# b) Takeovers

Briefly, a takeover takes place when a company acquires 100 per cent of the corporate capital or interest of another company, which usually ends up being dissolved and liquidated.

Considering, the main difference between mergers and a takeover is that, in mergers, the shareholders of the original companies become shareholders of the resulting company and, thus, shares are traded. Conversely, the shareholders of a company taken over by another company receive a price for their shares but do not become shareholders of the resulting company.

c) Acquisition of Business as a Unit

Chilean legislation contemplates the alternative to acquire the target business of a company as an ongoing unit. That is understood as all those company's assets, debts, operations, labour forces, intangible rights, know-how, etc, with which the company carries out its line of business. Instead of a transfer of shares or interest in the company, the business of the company is acquired as a unit.

d) Capital Increases

The acquisition of a controlling set of shares or equity rights (as applicable) may be executed as a result of a corporate capital increase where new shares or equity rights (as applicable) are subscribed and paid by an external investor (as opposed to an existing shareholder), as a result of the existing shareholders not exercising their legal right of first refusal in the acquisition of new corporate interest.

e) Direct Acquisition

The acquisition of the control of a corporation in Chile can also be achieved by the direct acquisition of shares from a controlling shareholder or shareholders. In this case, it is necessary to distinguish between the different types of corporations.

In closed stock corporations, there are no special procedures that need to be complied with for the direct acquisition of a controlling set of shares and no prior consents or approvals are required from any governmental authority. After the transaction, the Chilean Internal Revenue Service shall be informed of the new share composition of the company.

In open stock or listed corporations, the acquisition of a controlling set of shares must be conducted through a tender offer (Mandatory Tender Offer "MTO"), following the procedure established in the law. Pursuant to article 198 of the Chilean Corporations Act (as defined below), an MTO needs to be addressed to all of the shareholders and other stockholders (whose stocks can be converted into company shares) of the target company, for equal conditions. Under Chilean law, in the following cases an MTO needs to be conducted:

(i) in corporations that trade their shares in the stock market, when the acquisition is made with the purpose of becoming a controlling shareholder;

(ii) when a controlling shareholder pretends to acquire, at least, two-thirds of the issued shares with the right to vote or of any series of shares;

(iii) in cases where the buyer wants to obtain control of the controlling company of another company that trades its shares in the stock market, whenever the controlled company represents 75 per cent of the controller's assets. This MTO is not addressed to the shareholders of the controlling company but to the shareholders of the controlled company. The purpose is to prevent the possibility of avoiding the MTO by buying the controller company; or

(iv) when an individual shareholder, or a group of them working on an agreement basis, have acquired two-thirds of the issued shares with the right to vote. In this case, such shareholders must extend an MTO for the remaining shares before the term of 30 days following the acquisition. The price of the MTO in this scenario cannot be lower than the price established for the exercise of the withdrawal right conferred by the Chilean Corporations Act.

f) Shareholders' or Equity Holders' Agreements

Finally, two or more shareholders or equity holders (as applicable) can exercise control of a corporation or limited liability company by means of a shareholders' or equity holders' agreement.

# b) Takeovers


For shareholders' and equity holders' agreements the only formalities required under Chilean law are execution in writing and registration in the corresponding shareholders' register.

# b. Statutes and Regulations

Business combinations in Chile are mainly ruled by the following legal statutes:
(i) Law No.18046 (the Chilean Corporations Act), and its Regulation (Decree No.702);
(ii) Law No.18045 (the Securities Market Law);
(iii) the Superintendence of Securities and Insurance ("SVS") administrative jurisprudence, pursuant to Law No.18045;
(iv) Decree-Law No. 824 (the Income Tax Law);
(v) Decree-Law No. 211 (the Antitrust Law);
(vi) the Commerce Code; and
(vii) the Civil Code.

Additionally, the governing law of a business combination will be the one agreed upon by the parties in the relevant contract. If no specific law is selected, the governing law will be the one of the country where the agreement shall be executed.

# c. Filings and Fees

Fittings that must be made prior to taking control of a company in Chile depend on the type of company being targeted, as briefly exposed above in this chapter. When targeting for closed stock corporations or limited liability companies, there is no need to comply with prior filings or request the approval of any governmental authorities. Conversely and in general terms, when targeting for open stock and listed corporations some mandatory procedures need to be conducted before the SVS and stock markets in which such companies trade their shares, as applicable.

On the other hand, regardless of the type of company being affected, ex-post filings must be presented before the Chilean IRS to report on, for example, the removal and appointment of company's representatives, the changes in the company's participation, the obtaining of a national identity card number, the notification of the business termination and, in general, any other amendment as a result of a merger or other business combinations.

Regarding antitrust, even though there is no mandatory merger control system in Chile to this date, there are several different factors (such as, the market concentration, the market share of the companies involved, the existence of entry barriers, among others) which would make it advisable to file a previous presentation before the National Economic Prosecutors Office ("FNE") or the Chilean Antitrust Court ("TDLC") to obtain the prior approval for the transaction. If the above-mentioned presentation does not take place, there is a risk that the referred operation could be considered a breach of Antitrust Law. If the TDLC considers that the operation impedes, restricts or hinders competition, it could order the modification or termination of the agreements, the modification or dissolution of partnerships, corporations and other legal persons of private law that could have intervened in the acts or contracts, or impose fines for fiscal benefit up to an amount equivalent to 20,000 UTA $^{①}$  (currently equivalent to approximately US$18.750 million). Notwithstanding the foregoing, it is relevant to note that a bill is to be enacted in the short term introducing several amendments to the Chilean antitrust statute, such as: criminalization of cartels and increasing fines, among other things. In relation to merger control, the bill introduces mandatory merger control, under which concentration transactions that exceed certain thresholds will have to be notified to the FNE prior to their execution. The following concentration transactions between economic agents that are not members of the same business group (which exceed the thresholds mentioned below) will have to be notified to the FNE prior to their execution:

- mergers;

- if one or more of the agents acquires, directly or indirectly, rights that allow it, individually or jointly, to decisively influence the administration of the other;
- the association of two or more independent economic entities to become a single economic entity - different from associated entities - that functions permanently; or

Urbanism and Construction General Law (Decree No. 4581976).pdf


- if one of the agents acquires the control of the other's agent assets.

The above-mentioned concentration transactions must also fulfill the following requirements:

- the sum of the sales of the economic agents involved must have exceeded, during the last calendar year, the threshold to be established by the Ministry of Economy; and
- that in Chile, separately, at least two of the economic agents involved have generated sales, during the last calendar year, for an amount equal or greater than the threshold to be established by the Ministry of Economy.

The bill will also change the current methodology to calculate fines, moving from a system of fixed maximum fines (currently amounting to approximately US$16 million for general violations and approximately US$24 million for cartels) to a system with a maximum threshold of fines equivalent to double the economic benefit obtained as a result of the violation, or 30 percent of the sales of the offender for the specific line of products or services involved in the violation during the period of the infringement.

# d. Information to be Disclosed

In general terms, pursuant to the provisions set forth in the Chilean Corporations Act, approval of business combinations require the affecting shareholders and equity holders to have previous access to various documents and information, such as, the business combination project with all the circumstances surrounding the transaction, last audited balance sheet of all the companies that are parties to the operation, expert appraisal reports and, in

some cases, a balance sheet of the merger itself.

Besides information that needs to be disclosed to the affected shareholders or equity holders, as applicable, in all types of companies general disclosure obligations to the SVS, stock markets and general public apply in relation to open stock or listed corporations.

In general terms, open stock or listed corporations shall truthfully, sufficiently and promptly disclose all material information in relation to themselves and their business at such time as it occurs or as soon as it becomes aware of the same. In particular, open stock or listed corporations shall permanently disclose, among others, the following information to the SVS, the stock markets and to the general public, as the case may be:

- the 'FECU Form', which includes individual and consolidated quarterly and annual financial statements, external auditors' interim or annual report of financial statements; management's discussion and analysis and disclosure of all material facts reported during the period affecting the corporation and its publicly issued securities;
- annual individual and consolidated financial statements of the corporation shall be sent to the SVS within 60 days of the closing date of the annual period and in any case at least 20 days prior to the date of the shareholders' meeting that will render an opinion on the same. These financial statements must also be published in a nationwide newspaper;
quarterly individual and consolidated financial statements of the corporation shall be sent to the SVS;
- the corporation shall inform the SVS any changes in its equity, including among others, payment of dividends, exchange of shares and reductions of capital (at least 20 days in advance) and capitalizations;
- prepare an annual report and deliver copy of the same to the SVS and corporation shareholders; and
- the corporation shall immediately inform the SVS of any material facts or information regarding the stock corporation, its business and its publicly issued securities, if any. Such information shall be disclosed in a truthful, sufficient and timely manner on the date that the fact occurs or once the stock corporation becomes aware of the same.

On another subject and as previously indicated, there is no mandatory merger control system in Chile to this date.


Nevertheless, if an operation - before or after its completion-is analyzed by the competition authorities, there are a number of documents that must be presented, whether to the FNE or to the TDLC. The Guidelines for Horizontal Merger Analysis of the FNE and the Internal Regulation No. 12 of the TDLC provides a guide on the information and documents that would be necessary to be disclosed. Notwithstanding the foregoing, it is possible to request the confidentiality of this information. The aforementioned is notwithstanding the antitrust bill that is to be enacted in the short term.

# e. Disclosure of Substantial Shareholdings

Owners of large shareholdings (more than 10 per cent) have disclosure requirements only in relation to open stock or listed corporations (or other corporations with special corporate purposes such as financial institutions) and refer mainly to their obligation to inform the SVS, stock markets and general public of their intention to amend their shareholdings.

It is important to point out that in corporations with special corporate purposes, substantial shareholders may be limited on the maximum percentage of shares they can hold.

# f. Hostile Transactions

Regarding open stock and listed companies, takeovers are regulated in the Securities Market Law, which provides that this kind of transactions should be conducted through the procedure of Mandatory Tender Offers. However, it is relevant to note that an MTO is not a hostile takeover.

An MTO is a compulsory public offer of acquisition that the person who is interested on becoming a controlling shareholder must extend to all shareholders. It is the way of ensuring transparency and protecting minority shareholders by allowing them to sell their shares if the new company's control implies a modification of the circumstances that they used to have. As a mandatory procedure, if it is not conducted as established by the law, the nullity of the act will be declared and a crime will be constituted.

Hostile takeovers are not contemplated in Chile because the shareholding control in the Chilean market is concentrated in a small group of shareholders, which shortens the spectrum of negotiation between the party that wishes to obtain control and the party or parties that currently control a company.

# g. Government Influence

In industries regulated by the government, business combinations are of interest to the corresponding supervisor entity. For example, banks or other financial institutions operations will be under the supervision of the Superintendent of Banks and Financial Institutions whilst insurance companies' combinations shall be under the supervision of the SVS. The referred institutions might impose conditions or even forbid a business combination from going ahead.

There are also limitations to companies that provide public or basic services, the media, educational and health corporations, among others; all of them dependent of administrative organisms. For more information, please refer to Chapter J "Preference and Protection of Investment", letter e).

Finally, for national security purposes, foreigners have restrictions on acquiring estates located at the legal borders of the country, a situation supervised by the National Directorate of Borders of the State. This might have effects on mergers or other operations involving this estates and foreign parties. For more information, please refer to Chapter I "Land Policy".

Other than the above, government agencies cannot and should not influence or restrict the completion of business combinations.

# h. Cross-border Transactions

Cross-border transactions are not specially ruled under Chilean legislation, but the most-favored-nation principle applies as a general rule and, pursuant to it, countries must refrain from discriminating between their business partners. Indirectly the legal framework that establishes some rights and obligations arising from cross-border transactions corresponds to Chapter XIV of the Compendium of Foreign Exchange Rules' of the Central Bank and Law No.20848.


# a) Antitrust Infringements

The DL 211 broadly defines the conducts contravening competition as "any fact, act or convention that impedes, restricts or impede competition or tends to produce such effects". This broad definition is then somehow refined by four -also rather- broad examples, which are classified as restrictive practices, namely:

(i) Agreements or concerted practices involving competitors with each other and which consist of fixing sales or purchase prices, limiting production, allocate zones or market shares or affect the outcome of tendering processes, as well as agreements or concerted practices which, by conferring market power on them competitors, are to determine the conditions for placing on the market, or exclude current or potential competitors;
(ii)The abusive exploitation by a company or by a conglomerate of companies with a common controller, of a dominant position in the market, by way of fixing purchases or sales prices, imposing tied sales of products, assigning areas or quotas of market or imposing other abusive practices;
(iii) Predatory practices or unfair competition, carried out with the purpose of reaching, maintaining or increasing a dominant position; and
(iv) The simultaneous participation of a person in a relevant executive position or as a director in two or more competing companies, provided that each of the competitor's company group has annual revenues from sales, services and other operational activities in excess of the amounts determined by the law (currently amounting to 100,000 Unidades de Fomento① (app. USD 4,400,000).

The new legislation also introduced changes to the system of fines and penalties. The Competition Court can punish the aforementioned conducts with penalties consistent in prohibitions of entering into agreements with Governmental entities, disqualification to hold certain positions, criminal penalties and fines. The fines are for fiscal benefit, and may amount to up to  $30\%$  of the sales of the offender corresponding to the product or service line related to the infraction during the period in which the offense was perpetrated, or up to double the economic benefit gained from the infraction. In case it is not possible to determine the amount of the sales or the economic benefit, the TDLC may apply fines up to the amount of 60,000 annual tax units (app. US$ 55,000,000). The fines may be imposed on the corresponding legal entity, on its directors, managers and on any person involved in the conduction of the relevant act. In the case of fines applied to legal entities, their directors, managers and those persons having benefited from the respective act may be jointly liable to the payment thereof, provided they took part in its execution.

Criminal penalties were reintroduced for hardcore cartels, which had been repealed from the Chilean competition statutes in 2004. The penalty for hardcore cartels may range from 3 years and 1 day of imprisonment, up to 10 years of imprisonment.

Finally, regarding cartels, DL 211 contemplates a leniency program benefitting the business agent that provides the FNE with complete information regarding a collusion case, which is also extensible to criminal liability for the first individual to provide information to the FNE. It should be noted that the Prosecutor entity is entitled to make dawn raids and intervene communications during investigation procedures regarding collusion cases.

# b) Merger Control System

The most significant amendment recently enacted is the introduction of a mandatory merger control system. The new system consists of two phases, and is initiated by means of a notification of the parties to the FNE.

With the entry into force of this new system, the parties must notify to the FNE, prior to its execution, the concentration operation that have an impact in Chile and surpass the sales thresholds that the FNE set for that purpose in a resolution. The notification thresholds currently in force are:

# a) Antitrust Infringements


(i) that the sum of the sales in Chile of the agents that contemplate its concentration have reached, during the previous year to which the notification is verified amounts equal to or greater than 1,800,000 Unidades de Fomento (app. USD 79,500,000); and
(ii) that in Chile, at least two of the agents that contemplate its concentration, separately have generated sales, during the year prior to the year in which the notification is verified, for amounts equal to or greater than 290,000 Unidades de Fomento (app. USD 12,800,000). The FNE is entitled to adjust these thresholds if necessary.

The procedure is initiated by a filing made by the parties which format and minimum information to be submitted was set forth in Regulation No.33 of the Ministry of Economy.

The analysis performed by the FNE involves two phases, the first of which begins once the operation is notified. Since that date, the FNE has 10 days to determine whether the filing is complete, in which case it shall initiate an investigation. Within 30 days following the initiation of the investigation, the FNE shall either:

(i) approve the transaction simply and unconditionally, if it comes to the conviction that the transaction will not substantially lessen competition;
(ii) approve the transaction, conditioning said approval to the fulfillment of mitigation measures offered by the notifying parties, if it comes to the conviction that, subject to said measures, the transaction will not substantially lessen competition; or
(iii) extend the investigation for a maximum of 90 additional days, if it considers that should the transaction be simply and unconditionally executed, or conditioned to the measures offered by the notifying parties, as the case may be, could substantially lessen competition. In such event, the proceeding moves to Phase II.

In Phase II, the FNE shall inform its decision to extend the investigation to all agencies and authorities that may be directly concerned and to the economic agents that may have an interest in the transaction. Those who receive said communication, as well as any third party interested in the transaction, including suppliers, competitors, clients or consumers, may submit information to the investigation within 20 days following the publication of the extension decision in the FNE's website. Upon the expiration of the 90 days during which the investigation has been extended, the FNE shall also either:

(i) approve the transaction simply and unconditionally;
(ii) approve the transaction, conditioning said approval to the fulfillment of mitigation measures offered by the notifying parties;
(iii) prohibit the execution of the transaction, should it conclude that it has the aptitude to substantially lessen competition.

Regarding the recourses system, the law only contemplates special revision recourse in case the FNE forbids the execution of the transaction. The recourse must be filed before the TDLC within 10 days following the notice of the FNE's decision. The TDLC shall schedule a public hearing to be held within 60 days following its reception of the investigation's docket. The public hearing may be attended by the challenging parties, the FNE and all those who submitted information during the investigation. Within 60 days following the hearing, the TDLC shall issue its decision confirming or repealing the FNE's decision.

In case the TDLC's decision repeals the FNE's decision, approving the transaction subject to the fulfillment of mitigation measures different from the ones offered by the parties to the FNE, both the parties and the FNE may file a complaint recourse before the Supreme Court.

All of the terms contemplated in this new procedure must be computed in business days only.

c) Interlocking and Acquisition of Minority Stakes


Interlocking: Among the hypotheses of anticompetitive behavior direct interlocking between competitors is considered as an infringement, punishing the simultaneous participation of a person in a relevant executive positions or as a director in two or more competing companies, provided that each of the competitor's economic group has annual revenues for sales, services and other operational activities in excess of 100,000 Unidades de Fomento (app. USD 4,400,000); and the simultaneous participation in the abovementioned positions is held during 90 continuous days since the end of the calendar year in which the relevant companies exceeded the referred threshold.

Obligation to inform the acquisition of minority stakes: a new provision was introduced setting forth the obligation to inform to the FNE, within 60 days from its execution, "the acquisition, by one company or an entity belonging to its company group, of an interest, whether direct or indirect, representing more than  $10\%$  of the equity of a competing company, considering both stakes held in its own name and those held by third parties in their benefit", so as to allow the FNE to evaluate the opening of an investigation. The obligation to inform shall only be triggered in case the acquiring company, or its economic group as the case may be, as well as the company which interest is being acquired, separately have annual revenues for sales, services and other operational revenues exceeding 100,000 Unidades de Fomento (app. USD 4,400,000) in the last calendar year. The DL 211 sets forth that any actions to prosecute infractions to this new provision shall expire within 3 years from the date in which the acquiring company informs the FNE.

# H.TAX

# a. Tax Regime and Rules

Under the Constitution of the Republic of Chile, taxes, customs duties and all kinds of public charges must be implemented through the enactment of a law passed by the Congress.

The initiative to legislate in tax matters rests only with the President of the Republic. Consequently, taxes may

not be changed unless the Executive Branch takes action and Congress approves said initiative. Matters related to fiscal policy are under the authority of the Minister of Finance.

In tax matters, government action is carried out by three different public agencies:

(i) The Internal Revenue Service, which is in charge of the administration of tax laws and has the power to issue regulations and conduct tax audits;
(ii) The Treasury, which is in charge of tax collection; and,
(iii) The Customs Agency, which deals with all matters related with custom duties applicable to imports.

If, as a consequence of a tax audit, a claim is submitted by a taxpayer, the competent court will be the Taxes and Customs Courts. Its decision may be appealed before the corresponding Court of Appeals and, through certain procedures, the case may go up to the Supreme Court.

# b. General Income Tax System

In general terms, any earning, profit or capital increase, accrued or received, of any origin, nature or denomination, will be subject to income taxes in Chile.

The tax imposed by the Chilean Income Tax Law ("ITL") is based in two main factors: taxpayer residence; and, source of the income.

a) Taxpayer Residence

Any person or legal entity domiciled or resident in Chile shall be subject to tax over all their income, regardless the origin or source. This means that Chilean residents will be taxed over their worldwide income.

However, foreigners who are domiciled or resident in Chile will be subject to taxes only for their Chilean income during the first 3 years. After that period of time they will be subject to taxes in accordance to their worldwide income.

b) Source of the Income

Article 3 of the Chilean ITL provides that non-Chilean residents would only be subject to tax on their Chileansource income. For this purpose, Chilean-source income is income derived from activities performed in Chile and assets located therein.


In this regard, the shares of a Chilean resident entity are deemed to be located in Chile and, thus, the profits resulting from the ownership of such shares will be Chilean-source income as per the ITL. Therefore and moreover, any income derived from the sale of shares in a Chilean resident entity would be deemed as Chileansource income. Exceptionally, article 10 of the Chilean ITL provides that income obtained by a non-Chilean resident that derives from the alienation of rights shares or ownership interests, among others, from a non-resident entity, in cases in which there is as underling Chilean asset, and provided all the requirement are met, it will be deemed to be a Chilean income.

# c. Two-tier Taxation and Dividend Distribution Regimen

As a general rule, received or accrued income generated by Chilean corporations, limited liability companies, stock companies and branches of foreign companies, are taxed in two tiers.

In this regard, entities will be subject to  $25\%$  or  $27\%$  rate of Corporate Income Tax ("CIT"), depending on its tax system, determined annually according to its taxable income. Its partners or shareholders will be subject to Withholding Tax in case they are non-residents ("WHT") or to Personal Progressive Tax in case they are residents. Partners or shareholders may use a  $100\%$  or  $65\%$  of the amount paid for CIT as tax credit against the final taxes, as explained below.

The Chilean tax system is considered an "integrated system" in that corporate tax can be used as a credit against final taxes. Final taxes are the Personal Income Tax, applied to income received by natural persons that are domiciled or reside in Chile, which has a progressive rate ranging from  $0\%$  to  $40\%$ , and the Withholding Tax, applied to income received from taxpayers that are not domiciled nor reside in Chile, which has a general rate of  $35\%$ . Therefore, under this integrated system, ordinary income obtained by local entities is subject to the corporate tax and to final taxes, as a partner or shareholder, depending on its actual distribution.

During 2014 an important tax reform was approved and as from January 1st, 2017 is fully in force. According to such tax reform there are two different tax regimes or tax systems: Attributed Income System and Partially Integrated System.

In this regards, any entity that is not a Chilean stock corporations or a silent partnership by shares, whose shareholders are individuals or non-Chilean resident entities, may opt for applying the following systems in order to determine the timing and final taxation of such individual or non-Chilean resident entity upon the dividends generated by the respective entity.

a) Attributed Income System

Shareholders are taxed with final taxes (WHT for non-residents) for the income attributed to them in the same

year said income is generated. For these purposes, the attributed income equals the taxable income base, plus non-taxable income, plus other amounts subject to WHT.

The WHT would be triggered once the income is attributed, regardless of whether an actual distribution exists. If that income is not allocated by the partners or shareholders in the company bylaws, it will be allocated in proportion to the capital participation of each partner or shareholder.

Under this alternative, the respective entity will be taxed with Corporate Income Tax at a  $25\%$  rate, which will be credited against WHT  $(35\%)$ .

b) Partially Integrated System

Shareholders are taxed with final taxes (WHT for non-residents) only on profits that are effectively drawn or distributed from the company (cash basis).

Under this alternative, profits will be taxed at the entity level with a  $27\%$  CIT.

Only  $65\%$  of the CIT effectively paid would be creditable against the WHT due upon a dividend distribution. Notwithstanding, shareholders residing in a treaty country may use the whole CIT credit against the final withholding tax (e.g. China, UK, Brazil, Argentina, Australia, Canada, France, Malaysia, South Africa, Thailand, etc.).


In case of treaties that have been signed but are not in force yet (e.g., USA), the same rule applies until 2021. Thus, the overall tax burden for a shareholder residing on a non-treaty country would rise up to  $44.45\%$ .

Please note that for purposes of attributing income (under the Attributed Income System) and for purposes of performing a dividend distribution under both regimes, certain allocation rules apply. The referred allocation rules allow the correct assignment of the CIT credit to the respective income.

Further, under both regimes annual records must be kept. The referred records differ from one regime to another and its purpose is to maintain track of the profits that have paid the CIT and WHT (in case of the Attributed Income System) and the CIT credit associated to them. The purpose of the records is to prevent double tax payment or the avoidance of such payment, as well as determining whether the  $35\%$  WHT payment is due or not.

Please note that if a taxpayer opts for a regime, it must remain in that regime for at least 5 continuous commercial years.

# d. Additional Tax or WHT

The WHT is assessed, as a general rule, on income from Chilean sources earned by individuals or entities neither domiciled nor residing in Chile.

This tax is also assessed on certain payments made by Chilean taxpayers abroad.

As a general rule payments made to an individual or entity not domiciled in Chile, are subject to WHT to be withheld by the payer, generally  $35\%$ .

However, the tax may be reduced among others in the following cases:

(i) Payments made to insurance companies not established in Chile for insuring equipment or other goods located in Chile and for life or medical insurance of individuals who are residents of or domiciled in Chile are taxed  $22\%$ . In these cases, reinsurance is taxed at a  $2\%$  rate.

(ii) Payments for engineering services or technical assistance,  $15\%$ .

(iii) Remunerations paid to individuals or entities not domiciled in Chile for maritime transportation to and from Chilean ports and commissions thereon, as well as remunerations originating from services to vessels and freight in Chilean or foreign ports,  $5\%$ . This tax is not applied, on the basis of reciprocity, when, in the country where the vessel is registered or in the country of the operator, a similar charge does not exist or is not applied to Chilean vessels.

(iv) Payments for the rental, lease, charter or any other contract which provides for the use of foreign vessels for coastal trade,  $20\%$ . The same is applied when the relevant contract allows or does not forbid coastal trade.

(v) In general, the payment of royalties, patents and fees to entities not domiciled in Chile is subject to a  $30\%$  WHT to be withheld by the payer. However, the rate of this tax is reduced to  $15\%$  for royalties related to invention patents, utility models, industrial designs, designs of integrated circuits or mask work, new vegetable varieties and software, provided that the licensor is neither related to the licensee nor a resident of or incorporated in a tax haven. Although, if what you are paying is a "standard software" it will be tax exempt. In the case of technical assistance or engineering services, the rate is  $15\%$ .

However, the tax rate goes up to  $20\%$  if these services are rendered by a related party or by a person or entity residing or incorporated in a tax heaven. All these payments are normally deductible as expenses for tax purposes.

# e. Personal Progressive Tax

The Personal Income Tax is applied to income of any origin earned by natural persons that are domiciled or have residence in Chile, at a progressive rate of  $0\%$  to  $40\%$ , including foreign source income earned during the corresponding annual period. As previously mentioned, the Tax Reform reduced the applicable maximum rate to

$35\%$ , which goes into effect in 2017.

# f. Second Category Tax


# n. Tax Declaration and Preferences

As a general rule, individuals and entities subject to taxes in Chile must submit an annual tax return through Form N°22. It must be submitted on April of the year following of the one the income has been generated.

Furthermore, taxpayers subject to corporate tax and taxpayers subject to VAT must submit a monthly tax return through Form N°29 during the first 12 of the month following the relevant period.

In addition, taxpayers subject to monthly payment of Withholding tax, tax on gambling, fuel tax, etc. must submit a Form N°50.

Please note that according to Chilean IRS' rules in certain cases taxpayers must submit different type of affidavit (e.g. profit distributions, employees, etc.) to the tax authority.

# I. Securities

# a. Brief Introduction of Securities-related Laws and Regulations

The Chilean Securities Law ("Law No.18045" or "Securities Law") provides that "securities shall mean any negotiable instruments, including shares, stock options, bonds, debentures, mutual fund shares, savings plans, and, in general, any credit or investment instrument.

Natural persons and corporations are freely allowed to invest in securities, with no distinction between nationals or foreigners. Institutional investors are allowed to invest in securities under certain conditions.

According to Law No.18045, institutional investors are banks, finance companies, insurance companies, domestic reinsurance entities, and fund managers authorized by Law. The conditions under which these investors are allowed to invest are regulated in various laws and resolutions, such as, among others, the Banks General Law, Decree Law No.3500 on Pension Funds and the Regulation for the Investment by Pension Fund Administrators in Foreign Securities.

Such regulations establish restrictions on investments based on: type of securities; amount of the investment; rating of the securities; percentage of the investment vis-a vis the networth; etc.

# b. Supervision and Regulation of Securities Market

The SVS (local Securities Exchange Commission) is the institution in charge of supervising and regulating the Chilean Securities market.

The only possible way of offering and selling securities in Chile without the issuer or selling broker-dealer having to take any action with respect to local regulators is through a private placement of them. Private placement of securities is not subject to the Chilean Securities Market Law, and therefore no restrictions nor special requirements apply to the private offering (non public offer) nor the selling by the broker / dealer in Chile through a private offering.

There is no definition in Chilean Law of a private placement or offering of securities. Notwithstanding, the Securities Law defines a "public offering of securities" as an offer made to the general public or to certain and specific groups of people.

Foreign issuers, intermediaries and any other foreign persons participating in the registration, placement, deposit, trading or any other acts or agreements with respect to foreign securities that violate the Securities Law shall be liable and subject to administrative sanctions, such as fines, suspension to carry out its activities for up to one year (i.e. in the case of registered brokers or agents) and, in serious cases, the cancellation of their authorization granted by the SVS.

Additionally, any person that makes an offer in breach of the Securities Law and as a consequence of such offering causes damages to a third party, will be liable for such damages.

# c. Requirements for Engagement in Securities Trading for Foreign Enterprises

a) Corporations that have to be Registered in the Chilean Securities Market

Pursuant to Article 5 of the Law No.18045, the following corporations shall be recorded in the Securities Registry:

(i) Issuers of publicly offered securities;

(ii) Securities that are the subject of a public offering;

# n. Tax Declaration and Preferences


(iii) Shares of corporations that have 500 shareholders or more, or, in which at least  $10\%$  of the subscribed capital belongs to at least 100 shareholders, excluding those that individually or through other individuals or legal entities exceed that percentage; and

(iv) Shares issued by corporations that voluntarily or by statutory requirement request registration.

Closely-held corporations are those not falling within the definition of publicly-held corporations. Finally, special-purpose corporations are those referred to in Chapter XIII of the Corporations Act.

b) Subscriptions Of Shares Of Foreign Companies In Chilean Securities Market

The shares of foreign companies ("Foreign Shares") must be subscribed before the Chilean Securities Market and Insurance Superintendent, in order to allow its public offer and commercial transaction.

# d. Inscription Process

(i) The inscription can be done by a foreign company that issues shares, or by a sponsor.
(ii) If the subscription is requested by the foreign company, it shall have to be done through a Chilean legal representative with sufficient powers to request the subscription, supply information about the company, comply with the obligations of the subscription and receive the communications regarding the subscription process.
(iii) The foreign company issuing the shares in Chile shall have to come from a country member of the International Organization of the Securities Commissions (IOSCO). According to our research, the Republic of

china is indeed a member of said organization.

(iv) With the subscription request, there must be an introductory letter declaring the intention of the foreign company to subscribe its shares in the Chilean Stock Market. Additionally, Form N1 will have to be completed and presented to the SVS with general information regarding the Company, the shares, the possible Chilean investors, economic and financial information, etc.

# J. Preference and Protection of Investment

# a. Support for Specific Industries and Regions

Our legislation provides taxation benefits to the investment on extreme geographic regions of our Country. Moreover, several laws, such as "Ley Arica", "Ley Tocopilla", "Ley Austral" and "Ley Navarino", state special custom and tax regimes that govern investment and economic activities held in specific boroughs of Chile (which are located in the northern and southern extreme regions of our country).

Additionally, companies interested in starting innovative business or in the development of high tech assets and human resources, have also the possibility to apply for some benefits provided by the Chilean government ("CORFO Subsidies"), which are intended to support the implementation of such activities in our country. In this regard, the amount of the subsidies will depend on the type of project and its specific characteristics.

# b. Special Economic Areas

Under Chilean law, certain companies subject to authorization of existence need their supervisor's authorization for mergers, capital increases and the request for early dissolution.

Moreover, there are laws relating to special sectors that provide mandatory pre-merger filing, including media, banks, ports, water supply, casinos, energy distribution, and maritime concessions.

# c. Investment Protection

As a consequence of the importance that foreign investment represents for Chilean economy, our country has developed laws and policies in order to attract investors, guaranteeing the existence of stable legal mechanisms that ensure an equal treatment for Chilean and foreign investors, a non-discretionary and non-discriminatory treatment, and the open access to most of the sections of the economy.

# III. Trade

# A. Department Supervising Trade

On a general basis, any type of good can be imported, except for those that are expressly prohibited by current legislation, such as used vehicles and motorcycles, asbestos in any of its forms, pornography, toxic industrial waste, among others.


The National Service of Customs is the entity in charge of verifying the compliance with the above.

In this regard the Customs Service is a public service under the Treasury, in charge of monitoring and checking the passage of goods along the coasts, borders and airports of the Republic; to intervene in international traffic for the purposes of tax collection to the import, export and others; and to generate the statistics of that traffic through the borders; among other functions.

# B. Brief Introduction of Trade Laws and Regulations

The National Customs Service ("SNA" or "Customs") is a public service under the Ministry of Finance, responsible for supervising and controlling the passage of goods through the coasts, borders and airports of Chile, for intervening in international traffic for the purposes of collecting import, export and other taxes determined by law, and for generating statistics on such traffic at the borders, without prejudice to the other functions entrusted to it by law. It consists of the National Directorate, Regional Directorates and Customs Administrations.

It is governed by an organic law, Decree with Force of Law No.329/1979, and by the Ordinance of Customs, Decree with Force of Law No.30/2004.

# C. Trade Management

Being Chile an open-market economy, it has very few barriers to imports or investments, allowing foreign

firms to enjoy the same protections and operate under the same conditions as local firms. In agriculture and other sectors, however, some exceptions apply. The entity in charge of supervising the foreign trade is the Customs Office, which will be thoroughly explained in section E.

# p. The Inspection and Quarantine of Import and Export Commodities

Even though in general any type of goods can be imported, Law No.18164 establishes two product regimes where the certification by certain public agencies is required:

a) Certificate of Destination

Alcohols, alcoholic beverages and vinegars, vegetable products and goods which are dangerous for plants, animals, birds, products, by-products and offal of animal or vegetable origin, and fertilisers and pesticides require a certificate issued by the Agricultural and Livestock Service ("SAG") indicating the approved place where the said goods are to be stored, the route and the conditions of transport to be used for their removal from the customs premises to the indicated place of storage.

Food products of any kind, toxic or dangerous substances, pharmaceutical products, food products for medical and cosmetic use, narcotic drugs and psychotropic substances that cause dependence require a certificate issued by the Health Service, specifying the authorized place where the said goods are to be deposited, the route and the conditions of transport to be used for transporting them from the customs premises to the following places.

b) Use and Destination Authorization

Once the processing of the document indicated above has been completed and the goods have been removed from the primary premises of the customs offices, they will be deposited under the responsibility of the consignee who will not be able to use, consume, sell, transfer or dispose of them in any way, without obtaining the authorization and prior approval issued by the Health Service and / or the SAG.

The report may:

(i) grant the authorization or approval;
(ii) deny the authorization or approval; or
(iii) establish a period of security (quarantine) in order to carry out the sanitary, animal and phytosanitary controls, as appropriate. During this period, the goods may not be placed on the market.

The use of a route, a place of deposit or transport conditions other than those indicated in the certificate referred above, as well as the violation of the prohibitions o use, consume, sell, transfer or dispose without the corresponding authorization, may be sanctioned with a fine of 10 to 1,000 UTM  ${}^{\text{①}}$  (1UTM = 80 USD). The fine shall be applied by the director of the corresponding inspection body.


Additionally, the SAG is responsible for the control of agricultural and livestock inputs and products subject to regulation in laws and other norms. For example, SAG is empowered to:

(i) Adopt measures to prevent the entrance of pests and diseases into the national territory that may affect animal and plant health.
(ii) Determine the measures that the interested parties must adopt to prevent, control, combat and eradicate the diseases or pests that are controlled mandatorily.
(iii) Establish a categorization of products according to their pest risk, in order to determine the import requirements that must be complied to enter Chile. Said requirements will vary, depending on the category of the products and its specific regulation issued by the SAG.

# E. Customs Management

As a general rule, imports are subject to a payment of a  $6\%$  custom duty on the CIF value of the good (cost of the merchandise, plus insurance premium and freight). However, this treatment can be modified, under certain conditions and depending on the involved goods and the Free Trade Agreement between the relevant countries.

# a. General Rule

Imported capital goods can be exempted from any customs duties in Chile according to Law No.20269 which establishes a  $0\%$  custom duty upon "capital goods" qualified as such by Law No.18634.

In this regard, Article 2 of Law No.18634 defines capital goods as: "Machines, vehicles, equipment and tools destined, directly or indirectly, to the production of goods or services or to the commercialization of goods or services. The good's capability of producing more goods must not disappear upon its first use, but must have such capability for at least three years, being subject to a slow wear or depreciation process for a longer period". Said article also state that

"goods destined to fulfil complementary or support activities, such as conditioning, selection, maintenance, analysis and commercialization of the produced goods, indirectly participate in the production process".

In order for the goods to be considered as "imported capital goods", they must be included in the list issued by the Ministry of Finance.

The above customs regime applies to spare parts, wear and tear parts related to the capital goods, provided they are imported along with the capital goods in the same "Customs Destination Document". The value of such spare parts, wear and tear parts may not exceed  $10\%$  of the capital good's value.

# b. VAT on Imports

Imports are also subject to VAT. Pursuant to article 8, letter a) of the VAT Law, VAT levies imports on their CIF value or customs value. However, article 12, Letter b) No. 10 of the VAT Law exempts from VAT on import of capital goods exists provided all of the following requirements are met:

(i) That the goods have been imported in accordance with the provisions of DFI, including the enterprises receiving such investments. For purposes of benefitting from the exemption, the following requirements must be met: an investment project must have been agreed to in accordance with the provisions of the aforementioned legal provision; the capital goods must be part of the investment project; the capital goods must be included in a list set in a Supreme Decree dictated by the Ministry of Economy; or
(ii) Chilean investors may also benefit from the exemption when the following requirements are met: the capital goods must not be produced in Chile in enough quality and amount; the capital goods must be part of a national investment project similar to a foreign investment project subject to the provisions of DFI, destined to produce similar goods or services for the final consumer; the investment must be qualified as "of interest for the country"; the capital goods must be included in a Supreme Decree issued by the Ministry of Economy; the compliance of the above requirements must be checked by the Ministry of Economy which would issue a resolution which must be confirmed by the Ministry of Finance.


Imports are not subject to income tax in Chile, as Chilean Income Tax Law ("ITL") defines Chilean-sourced income as those arising from goods located in Chile or activities performed therein. Companies domiciled or resident abroad are subject to income tax in Chile only on their Chilean-sourced income.

# F. Product Certification

In Chile, there are no industry-specific standards associations. Rather, the only organization responsible for developing standards in Chile is the National Institute of Standardization ("INN"). Its long-term plan for the development of standards is aligned with Chile's primary export sectors, which include copper, forestry, agricultural products, and wine.

In most sectors, standards are not mandatory in Chile, unless specifically order by a laws and / or regulation, but companies can voluntarily comply with them, especially in industries where such compliance constitutes a kind of "seal of approval".

However, certain imported products, such as those related to industrial safety, building and construction materials, automotive safety, and the gas and electricity industries, must comply with the specific requirements of the supervising entity. For example, there are specific regulations pertaining to the seismic resistance of new construction. The INN is also promoting ISO 14000 and ISO 9000 standards among local manufacturers. The chemical industry is an example of one industry that has incorporated ISO 9000 standards into its industrial processes.

# IV. Labour

# A. Brief Introduction of Labour Laws and Regulations

In general terms, our Labour related matters are mainly contained in the Chilean Labour Code, which applies to private employees, either Chilean or foreigner, that provides for different matters, such as individual employment agreements, benefits, unions and collective bargaining agreements, subcontracting and personnel supply, among others.

Additionally, the some other specific laws provides rules to other employment related matters, such as social security (pension and health), statutory insurances, labour security, among others.

# a. Employment Agreements

The employment contract is consensual. However, Chilean law requires the employment contract to be executed in writing no later than fifteen days after the date when the employee began rendering the services. If the employer fails to put the employment contract into writing, it will be presumed that the terms and conditions of the

employment contract are those stated by the employee.

Our legislation recognizes three categories of agreements:

a) Individual Employment Agreements

The employment agreement is provided as a written contract between an employer and an employee whereby they are bound, the employee to render personal services under ties of dependence and subordination ("vinculo de subordinacion y dependencia") to the former, whereas the employer to pay compensation for those services.

Local statute (mainly the Labour Code) provides for minimum provisions applicable to said agreements, which are mandatory to any employer.

b) Collective Agreements

Our Law provides two different types:

(i) Contrato Colectivo: According to the Labour Code, a collective contract is agreed upon one or more employers with one or more unions or with nonunionized employees who unite to negotiate collectively, or with both groups, to establish common working conditions and remunerations for a fixed period of time.
(ii) Convenio Colectivo: Additionally, the law allows the employer and the employees (either with a union or with a group of at least eight employees) to enter into this specific kind of agreements, which provides common working conditions and remunerations for a fixed period of time applicable to a union or group of employees, especially organized to negotiate and execute it.

Please note that legally, the only difference between a Contrato Colectivo and Convenio Colectivo is that the latter does not require a regulated collective bargaining process.


Therefore, the negotiation leading to a Convenio Colectivo is neither subject to a regulated procedure nor can lead to an eventual strike.

However, once executed, both agreements have the same effects and are binding for both parties.

c) Special Contracts

Our law also provides for special labour contracts. Each of these contracts has its own characteristics and specifications, e.g. the apprenticeship contract which is restricted to individuals under 21 years of age; farm employees' contracts; contracts for employees on ships or at sea and temporary dock employees and contracts for domestic help.

# b. Labour Contract Term

The parties may agree on either an indefinite contract, limit the duration of the contract to the completion of a particular job to be performed by the employee, or else agree on a fixed period of time.

As for fixed term contract, its term exceeds one year, or two years in the case of managers, professionals and technicians. At the expiry of the original fixed period or of its extension, the contract terminates ipso facto but, if the employee continues rendering services for the same employer, by law the term of the contract becomes indefinite.

# c. Employee's Nationality

The law states that at regarding Companies with 25 or more employees, must fulfill a quota of, at least,  $85\%$  Chilean citizens. To determine this ratio, the law excludes technicians who cannot be replaced by Chilean nationals. For this purposes the law deem the following persons as Chileans:

(i) foreigners whose spouse or civil partner or whose children are Chilean, including widows or widowers of a Chilean spouse; and
(ii) foreigners who have resided in the country for more than five years, not considering accidental absences.

# d. Work Schedule

As for Work Schedule, labour statute considers a maximum number of hours weekly. The normal workweek is limited to a maximum of 45 hours. This maximum must be worked in no less than five and no more than six consecutive days. The normal workday shall not exceed 10 hours.

Overtime -which is the time worked by the employee exceeding the legal or agreed workday, if shorter shall be agreed only based on temporary situations. Overtime must be determined on circumstances that, while not permanent in the company's productive activity and deriving from occasional events or from unavoidable factors, do imply a greater work demand in a certain amount of time (but not more than 2 overtime hours per day). Overtime work agreements shall fulfill some legal requirements and may be renovated if the circumstances that originated them persist. Local statute provides a mandatory  $50\%$  surcharge on the salary.

Lastly, there are some particular cases provided by law in which the employees, due to the nature of their services, who's workweek is neither limited to 45 hours nor are entitled to overtime payment.

# e. Employees' Rest

a) Working day rest period

workday must be divided into two periods, leaving between them at least a half-hour break for lunch, which

must not be considered for the purposes of determining the workday.

b) Weekly Rest Period

Sundays and days legally established as holidays shall be nonworking days, except for activities authorized by law to be performed on those days. In the latter, the law provides how the rest days are compensated.

In Chile, holidays are:

(i) New year (January 1st);
(ii) Extra New year day①;
(iii) Easter (Holy Friday, Saturday and Sunday);
(iv) Labour Day (May 1st);
(v) Naval Combat Commemoration (May 21st);
(vi) Saint Paul and Peter (June 29th) $^{②}$ ;
(vii) Virgen del Carmen day (July 16th);
(viii) National Holiday (September 18th and 19th) $^{③}$ ;
(ix) Columbus Day (October 12th);
(x) Evangelic Church Day (October 31st);
(xi) All saints Day;
(xii) Immaculate conception (December 8th); and
(xiii) Christmas (December 25th).

Please note that election days are also holidays. Also, there are some

c) Vacations

(i) basic annual vacations equal to 15 working days;


(ii) progressive vacations, to which employees are entitled to after working 10 years, continuously or not, for the same or different employers, and is equal to 1 day for every three years of service, after achieving the 10 years seniority, and
(iii) special regional vacation, equal to 20 days (instead of the 15 days of the basic annual vacations) and only applicable to employees working in the 11th and 12th Regions of the country and other specific zones.

# f. Remuneration

Legally, it is deemed as remuneration any cash payments and cash-equivalent benefits in kind that the employee receives from the employer on account of the employment agreement.

The remuneration® includes base salary, overtime pay, commissions, profit sharing and bonuses. The law further indicates that certain payments or allowances do not constitute remuneration, such as lunch, family allowance for each charge of the employee, transportation allowance, etc.

The remuneration must be paid in the agreed fixed period, which cannot exceed one month. However, in the case of variable remunerations, this variable remuneration or commission is usually paid monthly, bimonthly or quarterly. Other payments which depend on the quarterly or yearly results of the company, i.e. bonuses and profit sharing, are paid at the end of the quarter or business year, respectively.

The amount of compensation can be freely agreed upon between the employer and the employee. However, the law sets a minimum level, which in the case of the monthly base salary for employees working 45-hour weeks cannot be lower than one legal monthly minimum wage (CL$264,000; US$430 approximately).

a) Profit Sharing

Legally if a company has profits, it must share part of them with its personnel. The law stipulates that companies must distribute  $30\%$  of net profit to the employees, calculated in proportion to the employee's salary. The basis used to determine profits is the corporate taxable income (subject to certain adjustments) less  $10\%$  of net equity. However and in lieu of the above obligation, the employer may pay a bonus of  $25\%$  of the yearly salary, but the bonus in this case, regardless of the level of salary of the employee, cannot exceed 4.75 monthly minimum

wages. However, employer and employees may agree on a different profit-sharing system, provided the payment to the employee is not lower than the two alternatives mentioned above.

# b) Additional Benefits

Employers have no legal obligation to provide fringe benefits, other than benefits which may be voluntarily agreed upon in individual or collective contracts or agreements. Pension and sickness benefits are covered by the Social Security System described later. There is no legal obligation to provide catering facilities and meals, as a general rule.

# g. Termination of the Labour Contract

Chilean Labour law applies the principle of "relative stability in employment". Therefore, labour agreements may only be terminated due to causes and according to the provisions set forth by law.

Labour law provides for:

(i) objective grounds of termination, such as mutual consent, employee's resignation or death, among others;
(ii) termination with cause; and
(iii) termination based on economic reasons or without cause.

Legal ground mentioned on number (i) and (ii) above does not entitle the employee to legal severance. However, some legal requirements must be fulfilled in order to terminate employment, especially regarding those grounds mentioned in number (ii) above.

Finally, termination without cause, the other, entitle the employee to receive legal severance payments, which includes:

(i) Severance in lieu of notice: equal to the amount of last gross salary payment received by the employee instead of giving the 30 days' notice require by law; and


(ii) Severance for years of service: when the parties agree or agreed to anything less than what is required by law, the payment for this compensation is equal to the last monthly gross salary received by the employee multiplied by the years of work or fraction superior to 6 months by the employee, with a 11 years cap.  ${}^{1}$  Please note that employees will be entitled to this severance payment only after they have 1-year service seniority.  ${}^{2}$

Both legal severances must be calculated according the provisions set forth in the Labour Code.

Notwithstanding the foregoing, both parties may agree on a conventional severance payment in case of termination. This can be agreed in writing and to be applicable even if the termination ground does not entitle the employee to any legal severance. However, the agreed severance compensation cannot be lower than the statutory compensation regime. Normally, this sort of agreement is common in executive and management positions.

Also, it is possible for the employer to pay a voluntary termination severance, often applicable to grounds of termination that don't entitle the employee to legal severances. It is very important to bear in mind that this sort of severances are not tax deductible for the employer and a  $40\%$  tax penalty applies.

Furthermore, and regardless the legal ground invoked for termination, employees are entitled to their accrued vacation severance.

Lastly, termination of employment must also fulfill some legal requirements, such as written notice, only applicable to terminations with cause and those based on economic reasons or without cause, and release settlement execution.

# h. Outsourcing

The law recognizes the possibility to outsource or externalize services even in matters related to the main business of the user company and also the hiring of transitory personnel through special entities named EST("Empresas de Servicios Transitorios"). Hiring of transitory personnel from an EST is limited to specific situations and to a limited period of time. ESTs are special entities with a sole line of business previously registered before the competent authority. Both regimes are regulated in detail in the law.

Local statute provides for two outsourcing types:

# a) Subcontracting

Under this option, contractor should provide services on its own account and risk, with personnel under its labour dependence and control. Therefore, the client shall not interfere in the labour direction of the employees during the performance of the services.

As a general rule, the client is jointly liable for all the contractor's employees labour and social security

obligations (i.e., severances in case of termination, payments of social security obligations, salaries, etc.), hygienics and secure place of work, among others.

Notwithstanding the above, joint liability becomes subsidiary in case the client can evidence that it has effective controlled compliance of labour laws by the contractor. For these purposes, the client shall require the contractor a special certificate granted by the Chilean Department of Labour, which evidences that the contractor has fulfilled all its labour and social security obligations, among other documents.

If the contractor does not timely certify the complete fulfillment of its labour and social security obligations, the client has the right to withhold any payment or advance that must be done according the agreement between the parties up to the extent of its subsidiary liability having the obligation to pay, with the withhold amount, the owed amounts to the employees and / or to the social security institutions.

The client can also report to the Department of Labour the breach of contractor's labour and social security obligations, declaring the withholding made.

One of the main risks of subcontracting services is the possibility that it is considered the contractor's employees, and that it has a subordination and dependence entailment with the client.


This permit can be used continuously or distributed within the first month of baby's life, as the employee's choosing.

d) Maternity Protection

Female employees are legally protected under maternity privilege since the beginning of her pregnancy until one year as from the end of the postnatal leave. During this period, the employer may not dismiss her without cause. For termination with cause, employers must request the court's previous authorization.

# B. Foreign Employees

As a general rule, employees coming to the country to render services will be subject to both Chilean migratory and labour law, regardless if the employer is a Chilean or foreign entity.

Chilean Migratory Law, in general terms, disregards the applicant's nationality in the process of requesting a visa. Some differences may be noted due to the applicant's nationality regarding the fee applicable to the process.

Chilean Law provides for two kinds of visas for foreigners who wish to work in Chile, as follows:

(i) visa subject to a work contract (work visa); and

(ii) temporary visa. The latter is granted, inter alia, to professionals, technicians and experts who do not come to Chile under a labour contract with a company or branch office in Chile, but as independent consultants and whose services in Chile are considered useful or convenient for the country. The foreigner must request a temporary visa, under different assumptions based on each particular situation.

Either visa enables the applicant to apply to a permanent residence after its expiration. Also, the same type of visa can be granted to the members of the family of the visa holder (such as wife, children or parents) who will not be allowed to perform remunerated activities in the country.

Any visa is a residence permit that allows the holder to reside in the country and to perform any licit activity, without special limitations. Work visa is granted for 2 years term and a temporary visa can be granted for a 1-year period, renewable once for the same period.

Regarding the application procedure, there are two options:

(i) The application may be filed before the Chilean Consulate and carried out through the Ministry of Foreign Affairs. The documents to apply for this type of visa will depend on the specific Consulate in which it will be submitted.

(ii) The visa application can be submitted once the employee arrives in Chile. In this case the application must be filed before the Immigration Department (which is part of the Ministry of Internal Affairs).

This procedure takes approximately 8 months, during which the foreign employee can apply for a provisional work permit which allows him to work in Chile during the entire procedure to obtain the visa.

Furthermore, tourist visa allows its holder to work in the country if a special permit is granted. Hence the foreigner can be able to legally work within a week after his arrival.

# C. Restrictions for Exit and Entry

It is important to note that any foreigner that enters de country must have a tourist visa. Depending on the person's nationality, it will be necessary to apply for a tourist visa abroad. Some other nationals don not require to have the tourism visa and have no further restrictions for entering the country. This is also applicable to exits.

As a general rule, tourist visa's term is 90 days, regardless of how it was obtained. However, please consider that the border control authority (Policía de Investigaciones) is empower to either grant the tourist visa for a shorter period of time, or prohibit the foreigner to entry the country, at its sole discretion.

The tourist visa can be renewed, once, for a maximum period of 90 days, counted since the first visa has expired.

# D. Labour Disputes

Chilean law provides several procedures to solve labour disputes between employers and employees. Said

proceedings may be held administratively or before Labour Courts.

Legally, the Department of Labour is a government agency which verifies law compliance by employers and resolves certain labour disputes through mediation procedures.


Conflict and dispute settlements achieved in this instance are enforceable and binding for the parties. The latter task is fulfilled through administrative proceeding set forth by law.

On the other hand, Labour Courts are those legally obliged to resolving any dispute, applicable to their jurisdiction, provided by the employer or employees. Judiciary rulings are enforceable and binding for both parties and may be subject through recourses by higher courts (such as Appeal Courts or even the Supreme Court).

Procedures by which the parties may solve labour contingencies are:

# a. Labour Claims

These can be submitted by an employee or a group of them before the Department of Labour. Often, they are submitted when the employee is seeking the declaration that the employer has breach its legal obligations either while the employment is in force or upon its termination.

Normally, the Department of Labour can set up an investigation in the employer's premises or summon both parties to try and reach an agreement. If an agreement is not reached, the employee can file a lawsuit before the Labour Courts in order to seek a judiciary ruling on the dispute.

# b. Labour Lawsuits

Chilean Labour Courts are competent to review:

(i) any issue raised by employers and / or employees related to the application of the law or provided from the interpretation and application of individual or collective agreements, conventions and arbitration decisions:
(ii) social security related issues, raised by employee or employers, except those that consists in reviewing medical leaves;
(iii) Claims against resolutions issued by labor or social security authorities;
(iv) any claim seeking damages compensation because of occupational accidents or diseases; and
(v) any other matter which the law specifically provides must be subject to them.

Please note that the specific procedures set by law will vary depending on the matter and its amount. Therefore, local statute provides for different kinds of proceedings which can be held before a Labor Court. However, all of them are mainly oral and includes audiences before the judge.

# V. Intellectual Property

# A. Brief Introduction of IP Laws and Regulations

Several laws and regulations, including the Constitution, protect in Chile the various IP rights, of which the most relevant are:

- Law No.19039 of Industrial Property regarding patents (including industrial designs, utility models), trademarks, geographical indications, layout designs (topographies) of integrated circuits and trade secrets.
- Law No.17336 of Author's Rights (Copyright).
- Law No.19342 of Plant Varieties.
- Law No.20169 of Unfair Competition.
- Law No.19912 (Title II) of Border Measures.

Chile is a member of several Multilateral Treaties concerning the protection of IP rights, such as:

- The Paris Convention for the Protection of Industrial Property;
- The Patent Cooperation Treaty ("PCT");
The Berne Convention for the Protection of Literary and Artistic Works;
- The Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations;
The Brussels Convention Relating to the Distribution of Program-Carrying Signals Transmitted by Satellite.

Also, some of the bilateral free trade agreements to which is Chile is a party contain IP Chapters, including the Free Trade Agreement with the US and the Association Agreement with the European Union.

The National Institute of Industrial Property ("INAPI") is the agency responsible for the registration of Industrial Property rights (patents, industrial designs, utility models, trademarks, geographical indications and layout designs of integrated circuits). Copyright and neighboring rights are registered at the Department of Intellectual Rights. The Agriculture-Livestock Service ("SAG") is responsible for the registration of Plant Varieties.

# B. Patent Application


# B. Patent Application

Patents may be granted for any type of product or process that is to be considered an invention, the latter of which is defined in Chile as any solution to a problem of the technique resulting in an industrial activity. Patents are valid for 20 years from their filing date and cannot be renewed.

Discoveries, scientific theories, mathematic methods, plants and animals, software, business models, therapeutic or surgical methods, parts of living beings are considered non patentable subject matter. Chile does allow for second medical use patents as well as Swiss type claims.

In regards to the prosecution of a patent application, this is done before the INAPI. Chile has a pre-grant opposition system and several examiners substantive reports are issued during the prosecution of an application. In general, the prosecution of a patent takes around 3 years before INAPI. If the application faces a third party opposition, the prosecution will take about an additional year longer. The final decision of INAPI can be the object of appeal recourse before the Industrial Property Court. Appeal recourse procedures usually take around 1 years' time. Said decision, can be the object of an annulment recourse before the Supreme Court.

Additionally, it should be noted that Chile allows for Patent Term Adjustment and Patent Term Extension procedures. Both of them are filed, prosecuted and resolved by the Industrial Property Court.

A cancelation action can be filed against a registered patent and the statute of limitations for the filing of said action is of 5 years from the registration date.

Chile is a member of the PCT Patent System.

# C. Trademark Registration

Trademark may consist of words, designs or the combination of both. Sound trademarks are also permitted. 3D trademarks are not recognized by the law. The duration of the trademark is 10 years and registrations may be renewed every 10 years. Use of trademarks is not mandatory in Chile and trademark registrations cannot be cancelled based on lack of use.

Registrations are granted for products and services as classified under the Nice Classification, with the addition of two categories, "establishcimiento commercial" for retailer names and "establishcimiento industrial" for manufacturing facilities.

Trademark applications are filed at INAPI and are subject first to a formal examination and after to the publication in the Official Gazette. Oppositions which may be filed within 30 working days from the publication, based on absolute or relative grounds, including the right to oppose based on trademarks registered outside Chile that enjoy fame and notoriety, even if the trademark has not been used in Chile. INAPI also examines the application on absolute and relative grounds after the expiration of the opposition term. The opposition and Office Actions, if any, decided in first instance by the Director of INAPI, appeals are decided by a special Industrial Property Court and under certain circumstances, the matter may be brought up to the Supreme Court. The prosecution of a trademark application takes about 6 months if no opposition / Office Action is raised.

Trademark registration may be cancelled within 5 years from the date of granting on the same grounds as for an opposition. After 5 years, a cancellation action may be still possible but based on bad faith grounds.

The agents representing a trademark applicant must submit a Power of Attorney before INAPI that does not require further formalities.

# D. Measures for IP Protection

Chilean laws contemplates several measures for the enforcement of IP rights.

Both Law No.19039 of Industrial Property and Law No.17336 of Author's rights (Copyright) provide civil and criminal actions for the enforcement of IP rights, including injunction orders, seizure orders, fines, and the right to obtain compensation for damages.

Chilean Customs is also authorized to carry out border measures consisting in the retention without a Court order for up to 10 days of goods that infringe trademarks and copyrights.

# B. Patent Application


Among the environmental consequences that require filing of an EIA instead of a DIA the law includes: risks to human health, due to the quantity and quality of effluents, emissions or residues; potential material adverse effects on the quantity and quality of renewable natural resources, including soil, water and air; the relocation of human settlements or significant alteration to the lifestyles and customs or the population; their location in or in the vicinity of human settlements, resources and protected areas, priority conservation sites, protected wetlands and glaciers likely to be affected, as well as the environmental value of the territory where its location is planned; and any significant alteration, in terms of magnitude or duration, to the landscape or tourist value of any given area; and any alteration to monuments or sites of anthropological, archeological and historical value, and in general those that are part of our cultural heritage.

There are several differences between how an EIA and a DIA are processed, chiefly the deadlines that the environmental authorities have to work with in issuing an RCA. In the case of an EIA, the authority has 120 days, whereas for a DIA the deadline is shortened to 60 days. In practice, these deadlines are longer because the procedure is usually suspended at the request of the project owner in order to collect data and information needed to answer inquiries made by the authorities.

The corollary of this process is an RCA, which could be either unfavorable, in which case the project or activity cannot be carried out, or favorable. In this last case, the RCA usually establishes certain conditions that the owner must meet during the various project implementation and operation stages.

# C. Brief Introduction of Laws and Regulations of Environmental Protection

# a. Emission and Environmental Quality Standards

There are several emission standards that establish maximum limits that certain specific sources may emit.

(i) In relation to atmospheric emissions, specific emission standards apply in the Santiago Metropolitan Region that are more stringent than those generally in force.
(ii) As to industrial liquid waste, emission sources must adhere to the relevant emission standard, the application of which depends on the water mass that receives the discharge (rivers, lakes, underground aquifers, sea). Usually, in order to comply with the emissions standard, one needs to implement a waste treatment plant under the operational supervision of the Water Utilities Superintendentcy.
(iii) Elsewhere, there are environmental quality standards that set out the maximum limits for the concentration of pollutants likely to pose a risk to human health or an environmental protection or conservation hazard. There are quality standards for the control of pollutants that affect the atmosphere and inland and maritime waters.

# b. Hazardous Solid Waste

The handling of hazardous waste is regulated by Supreme Decree 148/2003, i.e. Sanitary Regulations for the Management of Hazardous Waste, which introduces conditions for the management, storage and elimination of these wastes. Significant hazardous waste generators must file a waste management plan with the Sanitary Authority for approval.

Hazardous waste transportation is regulated by Supreme Decree 298/1994, i.e. Regulations for the Transportation of Hazardous Waste, which establishes the safety conditions to be met by all vehicles that carry hazardous materials or wastes.

# c. Native Forest Act

Law No.20283 on the Native Forest Recovery and Forestry Promotion generally provides that any tree-felling activity on native forests, regardless of the location, must be conducted on the basis of a management plan previously approved by the National Forest Corporation ("CONAF"). Nevertheless, it does forbid the felling, elimination, destruction or removal of planting stock of native plant species that are part of a native forest and classified as "in danger of extinction," "vulnerable," "rare," "insufficiently known" or "out of danger".


# d. Indigenous Peoples Act

Law No.19253 introduced a special statute applicable to indigenous peoples. It provides that indigenous lands may not be disposed of, attached, encumbered or acquired through adverse possession, except among indigenous communities or individuals belonging to the same ethnic group. Nevertheless, they may be subject to liens upon authorization by the National Indigenous Development Corporation ("CONADI"). These liens cannot include the home of an indigenous household and the land it needs to survive. Likewise, lands owned by indigenous communities cannot be leased, conveyed under bailment or assigned to third parties for their use, enjoyment or administration. Lands belonging to indigenous individuals may be subject to the above treatment for a maximum of five years.

In any case, these lands, with the prior consent of CONADI, may be exchanged for non-indigenous lands having comparable commercial value, duly ascertained; the latter will then be deemed to be indigenous lands and the former will no longer enjoy this status.

Additionally, Chile has ratified the International Labour Organization N°169 Convention on Indigenous and Tribal Peoples. Pursuant to that Convention the government must consult the indigenous people, through appropriate procedures, about legislative or administrative measures that may affect them.

# e. Liability for Environmental Damages

In general, liability for environmental damages is subjective, i.e. for a person or entity to be required to cure environmental damages or pay indemnification equivalent to said damages, not only must it have caused those damages, but they must also have been the result of willful misconduct or negligence. Exceptionally, there are some cases of strict liability, such as the damage regulated by the Nuclear Safety Act 18302/1984, the Navigation Act contained in Decree Law No.2222/1978, and the Agricultural Protection Act contained in Decree Law No.3557/1981, that regulates the use of pesticides.

# D. Compliance Monitoring of Environmental Protection

As previously mentioned, the SMA is the entity in charge coordinating the monitoring and control of the RCA, the measures of the Prevention Plans and or Environmental Decontamination Plans, the contents of the Environmental Quality Standards and Emission Standards, the Management Plans, and all other environmental instruments established by law.

The SMA may apply sanctions pursuant to Law No.20417 in case environmental regulations are infringed. Aaccordng the severity of the infringement, sanctions including revoke the RAC, close the facilities, or 1,000 to 10,000 fines UTA may be imposed.

Notwithstanding the above, the revocation or suspension of an RCA is an uncommon sanction in Chile, which requires a previous consultation with the Environmental Court of Law. In any event, the sanctions mentioned above may only be applied after a sanctioning proceeding has been led by the SMA.

# VII. Dispute Resolution

# A. Methods and Bodies of Dispute Resolution

The Chilean judicial system is composed by courts of first instnce, Courts of Appeal and a Supreme Court. Courts of first instance are divided geographically and according to the matters they decide. However, there are no special courts for disputes concerning commercial issues, therefore they are resolved by civil courts.

Arbitration is also recognized as a legal dispute resolution within Chilean jurisdiction. The parties are free to agree upon this mechanism regarding most matters.

# d. Indigenous Peoples Act


There are three kinds of arbitration, according to the powers granted to arbitrator: arbitration at law (which strictly follows the rules of the Chilean Civil Procedure Code and rules according to law), arbitration ex-aequo et bono (where the parties and the arbitrator freely establish the rules of procedure, and the ruling must be in accordance with fairness and equity principles, that is to say, it does not necessarily follow the law) and mixed arbitration (where the parties may freely establish the procedures rules, but the final decision must be made according to law).

There are certain matters of prohibited arbitration such as alimony, the separation of assets during matrimony and criminal cases. Conversely, there are certain matters of mandatory arbitration, such as the liquidation of corporations and partnerships as well as the differences between its partners or shareholders. Other than these matters, no party shall be subject to arbitration against its will.

Choice of law clauses are generally recognized and enforced, with some exceptions. Assets located in Chilean territory are always governed by Chilean Law. There are also some exceptions concerning family law.

Choice of venue clauses are recognized and enforced regarding international contracts, which need to have an international element in them. However, Chilean courts are flexible when determining the existence of an international element.

# B. Application of Laws

The rules of organization and faculties of the State Courts, along with the jurisdiction related matters, are contained in the Organic Code of Tribunals.

As to the procedural rules, they are mostly contained in the Civil Procedure Code -for civil matters- and Criminal Procedure Code -for criminal matters-, notwithstanding some special proceedings regulated in separated acts. In the case of arbitration, Chile adopts a dualistic model, regulating domestic arbitration within the Civil Procedure Code and International Commercial Arbitration in Act. No. 1997/ 2004.

# VIII. Others

# A. Anti-commercial Bribery

# a. Brief Introduction of Anti-commercial Bribery Laws and Regulations

a) Commercial Bribery is a Felony that can be Perpetrated by People and / or Companies

When the felony is perpetrated by a person, the Criminal Code will apply. A person can be either an active participant or a passive participant of the felony. The passive participant is the person that works on a governmental institution and receives a payment in exchange of a favor. Accordingly, the active participant is the person that works in the private sector and makes a payment in exchange of a favor from the government. The Chilean Criminal Code proscribes and sanctions corruption and bribery (including commercial bribery). Criminal sanctions are established both for the public officer who receives the bribe and for the person who pays it.

According to the Chilean Law that regulates the criminal responsibility of Companies, according to Law No.20393/2009, Companies can only be liable for 3 types of crimes:

(i)Bribery;
(ii) Financing of terrorism; and
(iii) Money laundering.

The Law establishes than in order to make a company liable for said crimes, they have to be performed

by the Company's owners, controllers, board members, representatives, principal executives, or whoever has administrative and supervision duties within the company. Furthermore, in order to attribute the liability to the company and not to the person directly involved in the crime, the company must have had, directly or indirectly, a benefit from the execution of said crimes.

In business combinations such as mergers, liability can be transferred from one company to another, independently from the individual's responsibilities. Responsibility does not end with the dissolution of the liable company.

Furthermore, Chile is a member of the United Nations Convention against Corruption (since 2006) and of the Inter-American Convention against Corruption (since 1998), treaties that make the legal framework against these crimes even stricter.


b) Crime Prevention Policy Requisites

Pursuant to Law No.20393, in order for companies to prevent crimes such as bribery, the company must first appoint a "Person in charge of Crime Prevention" who must not have a subordinate position within the company. Second, it must give sufficient and adequate faculties and powers to that person so that it can perform its duties. Third, the company must create a "Prevention System" with the indication of the activities that could tend toward criminal acts; mechanisms, rules and instructions to prevent the latter; install administrative procedures and audits to prevent crimes and finally the establishment of sanctions for the people who breach system regulation. Finally, the "Prevention System" must be certified by external auditors, risk qualifier companies or other companies subscribed to the Superintendence (SVS). However, the Law does not state basic requisites in order to get said certification, and it is usually enough to just have a Prevention System but not necessarily and adequate or sufficient one.

Needless to say that this Crime Prevention Policy does not make the company exempt of criminal liability, but only reverses the proof obligation. In case of having a Policy, the courts assume that the company was in compliance of its supervision and management duties, and will therefore be more benevolent when deciding whether the company is guilty or not. However, the district attorneys can still revert the Courts' assumptions and prove that the company is guilty of the crimes. For the latter, they need to prove that the policy was not sufficient or adequate enough to prevent the crime and or prove that the company was not diligent enough in the compliance of its supervision and management duties through other means besides the existence of a Policy.

# b. Department Supervising Anti-commercial Bribery

The department supervising anti-commercial bribery is the Prosecution Office. Said Office will be in charge of investigating such practices with the collaboration of other public entities such as the Police Department and the Superintendentage of Securities and Insurance (SVS). After the investigation of a crime, which shall not take longer than 2 years, the Prosecution Office will be able to press charges and present an indictment if the investigation has, at its own criteria, brought enough evidence for the Courts to sanction the anti-commercial bribery practices. Once the charges are pressed, a Criminal Court composed of 3 judges will be in charge of evaluating the case and deciding whether the briber and bribed are guilty of bribery crimes.

Appeals shall then be presented before the Appeals Courts and the Supreme Court.

# c. Punitive Actions

Pursuant to Law No.20393 if a Company is found guilty of any of the aforementioned crimes, the sanctions can be the following:

(i) monetary fine;
(ii) total or partial loss of fiscal benefits for a determined period;
(iii) temporal or perpetual prohibition to enter into agreements, contracts and others with the Government;
(iv) dissolution of the company or cancellation of its legal personality as the worst sanction and;
(v) other minor sanctions such as the publication in the newspapers of the Court's decision where the company is found guilty.

# B. Project Contracting

Article 4 of Law No.19886 of Bases on Administrative Contracts of Supply and Provision of Services that governs the procurement procedure, provides that Chileans or foreigners may contract with the Administration of the State as long as they prove their financial situation and technical suitability as provided by the regulation, fulfilling the requirements that commands and that demands the common right. However, people who, within two years at the time of the presentation of the offer, the formulation of the proposal or the subscription to the

b) Crime Prevention Policy Requisites


convention, as appropriate public, private or direct contracting, have been convicted of anti-union practices or infringement of the fundamental rights of the worker, or for bankruptcy crimes established in the Penal Code, will remain excluded from the possibility of contracting with the Administration of the State.

# a. Permission System

Article 9 of Law No.19886 establishes that the contracting body of the State will declare inadmissible the offers when the persons do not fulfill the requirements established in the bases. It will declare a vacant offer when no offers are present, or when the actions are not convenient for its interests. In both cases, the notification must be by reasoned resolution.

Accordingly, article 10 states the contract with the State will be awarded by resolution of the competent authority, communicated to the proponent. The successful bidder will be the one who, as a whole, makes the most advantageous proposal, taking into account the conditions that have been established in the respectful bases and the evaluation criteria indicated in the regulation. The bidding procedures are carried out with obligatory subjection, of the participants and of the bidding entity, to the administrative and technical bases that they regulate. The bases are always approved in advance by the competent authority and then presented to the interested parties.

# b. Prohibited Areas

According to Chilean Law, foreign investors may participate in most of the country's economic areas and productive sectors of assets and services. Notwithstanding the foregoing, there are some restrictions regarding cabotage, air transport, communication media and fishing activities (regarding fishing activities, the restrictions are conditioned to the reciprocity international principle). Additionally, foreign investors cannot own real estates located at the borders of the country.

Article 3 of Law No.19886 indicates situations were public contracting is not permitted, such as:

(i) The hiring of personnel of the State Administration regulated by special statutes and the contracts to honoraria that are celebrated with natural persons so that they render services to the public organisms, whatever is the legal source in which they are sustained.
(ii) The agreements signed by the public bodies listed in article 2, first paragraph, of Decree Law No. 1263/1975, the Organic Law of Financial Administration of the State, and its modifications.
(iii) The contracts made in accordance with the specific procedure of an international organization, associated with credits or contributions that it grants.
(iv) Contracts related to the sale and transfer of negotiable securities or other financial instruments.
(v) The contracts related to the execution and concession of public works.

Also, are excluded from the application of this law, work contracts that celebrate the Housing and Urbanization Services for the fulfillment of its purposes, as well as contracts for the execution, operation and maintenance of urban works, with participation of third parties, that they subscribe pursuant to Law No.19865 that approves the Urban Financing System.

Notwithstanding the exclusions reported in this letter, the hiring to which they refer will be subject to the regulations contained in Chapter V of this law, as well as the rest of its provisions in a supplementary manner.

(vi) Contracts that deal with war material; those celebrated by virtue of the Law No.7144, 13196 and their modifications; and, those that are celebrated for the acquisition of the following species by the Armed Forces or by the Forces of Order and Public Security: military or police vehicles, excluding vans, automobiles and buses; equipment and information systems of advanced and emerging technology, used exclusively for command, control, communications, computational and intelligence systems; elements or parts for the manufacture, integration, maintenance, repair, improvement of armaments, their spare parts, fuels and lubricants.