US companies doing business in Chile
Article 4 minute read

US companies doing business in Chile

16 May 2018

A multitude of factors exist which make Chile one of the preferred business locations for US companies.

Regarded as a strong trading partner and export market, the country is recognised for its open market policies, zero tariffs, stable democratic government, solid business practices, and low corruption rates.

But there are challenges to doing business in Chile, and it is important to be sure of the opportunities and possible pitfalls before planning a new venture there.

The country has a strong heritage of doing business with the US, with America being Chile’s main source of Foreign Direct Investment (FDI). This generated more than $20,500 million – over 20% of the total investment in the country – between 2009 and 2014.

Longstanding business relationships between the two nations are seen in the Chilean-American Chamber of Commerce (AmCham Chile). It was established 95 years ago to represent the interests of companies conducting business and/or investing in either or both countries. Current records show that the Chamber has 600 members totalling 422,000 employees.

In 2015, US exports to Chile were $15 billion, and trade between the two countries reached $13.86 billion between January and September 2016. As of March 2018, Chile ranks as the 27th largest U.S. goods export market in the world.

Strengths

Before considering Chile for business, it is useful to consider the country’s strengths and challenges.

Chile is the highest ranked country in Latin America for credit worthiness and economic competitiveness, with an A+ credit rating, according to the World Economic Forum’s Global Competitiveness report.

It has numerous international trading agreements, which position Chile as a reputable trading partner. Chile has successfully negotiated Free Trade Agreements (FTA) with around 62 countries globally, including the US, and Chile is a founding member of the newly-agreed Trans-Pacific Partnership, which is open to negotiations with the US about it becoming a member.

The Free Trade Agreement with the US began on 1 January 2004, with zero tariff duty on 80% of the US exports to Chile. All US exports became duty-free after the twelfth annual tariff reductions which came into effect on 1 January 2015. The FTA opened markets for the US investors, reducing barriers for trade in services, guaranteeing non-discrimination in the trade of digital products, ensuring regulatory transparency, and providing protection for US intellectual property registered in Chile.

The US and Chile also committed to effective enforcement of their domestic labour and environmental laws, and to maintain competition laws to prohibit anticompetitive business conduct.

Encouraging Investment

The Chilean Government has forged new business drives with the US. InvestChile, the government organisation that encourages and supports Chile as an attractive destination for FDI globally, was part of a meeting with 60 US companies during ‘Chile Week’ in the US in November 2016. The event included specific discussions around the promotion of Chilean products and the investment opportunities offered to the US businesses, with special focus on technology development and service companies such as Amazon, Apple, Google, HP, and Microsoft. The Chilean government’s initiatives for supporting a stable and reliable investment climate were outlined to the meeting, including long-term trade policies. The mining services, technology and equipment sectors, solar energy, the food industry, sustainable tourism, and infrastructure were highlighted as good investment opportunities. More recently,  US hospitals have been aiding the healthcare sector in Chile, by training the staff in Chile clinics. Private US funds have been invested in Chilean healthcare centres.

Challenges to doing business in Chile

After GDP growth of about 5 percent over 30 years, the Chilean economy had slowed recently – reporting just 1.9 percent growth reported in 2014 and 2.1 percent in 2015 – due largely to the depressed market for copper, which accounts for 55 percent of exports. However, latest forecasts from the Organisation for Economic Co-operations and Development (OECD) estimate that Chile’s economy will grow 2.9 percent in 2018 and 2019 as copper prices rebound and investment recovers gradually.

For US companies operating in Chile, taxation continues be an issue. Chile is a non-tax-treaty country so there are foreign income taxes to pay, even for low-level activities.

Key challenges to a U.S. firm seeking to export to Chile are the high degree of competition and the relatively small market size. Even though Chile has a population of nearly 18 million, its open trade and investment policy has attracted attention from many foreign firms. However, the small market size has led some companies to overlook Chile, leaving possible niche markets and opportunities for U.S. exports.

Despite Chile’s openness to new products and technology, Chilean business people tend to be far more conservative and cautious than the average U.S. business person.  U.S. companies should take this into consideration when entering the market and adjust sales expectations accordingly.

While the Chilean government is committed to trying to streamline certain processes, U.S. companies tend to find that operating in Chile requires patience and tolerance for delays over paperwork and obtaining approvals.

A key to competing is finding the right in-country partner. It is difficult for a foreign entity to successfully do business in Chile without having either a direct presence in the market or a local partner.

TMF Group in Chile

There are good opportunities for US companies to succeed doing business in Chile, provided you have a good understanding of the business processes necessary, and the possible challenges to overcome.

TMF Group Chile has more than 30 years’ experience in assisting local and international clients. A team of more than 230 professionals offers wide-ranging expertise, with local knowledge backed by global reach. TMF Group Chile is an active member of the American Chamber of Commerce and Santiago’s Chamber of Commerce. Whether you want to set up a new business in Chile, or wish to streamline a partnership between the US and Chile, talk to us.

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Written by

Cristian de la Cerda

Managing Director

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