10 things to know about M&A in Chile

The two most commonly used corporate structures in Chile are limited liability stock companies (“Sociedad por Acciones” or “SpA”) and Corporations (“Sociedad Anónima” or “S.A.”). Liability in both structures is fully limited. Recently, SpAs have become more common in cases where shareholders are not required by law to incorporate a S.A. 

Shareholders may be local or foreign persons. Foreign shareholders are required to obtain a Chilean tax identification number and designate a representative with Chilean residence to be registered before the Chilean IRS. 

Share capital in Corporations must be subscribed and paid within three years from the date of incorporation or capital increase, as applicable. For SpAs, share capital must be paid within the term indicated in their bylaws and if nothing is stated, within 5 years from the date of its incorporation or capital increase, as applicable. 

Issuance of debt in Chile is generally subject to a stamp tax of up to 0.8% of the principal amount of the debt. Interest on loans is taxable as income and any interest paid by the Chilean company to foreign shareholders is subject to a withholding tax of up to 35%. However, this may be reduced to 4% if the loan is granted by a foreign financial institution, provided that certain conditions required by Chilean tax law are met. 

Cross-border investment and lending is not restricted in Chile, but it must be channeled through the legal framework of Chapter XIV of the Compendium of Foreign Exchange Regulations of the Central Bank of Chile. 

Management of a S.A. must be conducted by a board of directors with a minimum of five directors for publicly held S.A.s and three directors for closely held S.A.s. The management structure in a SpA is flexible and the shareholders are able to freely define the management body in its bylaws.

Labor, environmental and tax issues are always sensitive in due diligence as they can lead to large contingencies. It is a common practice that the parties execute a non-disclosure agreement that protects the information disclosed between the parties during the due diligence and negotiation process of the proposed transaction. 

The transfer of shares in both S.A.s and SpAs must be conducted by means of a share transfer form executed by the transferor and the acquiror before a public notary or before two witnesses over 18 years old or an authorized stockbroker. The Internal Revenue Service (SII) must be notified of the new composition of the shareholders. 

It is mandatory to notify business combinations to the Fiscalía Nacional Económica, the Chilean antitrust authority (the “FNE”) if they are deemed an economic concentration and include entities that exceed certain annual turnover thresholds. If the conditions are met, the parties should jointly report the transaction to the FNE before closing. 

It is a common practice for foreign investors to agree on Chilean or international arbitration to govern M&A transaction documents. Foreign court judgements and arbitral awards are recognized and enforced in Chile by means of an exequatur proceeding before the Supreme Court of Justice.