Sub-custody guide: Chile

Sub-custody guide: Chile

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Since the new Chilean government took office in 2014, two important laws have come into effect, according to Eduardo Adriasola, head of international securities services at Banco Itaú, Chile.

The first was the Third Parties Asset Management and Individual´s Portfolio Law 20.712 (commonly known as the Unified Law on Funds). The Unified Law on Funds was enacted in May 2014 to strengthen Chile as a platform for the management of funds across the region. 

It forms a common framework for investment funds and simplifies their regulation, aligning the treatment of investment funds established in Chile and those abroad. The law has a direct impact on the tax treatment of bonds. The law includes tax incentives, including a tax exemption for foreign investors in funds that hold more than 80% of their assets outside Chile, as well as mechanisms to reimburse VAT paid by foreign nationals.

The second new law entailed a substantial tax reform, legislated in September 2014. This includes two alternative methods for computing shareholder-level income taxation, additional corporate tax rate increases, limits for goodwill amortization and important amendments to the thin capitalisation rules, among others. The impact varies depending on the tax mechanism that the issuer companies choose out of two given options: attribution-basis shareholder taxation or cash-basis shareholder taxation. Full implementation is planned for 2017.

“This is all being discussed, with more than enough time for investors to understand the changes,” says Eduardo Garcia, executive director and head of custody and securities services at Banco Santander Chile, speaking in a personal capacity (not necessarily reflecting the view of Santander). “We must note however that minor details are likely to be clarified by the tax authority as changes become active.”

In 2014 Chile experienced an outstanding increase in merger and acquisition (M&A) activity. This is driven by foreign investors entering the market, according to Adriasola. Highlights include: Banco Itaú buying the Chilean bank Corpbanca in order to expand its operations in Chile as well as Colombia in January; Abbott agreeing to acquire the local pharmaceutical company CFR in May; and Prudential agreeing to buy up to 40% of Habitat, a major Chilean pension fund administrator, in October. 

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