Are you interested in investing in South America? Are you hesitant of entering the market due to the often unstable political situation and unpredictable economic development? If you are looking for a safe country with well-planned infrastructure, a highly educated population, excellent health system, a stable government, and an open market economy, you don´t have to search any further – Chile has it all.
Chile was the first South-American country which joined the Organisation for Economic Co-operation and Development (OECD) in 2010 and until now remains its only South-American member. With the population of around 17 million people, in 2017 the country´s GDP per capita amounted for around USD$24,013 with the projected growth of 3,4% per annum. In addition, Chile scored 33rd in the Global Competitiveness Report collaborated by the World Economic Forum for years 2017-2018. Out of 137 examined countries in the study, Chile ranked the highest out of its South-American neighbors.
Chile and Foreign Direct Investment
The Chilean markets that attract most foreign direct investment are mining, finance, transportation, energy, and manufacture. In 2017, Chile suffered a significant decline in terms of FDI, when the annual FDI inflow fell from USD$11 billion to USD$6 billion. There were various reasons for this decrease, including volatile copper prices and the degradation of copper ore grades.
FDI plays an essential part of the country’s economic growth. The Chilean authorities are aware of this, and for this reason, they established a governmental agency – ‘The Chilean Economic Development Agency (CORFO)‘. to encourage innovation, competitiveness and attract new investment. Through this agency, local and foreign companies can apply for multiple grants provided in selected areas and geographic regions of the country.
In this article, we have prepared for you an overview of key areas for which incentives are provided. Keep on reading to learn more about which strategic areas are supported by the Chilean government.
Implementation of technological projects
Local and overseas companies can apply for support in co-financing when implementing technological investment projects or expanding existing projects. The incentive for technological investment projects can cover up to 30% of project expenditures. The co-financing applies to investment projects with a value of USD$2 million. However, the amount of co-funding per project cannot exceed USD$5 million. The incentives provided can be used for co-financing, hiring and training of specialized personnel or supplier´s development program activities.
Support for strategic projects at the pre-investment stage
This program is aimed to support projects at a pre-investment stage. The projects can concentrate either on the implementation of the pre-investment studies, acceleration of the decision-making process to invest in a new project or expanding an existing project. This program can cover up to 70% of the pre-investment studies. The maximum co-financing amount is USD$250,000 for investment projects with the value of USD$2 million.
Guarantees for access to bank financing
The aim of this incentive is to improve access to finance and funding conditions for companies implementing an investment project. CORFO provides guarantees to financial lending institutions up to 80% of the necessary funds with the maximum of USD$4 million.
R&D Tax Incentive Law 20.241
There is a positive connection between the country´s long-term economic growth and its investment in research and development. Within the OECD, Chile belongs to the countries with the lowest contributions to research and development. For instance, R&D investment forms only 0,4% of Chile´s GDP and thus significantly falls behind the OECD average of 2,3%. To change this, in 2012 Chile enacted a new ‘Research and Development law 20.241‘ which extended incentive support of R&D projects. This new law enabled the businesses to claim tax relief for internal as well as external R&D activities. This incentive is complementary to other programs and subsidies provided by the government. This scheme allows a reduction in Income Tax – 35% of the investment in research and development in a form of tax credit. The maximum amount of tax credit has been increased to USD$1.2 million per year. In addition, this scheme extended the range of deductible expenditures associated with the protection of intellectual property. As of now, all expenditures in relation to obtaining intellectual property rights or defending them can be credited under this tax incentive program.
Business Technological Innovation Program
The main aim of this innovative program is to establish a partnership between companies and providers of innovation and knowledge. This incentive offers to finance up to 50%, 60% or 70% of the contracts for technological innovation projects. The amount of support depends on the size of the company. The maximum funding provided is USD$300,000. The program differentiates between two kinds of technological innovations.
- Products or Processes Innovation (L1)- This grant is designed for testing development, improvement of processes, design and prototyping construction. The grant finances up to 70% of the total project cost with the maximum funding of USD$90,000.
- Innovations Validation and Packaging (L2)- This grant, on the other hand, targets the development initiatives related to the adjustment of prototypes – validation, testing or expansion. The fund can cover up to 70% of the total project cost with the maximum funding of US$300,000.
The unique geographical position of Chile – with more than 4,000 km of coastline – has contributed to the fact that not all regions are equally developed. For this reason, the government offers tax benefits and grants for projects in certain geographical regions situated, especially in the far north and the far south of the country. These remote areas include regions of Arica, Parinacota, Tarapá, Aysén or Magallanes.
Interested in the Chilean Market?
These governmental incentives and funds are just one reason why Chile is a great place to start a business. If you would like to learn more about how to enter a Chilean market, do not hesitate to get in contact. Biz Latin Hub is the perfect partner to help you undertake your business ventures in Chile.
If you have any queries, do not hesitate to contact Allan, our bi-lingual Country Manager here at Biz Latin Hub.