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03 October 2000
Among the main concerns in every project finance venture are (i) the foreign investment mechanisms available to financiers and (ii) the exchange regimes that may impact on the risk and cost associated with a project.
Foreign investments in Chile that are worth at least $1 million are eligible for registration under Decree-Law 600. Such investments may consist of freely-convertible foreign currency, tangible assets, technology, associated loans, capitalization of foreign loans registered with the Central Bank and capitalization of profits.
Decree-Law 600 grants protection to foreign investors against discriminatory treatment as compared to domestic investors. The decree-law grants special benefits to foreign investors involved in large-scale project financing of at least $50 million. The benefits of such projects (usually industrial, extractive and mining projects) include (i) obtaining an extension of up to 20 years on the application of the invariable income tax regime and (ii) the possibility of operating offshore accounts into which proceeds obtained from the export of goods or services to cover expenses incurred abroad are deposited.
The funds that are deposited in such offshore accounts need not be returned to Chile and
converted into local currency. They may be used to repay foreign loans authorized by the
Central Bank and to make import payments. They may also be made subject to liens in
favour of lenders and other creditors.
Foreign investors are subject to value added tax and import duties. However, Decree-Law 600 offers foreign investors the right to choose whether they are to be subject to those value added tax and import duties in force as of the date the investment contract is entered with the Republic of Chile, if they import tangible assets as part of an investment project. Such assets must be included in a list of machinery and equipment made by the Ministry of Economy and the assets must not have been manufactured or produced in Chile.
Under Decree-Law 600 the net proceeds resulting from (i) the sale of shares or quota rights representing the investment or (ii) the total or partial liquidation of the same are exempt from taxes, duties or charges up to the amount of the foreign investment brought into the country. Any excess is subject to domestic income taxes. This provision is important as it protects foreign investors from any devaluation that the Chilean currency may suffer between the time of making the investment and the time it is repatriated.
The Central Bank requires that inflows of foreign currency from foreign investments and foreign loans must be approved and registered with the Central Bank. Also, the conversion of such foreign currency into Chilean currency must be effected formally through one of the domestic banks, or otherwise through exchange houses, stock brokers or brokers-dealers specifically authorized by the Central Bank. This conversion into local currency is note mandatorily required nowadays with regard to the proceeds of foreign loans.
Only by obtaining Central Bank approval and by registering such foreign investments, loans or other debt transactions that give rise to foreign currency payments end by having the proceeds thereof converted into Chilean currency and foreign investors and debtors will be permitted to purchase and remit the foreign currency payable abroad.
Despite the fact that investors may freely engage in foreign exchange transactions, the Central Bank may issue regulations determining that certain transactions be carried out exclusively within the formal foreign exchange along with any additional requirements that it may deem fit.
In the event that a foreign investment or loan transaction providing for foreign currency payments abroad is not previously registered with the Central Bank, the foreign investor or debtor will be prevented not only from purchasing the necessary foreign currency in the formal foreign exchange system, but also from doing so in the informal foreign exchange market, and even from using its own freely-convertible foreign currency reserves.
For further information on this topic please contact Cristián Eyzaguirre at Claro y Cia by telephone (+56 2 367 3000) or by fax (+ 56 2 206 0658) or by e-mail (email@example.com).
The materials contained on this web site are for general information purposes only and are subject to the disclaimer.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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