INVESTING IN CHILE

1. INVESTING IN CHILE

2. LEGAL FORMS OF BUSINESS ENTITIES • Within the framework of Chilean law, business entities can choose, among various legal forms. The selection of one of one of them entails different legal, tax and other consequences. Accordingly, the decision requires the analysis of all elements involved. • In broad terms, business may be carried out in Chile through the participation of the foreign investor either in a Chilean limited liability company or in a corporation or a branch. A brief description of these basic legal forms is provided below.

3. LEGAL FORMS OF BUSINESS ENTITIES • It should be borne in mind that, pursuant to Chilean law, limited liability companies, as well as corporations, are legal entities separate and distinct from their owners, and they are capable or acting independently in matters relating to the purposes of the association a specified in the corresponding by-laws. • Is should by noted that, with very few exceptions, no limitations exist as to the type of business which may be carried out by foreign investors, and there are no restrictions regarding the ownership of local companies.

4. LIMITED LIABILITY COMPANY(Sociedad de Responsabilidad Limitada) • Formation • A limited liability company is created by a contract (public deed) executed by the partners. The by-laws are part of the contract. An abstract of the contract must be published in the Official Gazette and registered at the local Registry of Commerce. • The company must have a minimum of two partners and a maximum of fifty and it may be established, approximately, within fifteen days. • There are certain activities, such as banking and insurance, which may not be carried out by a limited liability company.

5. LIMITED LIABILITY COMPANY(Sociedad de Responsabilidad Limitada) • Control • A limited liability company is not subject to specific control by any governmental agency. • Liability • Members are not liable in excess of their capital contribution, unless a higher liability is specified in the contract.

6. LIMITED LIABILITY COMPANY(Sociedad de Responsabilidad Limitada) • Capital • The law does not require a minimum amount of capital. The time when capital must by paid it should be stipulated in the contract. • Increases in capital • Increases in capital, through capitalization of retained earnings or other reserves, or thorough additional capital contributions in cash or in Kind, may be freely agreed upon by all the partners.

7. LIMITED LIABILITY COMPANY(Sociedad de Responsabilidad Limitada) • Capital reductions • Decreases in capital may also be freely agreed upon prior authorization of the internal Revenue Service. • Management • Management is carried on by the partner or partners appointed in the contract. If no mention is made therein, each partner is vested with the capacity to manage, either directly or through a representative. Unless stated otherwise in the by-laws, the capacity to manage may be delegated. The limited Liability company may also be managed by third persons appointed by the partners or by a Board of Directors.

8. LIMITED LIABILITY COMPANY(Sociedad de Responsabilidad Limitada) • Profit withdrawal • Profit withdrawal is only subject to those limitations or procedures stipulated in the contract. • Financial Statements • Limited liability companies have no legal obligation to issue, file or publish financial statements. Nevertheless, for tax purposes they must provide minimum information, which is treated as confidential. The Commercial Code, requires that individuals or companies engaging in activities qualified as acts of commerce must keep accounting records.

9. LIMITED LIABILITY COMPANY(Sociedad de Responsabilidad Limitada) • Changes in membership • As limited liability companies are based on personal consideration rather than on capital, a change in membership requires an amendment of the by-laws to which al partners must agree.

10. CORPORATION(Sociedad Anónima) • Two basic corporate types • Corporations are classified in two basic categories, namely open corporations and closed corporations. • Open corporations are defined as those whose stock is traded in the Stock Market, or in which the number of shareholder amounts to five hundred or more, or those in which at least 10% of the stock belongs to a minimum of one hundred shareholders, excluding those who individually exceed this percentage.

11. CORPORATION(Sociedad Anónima) • Closed corporations are those which do not satisfy the above mentioned conditions. If agreed upon in the by-laws, closed corporations may be ruled by the same legislation as open ones. • The general purpose of the law is to subject open corporations to a much stricter regulation and control than closed corporations.

12. CORPORATION(Sociedad Anónima) • Formation • As a general rule, corporations are crated by a contract contained in a public deed, an abstract of which must be published in the official Gazette and registered at the local Registry of Commercial Affairs. The public deed contains both the articles of in corporation and the by-laws. • In certain cases, such as insurance, banking and other special activities indicated by a Government Agency is also required. The certificate of authorization must be published and registered together with an abstract of the contract.

13. CORPORATION(Sociedad Anónima) • Control • Open corporations are subject to the control of a Government Agency, the “Superintendencia de Valores y Seguros” (SVS). Those dealing in banking and other special activities are subject to control by special agencies. • Liability • Shareholders limit their liability up to their stockholding.

14. CORPORATION(Sociedad Anónima) • Capital • At least one third of the stipulated capital must be paid in at the time the articles of incorporation are enacted. The remnant must be paid in within three years, and if this is not done in said term the capital of the corporation is automatically reduced to the amounts effectively paid. • Shares • The by-laws must establish the number and shares and whether they do or do not have a statutory par value. • Preferred stock can be issued, although certain limitations exist in connection with the nature of the preferences and their duration..

15. CORPORATION(Sociedad Anónima) • Management • Business is conducted by a Board of Directors elected at a Meeting of Shareholders. The Board is composed of a minimum of three in the case of closed corporations, and five in the case of open ones. The Board, as a whole, can be removed at a Meeting of Shareholders. The decisions of the Board are adopted by means of discussion and vote. • The law does not require that directors be shareholders. However, the by-laws may contain such requirement. • There is no restriction on the nationality of directors. • The Board must appoint a chief executive officer with the title of Manager (Gerente) who is in charge of carrying out the decisions of the Board and is the legal representative of the corporation. In open corporations, the Manager may not be a director.

16. CORPORATION(Sociedad Anónima) • Distribution of profits • Open corporations must distribute dividends in cash amounting to al least 30% of the net income of each period, unless it is unanimously agreed to proceed otherwise at the Annual General Meeting of Shareholders. Closed corporations may freely include in their by-laws any provisions that are deemed convenient in connection with dividend distributions. • Provided there are no accumulated losses, the Board may distribute provisional or interim dividends during the year out of the profits of the period. Should these distributions exceed the annual profits, the directors are personally liable for the distribution of provisional or interim dividends.

17. CORPORATION(Sociedad Anónima) • Increases in capital • Capital is automatically restated according to annual inflation, upon approval of the financial statements at the Annual General Meeting od Shareholders. If applicable, the par value of shares is accordingly restated. • Capital may also be increased through a modification of the by-laws. An abstract of the deed containing it must be registered al the Registry of Commerce and published in the Official Gazette. In this case, the increase in capital may be a consequence of one or several of the following causes: • Capitalization of retained earnings. This may result in the distribution of stock dividends or in an increase of the par value of the shares. Stock dividends and increases in par value are not taxable. • Capitalization of debts. • Capital contributions in cash or kind.

18. CORPORATION(Sociedad Anónima) • In the case of closed corporations, all retained earnings and reserves must be capitalized before the capital is increased through capitalization of debts or capital contributions. • A first option to subscribe and pay newly issued shares must be given to existing shareholders, who may, however, transfer or waive their rights to first option. • The new shares must be offered at the price agreed at a Meeting of Shareholders.

19. CORPORATION(Sociedad Anónima) • Capital reductions • Decreases in capital must be approved at a meeting of Shareholders with a majority vote of two thirds of the issued shares. Prior authorization by the Internal Revenue service is also required. The corresponding modification of the by-laws must be registered in the Registry of Commerce and published in the Official Gazette. • Financial statements • Open corporations must issue financial statements on an annual basis. • The financial statements of open corporations must be audited by independent auditors. Furthermore, open corporations must publish in a local newspaper whatever existing information relevant to their audited financial statements is required by the SVS (Superintendence). Additionally, the financial statements must be filed with the SVS.

20. CORPORATION(Sociedad Anónima) • Transfer of stock • Corporations may not interfere with the transfer of their stock. • In the case of open corporations, the by-laws may not restrict the referred transfer. However, agreements among shareholders on this matter are acceptable, provided they are registered with the company. • Dissolution • There is no mandatory legal time limit for the existence of a corporation. However, if a limit is established in the by-laws, the corporation dissolves when it expires. This term may be extended or reduced be an agreement of the Meeting of shareholder. Since Chilean corporations require at least two shareholders, the corporation is also automatically dissolved if its stock becomes the property of a single shareholder.

21. BRANCH(Agencia) • Establishment in Chile • The establishment of a branch of a foreign corporation in Chile requires registration with a Notary Public of a Spanish version of the by-laws of the corporation, the power of attorney of the agent and the other documents which certify the existence of the corporation. • Additionally, the agent, duly empowered, must state by public deed certain basic information about the branch and declare, among others, that corporate assets are subject to Chilean law for the purpose of backing up the obligations of the branch in Chile and that the corporation will keep in Chile, for this some purpose, easily realizable assets. He must also state the amount, dates and form in which the capital will be brought into the country. • An abstract of the above mentioned documents must be registered al the Registry of Commerce and published in the Official Gazette.

22. BRANCH(Agencia) • Liability • Foreign corporations are fully liable for the activities of their branches in Chile. Therefore, their liability may not be limited to the capital allocated to the branch. • Capital • There is no minimum as to the amount of capital required.

23. BRANCH(Agencia) • Management • Management is carried on by the agent of the foreign corporation in Chile. • Profits • There is no limit to profit withdrawals, provided the corresponding income taxes are duly paid. • Financial statements • The financial statements of the branch must be annually publishes in a local newspaper.

24. THE FOREIGN INVESTMENT REGIME • Foreign investors are guaranteed the same treatment under the law that is given to Chilean nationals and their companies. In general, there are no foreign ownership restrictions, though some foreign exchange controls on the repatriation of capital and profits remain and these need be examined.

25. THE FOREIGN INVESTMENT REGIME • Foreign Investment and Exchange Control Policy • The Central Bank, in the exercise of its regulatory powers, has requested that foreign investment in Chile, as well as remittances of foreign currency abroad on account of foreign loan, distribution, license and technical services agreements, be previously approved by and registered with the Central Bank. • Only by obtaining Central Bank approval and registering such foreign investments or agreements giving rise to foreign currency payments, will foreign investors, debtors, distributors, licensees, and technical services beneficiaries, be granted access to the formal foreign exchange market to purchase foreign currency and make such payments.

26. THE FOREIGN INVESTMENT REGIME • Despite the fact that investors may freely engage in foreign exchange transactions, the Central Bank may issue regulations from time to time determining that a foreign exchange transaction be carried out exclusively in the formal foreign exchange market, and in respect such transaction, if any additional requirements must be met. • In the event that a foreign investment or loan 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 market, but also from doing so in the informal foreign exchange market, and from using its own freely convertible foreign currency reserves. • Distribution, license, and technical services agreements are treated differently.

27. THE FOREIGN INVESTMENT ALTERNATIVES • 1. The Constitutional Law of the Central Bank of Chile and the Foreign Investment Statute • Regardless of the investment vehicle utilized, if foreign investment are brought into Chile in excess of US$ 10,000 or its equivalent in another foreign currency, they must be registered under the process set forth in the Constitutional Law of the Central Bank (the "LOC"). • If foreign investment brought into Chile, exceeds US$ 1,000,000 or its equivalent in another foreign currency, or are US$ 25,000 investments in tangible assets or technology, an alternative registration process is available under Chile's Foreign Investment Statute ("Decree Law 600").

28. THE FOREIGN INVESTMENT ALTERNATIVES • Regardless of the registration system used, capital invested may not be repatriated earlier than one year from the time the investment is made. Profits, however, may be freely remitted abroad at any time. Should profits be applied to a capital increase, such capital increase will not be subject to the referred one-year term. As per quantitative limitations to the repatriation of capital or profits, there are no such limitations. • Under either system foreign investors are granted access to the formal foreign exchange market to purchase foreign currency to repatriate capital and profits.

29. THE FOREIGN INVESTMENT ALTERNATIVES • Whereas foreign investments under the LOC require approval by the Central Bank, foreign investments under Decree Law 600 must be approved either by the Foreign Investment Committee (the "FIC") or by its Executive Vice-President, depending on the type of investment. The Central Bank's approval is also needed if foreign loans are to be associated to foreign investments under Decree Law 600. • The approval process under the LOC typically takes 3 to 4 days, while approval under Decree Law 600 generally takes one month; however, bringing foreign currency into Chile under Decree Law 600 may be authorized immediately after the filing of the foreign investment application.

30. THE FOREIGN INVESTMENT ALTERNATIVES • Investments made under Decree Law 600 may consist in freely convertible foreign currency, tangible assets, technology, associated loans, capitalization of foreign loans registered with the Central Bank, and capitalization of profits. Investments under the LOC must be made in freely convertible foreign currency. • With respect to the use of foreign loans as a source of financing, Decree Law 600 requires that 50% of any investment be made in freely convertible currency, consequently investment projects that are presented to the FIC for approval must have a maximum component of associated loans equivalent to 50%.

31. THE FOREIGN INVESTMENT ALTERNATIVES • As required by both the FIC and the Central Bank, capitalization of foreign loans may only be made in the debtor company itself, while profits entitled to be remitted abroad may be capitalized either in the company that actually generated those profits or elsewhere. • The FIC as a whole must approve the following investment: (a) those in excess of US$ 5,000,000 or its equivalent in other currencies; (b) investments in areas of the economy that are usually performed by the State and those carried out by public utility companies; (c) investments made in mass media; and (d) investment made by foreign states or foreign corporate bodies chartered under public law.

32. THE FOREIGN INVESTMENT ALTERNATIVES • The FIC's Executive Vice-President, with the prior approval of the FIC's Chairman, is authorized to approve all other investment projects, unless the latter deems it advisable to submit an investment project for the approval of the FIC. • It can be argued that Decree Law 600 affords sound legal protection to foreign investors in Chile, as the rights of foreign investors are secured by an investment contract entered into with the Republic of Chile. Foreign Investment contracts are governed by Chilean law, are subject to the jurisdiction of Chilean courts and may not be unilaterally modified by the Republic of Chile.

33. THE FOREIGN INVESTMENT ALTERNATIVES • Approval based on the LOC alternative has traditionally entailed issuance of an administrative resolution by the Central Bank, which is apt to place an investor in a more vulnerable position. • Furthermore, Decree Law 600 grants foreign investors additional protection against discriminatory treatment vis-a-vis domestic investors by stating that foreign investors and local companies receiving foreign investments are subject to the general provision of law applicable to domestic investors and that no discrimination, direct or indirect, may be made against them.

34. THE FOREIGN INVESTMENT ALTERNATIVES • Nevertheless, Decree Law 600 provides that regulations may be enacted to limit foreign investor access to local financing. In practice, however, no general regulations are in effect in this regard. • Decree Law 600 also grants to foreign investors special devices particularly designed for project financing. Such devices are mainly applicable to US$ 50,000,000 or more industrial or extractive projects, including mining projects, and typically entail the following benefits: obtaining an extension of up to 20 years on the application of the invariable income tax regime contemplated by Decree Law 600, and operating off-shore accounts in which to deposit the proceeds obtained from exports of goods or services to cover expenses incurred abroad.

35. THE FOREIGN INVESTMENT ALTERNATIVES • The funds that are deposited to such off-shore accounts need not be returned to Chile and converted into local currency in the formal foreign exchange market; may be used to repay foreign loans authorized by the Central Bank and to make import payments; and may be made subject to liens in favor of lenders and other creditors.

36. THE FOREIGN INVESTMENT ALTERNATIVES • 2.2Foreign Capital Investment Funds • Foreign capital investment funds approved by the Superintendency of Securities and Insurance (the "SVS") and foreign institutional investors that bring freely convertible funds into Chile under Decree Law 600 or the LOC for the purpose of investing such funds in the local securities' markets are entitled to the benefits and privileges conferred by Law 18,657 (the Foreign Capital Investment Funds Act, the "Foreign Funds Act"). For these purposes, foreign institutional investors include companies with presence in the international market place such as pension funds, mutual funds, insurance companies and the like. • Foreign funds that comply with the eligibility requirements contemplated in the Foreign Funds Act and whose investment policies conform to the investments permitted thereunder, should invest in Chile through Decree Law 600 and under the provisions of the Foreign Funds Act.

37. THE FOREIGN INVESTMENT ALTERNATIVES • The Foreign Funds Act defines a foreign capital investment fund as a fund raised with contributions made abroad by individuals or institutions or, in general, collective organizations, for the investment of its resources in publicly offered Chilean securities. The foreign fund's shareholders may not redeem their shares prior to its expiration. • The minimum capital amount invested by any given fund shall be of US$ 1,000,000 and must be brought into Chile in freely convertible currency within one year from the date when the foreign fund's application was approved. If the foreign fund has entered into a foreign investment contract under Decree Law 600, the one-year term will run from the date of the relevant foreign investment contract under Decree Law 600, the one-year term will run from the date of the relevant foreign investment contract, but in this case the foreign fund may take advantage of the three-year term granted by Decree Law 600 to materialize the investment. However, should a foreign fund be willing to make more investments after such three-year period, it may enter into a new foreign investment contract.

38. THE FOREIGN INVESTMENT ALTERNATIVES • Capital amounts brought into Chile under the Foreign Funds Act may only be remitted abroad after five years from the date when they were brought. However, profits such as dividends interest income and net realized capital gains may be repatriated at any time. • Foreign capital investment funds looking to invest in Chile must file applications with the SVS and the Foreign Investment Committee. The approval process takes approximately eight weeks.

39. THE FOREIGN INVESTMENT ALTERNATIVES • Under the Foreign Funds Act, the capability of foreign funds to invest their assets in Chile is subject to certain diversification and other investment and borrowing restrictions. Foreign funds under the Foreign Funds Act's special regime principally invest in shares of stock of public or listed corporations in Chile. There are no restrictions on the method of acquisition of any of the shares of stock, securities and other instruments or documents in which investments may be made. • Foreign funds operating in Chile under the Foreign Funds Act can not, in the aggregate, hold more than 25% of the issued shares of stock of any one company. If a foreign fund causes this limit to be exceeded, it shall be subject to a mandatory reduction.

40. THE FOREIGN INVESTMENT ALTERNATIVES • Non-compliance by a foreign fund of the above-referred diversification and other investment restrictions, may result in the loss of the favorable income tax regime provided for by the Foreign Funds Act. • The Foreign Funds Act provides that foreign funds wishing to invest in Chile shall appoint a Chilean corporation whose specific purpose is that of administering the fund's assets in Chile. Only a corporation approved by the SVS, with a certain fixed minimum paid in capital, and invested with ample powers to represent the foreign fund before the authorities and third parties, may serve as local administrator.

41. THE FOREIGN INVESTMENT ALTERNATIVES • Foreign institutional investors are not required to appoint such local administrator, but they must appoint a local representative. • Once a foreign fund's application has been approved by the SVS and the Foreign Investment Committee, it may enter into an exchange agreement with the Central Bank regulating the process to be followed when making remittances of capital and profits abroad. This agreement will also entitle the fund to purchase foreign currency in the formal foreign exchange market to make payment of some expenses incurred abroad. This exchange agreement is typically entered into with the Central Bank.

42. THE FOREIGN INVESTMENT ALTERNATIVES • The Foreign Funds Act contemplates a special income tax treatment for foreign funds and institutional investors according to which all amounts earned by them within three years after the date of the foreign investment contract, including dividends, interest income, and net realized capital gains on capital invested in Chile that exceed such capital, is subject to a 10% withholding income tax at the time of their remittance abroad, to be withheld by the local administrator or representative. No taxes are levied on the repatriation of capital from Chile. • This special income tax regime is recognized in the relevant foreign investment contract and shall remain in effect during the entire period in which the relevant foreign fund or institutional investor carries on business in Chile.

43. THE FOREIGN INVESTMENT ALTERNATIVES • 3.Restrictions on Foreign Investment • Chilean law grants freedom to all persons, national and foreign, to enter into any contract or engage in any business activity provided it is not contrary to morale, fair practices and the public order. • Accordingly, foreign individuals and corporations are generally at liberty to acquire all of the shares or assets of local companies. Nonetheless, restrictions apply in connection with certain businesses.

44. THE FOREIGN INVESTMENT ALTERNATIVES • Foreigners may only participate in Chilean companies owning newspapers and other media-related businesses provided that their ownership interest does not exceed 15% of such companies' equity capital or 15% of the equity capital of other companies owning the same. • In the case of concessions over television broadcasting services, such concessions may only be granted to companies that are organized and domiciled in Chile and whose officials, including their chairman and directors, are Chilean nationals. • Other laws prevent the nationals of bordering countries and their companies from owning real estate located near the country's borders.

45. THE TAX SYSTEM • The following description deals only with tax matters of interest to the foreign investor. Taxes are levied, with minor exceptions, by the State of Chile. There are practically no provincial, county or municipal taxes. • Principal taxes • Income taxes. • Value Added Tax (VAT). • Stamp Tax. • Real Estate Tax. • Gifts and Inheritance Tax. • Special Sales Taxes.

46. THE TAX SYSTEM • Internal Revenue Service • The Internal Revenue Service (IRS) enforces compliance with the tax laws and regulations and is empowered to issue rulings and instructions on these matters. • If a disagreement arises between the taxpayer and the IRS in connection with a tax review a tax hearing follows in which an IRS Official acts as a judge. His decision may be appealed before the Courts of Appeals and thereafter, through special procedures, before the Supreme Court. • As a general rule, the statute of limitations for tax purposes is three years, counted as from the date on which the respective tax return should have been filed. In special cases this period is extended to six years.

47. THE TAX SYSTEM • Tax Payments • Except for the final period of existence of a company, financial statements for income tax purposes must be prepared each year as of December 31. financial statements may not cover a period exceeding twelve months. • Income tax returns must be filed during April of the following year. • Monthly income tax provisional payments are required. The amount to be paid is determined by applying a percentage to the monthly gross revenue of the taxpayer. • VAT, payroll taxes and withholding taxes must be reported and paid on a monthly basis.

48. THE TAX SYSTEM • Income Taxes on Business • The income generated by corporations, limited liability companies and branches of foreign corporations, is taxed in two stages. First, when income is accrued; thereafter, when profits are distributed to shareholders or partners, and in the case of a branch when they are withdrawn or remitted a abroad. • This overall structure of business income taxation has been conceived as a tool to promote private saving and investment, in the sense that the rate of taxation on accrued but undistributed income is only 16.5%. • We provide below a general description of the tax regime applicable to limited liability companies and corporations, as well as to branches of foreign corporations. • We assume, throughout, that the partners or shareholders are not domiciled in Chile.

49. THE TAX SYSTEM • General Regime • Business income is subject to a 16.5% First Category tax rate, applicable on accrued taxable income computed according to the provisions of the Income Tax Law. • When withdrawn, distributed or remitted abroad, business income is subject to a 35% additional tax rate. The taxpayer subject to the additional tax is entitled to a tax credit equivalent to the First Category tax rate paid on the income withdrawn, distributed or remitted abroad. This credit must be added back in order to compute the taxable basis of the additional tax.

50. THE TAX SYSTEM • Foreign investor who enter into a foreign investment contract with the Republic of Chile, and therefore subject to the Foreign Investment Statute, are entitled to agree in their respective contracts to a fixed overall income tax rate of 42% for a period of 10 years beginning with the commencement of activities, instead of the normal tax rates described above for each type of business entity. This term can be extended up to 20 years for those manufacturing or extractive projects over US$ 50.000.000. • Out of the overall rate, 16.5% First Category Tax is paid annually by the company on the some basis as in the general regime described above, that is, on accrued taxable income.