Business Entities & Formation Types of Business Enterprises
Argentina’s Commercial Companies Law, Civil Code, and Code of Commerce provide for a variety of business forms, all of which are available to foreign investors under Argentina’s liberal foreign investment laws. Investors are free to structure their business activities using corporations, partnerships, joint ventures, branch offices, franchises, sole proprietorships, or simple agency or licensing agreements. An investor’s choice of entity will hinge on numerous factors and circumstances, such as the required degree of control over the business, the acceptable amount of government supervision, the anticipated duration of an investment, the acceptable degree of exposure to liability, and preferred tax treatment. (Refer to the "Taxation" chapter for a discussion of tax treatment.)

The most common organizational forms that foreign investors use are the stock corporation (sociedad anónima, or S.A.), and the branch office (sucursal). Use of joint ventures and franchise agreements has also become increasingly common in recent years. Other business forms, including the limited liability company (sociedad de responsabilidad limitada, or S.R.L.), the general partnership (sociedad colectiva), the limited partnership (sociedad en comandita), and the sole proprietorship (empresa unipersonal), are usually less desirable because they do not offer owners or investors desired tax treatment or optimal limits on liability.

Sociedad Anónima (Corporation)
An Argentine corporation, or S.A., is defined as a combination of individuals or entities contributing capital for the purpose of producing or exchanging products or services, then dividing the profits and losses among themselves. The corporation’s most salient feature is limitation of liability—once a business is properly incorporated, it has a legal existence separate from its investors, and those investors are not liable for the obligations of the business beyond the amounts they have invested. Corporations are formed in accord with Argentina’s Commercial Companies Law, No. 19,550.

The S.A., preferred by most large and medium-sized businesses contemplating substantial or long-term investment in Argentina, is the only business form that can offer shares of capital to the public. Any S.A. that does not offer shares to the public is referred to as being "closed."

An S.A. may engage in any legal activity; however, its purpose must be clearly stated in the S.A.’s articles of incorporation.

Capital    Ownership interests are represented by shares of stock ("share deeds"). At least two shareholders are required to form an S.A. The minimum amount of capital required to start an S.A. is US$12,000. Although there is no maximum limit on capital contributions, if capitalization exceeds US$2,100,000, an S.A. faces greater government supervision than does a smaller S.A. Capital stock must be fully subscribed prior to formation of an S.A., and a minimum of 25 percent of the capital value must be paid in concurrently with corporate formation. Subscribers must pay for the rest of their share of subscribed capital within two years. If a subscriber uses assets other than cash to pay for stock, the subscriber must contribute the entire amount when the corporation is formed. Stockholders who default on payments for initial capital face liability for interest and damages arising from such defaults.

During its existence, an S.A. can increase its authorized capital by as much as five times the original amount without altering its bylaws. To receive approval for a higher increase in capital, all previous stock issues must have been fully subscribed, the S.A.’s bylaws must allow for the increase, and the S.A. must meet various publication and registration requirements. The S.A. must first offer the new shares to existing stockholders before any outside parties are eligible to buy. If a new offering is not fully subscribed, those who did subscribe may incur liabilities for obligations connected with the offering.

An S.A. can also reduce capital, provided stockholders convene an extraordinary meeting and vote to do so for cause. To reduce its capital, an S.A. must comply with auditing requirements and other measures intended to protect creditors, unless the S.A. has excess profits or cash reserves sufficient to repurchase its shares. Reductions in capital are required by law if the losses of the S.A. amount to more than 50 percent of its stated capital, and the shareholders refuse to subscribe enough new capital to raise the existing capital above the 50 percent level.

Although the Commercial Companies Law authorizes the issuance of corporate debentures, these have never been a popular means of raising funds among Argentine corporations. An S.A. is more apt to issue negotiable corporate bonds, which can be denominated in any currency. Bonds can carry floating, specific, or general guarantees and can be guaranteed by banks and financial institutions. Such bonds do not require specific authorization in the bylaws—except for certain convertible issues—but can be issued based on a resolution voted at a stockholders’ meeting, either as publicly offered or privately placed securities. Many of these bonds are listed on the Argentine Stock Exchange (Bolsa de Comercio de Buenos Aires).

An S.A. is required by law to pay 5 percent of its annual profits into a special reserve until the total reserve fund equals 20 percent of the corporation’s stated capital.

Share Characteristics Although different classes of shares or share deeds are allowed, all shares must have the same par value, stated in Argentine currency. Shares may be either nominative—registered and issued in the name of the holder—or issued in bearer form; shares may be either negotiable or nonnegotiable. Stock certificates may represent more than one share of stock. Each share of common stock typically entitles its holder the right to one vote in stockholders’ meetings. In a "closed" S.A., bylaws can provide for classes of stock in which each share carries as many as five votes. An S.A. can also issue preferred stock, which usually entitles holders to first rights on dividends or first rights to distributions of assets on liquidation, although preferred stock usually has no voting rights. An S.A. must keep a stock book, or "Registry of Shares," recording all shares issued, names of subscribers, and all stock certificates transfers.

Under Argentina’s liberal foreign investment laws, which guarantee foreigners equal treatment with local investors, virtually no limits are imposed on the extent of foreign ownership of an S.A.’s shares.

Management    Provisions for the corporate governance of an S.A. are set forth in the articles of incorporation, a draft of which is approved by shareholder vote at the initial organizational meeting. (See "Formation and Registration of Business Operations" on 207.)

Directors Shareholders elect a board of directors, who manage the general business affairs of the corporation. Directors may serve for terms of up to three years and can be reelected indefinitely. Directors do not have to be shareholders, but they do have to give a guarantee—the amount of which can be nominal—pledging that they will fulfill their duties as set forth in the S.A.’s articles of incorporation. While directors do not have to be Argentine nationals, the majority of directors on an S.A.’s board must be Argentine residents, and all directors must maintain a legal Argentine domicile.

A quorum of the board (50 percent plus one of its members) must meet every three months. The directors appoint corporate officers, and may themselves serve as officers. Directors face personal liability to shareholders if they commit illegal acts or acts that are ultra vires (beyond the scope of the authority stated in the corporation’s charter), or if they fail to comply with legal duties of loyalty and diligence.

Directors’ total compensation cannot exceed 25 percent of the S.A.’s profits in any year in which the rest of the profits are distributed as dividends. This limit is reduced to 5 percent of the corporate profits in years in which no dividends are distributed. Amounts exceeding these percentages, as well as any compensation in years when an S.A. sustains a loss, may be paid only if specifically approved by shareholders at a general meeting.

Shareholders Ordinary shareholder meetings are held annually to consider directors’ reports and performance, financial statements, supervisory committee reports designed to monitor corporate management and finances, and any other pertinent matters. Meetings must be preceded by the publication of an official notice, including an agenda—and description—of matters to be considered at the meeting. The notice must be given at least ten days in advance of the meeting and must be published for at least five days. Extraordinary shareholder meetings may be requested by shareholders controlling more than 5 percent of the S.A.’s capital, or by the board of directors or a supervisory committee if either deems it necessary.

Directors, members of supervisory committees, and other managers are required to attend shareholder meetings. During meetings shareholders typically determine the distribution of profits, elect directors, determine directors’ fees, and elect members of other supervisory committees. Shareholders may send proxies to meetings to speak and vote in their stead (directors and other S.A. employees are not allowed to serve as proxies). At an ordinary meeting, shareholders controlling 50 percent of the capital of the S.A. constitute a quorum; at an extraordinary meeting, the quorum requirement is raised to 60 percent.

In either type of meeting, resolutions can pass by a simple majority of those present and voting. In some circumstances—such as when an S.A. contemplates a fundamental change in its purpose or a dramatic expansion of the company’s business—minority shareholders disagreeing with the decisions of the majority are entitled to withdraw from the S.A. and to take payment for their equity. Such payments are based on the most recent certified balance sheet for the S.A.

Dividends Shareholders have the authority to determine the distributions of the profits of the S.A. by majority vote at the corporation’s annual meeting. No profits can be distributed until all reserve requirements have been met and all prior losses covered. Directors and supervisory committees face personal liability for improper distribution of dividends. A corporation cannot recover dividends that were improperly distributed to shareholders if the shareholders received the dividends in good faith.

Statutory Auditors Articles of incorporation usually provide for company auditors, who are appointed by shareholders at ordinary annual meetings. Members of the committee of auditors (síndicos) must be lawyers or accountants who are residents of Argentina. Every S.A. with capital exceeding US $2,100,000, as well as banks and other financial institutions, must appoint a committee of at least three síndicos and alternate síndicos (comisión fiscalizadora or sindicatura).

The síndico examines and verifies the corporation’s books and documents; verifies its liquid assets; monitors its compliance with laws, regulations, articles of incorporation, bylaws, and shareholder resolutions; attends and voices opinions in shareholders’ and directors’ meetings; prepares written reports on the corporation’s financial condition, presenting these to shareholders at annual meetings; calls extraordinary shareholders’ meetings whenever necessary; and may have other duties as well. Síndicos may be liable to shareholders if they fail to discharge their duties conscientiously and may also be liable to directors if such a failure results in the directors taking improper actions that otherwise would have been avoided.

Shareholders may additionally elect a surveillance committee (consejo de vigilancia) consisting of from three to fifteen shareholders to monitor corporate management. If such a committee is appointed in place of síndicos, the committee must appoint independent outside auditors to prepare the required annual financial reports for the shareholders’ meetings (and to comply with reporting requirements).

In smaller corporations that choose not to appoint síndicos or surveillance committees, shareholders must elect alternate directors to perform similar functions. Shareholders in all corporations retain the right to examine the corporation’s books and documents, and are entitled to access any records.

Books and Records All forms of business in Argentina, including the S.A., must keep two account books: a Journal, containing summary entries covering all official transactions, and an Inventory and Financial Statements Book, containing official detailed, itemized, annual income statements, balance sheets, and other financial statements. An S.A. must also keep books containing the minutes of directors’ and shareholders’ meetings, a Registry of Share Ownership, and a Record of Attendance at Shareholders’ Meetings. The exact format of these books is important: they must be bound and "rubricated" (marked) by the Inspección General de Justicia (Inspector General of Justice, or IGJ) if the firm is located in the Federal Capital or a local commercial court if located in the provinces. All official records must be kept in Spanish. An S.A. must prepare annual financial statements, which must be certified by an independent auditor qualified under Argentina’s professional accounting standards.

Government Supervision All corporations face some degree of government supervision, in that applications for approval of corporate formation, initial and revised articles of incorporation, annual financial statements, and other documents must be filed with various agencies. (See "Formation and Registration of Business Operations" on 207.) The IGJ is the chief administrative body regulating corporations in Federal Capital; other important regulators include the Comisión Nacional de Valores (National Securities Commission or CNV), and Banco Central de la República Argentina (Argentina’s Central Bank). Corporations with capital in excess of US$2,100,000, corporations whose securities are sold to the public, state-controlled corporations, corporations involved in financial businesses, and corporations operating utilities or government concessions face heightened government regulatory requirements.

Liquidation The law requires that a corporation liquidate its assets and distribute them to shareholders when its losses are equivalent to its capital. Shareholders can also initiate voluntary liquidation of a corporation and distribution of its assets by passing a resolution at an extraordinary shareholders’ meeting.

Shareholders’ rights during liquidation are prescribed in the corporation’s articles of incorporation. Typically a majority of the shareholders can appoint a liquidator, or get a court to do so, and are given some specified time period during which they can file with the court any objections to the liquidator’s distribution of any corporate assets. During liquidation shareholders are entitled to inspect various financial statements and other disclosures of the corporation’s assets and liabilities. Any residual assets are generally distributed to shareholders in proportion to their holdings.

Sucursales (Branch Offices)
After the stock corporation, the sucursal (or branch office) is probably the most popular form used by foreigners doing business in Argentina. Although the formation of a branch office requires a number of formalities (see "Formation and Registration of Business Operations" on 207), it generally involves less expense than formation of an S.A. Unlike an S.A., a branch is governed primarily by the laws of its home country, which set most of the rules governing its business operations. Many foreign businesses with significant presences in Argentina prefer to incorporate a subsidiary S.A. rather than establish a branch office, because the only assets exposed to liability in Argentina are those of the separately incorporated Argentine subsidiary. Where the branch form is used, the assets of the entire foreign business, both in and outside of Argentina, could potentially be at risk.

To establish a branch, a foreign company must prove its good standing in its home country, have a domicile in Argentina, and assign capital to the Argentine branch, although no minimum amount of capital is required. The management of a branch is vested in a representative who must be appointed in the branch’s deed of formation, a document formally recorded by the IGJ if located in the Federal Capital or a commercial court if located in the provinces. This representative must have full authority to transact all business and handle all affairs for the branch, including receipt of legal papers. A broad power of attorney granting such authority must be filed along with the branch’s deed of formation.

The parent company must keep separate accounting records for its Argentine branch operations, and the branch must file annual accounting statements, prepared in the same manner as those required for corporations, with the pertinent Argentine government agencies (usually the IGJ). These statements must be certified by an Argentine public accountant.

Sociedad de Responsabilidad Limitada (Limited Liability Companies)
The limited liability company, or sociedad de responsabilidad limitada (S.R.L.), is essentially a limited partnership, involving a minimum of two and a maximum of fifty partners who subscribe and pay for capital, which is divided into equal "quotas." A partner’s liability for the obligations of an S.R.L. is limited to the amount the partner paid for the quotas held. Because it is considered to be an association of natural persons, the S.R.L. form is available only to individuals; an S.A. or foreign corporation—which is a legal but not a natural person—cannot be a quotaholder in an S.R.L.

An S.R.L. with assets of less than US$2,100,000 is easier to form and administer than an S.A., and, generally speaking, an S.R.L. of this size faces less regulation and government supervision than an S.A. However, quota transfers or other interests in these entities are typically subject to onerous bylaw restrictions, such as unanimous consent of the partners, which can make any changes in ownership or management extremely unwieldy. While smooth operation of any business entity is contingent on harmony among the partners, an S.A. can arguably weather changes in personnel among investors and management far more easily. In Argentina, S.R.L.s have historically been most popular as vehicles for smaller, family-owned enterprises. S.R.L.s are taxed as partnerships (that is, the entity itself is not taxed, and all revenues and expenses flow through to the individual partners for tax reporting). Thus an S.R.L. may be the entity of choice for foreign investors who wish to have income taxed in their home country as income derived from a foreign partnership in order to avoid double corporate taxation.

The words "sociedad de responsabilidad limitada" must always follow the name of an S.R.L.; otherwise the entity’s managers may incur full liability for the entity’s actions.

Capital No specific minimum amount of capital is required to form an S.R.L. However, the capital must be fully subscribed as of the time the S.R.L. is formed. At least 25 percent of the capital must be paid in by the partners at formation, and the rest of the capital must be paid up within two years. If quotaholders contribute their share in some form other than cash, this must be paid in full at the time the S.R.L. is formed. The incorporation contract between the S.R.L. partners can authorize the company to issue additional capital quotas in the future, with the condition that a majority of the partners approve the issue.

Quotas are of equal value and entitle quotaholders to equal voting rights; their transfer is regulated by the partnership contract recorded in the deed of incorporation and bylaws of the S.R.L. In the absence of specific alternate provisions in the partnership contract governing quota transfers, any transfer will require the approval of three-quarters of the partners. Dissenting partners are entitled to judicial review of any transfer.

Management The details of S.R.L. governance are set forth in the partnership contract. As partners, quotaholders hold ultimate authority over the entity. Typically, partners appoint a manager or managers, who have roughly the same duties as S.A. directors.

Quotaholder meetings, both ordinary and extraordinary, are governed either by the partnership contract or, in the absence of special provisions in that document, by the same set of rules as S.A. stockholder meetings in the Commercial Companies Law. Quotaholders typically meet annually to review financial statements and deal with such issues as the profit distribution, quota transfers, manager appointments, and partnership contract changes. Usually more than a simple majority vote is required to change the partnership contract. Minority quotaholders who dissent from certain fundamental changes in business operations usually have rights similar to dissenting minority shareholders in an S.A., that is, to withdraw and receive a distribution of their share of the S.R.L.

Statutory Auditors, Books, and Records Syndics and surveillance committees are appointed by quotaholders and serve as in-house auditors. Books and records of S.R.L. meetings and transactions must be kept in the same form and manner as corporate books and records (see "Books and Records" on 204). If the capital of an S.R.L. exceeds US $2,100,000, the company becomes subject to all the rules and government supervision faced by an S.A. of similar size.

Liquidation An S.R.L. must liquidate its assets if its losses equal its capital. Absent liquidation in these circumstances, the quotaholders become jointly and severally liable for any of the obligations of the S.R.L.

Sociedades (Partnerships)
In addition to the S.R.L., Argentine law recognizes four other types of partnerships: the sociedad colectiva, a general partnership that engages in commercial activities; the sociedad civil, a general partnership that does not conduct commercial activities; and two types of limited partnerships, the sociedad en comandita por acciones and the sociedad en comandita simple.

In general, foreign investors do not generally use partnerships because they offer fewer protections from liability than does an S.A. or S.R.L.; they also require a high degree of cooperation and unity among the partners. Moreover, because partnerships are considered associations of natural persons, an S.A. or foreign corporation cannot serve as a partner.

Limited partnerships may be preferable to general partnerships because only the former offer some limitation of liability. For foreign investors, limited partnerships are the favored vehicles to take advantage of foreign partnership tax treatment in their home country on income derived from an Argentine entity. The sociedad civil, or civil partnership, is governed by the Civil Code, and is generally used by associations of Argentine professionals, such as lawyers and accountants. This form is not used by businesses engaged in commercial activities.

Sociedad Colectiva  In a general partnership, governed by the Commercial Companies Law, all partners are jointly and severally liable for all of the partnership’s liabilities. Provisions governing capital contributions, management of the partnership, changes in its members, and liquidation of the partnership are usually recorded in a partnership agreement. The Commercial Companies Law establishes standard rules governing partnerships that fail to provide for such matters in an agreement.

In the absence of a provision in the agreement specifying arrangements for management responsibilities, any partner can conduct business on behalf of the entire partnership. If an agreement designates several partners as managers without specifically enumerating their duties, they can similarly take any action for purposes of administering the partnership’s business. The Commercial Companies Law provides for the removal of any manager or partner at any time for any reason by a majority vote of the partners, but in general partnership agreements require more than a simple majority to unseat a partner. The Commercial Companies Law also provides that modifications to a partnership agreement require the unanimous approval of the partners. The approval of the holders of a majority of the partnership’s capital is required for other resolutions. A partner cannot take any action that involves competition with the partnership without the express unanimous consent of the remaining partners.

Sociedad en Comandita Limited partnerships have two kinds of partners: comanditarios (limited or silent partners), whose liability is limited to the amount of their capital contribution; and comanditados (general or active partners), who face unlimited liability.

Two types of sociedades en comandita exist. The first, the sociedad en comandita por acciones (S.C.A.), mirrors the S.A. in that the capital held by the limited partners consists of shares with equal par value. The second type, the sociedad en comandita simple (S.C.S.), is similar to the S.R.L. in that the limited partner’s capital consists of equal portions that are not issued as shares. In general, the same rules that govern an S.A. govern sociedades en comandita por acciones, while the rules that govern an S.R.L. cover sociedades en comandita simples.

Capital The partnership agreement—recorded in a partnership deed—stipulates the amounts of capital to which limited and active partners subscribe. In the S.C.A., all shares of capital must have an equal par value. An S.C.A. can offer shares having different classes and status, similar to preferred and common shares, but only limited (never active) partners can own such shares. An S.C.A. must comply with the same reserve requirements established for an S.A.

Management As in all partnerships, provisions for management should be set forth in the partnership agreement. Generally, only the active or general partners handle the administration of the partnership’s affairs, although the agreement may call for a third party manager. Limited partners cannot play any active role in management without losing their silent partner status and thus their shield from liability. However, they are allowed to inspect partnership records and to voice opinions on partnership business at meetings of the partners.

The partnership agreement governs procedures for partners’ meetings and voting rights. Meetings are held annually to consider financial statements, distribution of profits, management performance, and other business. Both active and limited partners are entitled to vote in meetings. For purposes of establishing a quorum and voting rights, active partners are considered to have designated amounts of capital divided into shares similar to those held by the limited partners.

Statutory Auditors, Books, and Records An S.C.A. must appoint síndicos in the same manner as an S.A., complying with the same strictures for the books, records, and annual financial statements of an S.A. An S.C.S. must follow the rules applied to an S.R.L.

Liquidation The partnership agreement should provide a mechanism that allows the partnership to survive the loss of a partner, whether through death, insolvency, or voluntary departure. The agreement usually also sets forth conditions under which liquidation is mandatory, such as when a partnership’s losses equal its capital, as well as processes for voluntary liquidation. In the absence of a specific provision in the agreement, liquidation can be achieved only through the unanimous approval of the partners.

Agrupaciones de Colaboración and Uniones Transitorias (Joint Ventures)
With the liberalization of Argentina’s foreign investment laws, many outside investors have focused their attention on gaining alliances with Argentine businesses that have ongoing operations and in-place infrastructure. Joint ventures of temporary partnerships between foreign companies and existing Argentine companies have become increasingly common. This type of organization is also playing an important role in the massive privatizations that have been occurring in Argentina in recent years. Such ventures provide a convenient form in which various companies can cooperate in making joint bids for projects available from the Argentine government.

Argentine corporate law explicitly recognizes two kinds of joint venture: agrupaciones de colaboración (temporary partnerships) and uniones transitorias de empresas (temporary unions of companies or U.T.E.s). The temporary partnership usually involves a contemplated longer term relationship between participants who wish to develop continuing mutual business activities. The temporary union is a joint venture designed for a specific task of limited duration.

Although provisions in the Commercial Companies Law specifically address rules governing these organizations, neither form is considered a legal entity separate from its members. Thus members face unlimited liability for the venture’s obligations, and they must operate in their own names. Participants in joint ventures are subject to some registration requirements (see "Formation and Registration of Business Operations" on 207), and they must establish a domicile in Argentina. On the other hand, joint ventures are subject to few formal requirements concerning capitalization, management, and dissolution. Contractual agreements among the participants govern these matters.

Franchises
Argentina’s Commercial Code recognizes and protects franchise contracts. Argentine contract, licensing, and trademark laws (refer to the "Business Law" chapter, beginning on page 225, for a discussion of Argentine commercial law) govern most aspects of such arrangements, including transfers of knowledge to franchisees, supply of equipment, sales methods, trade names, and degrees of franchisor control over franchise operation. Foreign franchisors should draft franchise agreements carefully to clarify all of the rights and obligations of both parties. Special care should be taken with respect to agreement provisions in anticipation of the bankruptcy or other commercial failure of either party because Argentine law does not clearly cover the rights, responsibilities, and liabilities of parties in such situations.

Empresa Unipersonales (Sole Proprietorships)
In an empresa unipersonal (sole proprietorship) all business assets are owned by an individual, who is wholly liable for business obligations. While this form is available to foreigners who reside in Argentina, and involves few formalities, it is usually of minimal interest because of the unlimited exposure to liability. If a nonresident foreigner wishes to establish a sole proprietorship in Argentina, the foreigner must appoint a resident representative. Such an appointment requires a clear agency agreement, as well as the observation of all relevant Argentine labor laws.

PERU

SETTING UP A BUSINESS PRESENCE IN PERU
A new Business Corporation Law entered in force on January 1, 1998. This Law rules the different legal entities according to which investors can establish businesses in Peru. Besides the three forms of entities most commonly used by foreign investors: corporation (sociedad anonima), limited-liability corporation (sociedad comercial de responsabilidad limitada) and branch (sucursal), the new Law additionally regulates two special forms of corporation: close corporation (sociedad anonima cerrada) and open corporation (sociedad anonima abierta).

Corporation
The corporation is the most common form of creating a business enterprise in Peru. A minimum of two shareholders is required. Non-resident shareholders should appoint a proxy to sign off the bylaws on their behalf. Funds in local and foreign currency for the initial contribution should be deposited in a local bank.

The bylaws must be converted into a public deed and then registered with the public registry. In addition, the corporation should be registered with the National Supervisory Committee of Corporations and Securities (CONASEV) if they reach certain revenue limits.

The main characteristics of this form of entity are:

• Limited liability — Stockholders are liable only for the par value of the shares they hold.

• Centralized management — Shareholders Meetings, Board of Directors and Chief Executive Officer (Manager).

• Transfer of interest — The transfer of shares is free; nevertheless, the bylaws may provide the right of first refusal for the existing shareholders. Likewise, the bylaws may establish or the shareholders may agree to prohibit temporarily the transfer or the encumbrance of shares for a term no longer than ten years, extendable.

• Continuity — The death, illness, bankruptcy, retirement or resignation of any shareholder does not cause the dissolution of the corporation.

Under certain circumstances purchasing of shares listed in the stock market to obtain a controlling interest in a corporation (25% of shares) shall be made through a Public Acquisition Offering (OPA).

Corporations shall allocate 10% of its distributable profits net of certain deductions (i.e. income tax) up to a limit equivalent to 20% of the paid-in capital in order to create a legal reserve. Distributable profits should be understood to be current year profits after deducting accumulated losses. Moreover, current year losses can be compensated against the legal reserve as long as such reserve is replaced subsequently.

Close corporation
Close corporations resemble the limited-liability corporations and must have a minimum of two and a maximum of twenty shareholders. Shares can not be registered in the Public Registry of the Stock Market.

The particular characteristics of this form of corporation are:

• Management — Shareholders Meetings (which can be held without physical presence of the shareholders) and Chief Executive Officer (Manager). The Board of Directors is optional.

• Transfer of interest — The Law establishes a right of first refusal for the existing shareholders in case of transfer of shares. However the by-laws may eliminate this right.

Open corporation
Open corporations are intended basically for companies with a large number of shareholders or which have made a Public Acquisition Offering of shares.

The particular attributes of this form of corporation follow:

• Supervision —Open corporations are subject to the supervision of the National Supervisory Committee of Corporations and Securities (CONASEV).

• Transfer of interest —Transfer of shares is totally free. No restrictions or limitations are allowed.

Limited-liability corporation
The limited-liability corporation is organized by a minimum of two and a maximum of twenty partners. The limited-liability corporation releases no shares. The setting-up procedures are the same as those for corporations.

The main features of this type of entity are:

• Limited liability — Partners are not personally liable for the corporation’s liabilities.

• Centralized management — Partners Meeting (which can be held without physical presence of the partners) and Chief Executive Officer (Manager).

• Transfer of interest — Transfer of partners’ interest to third parties is subject to approval by the existing partners (right of first refusal is mandatory) and must be registered in the public registry.

• Continuity — Death, illness, bankruptcy, retirement or resignation of any partner does not cause the dissolution of the entity.

Branch
Procedures for organizing a branch in Peru are similar to those applicable to the establishment of corporations. The Parent Company agreement to set up a branch in Peru must be validated by the Peruvian Consulate and authenticated by the Peruvian Ministry of Foreign Affairs, before it is converted into a public deed and registered with the public registry. An official Certificate of Good Standing of the Parent Company is required.

According to the new Business Corporation Law, branches of foreign companies may be converted into any other form of entity and re-registered as such in the public registry.

Other corporate matters
• Mergers and spin-offs — Entities ruled by the Business Corporation Law may merge or spin-off by shareholders’ or partners’ agreement of the companies involved. Mergers and spin-offs will enter into effect on the date agreed by the parties, to the extent that they are registered with the Public Registry.

Tax benefits applicable to mergers and spin-offs have been eliminated as of December 31, 1998.

• Dividend distribution — Dividends can only be distributed on the basis of a balance sheet that shows the existence of profits or retained earnings surplus and as long as the net equity is not less than the paid-in capital. Notwithstanding, distributable profits can be accumulated for a later dividend distribution.

• Check-the-box regulations — Under the "check-the-box" regulations issued by the United States Internal Revenue Service (IRS), the only Peruvian entity which qualifies as a "per se corporation" for U.S. tax purposes is the "sociedad anonima". Other types of entities are regarded as "eligible entities" and as such may elect whether to be treated as a corporation or as a pass-through entity such as a partnership (more than one owner) or branch (if wholly owned).

A "sociedad anonima" willing to be considered as a "pass through entity" for U.S. tax purposes would have to be transformed into any other type of entity foreseen by the Peruvian Business Corporation Law (e.g. limited-liability corporation).

Mining
Exploration, production, refining, and transport of minerals by individuals or companies require concession rights granted by the government. Mineral trading is free.

The Mining Law offers the following main benefits:

• Income tax applies when profits are distributed.

• Free access to foreign currency.

• Free trade and export of ore production.

Investors who undertake large mining operations may enter into tax law stability contracts with the government for periods of ten and fifteen years.

Oil & gas
Oil and gas exploration and production activities are conducted under license or service contracts granted by the government. Under license contracts the investor pays a royalty, while under service contracts the government pays a remuneration to the contractor.

In both cases, however, the distribution of the economic rent (royalty/ remuneration) between the government and the investor is determined as a function of gross production according to a sliding scale based on an R factor calculation. The R factor in the case of Peru is the ratio of cumulative revenues divided by cumulative costs on a cash basis.

Oil and gas obtained under these contracts can be exported with no restrictions and export taxes.

Exploration and development expenditures as well as investments made by the contractor up to the date production begins, including the cost of wells and with respect to each contract, can be amortized under the following accounting methods:

• Unit of production; or

• Straight-line, during a period not less than five years.

Imports of goods during the exploration stage are not subject to import taxes. A customs duties temporary exemption may apply during the production stage.

The government guarantees that exchange regulations and tax law in effect on the agreement date will remain unchanged during the contract term.

Intellectual property protection

Intellectual property in Peru is ruled by the Paris Agreement, Decision 344 of the Andean Pact Commission and Industrial Property Law. The National Institute for the Defense of Competition and the Protection of Intellectual Property Protection (INDECOPI) oversees the proper use of intellectual property rights. Trademarks should be registered with INDECOPI to obtain protection. Registration follows the Niza International Classification. A certificate that grants exclusive rights over the trademark, for a ten year period, is issued after following the registration procedure. Third parties are allowed to file oppositions to a trademark registration. The certificate can be renewed, six months before or six months after expiration date. However, if a trademark is not used within a three year period, a third party is entitled to file a cancellation request.

Well known trademarks are protected by INDECOPI without registration. Origin denominations, such as geographical sites, cannot be appropriated. Patents are registered with the Inventions Office. The patent owner is granted exclusive use for 20 years. Trade names are protected by a first use-first right principle or by registration. However, in the first case, protection is limited to the geographical area of the potential clients of the user.

Antitrust Law
Under the 1991 Antitrust Law, acts or conducts related to economic activities which may result in an abuse of a dominant position in the market or which restrain, limit or distort free competition, are forbidden.

Acquiring a dominant position is not forbidden, however, those who abuse such position may be subject to important penalties. According to this principle, mergers require no prior approval, even when a monopolic participation in the market may result.

Nevertheless, in the electrical sector, acts which may result in vertical and/or horizontal integration within the activities of generation, transmission and distribution of electric power are subject to prior authorization by INDECOPI.

Unfair competition and advertising
According to the Unfair Competition Law, any conduct that threatens good commercial practices, normal development of economic activities and, in general, that opposes those principles is forbidden. Among others, the following acts are regarded as illegal: (i) those directed to create confusion with competitors’ activities, services, products or enterprises, (ii) the use or dissemination of wrong or false indications or information, which may mislead consumers, (iii) the dissemination of denigrating manifestations on competitors, (iv) the systematic imitation of services provided by or initiatives of third parties, (v) the exploitation of goodwill of other enterprises, (vi) the violation of industrial secrets.

On the other hand, according to the Advertising Law and its Rule, advertising should contain no information or images which directly or indirectly, due to omission, ambiguity or exaggeration, may mislead the consumer. Explicit comparison of products including prices is allowed to the extent that it does not slander competitors or confuse consumers. Both the advertiser and the advertising agent are liable on failure to comply with these provisions.

Settlement of disputes
Foreign investors are protected against inconvertibility, expropriation, political violence and other non-commercial risks through access to the corresponding multilateral and bilateral conventions such as the Overseas Private Investment Corporation (OPIC) and the Multilateral Investment Guaranty Agency (MIGA).

Also, Peru has joined the International Convention for Settlement of International Disputes (ICSID) as an alternative to settle disputes arising between investors and the government.

ENVIRONMENTAL PROTECTION
Environmental protection is ruled by Legislative Decree 613 as well as by further regulations according to each economic sector. New companies or new projects of existing companies should file an Environmental Impact Assessment (EIA) with the corresponding authorities before starting operations.

ACCOUNTING STANDARDS
The new Business Corporation Law, in force since January 1, 1998, establishes that the financial statements of companies incorporated in Peru must follow the Peruvian GAAPs and other legal provisions on the matter. The National Accounting Standards Board has established that the Peruvian GAAPs are basically referred to the accounting standards issued by the IASC and the specific provisions approved for particular businesses (banks, insurance companies, etc.). Likewise, on a complementary basis, the US GAAPs will be applicable.

The National Accounting Standards Board, appointed by the government, is responsible for issuing accounting standards and methodologies that apply both to private business and government entities. The Board generally adheres to the standards approved by the accounting profession.

The accounting profession in Peru follows the accounting standards set forth by the International Accounting Standards Committee - IASC, with certain exceptions. The Certified Public Accountants Association of Lima has the responsibility of studying and introducing these standards into Peru.

The preparation of financial information is subject to ruling issued by CONASEV. Such ruling is closely related to IAS (International Accounting Standards) and International Auditing Guidelines issued by the International Federation of Accountants - IFAC. For 1999 CONASEV requires financial information of corporations, and branches of foreign companies with gross revenues and total assets over 1,700 tax units (S/.4.76 million) or 1,900 tax units (S/.5.32 million), respectively.

There are a number of differences between Peruvian and US GAAPs. The differences usually found in Peruvian corporations are the following:

• Financial information in hyperinflationary economies — Price level accounting is regulated in Peru by the Accounting Standards Board, that has issued a resolution that follows in general terms the generally accepted adjustment methodology. Under US GAAP, supplementary information on the effects of changing prices is encouraged.

• Capitalization of interest cost — Capitalization of interest as a part of the historical cost of certain assets is not generally followed in Peru.

• Disclosure requirements — US GAAP provide for certain disclosures that are not generally found in Peruvian financial statements, such as information on: financial instruments with off-balance sheet risk and financial instruments with credit risk concentration; retroactive restatement of prior periods; discontinued operations; non monetary transaction and pro forma data.

In general, since January 1998, Peruvian GAAPs are consistent with IAS, which are less restrictive than US GAAPs.

Legal entities
Resident corporations are subject to taxation in Peru on a worldwide income basis. Branches are taxed on Peruvian source income.

The tax year ends December 31; no exceptions are allowed. The income tax returns for corporations, branches and individuals should be generally filed by March 31 of the following year.

Estimated monthly prepayments are required. Price level accounting is mandatory for income tax purposes except for corporations keeping accounting records in foreign currency. Expenses incurred in the generation of revenues or in maintaining its source are generally deductible for determining the income tax base of taxpayers.

Net losses can be carried forward for four consecutive years from the calendar year in which taxable profits are reported.

Any profit from sale of stock and securities within the local stock exchange market is income tax exempt until year 2002.

Interest on credit granted to the Peruvian government (except for interest accrued on financial entities’ mandatory cash reserve deposits in the Central Reserve Bank) and any other type of fixed or variable interest, in either local or foreign currency, earned on deposits in the Peruvian banking system, are income tax exempt until year 2002.

As a general rule, the straight-line method is the only method accepted to depreciate fixed assets for income tax purposes. The annual depreciation rate is 3% for buildings, 20% for vehicles, 25% for cattle and fishery nets, 20% for new machinery and equipment used by mining, oil and construction industries, 10% for other machinery and equipment acquired after 1991, 25% hardware and 10% for other fixed assets. Higher or lower rates and other depreciation methods need prior approval by the tax authorities. Software costs can be deducted either as incurred or amortized over a ten year period.

The income tax rate is 30%. Cash and stock dividend distribution, as well as remittance of net profits by a branch, are income tax free.

Revenues from certain activities performed partially in Peru and partially abroad by non-resident corporations are subject to withholding tax on a portion of gross revenues, as detailed below (unless otherwise indicated, the withholding tax rate is 30%).

Revenues of Peruvian branches of non-resident oil and gas companies related to oil operations performed abroad are subject to a 30% tax on 15% of gross revenues, an effective tax rate of 4.5%.

Royalties are subject to a 30% withholding tax.

Interest paid abroad is subject to a 1% withholding tax if the related debt meets certain conditions; otherwise the tax rate is 30%.

Any other revenue regarded as Peruvian source income is subject to a 30% withholding tax.

The tax year for individuals is the calendar year.

Peruvian citizens residing in Peru are taxed on a worldwide basis. Foreign nationals are taxed only on their Peruvian source income. However, after residing in Peru for two years, foreign nationals are also taxed on a worldwide income basis. They can elect resident status after living in Peru for six months.

Tax rates for domiciled individuals are determined using a two-bracket cumulative scale, as shown below:

Up to 54 tax units (S/.151,200) *

Any excess

15%
30%

* A tax unit is currently equivalent to S/.2,800. The exact amount is defined at year-end.

No deductions are allowed in arriving at the taxable income other than the equivalent of 7 tax units (currently S/.19,600).

Professional fees for services provided within Peru by non-domiciled individuals are subject to a 24% income tax (effective rate).

Services provided abroad by non-domiciled individuals are tax exempt.

Remuneration to non-resident individuals working in Peru is subject to a 30% income tax.

Permanent establishment

For income tax purposes permanent establishments of non-resident companies would be deemed to exist in the following cases:

• In the event a non-resident entity carries out business activities within the country on a permanent basis.

• When a proxy or representative acts within the country in the name and on behalf of a non-resident entity with enough power to sign contracts on a regular basis and in the name of its principal.

• If the representative brings or keeps inventory in the country on a regular basis with the purpose of selling products in Peru in the name and on behalf of the non-resident entity. Inventory kept in Peru exclusively for demonstration purposes do not create a permanent establishment.

Like branches of foreign companies, permanent establishments are only taxed on Peruvian source income.

Job stability
In accordance with the Constitution, employees are protected against arbitrary dismissal. This right, called "job stability", is granted to employees who work for the same employer for more than four hours per day, after a three month trial period. Once this period is completed, the employees are regarded as permanent and can only be dismissed under circumstances concerned with their behavior at work or ability to carry out their duties.

Employers may enter into employment contracts for an undetermined period of time or for fixed terms. Fixed term contracts are expressly foreseen by Law and are basically allowed for cases such as business expansion, production increase, temporary labors, extraordinary circumstances and seasonal activities. Beside the fulfillment of the legal requirements, these contracts must be entered into in writing and communicated to the labor authority.

In the event of unjustified dismissal, an employee may demand a severance payment equivalent to one and a half months salary per year of service. The maximum severance payment is twelve salaries. The law allows collective dismissal under certain circumstances such as acts of God or force majeure, financial or technical streamlining, dissolution, bankruptcy or operating downsizing without having to grant the severance payment.

Employers are required to provide the following benefits for employees:

• One month paid vacation per year.

• One month salary bonus in July and in December.

• One month salary per year as severance indemnity which should be deposited in advance with a bank elected by the employee. Deposits are regarded as final payments of the accrued liability.

• Profit sharing in cash, which is calculated on the number of employees and on their taxable income. The rates are 5, 8 and 10% depending on the employer’s activity. This benefit does not apply to enterprises employing less than 20 individuals.

All these benefits are deductible for income tax purposes.

Employers can negotiate with workers earning a monthly salary higher than S/.5,600 an annual remuneration, including all the benefits described above except the profit sharing.

Expatriates working in Peru and foreign corporations carrying out activities in Peru are subject to Peruvian labor laws. As a general rule, the hiring of foreign employees is limited to 20% of total personnel. Additionally, wages paid to foreign employees should not exceed 30% of payroll. Such limits can be waived for professionals and specialized technicians or management personnel.

No restrictions apply to foreign individuals working in Peru with Peruvian immigrant visa, individuals married to Peruvians or having Peruvian children, parents of siblings and foreign investors with a permanent investment in Peru of at least 5 tax units (S/.14,000).

Expatriate employees should register their employment contract with the labor authorities and obtain a special non-immigrant resident visa. No additional work permit is needed.

Foreigners can enter Peru under the following migratory qualifications:

Qualification

Kind of visa

Possible activities

Tourist

Temporary

Cannot perform any remunerated or lucrative activity.

Businessman

Temporary

Cannot perform any activity generating Peruvian source income.

Wosier

Resident

Can perform any job under a contract approved by the labor authorities. In the case of foreign company workers, the filing of a services agreement approved by the migration authorities and a document by which the foreign company assigns the worker to Peru, legalized by the Peruvian Consulate and approved by the Ministry of Foreign Affairs, are required.

Independent

Resident

Can perform investment or practice an independent profession.

Immigrant

Resident

No restrictions.

As a general rule, income obtained for personal work or civil, commercial or any other type of business carried out within Peruvian territory is considered to be Peruvian source income. However, non-resident individuals entering the country temporarily to perform the following activities are not taxed for revenues obtained in their home country, since they are not considered as Peruvian source income:

• Acts that precede a foreign investment or any other business;

• Supervision or control of an investment or business, (e.g. gathering data or information, meeting public or private sector personnel, etc.);

• Hiring local personnel; and

• Signing agreements or similar documents.

Any other amount an expatriate receives in cash or in kind as a compensation for work carried out within Peru is considered as Peruvian source income and consequently, will be taxable.

ESTABLISHING A BRANCH OFFICE
The branch offices of foreign companies are treated by the Venezuelan law as any local corporation and they are, therefore, authorized to carry out business without limitations other than the legal dispositions of general or particular applicability to companies organized in Venezuela. Consequently, offices must comply with all the corresponding rules and laws applicable to any corporation, but they are not regarded as a different or autonomous entity or corporation; in other words, the parent company retains full liability.

a. The Articles of Incorporation and By-Laws of the foreign parent company;

b. A power of attorney in favor of the local legal representative of the branch;

c. An extract of the applicable law in the country of origin governing stock corporations; and

d. The resolution of the corresponding corporate body which approved the establishment of the branch, indicating the amount of capital allocated to the branch and the person designated to act as legal representative.

These documents have to be legalized before a Venezuelan Embassy/Consulate and translated into Spanish by a Venezuelan official translator, if drafted in a language other than Spanish. In addition, they must be registered at the Commercial Registry and then published.

Finally, branches are subject to the payment of all taxes and contributions as any other stock corporation.

Decree 2095, describing the Common Regime for the Treatment of Foreign Capital and Trademarks, Patents, Licenses and Royalties, establishes the legal framework for foreign investment. The main points of this area of law are as follows:

a. Except for those reserved sectors established in Decree 2095, foreign investors and nationals have the same rights and obligations.

b. All foreign investments are now pre-authorized (i.e. no prior approval is required) and subject only to registration before the competent national authority, which depending on the sector, would be either the (i) Superintendency of Foreign Investments ("SIEX"); Foreign investors need only register with the SIEX within 60 days of the new company being formed. No prior approval is needed, (ii) Superintendency of Banks and Insurance, or (iii) Ministry of Energy and Mines.

c. Foreign investors may freely elect the type of entity for the foreign investment that they desire. Except for those investments in the reserved sectors, a foreign investor may own up to 100% of a local company (or establish a branch) in order to carry out its business in Venezuela.

d. Except for the twenty percent restriction for the reserved sector mentioned above, there are no restrictions on the purchase of shares held by nationals.

e. There are no restrictions with respect to the remittance of dividends or repatriation of capital. Foreign investors may remit 100% of their profits and repatriate their invested capital without limitation.

f. A Venezuelan company owned by foreign investors (or a Venezuelan branch of a foreign company) is entitled to all the benefits of any trade, business and tax agreement of which Venezuela is part.

g. Technology transfer agreements (e.g., patent, copyright, and trademark license agreements) and distribution agreements no longer require prior approval by or registration before the Venezuelan Intellectual Property Ministry. There are also no restrictions or registration requirements for the payment of royalties by Venezuelan companies to their parent company. Transfer of technology agreements (among others) may be subject to binding arbitration or the submission to the jurisdiction of foreign courts.

Foreign companies face no discrimination vis-a-vis the credit market, and are allowed to raise funds from Venezuelan capital markets, including issuing shares and bonds. External credits do not require prior authorization or registration. Technology, including patents and trademarks, can now be considered as capital contributions, and no prior approval by the SIEX is needed.

Employment of local work force and expatriates. Venezuela's workforce is one of the key assets the country offers to potential investors. The workforce reflects the population makeup: young with large numbers of well-educated, internationally trained managers.

There are no prohibitions on bringing in skilled management or technical personnel from abroad, provided the percentage of foreigners on the payroll does not exceed the legal limits:

• companies of more than 10 people are prohibited from having more than 10% of the workforce made up of   foreigners.

• salaries of foreigners cannot exceed 20% of a company's entire payroll.

There are no legal restrictions regarding the nationality or country of residence of company directors or management personnel.

A work visa is required for foreign employees working in Venezuela to be obtained from the Immigration Office of the Department of Labor. A business visa is also available on a yearly basis and authorizes a foreign national to make unlimited entries to Venezuela on business. Venezuelan labor law does not restrict the number of foreign employees working on a company's payroll and there is no nationality requirement of managers or directors, except for those companies operating in reserved sectors.

FAQs

 What are the main Requirements for a Foreign Investor to operate in Venezuela?

1. Having a Business Transient Visa, granted for one year with multiple entries and a maximum stay of 180 days. No extensions are available.

2. Registering a company, following the steps below:

a) Choose the type of Business Enterprise or commercial organization fitting your interests the most, in line with domestic legislation such as the Code of Commerce, along with the Civil Code, Capital Markets Law, and Decree Nº 2095, which regulates foreign investment treatment in the country, among others.

b) Seek legal to draw up the Articles of Incorporation and Bylaws of the company.

c) Register the investment in the Commercial Registry.

d) Register the investment in the Foreign Investment Superintendence (SIEX) within 60 days of its entry. See Registry of Direct Foreign Investment in our How to section.

According to the Commercial Code, firms domiciled abroad are considered as foreign companies, whether the main object of their exploitation, commerce or industry is in Venezuela or not.

These companies may adopt the following forms of incorporation:

• A company with its own juristic nature, independent from the parent company

• A subsidiary company

• A branch

• A representation

• Technological transfer agreements and licenses over patents and brands

In Venezuela, it is not necessary to obtain a previous authorization to carry out foreign investments. According to the provisions established in Decree Nº 2095, all foreign investments which do not contradict legislation as to which sector to invest in, shall only register in the Superintendence of Foreign Investments (SIEX) of the Finance Ministry, within 60 days of entry in the Commercial Registry.

What are the Criteria to determine the Classification of a Company?

Companies are classified according to the origin of the stake in the share percentage of shareholders. Ventures are considered a) foreign companies when foreign partners own more than 49% of the share participation; b) joint companies, when foreign participation is between 19.9% and 49%; and c) domestic companies, when foreign participation is smaller than 19.9%.

For the said classification, the statutory and shareholder's provisions shall be taken into consideration in relation to the shares, stake, and rights of the foreign shareholders over these, concerning technical, commercial, administrative and financial direction of the company.

Incorporating in Chile is not expensive (approximately US$ 1000) but takes some time (about 2 months). Chile has no minimum local participation requirement, and the inclusion of local partners is guided only by commercial considerations. However, a legally established corporation or partnership is absolutely necessary to do any business in Chile.

The first step for a foreign citizen, corporation or entity wishing to establish a business in Chile is to present a declaration of intent to invest in Chile to a Chilean Embassy/Consulate, stating the nature of the business and the capital to be invested, simultaneously requesting a Permanent Residence Visa. This confers residence status on the company, without which it will be barred from conducting commercial activities in Chile.

Within the framework of Chilean law, business entities can choose among various corporate forms, entailing somewhat different legal, taxation and other effects.

1. Limited Liability Corporations

It is established by means of a written contract among parties (minimum two and maximum 50 partners), the text of which is to be published in the Official Gazette. Registration of the Corporation with the Commercial Register Office is required. Unless specified to the contrary, the personal liability of the members is restricted to the amount of their individual capital investment. There is no minimum capital requirement and the company may be administered/managed by one or more partners or even by a third party designated by agreement.

2. Corporations

a) Publicly Held Corporations. Companies consisting of 500 or more shareholders, where 10% of the shares are in the hands of minimum 100 shareholders. Shares are traded in the stock exchange.

b) Privately Held Corporations. These companies do not meet with any of the previous requirements, but they are run as publicly held corporations.

They are established by means of a public contract, a summary of which is to be published in the Official Gazette. Registration with the Commercial Register Office is also required. Shareholders liability is restricted to the value of their shares. Initial capital should be fully subscribed and paid within a three year term. The company is administered/managed by a Board of Directors presided over by a Chairman and consisting of 3 members in the case of Privately Held Corporations and 5 members in the case of Publicly Held Corporations. Both Chairman and members are elected by the Shareholders.

3. Agents

A practical and more common market entry strategy is to appoint an agent or representative with good access to relevant buyers and with technical expertise. Agents designated by a foreign corporation in Chile must register the company's establishment/constitution documents with Chilean authorities, publish basic information on the agency and issue a declaration stating that the company shall observe and abide by Chilean laws. The agent shall be responsible for the fulfillment of local rules and regulations. Foreign corporations shall, at the same time, be entirely responsible for the acts of their agents in Chile. Their liability, therefore, shall not be restricted to the capital assigned to the agent.

As Chile continues to establish itself in world markets, the reactivation of its economy makes more sectors attractive for joint ventures and licencing. Joint ventures and licensing arrangements require a legally established local partner who can be responsible for Chilean legal and taxation obligations. The various administrative, commercial, profit distribution and other issues involved in the association are established in contracts drawn up between the partners in accordance with Chilean law and tax regulations.

Chile's present overall tax burden, at about 20 percent of GDP, is in line with that in its neighbouring countries. Whether any change from this level is desirable depends in a fundamental way on the public expenditure needs of the country without jeopardizing macroeconomic stability.

Chile's major taxes are:

Income Tax: Chile has a top personal income tax (PIT) rate of 45% on individuals earning over US$ 77,526 per year. People with lower incomes are charged with taxes ranging from 0% to 35%.

Corporate Income Tax (CIT): (Also called First Class Tax Rate). A 15% tax rate is charged on profits made by all corporations, limited liability corporations and foreign companies' agents.

Additional Tax: Under the ordinary tax regime, distribution or repatriation of profits is levied with an additional 35% tax rate, with right to a tax rebate equivalent to the 15% paid on account of Corporate Income Tax.

Pretax profits : 100

Corporate Tax (15%) : (15)

Profits after tax : 85

Additional tax base : 100

Additional Tax (35%) : (35)

Tax Rebate : 15

Additional tax actually paid : (20)

Foreign Investment in Chile is ruled by DL 600 Statute. Designed to foster maximum investment in Chile, it basically offers the following advantages:

- A Contractual Agreement with the Chilean Government, setting terms for the investment over the life of the project and making all rights and responsibilities clear.

- Repatriation of Capital. Money invested in Chile can be repatriated after one year with no restrictions on exchange rates and with no tax or duty on the contractual amount.

- Repatriation of Profits. All profits can be repatriated immediately in freely convertible foreign currency with no restrictions, save payment of relevant taxes.

- Access to productive sectors. Foreign capital may own upto 100% of a Chilean corporation. There is no time limit for foreign ownership.

- Freedom to choose between two tax regimes. Investors may either opt for the Special Tax Regime consisting of an invariable tax burden rate of 42% on their income for the first ten years (extendable to 20 years on investment over US$ 50 million) or the Ordinary Tax Regime equivalent to 35%. The main advantage of the Special Regime is that eventual amendments to tax laws will not be applicable to foreign investors who have opted for it.

Pretax profits : 100

Corporate Tax (15%) : (15)

Profits after tax : 85

Additional tax base : 100

Additional Tax (42%) : (42)

Tax Rebate : 15

Additional tax actually paid : (27)

Chile's openness to foreign investment, along with its wealth of natural resources, had led to nearly US$ 50 billion of new foreign investment since 1974. Foreign investors have purchased many of the assets privatized by the Chilean Government over the last decade, and future privatization efforts offer additional opportunities. In these processes, foreign firms compete on an equal basis with domestic firms, Note that top management (but not ownership) of radio and television broadcasting is reserved for Chilean nationals. Additionally, while foreign banks are allowed to establish either branches or subsidiaries, other financial firms must establish subsidiaries.

Further information on Foreign Investment may be obtained from the website of the Chilean Foreign Investment Committee at <www.foreigninvestment.cl>

Also worth noticing is the fact that, in order to prevent double taxation and reduce tax evasion, the Chilean Government has signed double taxation treaties with Argentina, Canada, Mexico, Ecuador and Polland. Further information on these agreements may be obtained from <www.sii.cl/pagina/jurisprudencia/convenios.htm> (only available in Spanish language)

Patents, trademarks, industrial designs, models and copyrights are protected in Chile by the International Convention for the Protection of Industrial Property (Paris Convention) and also by domestic law. Industrial property rights are guaranteed by the Industrial Property Department (<www.prind.gov.cl>) under the Chilean Ministry of Economy. Also, domestic Law No. 17,336 provides protection for literary, artistic, and scientific creations.

All investment proposals/projects are required to be approved by the National Environment Commission (CONAMA). If so decided by CONAMA, the project shall be required to undergo an Environmental Impact Study.

Work Visa. To work in Chile, official authorization from immigration officials is required.

Labour laws / Social Security Provisions. Both local and foreign workers/employees are subject to the same labour laws, social security and health insurance schemes. Exceptions to this rule are:

1. Foreign technicians, who are exempted from social security payments.

2. Foreign workers/employees affiliated to a social security or health insurance scheme abroad. In such cases, foreign workers/employees shall be required to produce the documents that certify their entitlement to social security benefits abroad.

3. Foreign workers/employees drawing a pension from a social security company abroad.

Restrictions. In companies with a labour force exceeding 25 people, the number of foreign workers/employees cannot exceed 15% of the total workforce.

Before setting up an office / investing in Chile, advisory/consultation services are recommended to be sought from a specialized Attorney at Law. The names and contact details of three Attorneys are given below:

1. Mr. Rafael Aldunate V., Attorney at Law
Benjamin 2944, Piso 7, Las Condes
Santiago, Chile
Tel: 56-2-2315337 / 2427166
Fax: 56-2-2315951
Email: <mondor@entelchile.net>

2. M/s Urrutia & Co., Attorneys at Law
Isidora Goyenechea 3250, Pisos 9-14, Las Condes
Santiago, Chile
Tel: 56-2-3351841
Fax: 56-2-3351842
Email: info@urrutia.cl
Internet: www.urrutia.cl

3. Mr. Jose Luis Lopez, Attorney at Law
Av. Vitacura 2909, Ofc. 602
Santiago, Chile
Tel: 56-2-2336434
Fax: 56-2-3356390
Email: lopezblanco@adsl.tie.cl

According to Law 4131/62, "foreign capital is considered to be any goods, machinery and equipment that enter Brazil with no initial disbursement of foreign exchange, and are intended for the production of goods and services, as well as any funds brought into the country to be used in economic activities, provided that they belong to individuals or legal entities resident or headquartered abroad."

There are two official exchange markets in Brazil, both of which are subject to Central Bank regulation, and operate at floating exchange rates:

1. the free commercial/financial exchange rate market, which is reserved basically for (i) trade-related transactions (import and export); (ii) foreign currency investments in Brazil; (iii) foreign currency loans to residents in Brazil; and (iv) other transactions involving remittances abroad that are subject to preliminary approval from the Brazilian monetary authorities; and

2. the tourism exchange rate market, which was initially developed for the tourism industry, and was later expanded to cover certain other transactions. Applicable regulations indicate the types of transactions that qualify for this market.

While both markets operate at floating rates negotiated between the parties, the key distinction between them is that (i) the commercial/financial exchange market is restricted to transactions that in certain cases require preliminary approval from the Central Bank of Brazil; and (ii) the tourism exchange market is open to transactions that do not require such approval.

Exchange operations are effected by means of exchange contracts, and may be divided into transactions entailing the entry of foreign capital, and transactions entailing an outflow of foreign exchange.

Effective from February 1, 1999, the exchange positions on the free and floating exchange rate markets were unified for financial institutions, according to Central Bank Resolution No. 2588 of January 25, 1999. Resolution 2588/99 may be viewed as the first step taken by the Central Bank of Brazil towards unification of the free and floating exchange rate markets.

Foreign capital should be registered with the Central Bank of Brazil, which will issue a certificate of registration reflecting the amount invested.

The registration of foreign capital is required when the commercial/financial exchange rate  is to be used for the remittance of profits abroad, the repatriation of capital, and the registration of the reinvestments.

Investments will always be registered in the foreign currency in which they are actually made.

Investment by import of goods without exchange cover requires the preliminary approval of both the Central Bank and the Integrated Foreign Trade System (SISCOMEX).

The goods, machinery and equipment must be intended for production of goods or rendering of services. In the cases of both imports of used goods and imports backed by tax incentives, such goods must have no Brazilian counterpart. Second-hand goods must be used in projects fostering the economic development of Brazil.

Once the imported goods have been cleared by customs, the Brazilian company has 180 days to incorporate them into its capital and another 30 days to proceed with the application for registration of the investment.

The setting up of a foreign branch to operate in Brazil is subject to the provisions of Decree-law No. 2627 of September 26, 1940 (articles 64 to 73) and Normative Ruling DNRC No. 81 of January 5, 1999.

The foreign company must submit an application to the Brazilian Government, which must be approved by presidential decree. A certificate of the decree and other pertinent acts will then be published in the Official Gazette, and a copy registered at the appropriate commercial registry. Only after all formalities have been completed will the branch be in a position to start up its activities. The foreign company must also empower a representative--who need not be Brazilian but must be resident in Brazil--to act on its behalf.

As the procedure is lengthy, and the red-tape and expenses involved are greater than for setting up a Brazilian company, the establishment of a branch in Brazil is not recommended, except in very special circumstances.

Brazilian law provides for several forms of corporate organization, with the most widely adopted being the sociedade por quotas de responsabilidade limitada (limitada) and the sociedade anônima (joint-stock company).

Limitadas are governed by Decree No. 3708 of January 10, 1919, and are similar to limited-liability companies, limited partnerships and closely-held companies under English and United States laws.

A limitada is required by law to have at least two partners, who, with few exceptions, need not be Brazilian nationals, and can be either corporate or natural persons. In fact, the partner need not even be resident in Brazil.

When the capital is not yet fully paid up, the liability of the partners is limited to the total capital of the company. Once the capital is paid up, liability is limited to the amount of each partner's participation.

The articles of association of a limitada must state its name; the period for which the limitada is established; the company's principal activities; the principal place of business; the name and personal details of each partner; and the amount of the quota capital and its apportionment.

Holdings in a limitada are reflected in the company's articles of association, since the quotas representing the division of capital are not represented by certificates as in the case of shares. The articles must therefore be amended whenever quotas are assigned, transferred, or increased, so as to accurately reflect the ownership of the company's capital.

There is no requirement as to the minimum capital that must be paid up on initial subscription or subsequent capital increases, except for certain types of companies for which the law provides for a minimum capital requirement.

The limitada may be managed by all the partners, by some partners, or by only one partner. The articles of association must state who is to be the managing partner. Should the managing partner be a legal entity or an alien resident abroad, the delegation of administration and management powers to one or more individuals resident in Brazil is required. The partners can, however, retain control over certain decisions by reserving certain rights in the articles of association.

The limitada need not publish its accounts, amendments to its articles of association, or other corporate documents. This entails less expense and the right to maintain a certain degree of confidentiality as to company affairs. The articles of association are, however, still public, meaning that third parties may obtain copies by application to the commercial or civil registry of legal entities with which the articles of association and their amendments must be filed.

The sociedade anônima is the corporate form which most closely resembles a joint-stock company or corporation. It is governed by Law No. 6404 of December 15, 1976, as

amended (the Corporation Law).

A joint-stock company must in principle have at least two shareholders, who are liable only to the extent that the share capital for which they have subscribed remains unpaid.

A joint-stock company may be formed by public or private subscription. In either case, all the shares must be subscribed for by at least two persons, and a minimum of 10% of the capital must be paid up. The paid-up capital must be deposited with a commercial bank until all formalities for formation of the company have been completed.

The formation of a company by public subscription entails: preliminary registration of the share issue with the Brazilian Securities Commission (CVM); the intermediation of a financial institution; approval of the incorporation of the company by a general meeting called by the incorporators at the close of the subscription period; and appraisal of any assets contributed to the company in lieu of cash payments for the shares.

Formation by private subscription may take place at a general meeting of the incorporators, or by a public deed of incorporation published simultaneously with subscription for the shares. If any of the shares are paid up other than in cash, a general meeting must be called to value the assets contributed.

All documents relating to the formation of the company must be filed at the commercial registry, and subsequently published in the Official Gazette and in another widely circulated newspaper published where the company has its principal place of business.

This type of company may be either publicly- or closely-held. A publicly-held company must be registered at CVM, along with the securities it issues, which may be traded on the stock exchange or on the over-the-counter market. The securities of a closely-held company are not available to the general public.

The capital may be either subscribed or authorized. In the case of a company with subscribed capital, the company's bylaws state the amount of capital actually subscribed for by the shareholders, although this capital need not necessarily be paid up. The bylaws of an authorized capital company establish the limit up to which the capital actually subscribed for by the shareholders may be increased without the obligation of executing an amendment to its bylaws. The authorized capital limit may also consist of a number of shares, rather than an amount expressed in currency.

Company capital is divided into several kinds of shares, all of which have different advantages, rights or restrictions attributed to them.

Common shares in a closely-held company may belong to different classes, depending on:

• their nonconvertibility into preferred shares;

• the requirement that the shareholder be Brazilian; or

• the right to vote separately for election of certain officers of the company.

Preferred shares in a publicly- or closely-held company may belong to one or more classes, and carry rights and/or privileges that may include the right to elect certain members to the company's administrative bodies, even should the preferred shares be granted no other voting rights. Holders of nonvoting preferred shares will be entitled to receive dividends at least 10% higher than those paid to common shares, except for the shares that are entitled to cumulative or noncumulative fixed or minimum dividends. Other privileges that may be granted to the holders of preferred shares are priority in the distribution of dividends by way of a fixed or minimum dividend, and/or priority in reimbursement of capital.

The amount of preferred shares issued by the company may not exceed two-thirds of the company's total outstanding shares.

Shares need not have a par value, and may be represented by certificates.

Shares may be paid up in cash or in assets capable of being valued in cash. Appraisal of the assets is obligatory, and the evaluation report must be approved by the shareholders in a general meeting.

Shares in a publicly-held joint-stock company may only be transferred after 30% of their issue price has been paid. The company may not purchase its own shares except in the circumstances provided for by law.

The bylaws of a closely-held company may restrict the circulation of shares, provided they do not prevent their transfer. Should such restrictions be imposed by means of an amendment to the bylaws, they will only apply to the shares of those holders who expressly agreed with them.

Other securities which may be issued by a joint-stock company are participation certificates, subscription warrants, and debentures. The rules relating to the ownership and circulation of shares are also applicable to these securities, although they do not form part of the capital.

• Shareholders have the following basic rights:

• participation in the company's profits;

• participation in the distribution of the company's assets if the company is wound up;

• overseeing the management of the company's affairs;

• priority in the subscription for shares, participation certificates, convertible debentures and subscription warrants; and

• withdrawal from the company in the circumstances stipulated by law.

Shares in each class confer equal rights on their holders.

Each common share carries one vote at general meetings of the company. No shareholder is entitled to plurality vote. Holders of preferred shares may enjoy any of the rights

attributed to the common shares--including the right to vote--but their rights may be restricted provided that they are not deprived of their basic rights. Preferred shares without voting rights, or with restricted voting rights, acquire full voting rights if the company fails to distribute the fixed or minimum dividends within the period stipulated in the bylaws (not exceeding three consecutive years), and keep this right until the company pays dividends.

A company may be transformed from one type to another, without dissolution and liquidation. For example, a joint-stock company can be transformed into a limitada, or vice versa. Stockholder approval must be unanimous, unless otherwise provided for in the bylaws. Dissident shareholders have the right to withdraw.

It is often advantageous to incorporate a company as a limitada, as this is simpler and less expensive than the incorporation of a joint-stock company. The company could then be easily transformed into a joint-stock company at a later stage.

Mergers, consolidations or spin-offs may be effected between companies of the same or different types.

A merger entails the absorption of one or more companies into another, which then succeeds to all rights and obligations of the merged companies, which are consequently extinguished.

The consolidation of two or more companies entails the extinguishment of the consolidated companies and the formation of a new company, which will succeed to all the rights and obligations of the former companies.

Corporate spin-off entails the transfer of part or all of a company's assets and liabilities to one or more companies already in existence or formed for this purpose, dividing the company's capital in the event of partial spin-off. Should all the company's assets and liabilities be transferred, the company is thereby extinguished. Rights and obligations of the spun-off company are absorbed proportionately by the companies receiving the net value transferred.

The proposal for merger, consolidation or spin-off of one or more companies must be explained and justified in a protocol of justification signed by the senior managers of the companies involved. The protocol must then be approved by a general meeting of the partners of these companies. Shareholders dissenting from the decision of the general meeting approving the merger, consolidation or spin-off of the company should have the right to withdraw.

Appraisal of the net worth of the company or companies to be merged, consolidated or spun off is mandatory, and must be approved by the partners in a general meeting.

A wholly-owned subsidiary is a company whose total share capital is owned by another company. This is the only way that a single shareholder can own the total share capital of a compa