Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
Using an Agent or Distributor
In general, foreign suppliers enter the Chilean market by appointing an agent, distributor, or wholesaler. Most are small-to-medium size firms. Several large firms handle different product lines and operate as wholesalers. Almost all the firms have their main offices in Santiago. The larger ones have branch offices throughout the country, including the free-trade zones of Iquique and Punta Arenas. Agent/representative commissions normally range from five to ten percent, depending on the product. For contract requirements, see Local Professional Services.
Chile is a relatively small market where relationships in the business community are key to success. The selection of a Chilean agent or representative is an extremely important decision for U.S. exporters and merits a thorough review of possible candidates, their qualifications, and capabilities. U.S. companies are invited to make full use of the wide range of market entry and partner search services offered by the U.S. Department of Commerce U.S. Commercial Service, and for agricultural exports, the U.S. Department of Agriculture’s Foreign Agricultural Service.
Establishing an Office
Within the framework of Chilean law, business entities can choose between a variety of different corporate forms, each with different legal and tax implications. Since tax treatment of the various forms of businesses in Chile is similar to the U.S., the choice of entity type is often guided by U.S. tax considerations. Currently there is no bilateral tax treaty between Chile and the United States; however, the treaty has been negotiated and ratified by the Chilean Congress and is under consideration by the U.S. Senate. If ratified by the U.S. Senate, the Chilean Congress will need to review the treaty due to changes in U.S. tax laws since the Chilean Congress originally ratified the tax treaty. (For more information, please see the chapter on Investment.)
There are two ways to incorporate a business in Chile: via traditional means with a Chilean attorney (for all corporations), or via self-service online. The process of working with an attorney to form a corporation is relatively inexpensive and takes about three weeks. The direct costs are approximately $1,300 for legal fees (depending on business sector) and $550 for expenses such as notary public, commercial registry, and the official gazette publication. Chile has no minimum local participation requirement, and the inclusion of local partners is guided only by commercial considerations.
The Ministry of Economy created an online portal to help individuals create their business in 24 hours. The portal provides information, facilitates the procedures, obtains the certificates and the benefits of the state, and will allow users to create and grow their businesses. There is no charge to create a business via this portal. The only expenses are associated with the use of the Advanced Electronic Signature (FEA by the Spanish acronym). Those who do not have a FEA can sign electronically through a notary. The cost is an estimated $30 for a year and the portal has a list of providers of that service.
There are several types of companies that can be registered: limited liability corporations, individual limited liability corporations, joint stock companies, public limited corporations, and reciprocal guaranty corporations.
Regardless of whether you work through an attorney or online, the first step for any U.S. citizen, corporation, or entity wishing to establish a business in Chile is to present a declaration of intent to invest at a Chilean Consulate. This intent form should state the nature of the business and the capital to be invested, while simultaneously requesting a Chilean Permanent Residence Visa. This visa confers official residence status on the company, which is necessary to conduct commercial activity in Chile.
For the latest Investment Climate Statement (ICS) which includes information on investment and business environments in foreign economies pertinent to establishing and operating an office and to hiring employees, visit the U.S. Department of Department of State’s Investment Climate Statements website.
As of 2020, there are approximately 300 franchises in Chile, with more than 7,000 stores throughout the country. Franchises are located primarily in the Santiago Metropolitan Region, with additional representation in the Valparaíso and Bío-Bío regions. In Chile, 82 percent of franchises originate from five countries: Chile, the United States, Spain, Peru, and Argentina. These franchises are distributed among five sectors: (1) the food industry (39 percent), including restaurants, coffee shops, and ice cream shops; (2) services (23 percent), including healthcare providers, fitness centers, real estate, financial services, hotels, and car rental; (3) apparel (17 percent), including clothing and footwear; (4) commerce (14 percent), including shops that sell sweets, tea, coffee, pharmacies, cosmetics, and other goods; and (5) education (7 percent), including technical institutes and test-prep institutes.
Despite the uncertain and complex scenario during the pandemic, franchises in Chile have increased. In 2020, new franchises entered the market, and existing franchises grew seven percent in corporate owned stores and 20 percent in new franchise stores. The franchise industry in Chile was responsible for nearly 70,000 jobs in 2019, however, that number decresed by 7 percent in 2020.
In a 2019 survey on sales, 58 percent of the companies said their sales have decreased, 38 percent increased, and 4 percent have remained unchanged. Retail industry sales have increased the most with a 30 percent increase while the food industry has decreased by 50 percent. The digital transformation has been key to the success of franchises during this period. The survey also states that the investment payback period decreased from 25 months in 2016 to 22 months in 2020.
Chile does not have specific franchise laws. Franchise companies operating in Chile are subject to the same general Chilean trade laws as all companies. Royalties and fees are subject to a withholding tax ranging from 15 to 35 percent and contracts are usually for five to ten years. U.S. companies are encouraged to register their trademarks prior to entering the Chilean market. Chile does not have a franchise association, however, there is a franchise committee under the Santiago Chamber of Commerce that organizes the only franchise trade show in the country, FIF Chile.
A major challenge for franchises in Chile is identifying local investors interested in obtaining a master franchise. A small group of established local companies owns the master franchises in the principal sectors making it very challenging for new concepts to find new investors and enter the market. For those franchises committed to entering the market, it is recommended to utilize newspaper advertisements and contact a franchising consultant. Other challenges include securing financing, finding affordable locations, and recruiting employees.
Franchises with low initial investments (in the range of $100,000-200,000) have stronger market potential compared to concepts requiring larger investments ($500,000 or more). The average initial investment in Chile is $232,000. Chile has a conservative and risk averse business culture that is cautious about large, upfront investment for unproven concepts until the franchisor has a track record of success in other markets.
Opportunities include wellness & personal care, green products & services, children and elder care, education, home maintenance, products & services for pets, real estate, and experiences.
For more information, please contact the U.S. Commercial Service Chile Commercial Specialist Macarena Marin.
Direct marketing is well established in the services sector, especially in banking/finance and telecommunications services. Catalog sales are not common marketing methods except in the cosmetics sector, where brands such as Natura, Avon, and Just are popular.
Although internet and catalog sales are increasing with time, the more traditional Chilean consumer generally prefers to browse in shops rather than to purchase through catalogs. Customers prefer to visit a physical store that can provide after sales service or address problems that might arise.
The exchange of products in Chile is more complicated due to value added tax (VAT) considerations. Most store policies will provide store credit, rather than cash refunds, with exchanges within a certain time period. The larger department and grocery store chains do provide cash refunds. Credit card penetration in Chile has grown in the past few years. According to the Superintendency of Banks and Financial Institutions, 98 percent of people 15 years or older has a credit or debit card issued by a bank or store.
In Chile, joint ventures and licensing arrangements require the participation of a legally established local partner who can be responsible for Chilean legal and tax obligations. The various administrative, commercial, profit distribution, and other issues involved in the association are established in contracts drawn up between the partners in accordance with Chilean law and tax regulations.
Chilean law affords substantial flexibility in the structuring and implementation of joint ventures (JV). They can be structured as a contractual JV or a corporate JV, whether a company or partnership, and the parties may enter into one or more contracts to further structure their relationship.
While purely contractual, JVs are legally possible, the parties typically form a new legal entity, or become partners or shareholders in an existing one, or a combination of both.
The types of legal entities most commonly used in JVs are closely-held corporations (sociedades anónimas, SA) or stock companies (sociedades por acciones, SpA).
The United States has several reliable express delivery firms, including FedEx and UPS.
FedEx was the first delivery firm to use express distribution and delivers to over 220 countries. Regarding customs, FedEx has developed technology that reduces the amount of handled paperwork and improves the movement of international shipments. International shipments are scanned at all key points throughout the process to provide live status reports to the customer, including when Customs clearance is obtained. A standard package takes 2 to 5 days to arrive to a destination (Chile-U.S.).
UPS offers several international shipping options as well, including UPS Worldwide Express, which provides 1-3 days international delivery and second business day delivery to Latin America. The online process allows the customers to create a shipment while the system generates the necessary customs documents. They also provide tracking and customer service.
These companies provide a guide to understand the shipping restrictions and customs procedures for Chile. They also provide international customs support, making for an easier tracking and retrieving experience for the customer.
Chile uses the Harmonized System (HS) and requires a complete description for all shipments entering the country. The description must include the value of each commodity and the HS number. Customs entries are submitted by a customs broker, either electronically or by submitting copies of the required documents. However, those who import non-commercial goods valued at less than $500 can handle customs entry without a customs broker. Commercial forms issued to both local importers and exporters are as follows: commercial invoice, certificate of origin, bill of lading, freight insurance, and packing list. All imports require a license, however, most goods receive an import license without an issue.
Imports are subject to duties and taxes which must be paid for customs to release the goods. An “ad valorem” custom is imposed on most goods and “specific” duties (based on the quantity) are imposed on specific types of goods. The uniform “ad valorem” tariff of 6 percent applies to most goods. However, alcoholic beverages, pyrotechnics, and tobacco products are subjected to different tariffs. Imported automobiles are also subject to a luxury tax. Regarding import taxes, a value added tax of 19 percent is assessed on the value of the imported goods plus the customs duty.
Any merchandise can be imported, except those that are expressly prohibited by current legislation, such as used vehicles and motorcycles, asbestos in any of its forms, pornography, and toxic industrial waste.
The product to be imported, due to its nature, may be subject to approval, authorization, or control by the Chilean customs, therefore, it is necessary to obtain the approval in advance from the respective agency.
Further details of these limits and restrictions for customs can be found on each delivery firm’s websites.
Due diligence is a recommended step as part of any decision to engage in business with a foreign company. U.S. exporters who would like to request background on a prospective business partner should consider the International Company Profile (ICP) service offered by the U.S. Commercial Service. Information on this and other U.S. Commercial Service services is available on the U.S. Commercial Service website.