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 5 to 10 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 a 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 Commerce Department’s U.S. Commercial Service, and for agricultural exports, the Department of Agriculture’s Foreign Agricultural Service.
Establishing an Office
Within the framework of Chilean law, business entities can choose among a variety of different corporate forms, each with different legal and tax implications. Since tax treatment of the various forms of businesses is similar in Chile as in 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 awaiting consideration by the U.S. Congress. (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 Chilean Government created an online portal to help individuals create their business in 24 hours from the comfort of their own desk. The portal, under the Ministry of Economy, 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). Those who do not have FEA can sign electronically through a notary. The cost is around $60.
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 in order to conduct commercial activity in Chile.
There are approximately 260 franchises in the Chile, with 6,500 stores throughout the country, a 12 percent increase from 2018. Franchises are located primarily in the Santiago Metropolitan Region, with additional representation also in the Valparaíso and Bio-Bio regions. The vast majority of franchises in Chile (82 percent) are sourced 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, test-prep institutes, and others. The franchise industry in Chile was responsible for nearly 70,000 jobs in 2019.
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 percentand contracts are usually for 5 or 10 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 in Chile for franchises is identifying local investors interested in obtaining a master franchise. A small group of established local companies own the master franchises in the principal sectors making it very challenging for new concepts to enter the market and reach new investors. For those franchises committed to entering the market, it is recommended to utilize newspaper advertisements and/or reach out to the 2-3 franchising consultants in the market. 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+). The average initial investment in Chile is $232,000. Another challenge for franchisors is 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.
For further information, please contact the U.S. Commercial Service in Santiago, Macarena Marin firstname.lastname@example.org
Direct marketing is well-established in the services sector, especially in banking/finance and telecommunications services. Catalog sales are not common marketing methods used to reach the average Chilean consumer, with the exception of the cosmetics sector, where brands such as Natura are quite 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 do want to know there is a store that can provide after sales service or address any problem that might arise.
The exchange of products in Chile is made 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 is lower in Chile than in the United States, but growing.
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.
The United States has several reliable express delivery firms, including FedEx Express, UPS, and DHL.
FedEx Express was the first delivery firm to use express distribution which delivers to over 220 countries worldwide. It is currently the world’s largest express transportation company, completing up to 3.6 million shipments each business day. In regard to 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 destiny (-U.S.)
UPS offers several international shipping options as well, including UPS Worldwide Express, which provides a 1-3 day international delivery and a 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 at the same time. They also provide tracking and customer service to help with the regulation of the package.
DHL Express provides international shipping with strong customs support. They offer various options for delivery including emergency same day, guaranteed time-critical next day, and other less time constricting options.
All of 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# if possible. Customs entries are generally 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 followed: commercial invoice, certificate of origin, bill of lading, freight insurance and packing list. All imports require a license. This is important; however, most goods receive an import license without an issue.
Imports are subject to duties and taxes which must be paid in order 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 certain 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. In regard to import taxes, a value added tax of 19 percent is assessed on the value of the imported goods plus the customs duty.
The following goods are prohibited to import into Chile: Used passenger and cargo vehicles for tourism, used tires, used motorcycles, asbestos in any form or incorporated into other products, narcotics, knives (except for cutlery), and dangerous Goods as defined by IATA (International Air Transport Association).
Further details of these limits and restrictions for customs can be found on each delivery firm’s websites.
Due diligence is an important part of any decision to enter into business with a foreign company. U.S. exporters who would like to request a background on a prospective business partner should consider the International Company Profile (ICP) service offered by the U.S. Commercial Service. More information on this and other U.S. Commercial Service assistance to identify and qualify your business partner, is available on the U.S. Commercial Service website.