DOING BUSINESS IN

Libro 2017 res.indd 1 12-06-17 17:37 All rights reserved. This book may not be reproduced in whole or in part, stored in a retrieval system or transmitted in any form or by any means without prior permission from the publishers.

This book is sold subject to the condition that not, by way of trade or otherwise circulated without the publisher’s prior consent in any form of binding or cover other that in which it is published and without a similar condition including this condition being imposed on the subsequent purchaser.

DISCLAIMER This publication is designed to provide information in regard to the subject matter covered. It is sold and distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

The British Chilean Chamber of Commerce Copyright 2013 Britcham Chile Head Office El Bosque Norte 0125, P. 2 Las Condes Chile

Editor: Ignacio Saavedra Cooordinator: María Isabel Juppet Proofreader: Mary Ann Chamberlain Designer: María Eugenia Gilabert

3rd edition published in 2017 2nd edition published in 2013 1st edition published in 2007 ISBN: 978-956- 8674-01- 4

Libro 2017 res.indd 2 12-06-17 17:37 CONTENTS

FOREWORD...... 5 ACKNOWLEDGEMENTS ...... 7 TERMS AND ACRONYMS...... 9 INDICATORS ...... 13 CHILE, LAND OF OPPORTUNITIES...... 15 A PARTNER FOR YOUR INVESTMENT...... 17 INVESTMENTS AND THEIR PROTECTION...... 23 FOREIGN INVESTMENT...... 25 ARBITRATION ...... 41 LITIGATION...... 51 CONSTITUTIONAL PROTECTION OF PROPERTY ...... 57 CORPORATE LAW...... 61 LEGAL ENTITIES ...... 63 CORPORATE GOVERNANCE AND SHAREHOLDER PROTECTION ...... 73 CAPITAL MARKETS...... 87 SECURITIES MARKET ...... 89 ASSET MANAGEMENT ...... 101 SECURITY INTERESTS...... 108 TAXATION ...... 119 INTELLECTUAL PROPERTY...... 141 LABOUR LAW ...... 163 LABOUR LAW...... 165

Libro 2017 res.indd 3 12-06-17 17:37 SOCIAL SECURITY ...... 179 FOREIGN WORKERS...... 183 SPECIAL EMPLOYMENT CONTRACTS ...... 191 FOREIGN TRADE...... 197 LAW...... 213 ENVIRONMENTAL LAW ...... 245 REGULATORY COMPLIANCE...... 265 PROJECT REGULATIONS...... 275 PUBLIC WORKS CONCESSIONS...... 277 PROJECT FINANCE ...... 285 INSURANCE...... 293 CONSUMER PROTECTION ...... 303 REGULATED INDUSTRIES ...... 317 BANKING...... 319 MINING ...... 333 WATER RIGHTS ...... 349 ENERGY...... 355 FISHERIES AND ...... 367 TELECOMMUNICATIONS...... 375 SME BENEFITS...... 391 SME GOVERMENT BENEFITS ...... 393 SME TAX BENEFITS ...... 409 BANKRUPTCY...... 415 CONTRIBUTORS...... 429 SPONSORS ...... 437

Libro 2017 res.indd 4 12-06-17 17:37 FOREWORD

Chile has a market-oriented economy in which the prices of goods and services are determined in a free price system. The economy of Chile is ranked as a high-income economy by the , and is considered one of ’s most stable and prosperous nations, leading Latin American nations in competitiveness, income per capita, , , and low perception of . The world’s leading exporter of and and the second in Latin America and the Caribbean regarding legislation favourable to business.

Chile’s openness to global trade and investment provides a solid basis for economic dynamism. The overall regulatory framework facilitates entrepreneurial activity and productivity growth. Property rights and contracts are strongly respected, and expropriation is rare. The judiciary is independent, and the courts are generally competent and free from political interference.

In 2007, the British Chilean Chamber of Commerce (Britcham) published the first edition of this book, which constituted an unprecedented collaborative effort by the country’s top- tier law firms and audit companies, portraying in a single publication, in English, the legal scenario that those wanting to do business in Chile would encounter.

In 2013, BRITCHAM Chile published the revised, updated and restructured Second Edition of the book, which adds eight new chapters, including sections on contract and guarantee law, as well as a special section about SMEs and the tax and other benefits they enjoy in Chile.

Now you have in your hands the Third Edition, in the same year that we celebrate the 100 years of the Chamber. It also has the privilege of including an introductory chapter prepared by InvestChile, the official Chilean agency in charge of foreign investment.

There are many basic guides on doing business in Chile prepared by legal and audit firms. These guides provide valuable insights to the laws that a foreign investor or businessperson will encounter in Chile. The Britcham Doing Business in Chile book, however, attempts to go one step further, providing thorough coverage of all the essential legal topics that may be of interest to entrepreneurs, investors, businesspeople, foreign law firms, and accounting and auditing companies; in short, to the English speaking legal and business communities in general.

Ignacio Saavedra Editor and President of the Legal Committee British Chilean Chamber of Commerce

Libro 2017 res.indd 5 12-06-17 17:37 Libro 2017 res.indd 6 12-06-17 17:37 ACKNOWLEDGEMENTS

The British Chilean Chamber of Commerce and the Editor would like to deeply thank the following people and organisations without whom the Third Edition of this book would not have been possible.

First of all, gratitude and appreciation goes out to all the members of the British Chilean Chamber of Commerce Legal Committee that participated in the publication, for their invaluable collaboration in both sponsoring and preparing the chapters for this book: the law firms of Alessandri; Baker & Mckenzie (Santiago); Barros & Errázuriz; Carey; Cariola Díez Pérez-Cotapos Cía. Ltda.; Chirgwin Larreta Peñafiel; CorreaGubbins; Gazmuri & Cía.; Guerrero Olivos; Honorato & Delaveau; Montt y Cía; Morales & Besa; Ontier Chile Abogados; Philippi, Prietocarrizosa Ferrero DU & Uría; Puga Ortiz Abogados; Uribe, Hübner & Canales Abogados; the service firms Price Waterhouse Coopers (Chile) and Puente Sur Outsourcing S.A.; and the HSBC Bank (Chile).

A special thanks is also due to the InvestChile and to Carlos Álvarez, its Director.

Furthermore our thanks are extended to the Board of the British Chilean Chamber of Commerce, and to the chamber’s General Manager, Mr. Greg Holland, for their continued support and encouraging enthusiasm and belief in this project.

Finally and most importantly, thanks are due to all the staff that contributed to this book: to Mrs. Mary Ann Chamberlain, for her infinite patience and hard work in proofreading all the chapters, to Mrs. María Isabel Juppet, for preparing and updating the Gantt charts, helping coordinate the contributions, and coordinating the design, layout and publishing matters, to Mrs. María Eugenia Gilabert for design and layout of the book.

Ignacio Saavedra Leslie Hemery Editor President Doing Business in Chile British Chilean Chamber of Commerce

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ACHS: Chilean Safety Association (Asociacion Chilena de Seguridad) AFP: Pension Fund Administrators (Administradoras de Fondos de Pensiones) APEC: Asia-Pacific Economic Cooperation (Cooperación Económica del Asia-Pacífico) BIT: Bilateral Investment Treaties BNDES: Brazilian National Bank of Economic and Social Development (Banco Nacional de Desenvolvimento Economico e Social) CDEC: Economic Load Dispatch Centre (Centro de Despacho Económico de Carga) CIF: Customs, Insurance and Freight CITEL: Inter American Commission of Telecommunications (Comisión Interamericana de Telecomunicaciones) CNE: National Energy Commission (Comisión Nacional de Energía) COCHILCO: Chilean Copper Commission (Comisión Chilena del Cobre) COM: Constitutional Organic Mining Law Commerce Registry: (Registro de Comercio) CONAMA: National Environmental Agency (Comisión Nacional del Medio Ambiente) COREMA: Regional Environmental Agency (Comisión Regional del Medio Ambiente) CONADI: Indigenous Development National Corporation (Corporación Nacional de Desarrollo Indígena) CRIRSCO: Committee for Mineral Reserves International Reporting Standards DE: (Executive Decree) DGA: General Water Authority (Dirección General de Aguas) DL: Decree Law (Decreto Ley) DFL: Decree with Force of Law (Decreto con Fuerza de Ley) DS: Supreme Decree (Decreto Supremo) EAR: Environmental Assessment Resolution (Resolución de Calificación Ambiental) EIAS: Environmental Impact Assessment System (Sistema de Evaluación de Impacto Ambiental) EID: Environmental Impact Declaration EIS: Environmental Impact Study ERNC: Non-conventional renewable energy

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(energías renovables no convencionales) ENTEL: National Telecommunications Company (Empresa Nacional de Telecomunicaciones) EXIMBANK: Export-Import Bank of the FNE: National Economic Prosecutor (Fiscal Nacional Economico) Foreign Securities Register: (Registro de Valores Extranjeros) FTA: Free Trade Agreement GTL: General Telecommunications Law ICSID: International Centre for Settlement of Investment Disputes IDB: Interamerican Development Bank IFC: International Finance Corporation ILO: The International Labour Organization (OIT- Organización Internacional del Trabajo) IPSA: Selective Share Price Index (Indice de Precios Selectivo de Acciones) IVA: Value Added Tax (Impuesto al Valor Agregado) : Common Market in the South (Mercado Común del Sur) MOP: Ministry of Public Works (Ministerio de Obras Publicas) MTT: Ministry of Transportation and Telecommunications National Customs Service: (Servicio Nacional de Aduanas) NAFTA: North American Free Trade Agreement (Tratado de Libre Comercio de América del Norte, TLCAN) NCRE: Non Conventional Renewable Energy NGO: Non Governmental Agency NIC: Network Information Center NTC: National Television Council (Consejo Nacional de Televisión) OECD: Organization for Economic Cooperation and Development Official Gazette: (Diario Oficial) OPA: Public Share Acquisition Offer (Oferta Pública de Adquisición de Acciones) PC: Chilean Constitution (Constitucion Politica) PPDA: Prevention and Polution Clearing Plan for the Metropolitan Region (Plan de Prevención y Descontaminación Atmosférica) Securities Register: (Registro de Valores) SEREMI Regional Office of the Ministry: (Secretario Regional Ministerial) S.A. Corporation: (Sociedad Anónima) SBIF: Superintendency of Banks and Financial Institutions (Superintendencia de Bancos e Instituciones Financieras) SEC: Superintendency of Energy and Fuel (Superintendencia de Energia y Combustible) SERNAC: National Consumer Service (Servicio Nacional del Consumidor) SERNAGEOMIN: National Geology and Mining Service (Servicio Nacional de Geología y Minería)

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SIC: Central Interconnected System (Sistema Interconectado Central) SII: Internal Revenue Service (Servicio de Impuestos Internos) SING: Northern Interconnected System (Sistema Interconectado del Norte Grande) SISS: Superintendency of Sanitary Services (Superintendencia de Servicios Sanitarios) SMEs: Small and Medium Sized Enterprises (PYMES- pequeñas y medianas empresas) SpA: Limited Liability Stock Company (Sociedad por Acciones) SVS: Superintendency of Securities and Insurance (Superintendencia de Valores y Seguros) TDLC: Free Competition Defense Court (Tribunal de Defensa de la Libre Competencia) TRIPS: Trade-Related Aspects of International Property Rights Treaty UAF: Financial Analysis Unit (Unidad de Análisis Financiero) UF: (Unidades de Fomento) UNCITRAL: United Nations Commission on International Trade Law UPOV: International Union for the Protection of New Varieties of Plants (Protección de las Obtenciones Vegetales) UTM: (Unidad Tributaria Mensual) VAD: Value Added Distribution VAT: Value Added Tax WCO: World Customs Organization WTO:

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As of June 2017

GBP (Great British pound) GBP 1, as of June 2017, was approximately CLP $841

USD (United States Dollar) USD 1, as of June 2017, was approximately CLP $671

UF (Unidad de Fomento) is an -linked accounting unit UF 1, as of June 2017, was approximately CLP $26,646

UTM (Unidad Tributaria Mensual) is an inflation-linked monthly accounting unit UTM 1, as of June 2017, was approximately CLP $46,740

UTA (Unidad Tributaria Anual) is an inflation-linked annual accounting unit UTA 1, as of 2017, was CLP $560,880

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Chile is the best evaluated economy in Latin America and, indeed, one of the best evaluated emerging economies worldwide. Its hallmark stability, transparency and competitiveness and its excellent business prospects position it not only as the best destination for foreign investment in this region but also as one of the most outstanding in the world.

In its World Investment Report 2016, UNCTAD (The United Nations Conference on Trade and Development) ranked Chile as the world’s nineteenth largest recipient of foreign direct investment (FDI). In 2015, US$20,457 million entered the country by this means.

Chile was the seventh largest recipient of FDI among developing and transition economies in 2015, according to UNCTAD.

WHY INVEST IN CHILE?

BECAUSE IT LEADS LATIN AMERICA • Foreign investment regime (3rd in world, 1st in Latin America – Economist Intelligence Unit, 2015-2019). • Business Environment (13st worldwide, 1st in Latin America – Economist Intelligence Unit, Business Environment Rankings 2014-2018) • Competitiveness (33st worldwide, 1st in Latin America – World Economic Forum, Global Competitiveness Index, 2016) • Best Countries for Business (30st worldwide, 1st in Latin America – Forbes Magazine, 2015) • Economic Freedom (7st worldwide, 1st in Latin America – Heritage Foundation, 2016) • GDP per capita (US$23,563, 1st in Latin America – International Monetary Fund, 2015)

BECAUSE IT IS A LOW-RISK COUNTRY

Chile’s Sovereign Ratings

Fitch Ratings A+ Standard & Poor’s AA- Moody’s Aa DBRS AA-

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BECAUSE IT IS ONE OF THE WORLD’S MOST OPEN ECONOMIES Trade agreements with over 60 countries expand Chile’s domestic market of 17 million inhabitants to one of over 4,300 million potential consumers around the world (63% of the world population).

INVESTMENT OPPORTUNITIES

MINING EQUIPMENT, TECHNOLOGY AND SERVICES (METS) Chile is a leading player in the international mining industry. One third of large copper mining projects that will come into operation in the next five years will be in Chile. Mining companies spend over US$15 billion a year on support services and plan to invest US$50 billion in the country by 2024. Chile has over 4,600 mining suppliers.

Chile is home to 28% of the world’s copper reserves and is its leading copper producer. It is also the sixth largest producer and accounts for an important share of the international market for natural nitrates (100%), (58%) and (45%). Chile’s goal is to be not only the principal exporter of copper, but also an exporter of world-class mining services and technology.

THE INDUSTRY Chile is one of the world’s 15 leading food exporters. The sector offers opportunities in and agriculture, and by-products, , meat and dairy by-products, salmon, support industries, processed and biotechnology applied to the food industry.

In 2015, Chile’s exports of food and beverages reached US$14,526 million, accounting for 23% of total exports. The country has one of the world’s only five macrozones with a Mediterranean climate, offering excellent conditions for fruit growing. In addition, the country’s length and diversity of climates permit year-round production, as well as supporting the different forms of animal and vegetable life that underpin the diversity of its agricultural and aquaculture industries.

Chile is protected by natural barriers, transforming the country into a phytosanitary and zoosanitary island.

ENERGY In order to satisfy the increase in demand for energy, Chile requires both new conventional energy projects that comply with sustainability criteria and non-conventional renewable energy (NCRE) projects. The government’s Energy 2050 program states that 60% of the country’s electricity should be generated from renewable sources by 2035, and by 2050, the goal is to achieve 70%. In 2015, renewable sources accounted for 41% of the electricity produced.

INFRASTRUCTURE Chile has a portfolio of projects being analysed, developed or implemented that, just in concessions to private companies, will represent a total investment of US$12,950 million by 2020. In addition, through its annual budget, the Public Works Ministry develops infrastructure 18

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projects throughout the country that also represent important business opportunities for private companies, both local and from overseas, in construction of the infrastructure itself, as well as in services and consultancy.

Chile will need to invest over US$150,000 million in public and private infrastructure by 2025. In 2014, the government presented a portfolio of public works projects that is the most ambitious in a decade. Worth a total of US$28,000 million, it includes both direct government investment and concession projects.

Between March 2016 and March 2017, tenders will be issued for concession projects worth US$1,643 million, principally for highways and airports, followed between March 2017 and March 2018, by tenders for projects representing a further US$2,445 million.

TOURISM Over the past decade, has shown important growth. Thanks to its geography, the country has a privileged landscape that ranges from the world’s driest desert to the ice fields of and includes the exotic attractions of . Each year, Chile receives over 4.5 million overseas visitors, twice the number of just ten years ago.

Domestic tourism has also shown sustained growth and today accounts for over 27 million journeys a year.

With competitive advantages that have persisted over time, Chile ranks second in South America, after , in the World Economic Forum’s Travel and Tourism Competitiveness Index (2015).

GLOBAL SERVICES Chile is a destination for high-end offshore functions such as research centres for global banking clients and R&D centres, as well as more traditional back-office jobs. Exports of business and IT services reach over US$3,000 million per year and, over the past 10 years, have grown at a rate of 14,7% (as compared to a global average of 12,9%).

According to A.T. Kearney’s, 2016 Global Services Location Index, Chile is the ninth most attractive location for global services. Chile also leads Latin America in the World Economic Forum’s Networked Readiness Index, ranking thirty eighth among 139 economies.

Regarding the availability of skilled labour, there are about 340,000 higher education students in Chile of whom some 70,000 graduate each year. The country has 11 universities that are ranked among the best 50 in Latin America (Times Higher Education).

The Chilean government is launching a series of regulatory and tax reforms to foster the export of services. Despite limitations of scale, service providers have capitalised on the technical capabilities of the labour force, enabling Chile to become a springboard for offshore operations in South America.

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PROGRAMS AND INCENTIVES FOR INVESTMENT

Program of Support for Strategic Projects at the Pre-Investment Level

- Co-financing of pre-investment studies to gather information for companies’ investment decisions (potential location studies and market, economic and technical studies). - Finance for up to 70% of the cost of feasibility studies (maximum of US$260,000) for projects worth over US$2 million.

Integrated Promotion Initiative for High-Tech Projects

- Financing to support the implementation of new technological investment projects or the expansion of existing projects and the implementation or expansion of centres of innovation and, in general, to facilitate the implementation of initiatives in productive and technological fields that have significant impacts on economic or geographic sectors. - Finance for up to 30% of high-tech projects up to a maximum of US$5 million.

Business Technological Innovation Program

- Subsidy for developments related to Innovation in Products, Processes and Innovation in Packaging and Validation for amounts that range from US$90,000 to US$300,000.

Remote Areas

- Tax benefits and grants for projects in the Arica y Parinacota and Tarapacá Regions in the far north and the Aysén and Magallanes Regions and the Palena Province (Los Lagos Region) in the south.

R&D Law

- Tax credit of 35% (of the investment in R&D) against corporate income tax (maximum of US$1 million). - 65% (of the investment in R&D) can be deducted from the corporate income tax base as necessary expenditure.

Programs and Incentives for the Creation of Investment Funds

- Lines of credit for financing the development of small- and mid-sized Chilean companies that meet one of three criteria: at the expansion stage with high growth potential; at an early stage with high potential for growth and innovation; at an early stage with high potential for growth and innovation, in sectors related to technology.

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WHAT CAN INVESTCHILE DO FOR YOU?

InvestChile is the Chilean government agency responsible for promoting Chile as a destination for foreign direct investment. Our mission is to link the interests of overseas investors with the business opportunities the country offers, by providing world-class services that are in line with Chile’s economic development policies.

CONTACT OUR TEAM [email protected]

More information: www.investchile.gob.cl

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Libro 2017 res.indd 23 12-06-17 17:37 Libro 2017 res.indd 24 12-06-17 17:37 FOREIGN INVESTMENT

SUMMARY

Foreign investment in Chile is regulated by both domestic rules and international agreements that have been subscribed by the State of Chile and that have entered into force.

In general, under Chilean law there are no limitations on a foreign investor wholly owning a Chilean company. Foreign companies and individuals can invest in all productive activities and sectors of the economy. However, there are certain restrictions on foreign investors in a few areas, such as coastal trade, mass media, fishing, and real estate property in border zones. Similarly, certain economic activities considered relevant to national security are generally restricted to the State, such as the exploration and exploitation of hydrocarbon deposits in coastal waters under national jurisdiction or in areas classified as important to national security, and the production of nuclear energy. However, foreign companies may be able to invest in these areas in certain circumstances.

In particular, foreign investors may opt in to be covered by new Law Number 20,848 enacted on 21 January 2016 (the “New Law”) which sets out an elective legal framework for the protection of eligible foreign direct investment in Chile and abrogates the former regime established by Decree Law Number 600 of year 1974 (the “DL 600”). However, the New Law provides an interim regime applicable until 21 January 2020, under which foreign investors may still apply to certain rights under DL 600 by virtue of an investment agreement to be entered into with the State of Chile. Besides, the New Gonzalo Cordero, Law guarantees the full validity of the rights and duties of foreign Irene Bracho, Isabel investors created under DL 600, before the New Law entered into Cabeza, Juan Carlos force. Therefore, foreign investment agreements entered into with the Juri/ Morales&Besa State of Chile under DL 600 before 21 January 2016, preserve all rights and obligations thereunder.

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Foreign investors not subject to the New Law must comply with Chapter 14 of the Central Bank´s Foreign Exchange Regulations in order to get access to the formal currency exchange market in relation to investments over USD 10,000 (or its equivalent in another foreign currency).

On an international level, foreign investments are subject to bilateral investment treaties (“BITs”) entered into by the State of Chile, which include additional protection for foreign investors in Chile and certain special dispute settlement frameworks. As of November 2016, Chile has signed 52 BITs, 39 of which are in force. Additionally, Chile has also entered into free trade agreements (“FTAs”) with several countries and/or groups of countries, including Canada, Mexico, , United States of America, the European Union and , which may contain certain provisions on investment-related matters.

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I. CURRENT REGIME FOR FOREIGN INVESTORS: LAW NUMBER 20,848

The New Law applies to investments made in Chile by any foreign individual or entity, neither resident nor domiciled in Chile, including companies, foundations, foreign states and international organisations (hereinafter, “Foreign Investors”). In contrast to DL 600, the New Law does not benefit Chilean individuals or legal entities, regardless their domicile.

Under the New Law, Foreign Investors may request a certificate from the Agency of Promotion of Foreign Investment (Agencia de Promoción de la Inversión Extranjera, hereinafter, the “Agency”), which is the legal successor of the former Foreign Investment Committee (Comité de Inversiones Extranjeras), established to manage this special regime.

A. What does “investment” mean under the New Law?

Under the New Law, a “Foreign Direct Investment” corresponds to the transference to Chile of foreign capital or assets owned or controlled by a Foreign Investor, in any of the following forms (hereinafter, the “Investment”):

• Freely convertible foreign currency brought into the country through an entity authorised to operate within the Formal (Mercado Cambiario Formal);

• Tangible assets, in any form, which are valued according to the general procedures applying to imports;

• Technology in its various forms, provided it can be capitalised and provided certain conditions regarding its valuation are met;

• Loans associated with foreign investments coming from related companies as authorised by the Central Bank, including the corresponding terms, conditions and interest, as well as the charges on the total cost borne by the borrower;

• Capitalisation of loans;

• Capitalisation of profits; and

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• Acquisition of or participation in the equity of the company or in the capital of the company by means of the investment, which has to be duly incorporated in Chile in accordance with Chilean law, in a direct or indirect way, whereby the Foreign Investor gains control of at least 10% of the voting rights of the company’s shares or of an equivalent percentage stake in the social capital if it is not a corporation, or in the company’s equity.

B. Minimum investment amount

The minimum investment amount is USD 5,000,000 or its equivalent in other currencies.

C. Procedure

In order to proceed under the New Law, Foreign Investors must request from the Agency a certificate granting access to the special regime established in the New Law. This application must include basic information about the investing company or individual, it must demonstrate materialization of the investment in the country and contain a detailed description of this investment, including its amount, purpose and nature, all in the form and terms determined by the Agency.

In addition to the application, the Foreign Investor must provide the following information:

• If the investor is an individual: (a) He/she must indicate nationality by attaching a copy of his/her passport, legalised before a public notary; (b) If the investor is acting through a representative, the relevant power of attorney; and (c) Certificate of domicile or residence abroad;

• If the investor is a company or other legal entity: (a) A copy of its by-laws, (b) A certificate of good standing and (c) Powers of attorney granted to local representatives, e.g. attorneys or accountants.

Additionally, the Foreign Investor must attach the following documentation: (a) an exchange operation spreadsheet issued by the Central Bank showing proof of the transference of capitals to Chile; and (b) a copy of the by-laws and certificate of incorporation of the company recipient of the investments in Chile, if applicable. All such documentation must be duly legalised according to Chilean laws.

The Agency may request additional information from the Foreign Investor, such as a copy of its financial statements. Finally, the Agency may either approve or reject the application.

The Agency must issue the certificate within 15 days from the date of receipt of the request submitted by the Foreign Investor. According to general administrative rules, upon expiration of such term, the Foreign Investor is entitled to insist on its request in writing, and if no decision on the matter is provided during the following 5 business days, the application is deemed accepted by the Agency.

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The certificate issued by the Agency must contain all the details required to identify the Foreign Investor and all the corresponding investments made up to the date of issuance.

D. Rights of Foreign Investors under the New Law.

The New Law establishes a series of rights for Foreign Investors:

• Right to remit overseas the capital transferred and the net profits that the investments generate, having complied with all tax obligations established under Chilean law.

This right was already guaranteed under DL600, but Foreign Investors were unable to remit equity capital overseas before a period of one year following its entry into Chile, in the case of profits or proceeds from the sale or liquidation of all or part of the assets, business, shares or rights representing the investment. Nevertheless, reinvested profits were not subject to such restriction.

• Right to access to the formal foreign exchange market to sell the currency that constitutes the investment and to obtain the currency required to remit the capital invested or the net profits corresponding to the investment, having complied with all the tax obligations established under Chilean law.

The exchange rate applicable for the exchange transaction on the formal foreign exchange market will be that freely agreed upon by the intervening parties.

• Right to be exempted from the Value Added Tax incurred in the import of capital assets, provided that it fulfils the requirements and adheres to the procedures which for this purpose are set out below.

• Right to the same treatment under laws and regulations as Chilean investors and the right not to be subject to arbitrary discrimination, either directly or indirectly. This parallels the general prohibition on discrimination contained in the Chilean Constitution.

In contrast to DL 600, the New Law does not provide the Agency with authority to resolve claims presented by Foreign Investors under a special administrative procedure due to arbitrary discrimination. Therefore, under the New Law Foreign Investors may only pursue a claim before the local courts.

E. Value Added Tax exemption on importing capital assets.

The New Law modified the regulations related to the exception of Value Added Tax on the import of capital assets.

Foreign investors, whether they are established, resident or domiciled in Chile or those who qualify as Foreign Investors and entities that receive foreign investment in accordance with the New Law, are exempted from Value Added Tax in respect to the capital assets imported for the development, exploration or exploitation in Chile of mining, industrial, , energy, 29

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infrastructure, telecommunications, research or technology development, medical or scientific projects, among others, which involve investments for an amount equal or greater than USD 5,000,000.

The exemption applies only to the import of capital assets intended for investment projects that, due to their development features, generate income subject to, or not subject to, or exempt from Value Added Tax after at least 12 months from the date of entry into the country or acquisition in Chile of the first capital assets whose exemption from Value Added Tax is requested.

To obtain this exemption, the investor must submit an application to the Ministry of Finance, who will verify and certify the correct compliance with requirements. In the case of the Foreign Investors, they must attach to this application the Foreign Investor certificate to which the New Law refers.

The Ministry of Finance must rule on this request within 60 consecutive days from the date on which all necessary background information is received to verify compliance with the requirements mentioned. If it fails to do so within that period, the investor’s request will be considered approved and the Ministry will proceed to issue the resolution granting the permission.

In the case of a new application for the exemption of capital assets intended for projects to be developed in stages, or to complement or expand an investment project which has been granted with the exemption at an early stage, it will be sufficient for the Ministry of Finance to extend this exemption to the new capital assets. The copy of the resolution that granted the original exemption and the background information proving that this is a different stage of the same project, a complementary project or expansion must be attached to the new application.

F. Additional permits and approvals

All investment projects, both local and foreign, must comply with Chilean legislation, either general or local or sector-specific, either national, regional or municipal. Therefore, investments may be required to obtain certain permits and/or to fulfil other requirements in addition to those set forth in the New Law.

II. INTERIM REGIME

As from 21 Jan uary 2016—the date of enactment of the New Law- and until 21 January 2020, Foreign Investors may invest in Chile, either under the regime of the New Law or under certain provisions of DL 600. In either case, Foreign Investors must submit a written request to the Executive Vice President of the Agency, in accordance with the procedures therein provided.

If a Foreign Investor applies for an authorisation to invest under the DL 600 regime and such application is accepted, an investment agreement will be entered with the State of Chile— represented by the Executive Vice President of the Agency (hereinafter, “Interim Investment Agreement”)— by means of a public deed executed before 22 January 2020. No new Interim Investment Agreements will be executed from that date onwards. 30

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According to the foregoing, Foreign Investors who have entered into the Interim Investment Agreements in a timely manner and who comply with the requirements, enjoy the rights and have the obligations referred to in certain provisions of DL 600, as follows:

• Time period to transfer Investments: Foreign Investors are required to transfer their investment into Chile within the time period set forth in the corresponding Interim Investment Agreement and according to the time limits provided by DL 600, varying from 3 up to 12 years, depending on the type of Investment, as described below in Section II.G.

• Invariability of income taxes: Foreign Investors are entitled to opt into an invariable total income tax rate of 44.45%.

• Special tax regime for mining projects: Investments of at least USD 50,000,000 intended for the development of mining projects are entitled to the taxation rights specified below for a period of 15 years starting from the commencement of operations of the company receiving such Investments, provided that these rights are included in the Interim Investment Agreement.

• Foreign Investors can stipulate that the legal provisions regarding the specific tax on mining activities, referred to in Articles 64 bis and 64 ter of the Income Tax Law applying at the time the foreign investment contract is signed, are invariable.

• Foreign Investors subject to Article 11 ter of the Income Tax Law will not be affected by new taxes, including royalties or similar tax burdens, applied specifically on mining activities established after the signature of a foreign investment agreement.

• Foreign Investors will not be affected by amendments to the amount or method of calculation of the exploration or exploitation mining licenses established in the Mining Code.

• The rights established in Article 11 ter are not compatible with those granted by Article 11 bis of the Income Tax Law and the invariable tax regime for income tax indicated above, except for the right to maintain accounting in foreign currency.

III. FORMER REGIME FOR FOREIGN INVESTORS: DL 600

Although DL 600 was abolished by the New Law on 21 January 2016, its provisions still remain in effect in certain particular cases. First, the New Law establishes an interim regime that will be in force until 21 January 2020, under which Foreign Investors may still invest in Chile under certain provisions of DL 600, as described above. Furthermore, the New Law expressly guarantees the full validity of Investment Agreements executed before 21 January 2016 in accordance with DL 600, under which Foreign Investors preserve all their rights and obligations.

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In contrast to the New Law, DL 600 does not only apply to investments made in Chile by foreign individuals and legal entities (either public or private, including companies, foundations, foreign states and international organisations), but also to Chilean individuals domiciled abroad.

Under DL 600, Investors are required to enter into a legally-binding contract with the State of Chile, which cannot be modified unilaterally by either party. However, Foreign Investors may request the amendment of the contract either to increase the amount of the investment, change its purpose or assign its rights to another Foreign Investor.

Hereinafter, for the purposes of this section, any reference to the Foreign Investment Committee (Comité de Inversiones Extranjeras) will be deemed to be made to the new Agency of Promotion of Foreign Investment (Agencia de Promoción de la Inversión Extranjera), its legal successor.

A. What constituted an “investment” under DL 600?

Under DL 600, Foreign Investors were able to make their investments in nearly the same allowed under the New Law. However, DL 600 differs from the New Law in the following aspects:

• Technology: As opposed to the New Law, under DL 600 rights over technology forming part of a foreign investment could not be sold separately from the entity to which it was contributed, nor could the technology be subject to amortization or depreciation.

• Loans associated with foreign investments: DL 600 allowed foreign investments made by means of loans associated with foreign investments authorised by the Central Bank, regardless of any corporate relationship between creditor and debtor. Nonetheless, the New Law only permits loans relating to the foreign investment granted by related companies.

• Foreign debt: Under the New Law, foreign debt in freely convertible currency is no longer considered foreign direct investment; and

• Ownership or partnership: In contrast to DL 600, the New Law requires that foreign investment be made through the acquisition of, or partnership in, the ownership of the company or in the capital of the company receiving the investment. This must be established in Chile in accordance with Chilean law, provided such Foreign Investor controls at least 10% of the company’s voting shares or an equivalent percentage of the share capital if it is not a stock company, or in the net worth of the company in question, either directly or indirectly.

B. Minimum investment amount

The minimum admissible investment amount was USD 5,000,000 for investments made in foreign currency and associated loans, and USD 2,500,000 in tangible assets, technology, or the 32

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capitalisation of loans and foreign debt. The Foreign Investment Committee retained the right to modify these amounts.

C. Former procedure

Foreign Investors were required to submit an application to the Foreign Investment Committee, including certain information and documentation as described in Section I. C. above. Upon approval, a foreign investment contract had to be entered into with the State of Chile by public deed before a Notary Public in Chile. If the investment was to be made in foreign currency, a foreign exchange operation could only be carried out after such contract was signed, unless a special authorisation was obtained. Any other type of capital contribution also required prior execution of the foreign investment contract.

D. Rights of Foreign Investors

DL 600 granted Foreign Investors similar rights as to the New Law. Nonetheless, the following relevant rights under DL 600 were abolished by the New Law:

• Right to opt into an invariable total income tax rate equal to 42% for a period of 10 years from the implementation of the project, or for up to 20 years in the case of industrial and extractive investments of USD 50,000,000 or more. Moreover, a special tax regime for large industrial and extractive projects was also abrogated.

• Access to an administrative appeal of complaint for arbitrary discrimination before the Foreign Investment Committee.

• Exemption from all contributions, taxes or lien applicable to capital remittances up to an amount equal to the investment.

E. Period for making the investments and other restrictions

Foreign investment contracts specify the period in which the Foreign Investors are allowed to transfer their investment into Chile. This period could not exceed 8 years in the case of mining investments and 3 years in all other areas. However, the Foreign Investment Committee could extend these limits to a maximum of 12 years, in case of mining investments that require previous exploration, and up to 8 years, in case of investments in industrial and non-mining extractive projects for amounts of no less than USD 50,000,000, considering the nature of the project. Under the New Law, there are no such time limits.

IV. ALTERNATE MECHANISM - CHAPTER 14 OF THE CENTRAL BANK’S FOREIGN EXCHANGE REGULATIONS

A foreign investment may also be registered under Chapter 14 of the Central Bank Foreign Exchange Regulations (the “Foreign Exchange Regulations“) in lieu of the procedure under the New Law. The Foreign Exchange Regulations apply to foreign loans, deposits, investments, capital contributions and other payment obligations with foreign entities over USD 10,000 or its 33

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equivalent in another foreign currency. However, Chapter 14 is not applicable to operations of this kind made by banking entities established in Chile that are regulated under Chapter 13 of the Foreign Exchange Regulations regarding foreign investments and loans made or obtained by such entities abroad.

The Foreign Exchange Regulations impose two basic restrictions on foreign loans, deposits, investments and capital contributions:

• They must be made through the formal exchange market; and

• The parties must inform the Central Bank by filing in the appropriate registration forms.

The Foreign Exchange Regulations do not require a Foreign Investor to enter into a contract with the State of Chile, nor do they limit or restrict the repatriation of capital invested in Chile or of the profits obtained from such investment.

A. Foreign loans

Pursuant to the Foreign Exchange Regulations, all foreign currency amounts over USD 10,000 borrowed by Chilean companies or Chilean individuals must be registered with the Central Bank, by means of a registration form prepared and delivered to the Central Bank by an entity entitled to operate in the formal exchange market. This form must indicate the amount, purpose, name of the lender, and the amortisation and disbursement schedules of the loan. If the loan exceeds USD 1,000,000, the borrower and the respective entity of the formal exchange market must submit and deliver to the Central Bank a form providing a more detailed description of the operation, information about the borrower and the lender, guarantees, special clauses that may accelerate the payment of the loan or allow the borrower to make a voluntary prepayment, and the amortisation and disbursement schedules of the loan.

The foreign loan must be made through an entity entitled to operate in the formal exchange market. In order to receive the funds, the borrower has to provide the bank involved with the relevant registration forms completed in accordance with the Foreign Exchange Regulations. The entity must then verify that the information contained in the forms is according to the terms of the loan documents.

Any amendments to the loan agreement which affect the information provided on the registration form must be reported to the Central Bank in writing by means of the same form.

Central Bank regulations expressly allow the debtor to pay its obligations with funds located abroad, provided that certain additional information requirements are complied with.

Foreign loans are usually levied with stamp tax. Withholding tax may also be applicable.

B. Capital contributions, investments and deposits

As discussed above, the Foreign Exchange Regulations also regulate capital contributions, 34

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investments and deposits from overseas in foreign currencies. However, such regulations do not apply to investments in tangible assets or technology.

Regarding foreign investments in Chilean debt securities, it is worth noting that according to general rules, a withholding tax is applicable to interest payable to a foreign holder. This must be withheld by the issuer of the debt securities.

V. DIFFERENCES BETWEEN THE CHAPTER 14 FOREIGN EXCHANGE REGULATIONS AND THE NEW LAW

In contrast with the rights given to a Foreign Investor under the New Law, registration under the Foreign Exchange Regulations does not guarantee a Foreign Investor the right to access the formal exchange market in order to repatriate its capital investment and remit profits.

The following rights set out in the New Law are not available under the Foreign Exchange Regulations:

• Option to apply for an Interim Investment Agreement with an invariable income tax rate of 44,45%;

• Exemption from the Value Added Tax incurred in the import of capital assets, provided certain requirements and procedures are satisfied; and

• Additional benefits available to “large industrial mining projects”.

The Foreign Exchange Regulations also differ from New Law in the following respects:

• The minimum investment amount under the Foreign Exchange Regulations is USD 10,000;

• Investments under the Foreign Exchange Regulations may only be made in the form of foreign currency; and

• The application process under the Foreign Exchange Regulations is simpler and more expedient.

VI. BILATERAL INVESTMENT TREATIES AND FREE TRADE AGREEMENTS

In 1991, Chile became a signatory of the Washington Convention of 1965 that created the International Center for Settlement of Investment Disputes (ICSID). Since then, the country has been negotiating Bilateral Investment Treaties (BITs), with other countries. Through these investment treaties, Chile provides additional protection to incoming and outgoing foreign investment.

Chile has also signed numerous Free Trade Agreements (FTAs). Many of Chile’s FTAs, such as those with Canada, Mexico, South Korea and the United States, include provisions protecting investment. 35

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In these agreements, each contracting state commits to providing a series of guarantees to Foreign Investors of the other contracting state, and also to establishing a dispute settlement mechanism.

A. Investments covered by BITs and FTAs

BITs and investment chapters in FTAs generally contain broad definitions of investment, usually referring to the idea of the transfer of funds from one state to another, and including non-exhaustive lists of covered investments, including assets, such as:

• Movable and fixed property, and any other property rights such as mortgages, liens or pledges;

• Shares, debentures and any other form of participation in a company;

• Claims to money or to any right under a contract with a financial value;

• Intellectual property rights, goodwill, technical processes and knowledge;

• Business concessions conferred by law or under contract, including concessions to search for, cultivate, extract or exploit natural resources.

The protection afforded by a treaty covers investments made before and after its entry into force. However, this protection does not apply to disputes that arose before the agreement came into force.

B. Most relevant protection

BITs and investment chapters of FTAs contain a series of safeguards for foreign investment, which have been developed by the jurisprudence of the international arbitration panels established for the settlement of investment disputes.

The protection afforded by these treaties covers the full lifecycle of the investment, from its establishment or acquisition, its management, operation and expansion, to its disposal.

Among the most relevant protection afforded by Chile to Foreign Investors is the following:

• Fair and equitable treatment and full protection and security for investments legally materialised in its territory by investors of the other contracting state. Arbitration panels have declared that the fair and equitable treatment provision requires the contracting parties to provide international investors with treatment that does not affect the basic expectations that were taken into account by the Foreign Investor making the investment.

Arbitration panels have referred to these expectations saying that:

“The foreign investor expects the host state to act in a consistent manner, free from ambiguity and 36

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totally transparently in its relations with the foreign investor, so that it may know beforehand any and all rules and regulations that will govern its investments, as well as the goals of the relevant policies and administrative practices or directives, in order to be able to plan its investment and comply with such regulations…the foreign investor also expects the host state to act consistently, i.e., without arbitrarily revoking any pre-existing decisions or permits issued by the state that were relied upon by the investor to assume its commitments as well as to plan and launch its commercial and business activities .”

• National Treatment and treaties generally provide that investors and the investments covered are entitled to be treated as favourably as the host state treats its own investors and their investments, or investors and investments from any third country.

• A guarantee that any expropriation or measure with a similar effect will be adopted in accordance with a law based on public good or national interest, in a non-discriminatory manner. It also provides for payment of prompt, adequate and effective compensation when expropriation takes place.

• Transferability of funds into and out of the host country without delay using a market rate of exchange. This covers all transfers related to an investment covered, although some restrictions may apply, in accordance with national laws. It should be noted that, as referred to above, DL 600 limits the repatriation of capital and Chilean law allows the Central Bank to impose limitations on the transfer of funds.

• Generally, performance requirements, such as local content requirements or export quotas, cannot be imposed as a condition for the establishment, acquisition, expansion, management, conduct, or operation of the investment.

C. Dispute resolution

BITs and FTAs establish a dispute settlement mechanism in the case of controversies that might arise between an investor of a contracting state and the other contracting state. The BITs and FTAs usually require that controversies should be settled through friendly consultation. If no agreement is reached, the investor will be entitled to make a legal challenge in the host state of the investment, or seek international arbitration. In most treaties, this jurisdictional option is definitive.

Chile generally provides that if the dispute is submitted for international arbitration, the ICSID rules or the United Nations Commission on International Trade Law (UNCITRAL) rules will be employed.

D. BITs signed by Chile

According to the Agency of Promotion of Foreign Investment, Chile has signed the following BITs:

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Country Signed on Status 2 August 1991 In force since 27 February 1995 Bolivia 22 September 1994 In force since 21 July 21 1999 Brazil 22 March 1994 Not in force Colombia 22 January 2000 Not in force Costa Rica 11 July 1996 In force since 8 July 2000 Cuba 10 January 1996 In force since 30 September 2000 Ecuador 23 October 1993 In force since 21 February 1996 El Salvador 8 November 1996 In force since 18 November 1999 Dominican Republic 28 November 2000 Not in force Guatemala 8 November 1996 In force since 10 December 2001 Honduras 11 November 1996 In force since 10 January 2002 22 February 2011 In force since 19 March 2013 Panama 8 November 1996 In force since 21 December 1999 Paraguay 7 August 1995 In force since 16 September 1997 Peru 2 February 2000 In force since 11 August 2001 Uruguay 25 March 2010 In force since 23 October 2012 Venezuela 2 April 1993 In force since 17 May 1994

EUROPE

Country Signed on Status Austria 8 September 1997 In force since 17 November 2000 Belgium 15 July 1992 In force since 5 August 1999 28 November 1994 In force since 31 July 1996 Czech Republic 24 April 1995 In force since 2 December 1996 28 May 1993 In force since 30 November 1995 Finland 27 May 1993 In force since 14 June 1996 France 14 July 1992 In force since 5 December 1994 14 April 1999 In force since 18 June 1999 Greece 10 July 1996 In force since 7 March 2003 10 March 1997 Not in force 26 June 2003 In force since 6 May 2006 8 March 1993 In force since 23 June 1995 30 November 1998 Not in force 1 June 1993 In force since 4 November 1994 5 July 1995 In force since 22 September 2000 28 April 1995 In force since 24 February 1998 Romania 4 July 1995 In force since 27 August 1997 10 October 1991 In force since 27 April 1994 24 May 1993 In force since 13 February 1996 24 September 1999 In force since 22 August 2002 14 July 2009 In force since 1 March 2011 Ukraine 30 October 1995 In force since 29 August 1997 United Kingdom 8 January 1996 In force since 23 June 1997

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Country Signed on Status Australia 30 July 2008 In force since 06 March 2009 China 23 March 1994 In force since 14 October 1995 India 8 March 2006 In force since 17 August 2007 Indonesia 7 April 1999 Not in force 27 March 2007 In force since 3 September 2007 Lebanon 13 October 1999 Not in force Malaysia 11 November 1992 In force since 4 August 1995 New Zealand 22 July 1999 Not in force 20 November 1995 In force since 6 November 1997 South Korea 15 February 2003 In force since 01 April 2004 Vietnam 16 September 1999 Not in force

AFRICA

Country Signed on Status 12 November 1998 Not in force Egypt 5 August 1999 Not in force Tunisia 23 October 1998 Not in force

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SUMMARY

PRINCIPLES OF THE CHILEAN SECURITIES MARKET

The legal framework for the Chilean securities market is contained in the Securities Market Law, Law No. 18,045 (Ley de Mercado de Valores), and in the regulations and resolutions issued by the Superintendence of Securities and Insurance (Superintendencia de Valores y Seguros or SVS). These set forth the principles that should guide the actions of the regulator and all the participants in the market. The essential principles of the Chilean securities market are (i) transparency, (ii) accurateness, (iii) sufficiency and timely disclosure of information, (iv) guarantee of equal conditions for all market participants, and (v) investor protection.

Matías Langevin, Lorena Barrientos & Andrés Díaz Morales & Besa

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L. PUBLIC OFFERING OF SECURITIES

In general, no person, whether resident or non-resident, national or foreign, may publicly offer, promote, advertise or sell securities or securities brokerage services within the boundaries of the national territory of Chile, unless in accordance with, and subject to, the Securities Market Law.

The Securities Market Law requires that any public offering of securities must be preceded by the registration with the SVS of both the issuer and the relevant securities or class of securities being offered. The public offering of non-registered securities in Chile is prohibited. The Securities Market Law contains an overly broad definition of what constitutes a “public” offering of securities, defining it as one which is directed to the public in general or to certain sectors or specific groups thereof.

Exceptionally, the Securities Market Law accepts that certain offerings of securities will not constitute a “public offering”. These exceptions are based on the number and type of investors that participate in the offering, the form in which the offering is communicated or materialised, and the amount of securities offered. In particular, SVS General Rule No. 336 establishes that an offering of securities will be considered to be private as long as: (i) it fulfils certain reporting requirements set forth in the applicable regulation, (ii) it is not made by mass media, and (iii) it is aimed at qualified investors.

Furthermore, SVS General Rule No. 345 exempts the following public offerings from registration with the SVS: (i) equity instruments which represent at least 10% of the issuer’s capital, when the conditions of the offering require a minimum investment of 2% of the issuer’s capital from each investor; (ii) domestic and foreign equity instruments of a company, its subsidiaries or affiliates or affiliates of its subsidiaries, as well as options for the purchase and sale of such instruments, when the offering intended for employees of the company, its subsidiaries or affiliates or affiliates of its subsidiaries; and (iii) offerings related to equity instruments of a company, its subsidiaries or affiliates or affiliates of its subsidiaries, as well as options for the purchase and sale of such instruments, when the offering is made to persons who are required to own such securities for the use and enjoyment of the facilities and infrastructure of the issuer, whose business or purpose is exclusively related to charitable, educational or sports activities.

SVS General Rule No. 352 states that foreign securities may be publicly offered only if: (i)

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these securities are registered in the Registry of Foreign Securities; or (ii) if the registration was exempted by the SVS because of the existence of an agreement with a foreign market regulator. These securities can only be offered to the general public when certain conditions contained in this regulation are met. If not, these securities may only be offered to certain qualified investors. Foreign securities may not be registered in the Registry of Foreign Securities and the exception stated in number (ii) above will not apply if the securities have been issued by entities incorporated in jurisdictions that the Financial Action Task Force considers deficient in their strategy to prevent money laundering and the financing of terrorism, known as high risk or non-cooperative jurisdictions.

To make a public offering of securities, Chilean securities laws and regulations require a licence to conduct, offer, sell, advertise and provide brokerage services in Chile. Any person or entity that publicly offers, sells or promotes securities, securities brokerage or investment services within Chile is required to be licensed by the SVS. In this regard, SVS General Rule No. 367 allows foreign securities transactions to be made outside of a Chilean stock exchange when they are made through: (i) Banks, Corredores de Bolsa (as defined below), Agentes de Valores (as defined below); or (ii) General Administrators of Funds (Administradoras Generales de Fondos), supervised by the SVS, but only for transactions pertaining to collective investment vehicles.

Securities deposit and custody services provided in Chile must be conducted through special business purpose companies (acting as custodians of publicly offered securities) with the prior approval of the SVS.

The rendering of investment advisory, financial advisory, and asset management services do not require a licence and are not subject to regulation.

II. SECONDARY MARKET

The Securities Market Law regulates stock exchanges and securities intermediaries which may be of two types, namely: (a) Corredores de Bolsa, which are broker dealers that are members of a stock exchange and are authorised to trade on the exchange and off the exchange over the counter; and (b) Agentes de Valores, which are broker dealers that may only broker and deal off- the-exchange over the counter.

The main rules governing both types of securities intermediaries are the same and apply to both, except that the rules and requirements applying to Corredores de Bolsa are more cumbersome given their broader scope of authorised activities.

Licensing Both types of securities intermediaries have to be licensed and are subject to the substantive provisions, requirements and formalities provided for in the Securities Market Law, and the regulations, supervision and administrative jurisdiction of the SVS. Nonetheless, licensed banks are exempt from this registration obligation with respect to their ancillary securities activities that are authorised in the General Banking Law. In the case of Corredores de Bolsa, these securities intermediaries are also subject to the self-regulatory rules and regulations of the stock exchange of which they are a member or where they are otherwise authorised to operate. 92

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An entity applying to be registered as a securities intermediary must post a bond to guarantee full compliance with its duties and obligations as a securities intermediary for the benefit of its present and future creditors related to brokerage activities.

Securities intermediaries must comply with and maintain the leverage margins, and creditor position, liquidity, solvency and net worth levels that the SVS may establish from time to time pursuant to general regulations.

In addition, to be registered as a Corredor de Bolsa, the entity has to become a member of the (SSE), a self-regulated mutual exchange, the Electronic Stock Exchange or any other authorised exchange; the securities intermediary therefore has to acquire a share in the relevant exchange and be admitted to membership. Alternatively, it may enter into an operating agreement with any of the aforementioned exchanges. Pursuant to the Regulations of the SSE, in addition to the statutory bond referred to above, a Corredor de Bolsa that is a member of the SSE must pledge its share in favour of the SSE to guarantee the proper fulfilment of its stockbroker duties and its performance of brokerage transactions.

Compliance Securities intermediaries are required to keep the books and registers stipulated in the applicable regulations of the SVS, and to provide the SVS with information on their transactions and operations. In addition, they are also required to submit financial statements on a periodic basis and to report to the SVS the opening and closing of offices or branches and any other information that the SVS may deem necessary.

Some of these obligations are stated in SVS General Rule No. 380, which includes obligations related to the relationship with the intermediaries’ clients, such as knowing their client’s profile and only offering products matching that profile, unless their clients are qualified investors. Also, this regulation states that, prior to the provision of any service by these securities intermediaries, they must enter into an agreement with their clients regulating the conditions and terms of their relationship. This agreement must contain the obligation of the securities intermediary to communicate to the client any conflict of interest that may arise in the commercial relationship between them or the procedure that has to be followed to solve conflicts or complaints between them. However, in case of securities intermediaries hired by national or foreign clients only for buying and selling foreign currency on the spot market, an agreement in these terms is not required.

Finally, securities intermediaries must keep registers of: (i) clients; (ii) persons authorised to give orders on behalf of their clients; (iii) orders; (iv) operations; (v) operations assignations; (vi) billing; (vii) third parties assets kept in deposit or custody; (viii) executives and employees; (ix) renegotiations; and (x) instructions.

The SVS maintains a public registry of presidents, directors, officers, managers and trustees of the entities that are subject to its supervision and jurisdiction, including securities intermediaries. These entities must update the information within 3 business days from the date of any change in the identity, office, appointment or removal of any of the persons appearing on the file.

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Basic Operational Duties and Obligations Securities intermediaries that broker the purchase and sale of securities are personally liable to pay the purchase price or make delivery of the shares in the case of a sale, and in no event may the brokers claim lack of provision of funds or securities on the part of their clients.

Securities intermediaries are responsible for: the identity and legal capacity of the persons that transact securities business through their brokerage offices and facilities; the authenticity and integrity of the securities that they broker or trade in; the correct registration at the proper securities registry of the last holder of the securities brokered or traded, when applicable; and the authenticity of the last endorsement, if applicable.

The SVS may permanently cancel or temporarily withhold or suspend the licence of a securities intermediary for up to one year if it so determines, pursuant to a reasoned decision or resolution.

III. SIMPLIFIED TAX REGIME

As a general rule, a non-resident person that invests in securities and financial instruments issued by a local entity and traded locally is generally required to obtain a tax identification number (RUT) and register with the Chilean Internal Revenue Service (Servicio de Impuestos Internos - SII). Accordingly, the foreign investor is required to register as a taxpayer in Chile and report the initiation of its investment activities to the SII. Furthermore, if a foreign investor in securities grants a power-of-attorney to any local person, including a broker, with authority to transact businesses in Chile on its behalf, the foreign investor will be deemed to have a “permanent establishment” in Chile which theoretically subjects the foreign investor to full bookkeeping and tax compliance obligations in Chile.

To facilitate foreign investment and provide relief from such burdensome registration and compliance requirements, the Tax Code and Income Tax Law authorise the SII to provide a simplified registration and reporting regime, which is contained in SII Resolution No. 36, whose main provisions are described below.

Resolution No. 36 provides a simplified procedure for non-resident investors to obtain a tax identification number and an exemption from the obligation to give notice of initiation of activities or to keep accounting records and make annual tax filings in Chile. It applies to foreign investors that obtain Chilean source income from, among other things, investments and transactions such as purchase and sale of shares of public traded companies, investments in debt instruments, derivatives, mutual funds etc.

Foreign investors are required to designate a local agent (Tax Agent). The designated Tax Agent may be a commercial bank, stockbroker, securities firm, fund manager or other qualified entity. The Tax Agent is responsible for the tax compliance obligations of the foreign investor, such as tax withholding obligations, tax filings and payments, annual and monthly reporting obligations, and any sanctions imposed in the case of violations.

Eligible foreign investors must execute an affidavit stating that the foreign investor has not previously obtained a RUT number under this or any other tax regime. Foreign investors must 94

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also enter into an agreement with a Tax Agent specifying that the Tax Agent will: keep a register of the investments, transactions, withholdings, filings and returns on behalf of the investor; declare and pay the applicable taxes during the life of the agreement (even if the withholding taxes were not withheld by the person legally obliged to do so); and report to the SII about compliance with the requirements of Resolution No.36.

IV. CONTROL – TAKEOVERS

Even though “control” is not defined under Chilean laws, its meaning can be construed from the definition of “controller” set forth in the Securities Market Law. This provides that the controller of a company is any person or group of persons with a joint action agreement that, directly or through other persons or entities, participate in the ownership of the company and are able either to: (i) ensure the majority of votes in shareholders’ meetings and elect the majority of the directors, or (b) decisively influence in the management of the company.

Regulations on tender offers (Oferta Pública de Adquisición de Acciones - OPA) set forth in the Securities Market Law apply to direct and indirect acquisitions of a controlling package of shares of a public traded company (the Target).

Tender offers regulated by the law may be voluntary or mandatory. The first occurs when a person voluntarily makes an offer to acquire shares or convertible securities of the Target to its shareholders (the Acquirer), under conditions that may allow the Acquirer to reach a certain percentage of the Target within a specific period. The mandatory tender offers are established by the law.

Mandatory Tender Offers.

According to the Securities Market Law, it is mandatory to execute a tender offer in the following scenarios:

(i) When an acquisition allows a person or company to take control of the Target.

(ii) If, as a consequence of the purchase of shares, a person or a company acquires two thirds or more of the total shares of a company. However, the law exempts certain cases from this type of mandatory tender offer.

(iii) The acquisition of a company that has 75% or more of the consolidated asset value of a public traded company requires the Acquirer to make a tender offer for the controlled company.

(iv) The controller of the Target who has acquired control through a tender offer or other operation may not acquire 3% or more of the shares of the Target, for 12 months following the tender offer or the operation by which the controller acquired the control, unless such new offer is executed through a new tender offer.

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Exemptions The Securities Market Law regulates certain circumstances that are exempt from the obligation to make a tender offer. These exemptions are applicable to:

(i) An acquisition in which the control of the Target could be achieved from capital increases through the issuance of new shares;

(ii) Acquisitions derived from a merger, by cause of death and forced transfer; and

(iii) An acquisition by a third party of shares that are sold by the controller. The shares must have market presence; the purchase price must be paid in cash; and must not be substantially higher than the market price. The price is considered “substantially higher”, when there is a 10% or more difference with the market price per share.

Procedure The tender offer may be made within or outside a stock exchange and may be directed to all the shareholders of the Target or to shareholders of certain series of shares (including the holders of ADRs or shares listed on foreign stock exchanges), under the same conditions for all the shareholders of the same series. During the validity of the tender offer, the Acquirer must only acquire shares of the Target through the procedure established for the tender offer and may not use a different procedure.

The purchase price may consist of cash or publicly offered securities. The payment must be made pro rata, that is, if the number of shares offered for sale exceeds the number of shares offered to purchase, the Acquirer will acquire the shares from each shareholder as a result of applying an apportionment factor, by dividing the number of shares offered to buy by the total number of shares offered for sale.

In general, a tender offer is irrevocable, unless the causes for revocation are not subject to the sole discretion of the Acquirer and have been referred to in the offering prospectus. There are certain other cases contemplated by the applicable regulation where the tender offer may not be irrevocable.

The tender offer procedure starts with the publication of a “Notice of Initiation” in atleast two national newspapers, and the tender offer becomes effective the day after publication. The Acquirer must also prepare the offering prospectus containing all the terms and conditions of the tender offer and make it available to any interested parties.

The duration of a tender offer may not be less than 20 days nor more than 30 days, unless the Target has registered custodian entities (for example, the depositary bank for ADR emissions), in which case the duration is 30 days. This period may be extended by the Acquirer once, for a minimum of 5 days and up to 15 additional days.

Once the tender offer finishes, the Acquirer must publish a notice in the same newspaper regarding its outcome and containing the requisites established in the applicable law and regulations. This information must also be sent to the SVS and stock exchanges on the date of 96

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its publication. This notice is deemed the acceptance of the Acquirer regarding the acquisition of the shares, as well as the acceptance of the shareholders; from this date on, the sale of the respective shares is understood to have been formalised. If the Acquirer does not publish this notice by the third day, the shareholders of the Target who have decided to sell their shares have the right to revoke their acceptance until the publication is made.

Shareholders’ Rights The applicable regulation sets forth important rights for the shareholders of the Target:

(a) The shareholders may revoke the acceptance of the tender offer (totally or partially), by giving notice in writing until its deadline, in which case, the Acquirer must return all documentation received from them.

(b) If the Acquirer acquires shares on more favourable terms for sellers than those established for a tender offer (for example, if the Acquirer pays a higher price), the remaining shareholders of the Target may request compensation from the Acquirer for the price difference.

Obligations of the Target During the term of the tender offer, the Target is affected by a number of restrictions and obligations set forth in the applicable regulation. Principally, the Target must provide to the Acquirer an updated list of its shareholders, and each one of the directors of the Target must prepare a written report with a founded opinion relating the convenience for the shareholders of tendering to the offer. This report must be communicated and made publicly available to the SVS, to the Acquirer and the organiser of the tender offer, if applicable.

V. MONEY LAUNDERING PREVENTION MEASURES

Banking institutions, securities intermediaries and other financial entities must report to the Financial Analysis Unit control agency (Unidad de Análisis Financiero - UAF) as soon as they become aware of suspicious transactions observed in the course of their business activities, in order to prevent the use of the securities and financial markets as a means to carry out activities related to money laundering and the financing of terrorism. These reporting entities must comply with special registry requirements in accordance with Law No. 19,913 and the regulations issued by the UAF. According to Law No. 19,913, a suspicious transaction is “any operation that, according to the uses and customs of a particular activity, is executed without an economic or legal basis”.

The UAF has the authority to supervise and control the activities of the reporting entities, and may impose fines on entities if they do not observe the obligations stipulated in Law 19,913 and the instructions issued by the UAF.

VI. LIABILITY

Fraud Prevention Provisions The Securities Market Law provides for three types of potential liability for a violation of the 97

Libro 2017 res.indd 97 12-06-17 17:37 statutory provisions of the Securities Market Law, namely civil, administrative and criminal.

Purely civil actions that may arise from a failure to observe the disclosure requirements and standards of the law will encounter significant difficulties. The general regulations of the SVS regarding the scope, contents and accurateness of the information to be provided by issuers of securities, their officers and advisors in the various registration documents and offering materials during the process of issuing securities are very modest. Moreover, in order to impose any type of liability, the law imposes a very significant evidence standards requirement.

Furthermore, there are certain practical and legal factors that typically lead to the practical result that civil liability claims for misleading information, misstatements or omissions of materials facts in securities law violations are seldom sought, let alone enforced by the courts.

First, judges in the civil courts of Chile are generally unfamiliar with the intricacies of the securities laws and regulations. Secondly, civil claimants are not entitled to a class or collective action to seek redress to compensate for the significant costs and risks of securities litigation. Thirdly, there is no jury trial, nor discovery, nor are there the other procedural rules and practices that in other legal systems make it possible for claimants to prove their case.

As a result, unless there is a manifest and gross misstatement or omission of a material fact in the fairly modest information that is required by the regulations currently in place, violations of the law seldom give rise to any cause of action seeking civil damages in court.

Considering the above, local practice is that the affected parties will wait for the SVS to file charges and seek administrative sanctions on the issuer, its directors, executives and advisors, where the fines can then be used as a basis to file a civil action to recover damages, which are only actual pecuniary losses, never penalty damages or other amounts.

Liability in Connection with Offering Documents Under Chilean securities laws, the issuers, and their directors, officers, placement agents and financial advisors participating in the issuance, registration and placement of securities in Chile (as opposed to their placement in another jurisdiction) have an obligation to provide the data and information that the regulations of the SVS require. Such data and information may not “contain any statements, references or representations that may induce to error, mislead or confuse the public with respect to the nature, price, profitability, redemption, liquidity, collateral or guaranties, or regarding any other characteristics pertaining to the securities being publicly offered” (Article 65 of the Securities Market Law). Furthermore, issuer filings and disclosures with the SVS must indicate the identity of the directors, officers, placement agents and advisors of the issuer, and bear a certification under oath of its veracity or truthfulness signed by each of the chief officers and directors.

Liability for Selective Disclosure Article 165 of the Securities Market Law imposes a strict confidentiality obligation on the directors, officers and, generally, any other person who by reason of his office orposition has access to the information of the company and its businesses that has not been officially disclosed to the public by the company in accordance with applicable law, and is capable of

Libro 2017 res.indd 98 12-06-17 17:37 influencing the price quotation or trading of its securities. Nevertheless, relevant information can be selectively disclosed in the course of direct negotiations with customers or suppliers and, in general, if disclosed restrictively under a confidentiality agreement as may be necessary in order to achieve the businesses goals of the company. The violation of this prohibition by company officers and directors makes them subject to fines by the SVS.

The Securities Market Law and its regulations define two additional categories of corporate non- public information, namely material or “essential” information, and information “of interest”. Selective disclosure of material or “essential” information to some investors and not others would constitute a violation of the securities laws and regulations that prohibit the disclosure of non-public “essential” information unless the disclosure has been made or is made at the same time to the regulator and the public. The recipient of non-public “essential” information would be in possession of insider information; the use of this to obtain a gain or avoid a loss is punishable as a crime and also gives rise to administrative and civil liability.

In the case of information “of interest”, SVS General Rule No. 30 provides that this is any information that without having the materiality of “essential” information, is useful for the adequate analysis of the financial condition of the corporation, its securities or their offering. If the corporation has not formally disclosed information “of interest” and any director, officer, manager or executive or any other external person or entity authorised by the management of the corporation directly or indirectly furnishes or gives access to such information to a specific person or group of persons or entities in the marketplace, the corporation has the obligation to simultaneously disclose that information to the regulator and the public. If it is not practically possible to perform the disclosure simultaneously, the corporation must make the disclosure as soon as practicable. Posting the information of interest visibly on a company website satisfies the public disclosure requirement.

Manipulation of Stocks and Financial Instruments Articles 52 and 53 of the Securities Market Law provide for a number of prohibitions relating to securities manipulation activities. These prohibitions are mandatory and can be described as follows: (i) No person or entity may perform securities transactions with the purpose of stabilising, fixing or causing artificial variations in the prices, except in the context of market- making endeavours in the course of an initial public offering of newly issued securities or a secondary offering of securities that had not been previously offered to the public; (ii) No person or entity may perform fictitious price quotations or transactions with respect to any securities regardless of whether such transactions are carried out on an exchange, over the counter or in a private transaction; and (iii) No person or entity may perform transactions or induce or attempt to induce the purchase or sale of any securities, whether subject to this statute or otherwise, by means of any deceitful or fraudulent transaction, practice, mechanism or machination.

The violation of any of these statutory prohibitions gives rise to a criminal offense if actual intent and monetary gain on the part of the offender can be established. In addition, these violations also give rise to administrative and civil liability.

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