have any pre-shipment inspection requirements. However, certain goods require approval or certification prior to import, while other goods require approval or certification for customs clearance.


• Over the past two decades, Chile has developed an extensive network of FTAs with a range of partner countries in the Americas, Asia, Europe and the Pacific. Specifically, Chile has signed FTAs with more than 90% of its trade partners, including Australia, Mainland China, Hong Kong, India, Japan, Mexico, the United States, the EU and South Korea. Moreover, Chile is the only member of the original Trans-Pacific Partnership (TPP) Agreement to have an FTA in place with every other TPP signatory. Although United States President Donald Trump signed an executive order formally withdrawing the United States from the trade deal in January 2017, the remaining 11 TPP nations officially agreed on key aspects of the trade pact on November 11, 2017 and signed the document in March 2018. The CPTPP, also known as TPP11, was ratified by the required number of states (seven states as of November 15, 2018) and came into force on December 30, 2018.


• Chile does not impose any limits on the amount of currency derived from trade operations that can be brought into or taken out of the country, but Chilean exporters and importers with a total export or import value of USD5 million or more on an FOB basis in any single year are required to provide certain information to Chile's central bank.


• Chilean standards and technical regulations do not distinguish between foreign and domestic goods. So far, Chile has issued more than 1,000 technical regulations covering a broad spectrum of products. Standards are voluntary and are adopted through consensus among parties from the public and private sectors who are invited to participate in the consultations. The National Institute for Standardisation has overall responsibility for the elaboration of standards. Chile also has labelling regulations in place for a wide range of products. In general, products commercialised in Chile must be labelled with the name or registered brand, the address of the producer or importer, the country of origin and care instructions. The information included must be accurate and provided in Spanish.


• There are three main FTZs in Chile: the FTZ of Iquique (ZOFRI) in the Tarapacá region in the far north, the Free Zone of Punta Arenas (PARANEZON) in the Magallanes province in the far south and the Arica FTZ (located in northern Chile near the Peruvian border). ZOFRI encompasses the free ports of Arica and Iquique and is a major entry point for products bound for Bolivia and Peru, Paraguay and northern Argentina. Each FTZ is equipped with manufacturing, packaging and exporting facilities. Imports entering ZOFRI and PARANEZON are duty free; however, imports leaving the FTZs to enter the Chilean market pay full tariff and VAT charges.


• The broad range of FTAs reduces Chile's average tariff rate, which, at 1.8%, is the third lowest in Central and South America (Peru leads the way with an average tariff of 1.4%, followed by Guatemala at 1.5%).


• In order to protect domestic industries, the Chilean government has imposed various anti-dumping measures, particularly on the steel and metal sectors. On October 22, 2016, the Chilean authorities imposed a provisional anti-dumping duty on the imports of certain steel wire from Mainland China. The rate of duty is 40.6%. On November 22, 2017, the Chilean government imposed a 22.9% duty on certain steel bars from Mainland China in order to counter allegations of dumping. However, the duty has now lapsed, having remained in place for one year.


• The Chilean government has also imposed various safeguards concerning agricultural sectors to protect domestic industries. The Chilean government regularly adjusts the discounts on imported sugar and wheat or meslin flour. These discounts help mitigate some of the effects of the price floors imposed by Chile (which is above the average customs rate). The cost of importing sugar to Chile may thus increase or decrease on the back of government decisions. There were interventions in February, 2020, when the government of Chile increased the applicable reductions on the import tariffs of wheat and wheat or meslin flour. In January 2020 the government changed the applicable discounts on the applicable customs duties on sugar.

Sources: WTO – Trade Policy Review, Fitch Solutions

Multinational Trade Agreements

Active

1. Chile-Mainland China FTA and Economic Integration Agreement (EIA): On November 18, 2005, Chile signed an FTA with Mainland China, which came into force on October 1, 2006. Roughly half of Mainland China's exports to Chile in value terms were afforded duty-free treatment when the agreement entered into force. Only some 3.0% of Mainland China's exports are excluded from the scope of the FTA. In November 2017, the Mainland China-Chile FTA completed its upgrade, making it Mainland China's first FTA upgrade with a Latin American country. Furthermore, on April 13, 2008, Mainland China and Chile signed the supplementary agreement on service trade. According to the agreement, Mainland China's 23 sectors and sub-sectors – including service in the computing, management and consulting, real estate, mining, environment, sports, and air transport sectors – and Chile's 37 sectors and sub-sectors – including service in the legal service, construction and architecture, engineering, computing, research and development, real estate, advertisement, management and consulting, mining, manufacturing, leasing, distribution, education, environment, tourism, sports, and air transport sectors  – were also opened up under the WTO commitments.
    
2. Chile-Hong Kong FTA and EIA: Hong Kong and Chile signed a bilateral FTA on September 7, 2012, which became effective on October 9, 2014. Under the agreement, approximately 88% of total Chilean goods imports from Hong Kong benefit from duty-free treatment with immediate effect and about 97.7% of all goods imports will enjoy such treatment by the third year. The remaining 2.3% of tariff lines have been excluded from the agreement and will continue to be subject to regular most favoured nation rates of duty, including certain cereals, sugars, textiles, apparel, steel products, concrete, used tyres and household appliances.
    
3. Chile-Southern Common Market (Mercosur): Chile is an associate nation in both Mercosur and the Andean community, which encompasses nine of the 10 biggest economies on the continent. Despite non-membership in these organisations, Chile has entered into FTAs with both trade blocs, giving it similar (if not identical) economic advantages to those which it would accrue with full membership, but with a less binding political commitment.
    
4. Chile-United States FTA and EIA: The agreement came into force in 2004, and as of January 1, 2015, all qualifying products are duty free. To be eligible for tariff-free treatment under the agreement, products must meet the relevant rules of origin. The agreement also provides favourable access for service suppliers. It guarantees protection to United States investors and United States copyrights, trademarks and patents registered in Chile. In addition, Chile has opened up significant government procurements to United States bidders. Principal United States goods exports to Chile include mineral fuel and oil, machinery and parts, aircraft and parts, vehicles and electrical machinery. Principal United States exports of services to Chile include travel, transport, telecommunications and business services.
    
5. Chile-EU FTA and EIA: EU states (particularly Germany, France, Spain, the Netherlands and the United Kingdom) are major trade partners, and the EIA with Chile ensures preferential access to this large market. Bilateral trade between the EU and Chile has more than doubled since the FTA came into effect.
    
6. Pacific Alliance (PA) FTA and EIA: The PA trade bloc consists of Chile, Colombia, Mexico and Peru. It is an important trade agreement for Chile and assists with promoting regional growth. The PA focuses on boosting external trade with strategic partners, including those in Asia, as well as adopting a business-friendly agenda aimed at incentivising investment in the region to enable companies to better access Latin American markets and create intra-regional supply chains. PA members represent nearly 36% of Latin American GDP and exported approximately USD1trillion in 2015.
    
7. Chile-Japan FTA and EIA: The FTA with Japan was finalised in 2007 and will be affected by the CPTPP.
    
8. CPTPP: The agreement – comprising Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam – is in effect. The agreement was ratified in Q418, with the deal representing 13.4% of global GDP, making it the third largest trade agreement after the United States-Mexico-Canada Agreement and the EU. The agreement aims to cut tariffs, improve access to markets and set common ground on labour and environmental standards as well as intellectual property protections.

Sources: WTO Regional Trade Agreements Database, Fitch Solutions

Foreign Direct Investment

• Value Added Tax: 19%
• Corporate Income Tax: 25% or 27%

Source: Servicio de Impuestos Internos

Important Updates to Taxation Information

• The government has introduced a bill to parliament for discussion; The bill aims to restructure and amend the tax code and structure, placing particular emphasis on:
   
  • Replacing the dual regime corporate tax system them with a single method of taxation.
  • Denying the 4% Withholding Tax (WHT) rate on interest paid abroad in cases where the foreign bank or financial institution is not the final recipient of the payment.
  • Improving the existing Foreign Tax Credit rules by amending or repealing the current distinction placed upon a tax treaty and non-tax treaty jurisdiction.
  • Implementing a 35% rate in cases where domestic thresholds need to be calculated.
  • Amending or introducing the ability to incorporate foreign tax in Chile.
  • Reconsidering the legal concept around the definition of what is considered a permanent establishment of a foreign entity within Chile. The new legal concept follows previous criterions set forth by the Chilean tax authorities, aligned with OECD criterions.
  • Proposing a 10% sole, indirect and substitute tax to digital services provided by foreign providers.
  • Repealing the 4% limitation on royalty payments abroad.

• As of January 1, 2019, interest will be subject to 10% WHT as a result of a number of double-tax avoidance treaties. Due to the nature of these treaties, the rate of WHT owed by foreigners will vary as according to the treaty.

 Localisation Requirements

Labour regulations continue to restrict the employment of foreign nationals, preventing a large increase in the country's migrant population. The labour law stipulates that at least 85% of a company's workforce must be Chilean, if the business employs more than 25 workers.

Visa/Travel Restrictions

Chilean work visas are regulated by the need for a contract prior to application. The bureaucratic process to obtain work permits and residence visas for foreign nationals in Chile is, nonetheless, relatively simple. Eligibility is generally dependent on skills and education, which facilitates the flow of highly skilled workers. The visa process is easier when the applicant is outside the country, as making changes to the visa status once in the country can be an arduous process and is subject to delays.

Visas, such as the work contract visa and the temporary resident visa, offer provisions for dependents and entitle holders to apply for permanent residency after two years. Foreign employees and their dependents can also gain entry based on FATs that Chile holds with numerous countries. The permitted length of stay varies from six months to one year depending on the profession and position of the applicant. This offers a larger variety of options for companies wishing to hire foreign workers.

 Taxes on Foreign Labour

Chile differentiates between resident and non-resident individuals for tax purposes. Residents (those in Chile for longer than six months in a calendar year) are taxed on their worldwide income, and non-residents are only taxed on Chile-sourced income. Foreign residents are taxed on Chile-sourced income for the first three years, after which they are taxed on worldwide income. Individual income tax is paid based on the accrual of monthly taxable units (MTUs), which may be adjusted on a month-by-month basis in accordance with inflation. In December 2018, one MTU was worth around USD74.46. The tax regime on individuals in Chile is relatively unfavourable, with tax rates charged progressively from 0% to 35%. The top rate is among the highest levied in any Latin American state and will cause difficulties for businesses attempting to attract well-paid foreign workers as they may require higher salaries to offset this tax burden. In accordance with the tax reform approved in 2014, the highest marginal rate was reduced to 35% (effective from January 1, 2017), down from 40%.

Sources: Ministry of the Interior and Public Security, Fitch Solutions

Sovereign Credit Ratings

Sources: Moody's, Standard & Poor's, Fitch Ratings

Hong Kong’s Trade with Chile

Export Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Telecommunications and sound recording and reproducing apparatus and equipment	555.5
Commodity 2	Office machines and automatic data processing machines	39.9
Commodity 3	Articles of apparel and clothing accessories	32.5
Commodity 4	Miscellaneous manufactured articles	31.1
Commodity 5	Electrical machinery, apparatus and appliances; and electrical parts thereof	23.3

Import Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Vegetables and fruit	1,392.92
Commodity 2	Fish, crustaceans, molluscs and aquatic invertebrates; and preparations thereof	20.4
Commodity 3	Beverages	16.5
Commodity 4	Metalliferous ores and metal scrap	11.3
Commodity 5	Meat and meat preparations	10.2