In the last few decades, Chile’s economy has defined itself as one of the strongest in South America. Much of Chile’s economic growth can be attributed to its well-developed and just legal system, transparent and democratic government, and open attitude towards FDI. These factors have lead to Chile becoming one of the most developed countries in South America, and facilitate cross-cultural business operations into and out of Chile.
Business Law
Chile’s government is very open toward foreign direct investment, as it provides the needed capital and technology for the economic development of Chile. The growth of Chile’s economy depends on recognizing the importance of FDI and reducing the number of agreements that restrict them from being able to have foreign investments, like ANCOM (the Andean Common Market) (1). Thus, “the government policy towards foreign investment is liberal and open” (1). Chilean government issued special status, Decree Law No. 600, also known as “Foreign Investment Status”, in order to promote FDI.
Chile has a policy of free trade with no barriers. The country is part of LAIA (Latin American Integration Association) and MERCOSUR. LAIA is “an organization formed in 1980 by Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela, taking over the duties of the Latin American Free Trade Association (LAFTA), which had been created in 1960 to establish a common market for its member nations through progressive tariff reductions until the elimination of tariff barriers by 1973” (2). MERCOSUR trade bloc’s purpose is to allow free trade between member countries, with the ultimate goal of full South American economic integration. By engaging in the agreements, Chile has one of the most open economies in South America.
The attitude of domestic companies in Chile towards foreign direct investments is generally open, as it gives them a way to expand their activities, “gain access to external markets and receive the benefits of advanced technology” (1). Even the labour attitude toward foreign investments is open. They welcome foreign investors, realizing that they provide employment opportunities. The Chileans also feel that foreign investors provide good and stable working conditions.
The process of starting a business in Chile is easy compared to opening a business most other countries. For instance, the first step and maybe the hardest one, is to learn what Chile is like. Recognize a niche. Learn the culture; figure out what Chileans like and what products or services they would buy. Research the competitive market and try to understand the community one would be opening into. The next step would be starting a company, and without a doubt, Chile is “one of the easiest and cheapest places in Latin America to start a business”, typically taking 3-5 weeks and roughly costing $650 (4). However, last year the Chilean government passed down a new law “which cut cut-down much of the bureaucracy associated with a starting a business in Chile, which means you can now start a new business online at no cost” (4).
Political Environment
Chile has become a leading, progressive country in South America due to the country’s solid, stable democratic system that guarantees a safe business environment. Chile’s political system is a democratic presidential republic that is divided among Executive (President), Judicial (Senate and Chamber Deputies) and Legislative (Supreme Court, Appeals Courts and local systems) branches (5). 1990 marks the date of Democratic restoration in Chile. Since the restoration of Democracy, Chile has had a formal multi-party system in which all political parties across the spectrum run for the national election (6). The current President, Michelle Bachelet, was elected for a four-year period, a normal duration under Chile’s Constitution. Bachelet began her 2nd term in March 2014, where she remains focused on reducing inequality in Chile as well as reforming the constitution (7). The purpose of this political structure is to ensure a balanced democracy in Chilean tradition. The Civil Code was enacted in 1855 and many other codes and laws that have come later are in force where a decision is made upon a court of judges (8). Civil, criminal and labour judges all exist in the Chilean Supreme court to ensure rights are not violated. With the Courts being generally free from political interference, Chile is among South America’s least corrupt countries (9). Being a member of Latin America Integration Association, MERCOSURE, and OECD, Chile is one of the most open markets in Latin America. Chile has a policy of free trade with no barriers (10). Labour regulations are somewhat rigid in Chile, with board wage settlements and high unionization (11). Up until 1973, the Chilean armed forces where characterized by their high professional standards and the non-interference of the political matters. Today however, with military spending only averaging to $5.19 billion in comparison to Canada averaging $18.2 billion in military spending, the Chilean armed forces are not as intimidating as they once were (12). Chile’s stable, transparent government provides expatriates with a very safe political environment.
Legal Environment
Chile’s legal environment is primarily ruled by the Constitution of 1980, which outlines the basic rights and freedoms of Chileans, as well as the rules to govern the basic rules of the business environment. Chile’s legal system is civil. Most relevant to business operations in the country are the “freedom of enterprise” and property protection laws which allow the business environment to exist. Property protection laws provide strong property rights to individuals and corporations. The Chilean constitution has been called rigid, as there is a lengthy process involved in approving amendments (13). Although the process can be lengthy, in the end, the constitution can be partially, or completely modified. While laws relevant to businesses do exist in the constitution, regulation of the business sector has become spread between many legislative bodies. In fact, most industries are regulated by specific government agencies. For example, the banking and finance industry is regulated by the Superintendencia de Bancos e Instituciones Financieras (SBIF), while on the other hand, the Superintendencia de Salud regulates the healthcare sector (14).
It is also worth noting that since the official national language of Chile is Spanish, all legal documentation is in Spanish and an expansion would most certainly require translation efforts, not only in the initial stages of expansion but also in order to maintain regular activities.
Perhaps the aspect that receives much attention due to controversy is the labour law of foreign countries, and how they interact with foreign businesses doing business locally. Some highlights of Chilean labour laws include: full freedom to hire, a maximum workweek of 45 hours with no more than two hours of overtime a day, mandatory one day of rest per week, mandatory three week paid vacation for employees, and finally, an obligation to provide severance pay. In addition to this, firms who are a profit are legally obligated to pay some of it back to employees in the form of bonuses. In some cases, a predetermined percentage of profits must be distributed to workers (15).
Transparency international rated Chile 73 points in 2014, putting it at 21st among the 175 other nations studied. For reference, the United States and Canada scored 74 and 81, respectively (16). As well, the country is placed 48th in term of ease of doing business, reported by the World Bank. In terms of equality between foreigners and Chilean nationals when it comes to the law, Chile has a reputation of treating both parties fairly, and concluding with just outcomes (17).
Notable recent events regarding the legal and business environment in Chile are the introduction of new tax laws that stipulate increases in the corporate income tax rate. Conversely for 2016, Chile is also working toward creating greater solvency among firms with debt related issues. These new laws focus on liquidation and reorganization of firms with solvency issues in order to facilitate continuation of business through the creation of specialized solvency courts (18).
Works Cited
[1] Doing Business in Chile. (2008). Retrieved October 27, 2015.
[2] Latin American Interrogation Association. (2012). Retrieved October 27, 2015.
[3] Klonsky, J. (2012, July 31). Mercosur: South America’s Fractious Trade Bloc (S. Hanson & B. Lee, Eds.). Retrieved October 27, 2015.
[4] Jones, J. (2014, January 31). How to Start a Business in Chile. Retrieved October 27, 2015.
[5] UK Trade & Investment. (2015, July 7). Overseas Business Risk – Chile.
[6] Advameg, Inc. (2015). Culture of Chile. Retrieved from Countries and their Culture:
[7] UK Trade & Investment. (2015, July 7). Overseas Business Risk – Chile.
[8] PWC. (n.d.). Doing Business in Chile.
[9] The Heritage Foundation. (2015). Chile. Retrieved from The Heritage Foundation
[10] Investment, U. T. (2015, october 9). Doing business in Chile: Chile trade and export guide.
[11] Roberts, J. M. (2015, May 26). Bachelet’s Labor Reforms Could Reduce Economic Freedom in Chile
[12] Find the Data. (2015). Canada vs Chile. Retrieved from Country – Facts:
[13] – Endress Gómez, Sergio. (2012). Essential Issues of the Chilean Legal System. Retrieved from http://www.nyulawglobal.org/globalex/Chile1.html#_Basic_Structure_of_the%20Chilean%20Lega
[14] – Ibid.
[15] – Business News. (2013). Labour Laws in Chile. Retrieved from http://www.thisischile.cl/laborlaws-in-chile/?lang=en
[16] – The World Bank. (2015). Measuring Business Regulations Chile. Retrieved from http://www.doingbusiness.org/data/exploreeconomies/chile
[17] – Transparency International. (2014). Corruption perceptions index 2014. Retrieved from http://www.transparency.org/cpi2014/results
[18] – The World Bank.. (2015). Business reforms in Chile 2016. Retrieved from http://www.doingbusiness.org/reforms/overview/economy/chile
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