The cost-benefit analysis of setting up a company in Chile

We do not get to choose where we are born, but we do have the power to decide where to bring our companies to life.

The process of setting up a company can be intimidating and overwhelming for a typical business owner, involving tax considerations, legal restrictiveness, incorporation fees, and the invariable bureaucratic red tape that must be cut–sometimes even sawed through.

Chile has started to eliminate some of these concerns.

Chilean lawmakers are recognizing these problems and have been cutting away superfluous restrictions to setting up a company.

Incorporation fees and bureaucratic hurdles are among the laws that have outlived their usefulness.

Setting up a company in Chile

In May 2013 Chile launched an online platform to allow for online registration and administration of limited liability companies.

Apart from printing a book of receipts for US $43, and registering signatures for CLP $6,000 (which is just under US $10), this process costs only your time and you can do it from the comfort of your own living room.

Import tariffs once protected domestic producers from foreign producers who could afford to flood a market with a particular good.

These laws promoted domestic suppliers and kept those who existed from being forced out of the market.

However, the consumer is left paying the bill.

Similarly, the barriers to setting up a company served a purpose at one time, but the unintended consequences have started to outweigh these purposes.

Small business ownership and development is the cornerstone of any country that wants its economy to prosper from the bottom up.

Small businesses are most responsive to market inefficiencies and reflect more accurate market prices.

There are full import tax exemptions in addition to 100% corporate tax exemption for all company operations.

Chilean resident companies also benefit from being able to either carry their business losses forward or backward.

This establishes great optionality for businesses without having to worry and stress as much about their year-to-year bottom line.

Furthermore, qualified Chilean holding companies are 100% tax-exempt.

They must be on the Chilean stock exchange, not domiciled in Chile, shareholders and directors are not residents, and the purpose of the company is investment in other countries.

Chile: The best place for setting up a business

Throughout modern history, economies that have experienced real and long-term success have been the ones that created the most conducive atmospheres to fostering these pro-consumer sentiments.

Allowing people to act in their best interests moves the “invisible hand” to improve the interests of all those involved in the marketplace.

By reducing incorporation fees and simplifying the incorporation process in general, more people will be setting up a company and realize more benefits of a successful company.

Instead of being deterred by legal documents and processing fees, someone with a decent business idea might actually follow through on this idea and build something that brings significant value to the market.

We will not be able to measure the impact of rules changes like these because of the dramatic change in perception of the role of government in creating a business.

One thing that we do know is that cutting away the fat of an obese system can allow the muscle to grow. Processing fees are now solved with automation.

Convoluted legal documents can be replaced with a series of simple questions. The intentional complexity built in and for a system to sustain itself should be stripped away.

Chile has started to eliminate some of these concerns, but they still have some way to go.

Inefficient bureaucracy continues to create delays and unnecessary hassles, particularly with government licensure.

Most companies are required to have either a resident director or a resident representative, which is always available for a price.

Because of Chile’s broad trade laws, its high level of exports makes it susceptible to external shocks and a depreciation of the currency when foreign demand increases.

Aside from these concerns, and the occasional issue of the earth moving under your feet, Chile appears to be on an upward trend for establishing businesses and the best country in South America for setting up a company.