Chile´s business environment has become very attractive for foreigners looking to engage in commercial activities over the past years. Chile was the first Latin American country to join the OECD and is considered the most stable and prosperous country in the region. However, due to legal and cultural variations, setting up a business in Chile can be somewhat complicated.
Previously, we have published articles on forming a branch in Chile and registering a company in Chile. In this article, we will discuss the advantages and disadvantages of opening a Branch vs a Subsidiary (a local Chilean company).
What are the Advantages of Opening a Branch in Chile?
A branch is not an independent legal entity, but legally conjoined to its parent company. As a result, branches are subject to the laws governing foreign businesses, in addition to laws governing domestic businesses. These different rules governing branches should be understood in great depth before one decides on this legal entity structure.
A branch may prove advantageous for a company in regards to gaining a better understanding of the local market, greater access to resources (i.e financial support from the parent company) and the option to defer/share legal liabilities to the parent company; an option that independent Chilean do not have.
A tax ID must be obtained for the local branch from the local tax authorities (Servicio de Impuestos Internos – SII), and tax compliance should be well-understood before beginning commercial activities.
What are the Advantages of a Subsidiary/Local Company in Chile?
As the name already implies, a local/independent company in Chile is, contrary to branches, an independent legal structure.
A local/independent company (also called a subsidiary) has the advantage that if it is owned by a parent company, the subsidiary can be used as a ´liability shield´, limiting the parent companies potential losses/liabilities. For example, if a local legal entity runs into legal issues, only this entity is liable, and not the parent company (who may have a greater quantity of assets).
Another advantage of forming a subsidiary is that it provides the structural framework which allows a company to create its own brand/identity, separate to that of the parent company. This re-branding may be vital in the company´s overall business plan.
Unsure About Which Chilean Legal Entity Fits Your Business Needs?
Although Chile is considered a relatively easy country easy to do business in, difficulties are common during the incorporation phase. For this reason, it is advisable to work with a local partner. At Biz Latin Hub we have a team of professionals that offer guidance with company formation and other business processes. Reach out to Allan, Country Manager of Biz Latin Hub Chile here at Biz Latin Hub and see how we can support you and your business in Chile.
Unsure of your tax and accounting requirements in Chile? Need more information to ensure you stay compliant? Find out more information below.