Chile: New foreign investment regime
In 1974 Chile was in a serious economic crisis. To promote foreign investment, the Chilean Government enacted Decree Law 600, now known as the Foreign Investment Statute. This Foreign Investment Statute implies a contract between the Chilean Government and the foreign investor and it has been subject to several modifications and amendments and in summary grants, among other benefits, the following rights to foreign investors materialising an investment in an amount higher than US$5 million: i) access to the formal exchange market; ii) alternative cost basis in case an investment in Chile is transferred; ii) a 42% invariability as a total tax burden (which can be renounced by the taxpayer); and iii) VAT exemption upon importing capital assets.
In addition to the above mentioned rights, those industrial, extracting or mining projects subject to an investment higher than $50 million could also become subject to certain invariability rights for 15 years counted from the start of the relevant operations. The most important invariability right was included in article 11, which allowed application of the specific mining tax rate and base applicable at the time the foreign investment contract (FIC) was signed for a 15-year period. Chilean investors in the mining project were also granted similar specific mining tax invariability for a period of 12 years.
As a consequence of the above, the mining investors subject to this invariability were protected from an increase of the specific mining tax. In fact, specific mining tax base and rate changed in 2010 and those mining investors subject to invariability were not affected by these changes.
On September 29 2014, Law No. 20.780 was published in the Chilean Official Gazette (the tax reform package), which introduced several modifications to the Chilean taxation system.
The tax reform package abolishes Decree Law 600 from January 1 2016 onwards and from that day the Chilean Government can no longer enter into new FICs (except for those signed before which remains valid). The tax reform package also provides that a new law should be sent to Congress to create a new foreign investment statute.
In this sense, on January 30 the Chilean Government sent a Bill to Congress regarding a new foreign investment statute, which is very similar to the old foreign investment statute.
In broad terms, the new foreign investment statute also grants foreign investor access to the formal exchange market but the request is not by means of a contract with the government but with a request to be authorised by the new Foreign Investment Development Agency which replaces the Foreign Investment Committee. VAT exemption regarding capital assets is also preserved. The Bill also provides certain rights and obligations of the Foreign Investment Development Agency.
Finally, specific mining tax invariability rights are terminated. However, pursuant to article 2 of the Bill, from January 1 2016 (or the date when the law is published in the Official Gazette, whatever happens first) specific mining tax invariability rights (among others article 11 of Decree Law 600) will still be extended for a period of four years.
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