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Starting A Business In Chile

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Starting a business in Chile

Chile is by most measures the richest country in Latin America with one of the most stable corruption free government in the Western hemisphere and a booming economy that is free of any significant national debts. Chile is located in the southwestern tip of South America between the Andes and the Pacific (Maps of Chile) (Appendix A). After much social reorganization in the 1970's, the political system was in badly in need of change. From 1973-1989, Chile was ruled by a military dictatorship. Since 1990 the country has been ran democratically. In 2010 Sebastian Pinera was elected establishing a change in the government. A recovery plan enabled the country to ride out the recession and facilitated an economic recovery in 2010, despite an earthquake and tsunami in February 2010. Growth was driven by domestic demand and in particular by a sharp rise in investments focused on restoring communications and rebuilding quake-stricken areas. Chile is a developing country that welcomes diversity in industry and has an important annual growth prospects in many areas of industry. My plan is to establish a manufacturing plant to produce high quality pet toys. Initially the plant will only manufacture vinyl, rubber and fabric chew toys with plans of adding a complete line for pets; collars, bedding, feeders, clothes and carriers. Thanks to its political and economic stability, legal certainty, and free trade agreement, Chile has established its standing as an attractive destination for the foreign investment and a variety of business endeavors. Launching a manufacturing plant to product and sell, domestically and internationally, pet toys and accessories would be consistent with the economic structure Chile as established.

Political and economic stability

Since the end of dictatorship in 1990, Chile has enjoyed an uninterrupted period of stable democracy. Elections are held regularly, with presidential and congressional elections held every five years. Voting is required for all registered voters older than 18. In early 2003, the government took important measures to increase the efficiency of the public administration and to ensure a transparent government. Congress also approved a law to regulate the financing of political parties and election campaigns. (Chile Business Forecast Report, 2012 2nd Quarter, Issue 2, p7-13). Recently, in 2010 Sebastian Pinera was elected president and Chile joined the Organization for Economic Co-operation and Development, the first country in Latin America to do so. The Chilean economy has become one of the most stable and solid in Latin America. Between 1990 and 2001, annual growth averaged 5.9%, ahead of the rest of the region and among the top rates in the world. High growth was interrupted only in 1999, when the economy contracted by 1.0%, following the Asian financial crisis and a sharp drop in the price of copper. However, the reduction was short-lived and in 2000, the gross domestic product (GDP) expanded by 4.4%. In 2001, despite a global economic downturn, Chile achieved 2.8% growth, performing better than most other emerging markets. By 2001, Chile's GDP had reached US$66.5 billion, up by 86.5% on 1990.Over the same period, per capita income increased by 65.2% to US$4,314. Inflation dropped from 27.3% in 1990 to 2.6% in 2001. Foreign investment represents approximately 24% of GNP (investment generally represents 30%). With the stable leadership, the Chilean economy has become recognized internationally as one of the most stable, open and competitive in Latin America under the social economic model of current markets that has been in place since the military regime (Feijóo 2011). Many economic surveys are very optimistic about Chile's economic future. According to Brandt, Schwellnus, & Paillacar (2011), "Assuming that the recovery becomes more robust, as projected, policy stimulus should be gradually withdrawn so as to set growth on a medium-term sustainable and non-inflationary path" (p. 8). Chile has applied changes to the structure of the economy system by privatization of state companies and the creating of a private pension funds system, with multiple funds and individual accounts. Chile has built its recent economic success on numerous key industries; food industry, biotechnology, offshoring, manufacturing and the mining of copper. Mining is Chile's biggest economic sector but with these types of successful business models, the opportunity for other fields of manufacturing for foreign companies and/or investors is expanding and advantageous. (Doing business in Chile, 2008). These initial economic successes have laid the ground work for a mixture of industry, like a pet accessory manufacturing plant, to take advantage of the stability of Chile's political and economic position.

Legal Certainty

As Chile continues to demonstrate economic and political stability and integrate with international markets, its treatment of foreign investment and the impact its laws and legal system may have on investment decisions are likely to be of increasing interest to overseas investors. Chilean laws are structured to encourage foreign investment by providing a stable and certain regulatory framework, which allows foreign investors to compete on equal terms with local businesses. Under the Constitution, all persons, including foreigners, are guaranteed the freedom to acquire ownership of all types of goods, both tangible and intangible. (Deloitte, 2011). A major benefit of starting a pet toy manufacturing plant in Chile is, with the exception of certain industries which are deemed to be in Chile's national interest (which pet toy production is not one of those), 100% foreign ownership of investments is possible and there is no maximum time that foreign investments may remain in Chile. Under the Foreign Investment Statute foreign investment capital may be remitted overseas one year after entering Chile and profits may be remitted overseas at any time. The Foreign Investment Statute was introduced in 1974. The Statute creates a modern legal outline for foreign investment embodying principles of non-discriminatory and nondiscretionary treatment of foreign investors. Once a proposed investment in Chile is approved, the Chilean government and the investor execute a contract setting out their respective rights and obligations. Business income tax rates are set to be comparable with rates prevailing in countries likely to promote foreign investment. The effective rate payable on foreign investment profits remitted abroad is normally 35%, a 16% corporate tax being payable at the time profits are realized with the balance due at the time of payment overseas. An 18% value added tax contributes about 60% of fiscal revenue. Foreign



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