Chile’s market-oriented economy is characterized by a high level of foreign trade and a reputation for strong financial institutions and sound policy, which has given it the strongest sovereign bond rating in South America. Over the last two decades, Chile has made great strides in reducing its poverty rate, which is now lower than most Latin American countries.
After slowing to an estimated 4 percent in 2013, gross domestic product (GDP) growth is forecast to average 4.6 percent per year between 2014–2018. Private consumption and investment growth should remain firm, albeit below the exceptionally strong levels of recent years.
Chile plans to maintain its strong, pro-market policies of the last three decades. However, social pressures may lead to an increase in public sector participation in certain sectors such as education. The government aims to achieve professional and credible governance, offering investors minimal risks of unexpected policy reversals. The public finances are expected to post a modest deficit in 2014–2018, as the government increases social spending and lower copper prices reduce tax income. However, likely increases in the corporate tax rate should ease the deficit over the same period. Barring major supply-side shocks, the monetary policies of the Banco Central de Chile are expected to limit price pressures and keep annual inflation within the official target range of 2–4 percent.
Chile’s competition rules (Law 13,305 of 1959) prohibit any act or agreement that prevents free competition within the country. The Anti-monopoly Law (Decree Law 211 of December 1973) set the norms for free competition. Practices deemed illegal include: price fixing; assigning quotas or zones for production, transport and distribution; establishing exclusive agencies for marketing specific products; and obstructing free competition in the labor market. Foreign trade is subject to scrutiny only when it has a direct impact on the internal market. Appeals can be made to Chile’s Supreme Court. During 2016–2018, more transparency is expected in public procurement, while regulatory proceedings should strengthen competition policy.
Chile’s major attractions as a foreign investment target are its well-functioning market economy, open policies for foreign investment, strong fiscal position, sophisticated capital markets and an extensive network of free-trade agreements (FTAs). During 2014–2015, its investment regime is expected to be one of the most liberal in the world, enhanced by additional bilateral investment protection and double- taxation treaties that encourage foreign companies to establish a base in Chile.
Chile is set to expand its large network of FTAs through new accords with Malaysia, Vietnam and India. The most recent FTA was signed in October 2013 with Thailand. Chile is also a member of the proposed 12-country Trans-Pacific Partnership, which includes the US. During 2014–2015, there should be narrow import tariff dispersion (0–6 percent) and free capital flows, as a result of FTAs. Export development remains a policy priority during 2016–2018. Negotiations on new FTAs will continue, with a focus on Asia.
In the period 2014–2015, government backed loan guarantees will become available. Domestic long- term rates should remain high, while bank lending practices are expected to remain conservative. Although accessible, global credit should become more costly as interest rates normalize in developed countries. Between 2016–2018, expect further measures to facilitate financing to small businesses, particularly new ventures.
Corporate income is assessed in two stages. Income accrued is liable to a first-category tax of 20 percent, up from 17 percent in 2010. A tax rate of 35 percent applies to profits distributed to shareholders or partners, or repatriated to a parent company abroad. The effective corporate tax rate varies depending on the proportion of earnings each company reinvests, with a ceiling of 35 percent when all earnings are distributed. 2014–2015 will see a phasing out of temporary taxes on large firms, introduced in 2010. Higher corporate-tax rates are anticipated, to increase funds for education, and technology start-ups should receive favorable provisions. In the years 2016–2018, strong fiscal management should continue to protect against ad hoc tax measures.
In Chile, KPMG has approximately 850 professionals and three offices.