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Legislation and free trade agreements govern investment in Chile

by | Feb 4, 2023

The primary laws governing foreign direct investment in Chile are the Foreign Investment Law (Law 20.848 of 2015) and the Central Bank of Chile’s Foreign Exchange Regulations. These laws pertain to the entry and operation of foreign companies in Chile and set forth requirements for the repatriation of profits and currency conversion.

Additionally, the Chilean government has signed multiple free trade agreements that further facilitate foreign investment in the country by eliminating barriers to entry and providing greater protections for those individuals and companies that engage in investment in Chile

Investment in Chile is regulated by legislation

The Foreign Investment Law in Chile provides several vital provisions to promote and regulate foreign direct investment in the country. Some of the key provisions of the law include the following:

National treatment: Foreign investors are entitled to the same treatment as Chilean investors and are not subject to discriminatory measures.

Protection of investments: The law guarantees foreign investments, including protection against expropriation and compensation in case of losses.

Free transfer of capital: Foreign investors can freely transfer their capital and profits abroad.

Simplified procedures: The law streamlines the processes for foreign companies engaging in investment in Chile, making it easier for them to establish operations in the country.

Access to financing: Foreign investors have access to funding from domestic and international sources.

Access to technology: Foreign investors can transfer technology and technical knowledge when seeking to participate in investment in Chile.

Non-discriminatory regulations: The Chilean government prohibits enacting rules that unfairly discriminate against foreign investors.

The Central Bank of Chile’s Foreign Exchange Regulations are designed to regulate and supervise foreign exchange transactions in the country. Some of the key provisions of these regulations include:

Reporting requirements: All foreign exchange transactions over a specific value must be reported to the Central Bank of Chile.

Foreign currency exchange: Foreign currency exchange operations are allowed between authorized financial institutions and dealers.

Repatriation of profits: Foreign investors can freely repatriate profits and capital related to their investment in Chile, subject to certain conditions and restrictions.

Currency conversion: Foreign currency can be converted into Chilean pesos and vice versa, subject to the provisions of the regulations.

Exchange rate determination: The exchange rate between the Chilean peso and foreign currencies is determined by market forces, subject to the Central Bank’s intervention when necessary.

Foreign exchange controls: The Central Bank may impose foreign exchange controls to regulate the flow of capital in and out of the country and maintain stability in the foreign exchange market.

These regulations ensure stability in the Chilean foreign exchange market and provide a framework for managing foreign exchange transactions in the country.

Chile has a broad range of free trade agreements

The Chilean government has signed several free trade agreements (FTAs) to promote trade and investment with other countries. Some of the most notable FTAs signed by Chile include:

  • North American Free Trade Agreement (NAFTA): Chile signed a bilateral FTA with Canada and Mexico in 1997, becoming the first South American country to enter into a trade agreement with North America.
  • Free trade agreement with the United States
  • Trans-Pacific Partnership (TPP): Chile is a member of the TPP, which is a free trade agreement between 11 countries in the Asia-Pacific region.
  • European Free Trade Association (EFTA): Chile has signed an FTA with the EFTA, which includes Switzerland, Norway, Iceland, and Liechtenstein.
  • Asia-Pacific Economic Cooperation (APEC): Chile is a member of APEC, which is a forum for promoting economic cooperation and trade among 21 economies in the Asia-Pacific region.
  • Mercosur: Chile signed a trade agreement with the Mercosur countries (Argentina, Brazil, Paraguay, and Uruguay) in 1996, which created one of the largest free trade areas in the world.
  • China: Chile has signed a bilateral trade agreement with China, which provides greater market access for Chilean goods and services in the Chinese market.

These FTAs provide opportunities for Chilean companies to access new markets and increase their competitiveness globally. Additionally, these agreements provide greater protection for foreign investors in Chile and further facilitate trade and investment in the country.

Because of legislation and negotiated free trade agreements, the economic outlook for Chile is generally positive, with a forecast for continued growth in the coming years. Chile has experienced steady economic growth in recent years, driven by strong exports, favorable demographics, and a stable macroeconomic environment. The country has also benefited from its diversified economy, which is based on a mix of traditional sectors (such as mining and agriculture) and modern services industries.

Chile’s national economy was transformed in the 1980s

A significant reason that Chile is currently one of the best-positioned and modern economies in South America is because of a series of reforms that were introduced during the 1980s. The measures brought on what was termed the “Chilean miracle,” which led to increased foreign direct investment. These reforms included:

Privatization: The government sold state-owned enterprises, including utilities and other key industries, to the private sector. This helped reduce government intervention in the economy and increase competition, spurring investment in Chile.

Deregulation: Chile reduced regulations on businesses and simplified procedures for starting and operating a company. This helped reduce business costs in Chile and increase the economy’s efficiency.

Trade liberalization: Chile opened up its economy to foreign trade and investment, reducing barriers to trade and attracting foreign direct investment.

Fiscal: The government reduced inflation by implementing strict monetary policies, including using inflation targets.

Social security reform: The government reformed the social security system, switching from a defined benefit system to a defined contribution system, which has helped to reduce the long-term costs of social security for the government.

These reforms helped transform Chile’s economy from a primarily state-controlled system to a market-oriented one, thus making it more attractive to invest in Chile. The result was increased economic growth, lower inflation, and improved competitiveness. The reforms have been widely recognized as a model for other countries seeking to transition to a market-oriented economy.

Today, the Chilean economy is expected to fully recover from the recent coronavirus pandemic, driven by a rebound in global trade, a recovery in domestic consumption, continued growth in the services sector, and continued foreign direct investment in the nation’s economy.

Contact LATAM FDI to discuss your foreign direct investment plans in Latin America.

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