Analysis For Halifax Power Argentina And Chile

Published Date: 02 Nov 2017

PESTEL Analysis examines detailed study how it is feasible for Halifax Power to do business in Argentina or Chile on the basis of Existing country reports, rules and regulations for setting up a company in Argentina or Chile, Standard and Certification requirements, Subsidies, Taxation and Legal Constraints for a new company to enter into the markets of the examined countries in this analysis.

Author for Halifax Power

Halifax Power

PEST Analysis for Halifax Power – Argentina and Chile

PEST Analysis examines the suitability for Halifax Power to do business by entering into markets of two Latin American countries – Argentina and Chile and then comparing the results with Brazil to determine which country is ideal according to detailed analysis conducted by this detailed analysis. PEST analysis examines political and economic conditions of the countries and how they are suitable for a foreign investment company if they want to enter into business environments. Similarly, how rules and regulations facilitate foreign investment in these countries along with government incentives to successfully conduct business in these countries. The following areas are discussed in this study including:

Existing Country Reports – how to do business in Argentina and Chile (Economic Analysis)

Rules and Regulations setup for Companies entering into businesses (How do companies can setup their operations along with their requirements)

Standards and Certifications (If there are some specific certification needs to setup a company and work in Argentina and Chile along with other quality assurance needs)

Subsidies offered by their respective Governments (Economic and Political analysis)

Taxation (Economic Analysis)

Legal Constraints to Setup Business in Argentina and Chile

Existing Country Reports – How to do businesses in Argentina and Chile

Business Growth Opportunities in Argentina

Argentina has a very open economy towards foreign investment and according to recent analysis around 2000 foreign subsidies are doing their businesses in this country which accounts for total FDI stock of US $96.3 billion in the year 2011. Index also show that out of largest non-financing companies operating in Argentina 324 companies have their branch network around the world and they have employed over 462,000 employees with US $157 billion in sales. The results are very promising and giving a very right direction to the foreign investors and company like Halifax Power what is the actual condition of foreign direct investment is in this Latin American country. These foreign controlled companies showed 81 percent of gross added value and 83 percent of profits produced by 500 largest non-financing companies working in Argentina (An Investor Guide, 2013).

In doing the economic analysis of the country for giving a right direction to a foreign company, Argentina has always showed impressive economic performance in the world and the foreign managed companies have grown incredibly in this country. According to the analysis conducted on economic performance of this country, from 2003 to 2011, GDP growth rate was recorded at 7.6% and during 2010 economy growth was recorded 9.2% and it was 8.9% in 2011. It is also growing with same trends in 2012 showing a promising position to the foreign companies in this country. By the country of origin, Spain is the leading country which has accounted for 26% of the foreign direct investment in 2010, US was at second place with 17%, Holland 8%, Chile 6% and Brazil 6% and companies from these countries were the main sources invested in Argentina (An Investor Guide, 2013, pp. 52).

Argentine law strongly protects foreign direct investment and it facilitates them to invest and grow in their country and become a part of them. Argentina has now become very safe place to setup and then operate in Argentina with huge promising prospects in the Argentine economy. But foreign Investment law known with number 21382 emphasises to regulate foreign investment in the country. This law facilitates foreign companies to invest in Argentine economy by carrying out activities such as mining, agriculture, manufacturing, commerce, services sector, finance and many other activities which are related to production and the exchange of goods and services in the country. Foreign investment law clearly indicates how foreign investment should be made in Argentina with convertible foreign currency, in the form of capital goods or services, capital or profits in domestic currency which belongs to foreign investors, capitalization of foreign loans, intangible assets and other form of special or promotional regimes when some foreign company is considering investing in Argentina (An Investor Guide, 2013, pp. 82).

Business Growth Opportunities in Chile

Foreign direct investment in Chile has reached 80.2% in the first half of the year during 2011 and they reached at a record level of US $12.275. The Committee of foreign investment has shown 47.8% which was equivalent to US $5.867 billion. In foreign direct investment, Chile is considered as the sixth in receiving foreign direct investment from United Nations in 2011 and it has reached at a record level of US $17.299 million. FDI has always played a very important role in the economic development of Chile and has maintained upward trend and increased Chile’s competitiveness through technological development and specializations in their available resources. Chile has shown a percentage change of 43.3% between 2009 and 2010 and it was well above the average increase in the Latin American region (Ahumada, 2012, pp. 12-13).

Foreign Company such as Halifax Power can setup a business very easily in Chile by getting a tax identification number and in Chile it is known as RUT (RoI Unico Tributario) and the company which was to establish its business in any part of Chile can take it from the National Tax Service or SII from their offices around the country. There are no hard and fast rule for capital requirements but the desired capital should be enough to meet individual business requirements. For Services Company, less capital is required otherwise more capital is required in manufacturing sector. When a company is require to be established, costs of legalisation of deed, publishing in the Diario Official and then inscription in the Companies Register is required. Attorney fee can be paid according to the type and shape of your businesses and the fee structure is usually setup by regional Bar Association. Another important thing, when a company setup a business in Chile it must employee at least 85% employees from Chile nationals but there are exemptions for specialised technical persons as well as foreign married to Chilean. Foreigners who are living within the country since last five years are also exempted and they can employed as well.

Rules and Regulations for Companies Entering into Businesses in Argentina and Chile

Rules and Regulations for Doing Business in Argentina

Argentina has a very friendly and open atmosphere for foreign investors and there are no trade barriers imposed by central government. Capital market is opened to everybody, economic performance of the country has also been consistent in terms of foreign investment. All these indicators have attracted foreign investors greatly to invest in various projects in different sectors in the country. As a foreign company, 34% investment can be made in the manufacturing industry, 20% in oil, and 14% in electricity, gas and water, 10% in banking, 9% in transportation and communication, 4% in retailing and wholesale, 1% in mining and 8% in other sectors of their economy. Foreign investors have the right to remit their business profits abroad at any time without any restrictions according to the section five of decree 1853/1993. Capital repatriation is limited due to the policies of Argentina’s Central Bank which limits the purchase of foreign currency by foreigners to a monthly cap and among other restrictions. In Argentina, the principle of equal treatment is reaffirmed by their government between domestic and foreign investors and the foreign investors have the same rights as exercised by local investors (Suipacha, 2010, pp. 11).

The main rule and regulation for a foreign company is that they will be established with the name of individual or individuals who will be legally responsible for that business. Separate accounting records will be kept for all of their operational activities in this country. In general commercial laws and regulations when setting up a company in Argentina, for foreign investment law No. 21,382/ 1993 is implemented on foreign Investment and they are regulated with a decree No. 1853/ 1993. In labor law areas, labor contract Law No. 20744, Labor laws Nos 25877, 24241 with integrated pensions and retirement benefits, Law Number 24557 which examines the work risks to determine whether the employees are given with proper safety measures during working hours and Collective Bargaining Agreement. For all commercial companies, Commercial Companies Law is implemented with Law No. 19550 along with bankruptcy and creditor protection law 19551, Immigration policy Law No is in practice with 25871 and Code of Commerce and Trade and implemented with law number 2637. There are no trade barriers or restrictions on any type of industrial sector and no restriction on the percentage of foreign ownership in the local entity (Rua Casas et al. 2011, PP. 13).

Rules and Regulations for Doing Business in Chile

Foreign investors are facilitated to invest or setup any Company in Chile under the Decree Law 600. This law further explains that capital can be paid or increased for the establishment of companies to increase the productivity of goods and services in the country. Foreign investors can acquire share or rights in the local companies and they can participate in their management that may be brought into Chile under the investment act or central bank act. Furthermore, Law 600 also grants foreign companies to have an access to the foreign exchange market for the repatriation of capital and profits. The foreign company can made any investment in Chile and it is free from all types of duties, charges and taxes.

According to new investment policy developed by FIC in June 6, 2003, Decree Law 600, new project must be started with US $ 5 million when the investment is done in the form of foreign currency and their associated credits. When the investment is in the form of tangible assets, technology or the capitalisation of profits than the minimum amount can be invested is US $ 2.5 million. The projects which are submitted to the FIC’s for further considerations must show ratio between equity and their associated credits and it must be up to 25/75. Decree Law 600 further clarifies that investment can be converted to foreign currencies, tangible assets, technological resources may be qualified as capital, loans which are associated to the foreign direct investment and how the foreign loans can be capitalised with the Central Bank of Chile or the profits can be remitted to abroad. There should be a term foreign investment contract under the Decree Law 600 when the foreign investor invests in Chile and it should not exceed three years. The term of investment in non-mining industries up to US $50 million can be extended to eight years by getting resolution from the Committee of Foreign Investment. The rights and privileges of foreign investors are best protected in Chile under the Decree Law 600 and their contract of agreement enters into with the Republic of Chile which can never be modified or changed by the State itself (Claro Y. Cia. 2008, pp. 13-15).

Standard and Certifications

Standard and Certification Requirements for doing business in Argentina

IRAM is the independent national standard body in Argentina and this certification requires that product must be developed within the scope of the organisation and it must be approved Argentina Accreditation Organisation, OAA which completes a recognised certification body. Manufacturers of products in Argentina needed to affix with S mark product and they mark major national IRMA standards or the IEC standards (Standard Testing EST Compliance).

According to the resolution of 92/98 Act about the standard and certification of products and services produced in Argentina, a wide range of products and safety standards are required in Argentina including ISO – National Standard Organisation, 0P0DAMN – MERCOSUR Standard Association, COPANT – PAN – American Technical Standards Committee and member of the Electronic Technology Association in Argentina and IEC National Committee of Argentina (Standard Testing EST Compliance).

IRAM Certify products and services in the following areas including Electronic Technology, Mechanical, Chemical, Health, Security and Pension, Gas, Enhancing the Mechanical, Food and Chinese Medicine (Standard Testing EST Compliance).

Standard and Certification Requirements for Businesses in Chile

PMG framework is required for companies to work in Chile for their management improvement including human resources, customer services, management planning and control, financial management and gender. Management system of the organisations is certified with ISO 9001:2000 certification in two phases including preparation and certification. Training of the participants’ organisations, if required, and the process of audit is carried out by accredited external entities. At the final stage of certification, technical and operational development of PMG is supervised and coordinated (Cristian & Heidi, 1998, pp. 86-89).

INN is the only reputed standard certification association in Chile and its long-term plan for the standard development are aligned with the Chile’s chief export sectors including copper, forestry, agro products and wine industry. The most important national testing organisations are recognised under the following categories including testing laboratories, system quality auditors, inspection organisations, product certification, calibration laboratories, quality management systems, and environmental management systems. Accredited testing and certification organisation in Chile include CESMEC Ltd., DICTUC S. A., Fundacion Chile, Bureau Veritas S. A., ISP, ICONTEC (Colombia)/ ISO 9000, SAG, SGS-Chile Ltd., Corthorn Quality, Product Certification

Subsidies Offered by Respective Governments in Argentina and Chile

Subsidies Offered in Argentina

Argentina’s subsidy policy has protected around 77000 workers in the different industries and they are getting a monthly salary of US $160 due to government offered subsidies. The main objective of the subsidies offered by Argentina’s government is to reduce the unemployment in the country and due to these policies different companies operating in Argentina are badly affected. The government of Cristina Fernandez de Kirchner has spent US $48 million in their national subsidy program which is also known as the Federal Productive Reconversion Program. It was initially started in 2002 and then by the president to meet the challenges of deepest social and economic crisis in the history of Argentina. The subsidies which are authorised by REPRO, has avoided the unemployment in the country which was at 8.4% according to the index INDEC. According to a study conducted at Pontifical Catholic University of Argentina (UCA), the unemployment in Argentina has reached at 11.8% (PESTEL Country Report, 2012).

Argentina’s total GDP is based on 30.7% industrial participation and automobile and construction sub-sectors are the most contributing sectors in the industrial sectors of Argentina. Argentina Industrial sector has grown by 26.9% in the year 2011. The most important industrial sectors which are playing their prominent role in the industrial sector growth include consumer durables, textiles, printing, chemicals and petrochemicals, and steel. The services sector in Argentina is based on 59.2% of the total GDP participation in this country and they have employed around 76.7% of the total workforce in the country till 2011. Government has provided significant support in offering subsidies to make sure their consistent growth and impressive performance in the banking and financial sector of the country. Foreign banks and the financial institutions have a potential presence in the country and the services sector has shown a growth of 26.3% in the country in 2011. The growth has reached a value of ARS971.8 billion compared to the status of services sector ARS769.4 billion in 2010 (PESTEL Country Report, 2012, pp. 52-53).

Subsidies Offered in Chile

Subsidies and all the other types of transfers in Chile was 51.47 in the year 2010 and the highest value which was recorded in the last ten years was 59.07 in 2000 and the lowest value was 51.19 in the year 2009. Subsidies and other social benefits in Chile are offered in the form of non-payable transfers on the current account of public and private enterprises, employer social benefits in cash etc. In the last fifteen years, government has made significant increase in the social or subsidised spending and it has increased up to 115% and the largest increase was recorded in education sector that was 215% and in health it was 200% and social spending as a percentage of GDP were increased from 13.5% in 1989 to 15% in the year 2003 (Rodrigo A. Cerda and Rodrigo Vergara, 2005, pp. 4).

Taxation System in Chile

The most important taxation system in Chile includes the following areas:

Income Tax required for the companies and the persons

Value Added Taxation

Custom Duty in Chile

Stamp Duty in Chile

Income Tax

All citizens who are domiciled in Chile are required to pay income tax when their income is derived from any sources local or foreign sources. While a foreign who has established a domicile in Chile and living there for longer period of time, is taxed only on income which he has earned from Chile sources during his stay in the first three years in the country. Non-residents are also required to pay income tax on income only from Chilean sources. In other cases, if a person is rendering services abroad to a Chile resident then these services are also taxed in Chile. The income of Chilean company is always considered as income from Chile sources and they are always liable to pay income tax. The income derived from the sale of shares or from the social rights or legally constituted capital abroad and transferred to a legal person living in Chile or profits of a company which is constituted in Chile all is liable to pay income tax according to the tax regulations of the country (Doing Business in Chile, pp. 19).

Withholding Tax on Foreign Companies

The withholding tax is charged to both the companies and the non-residents in Chile. The profits which are corresponding to the companies and that is constituted in Chile for shareholders and non-residents are taxed if the profits are withdrawn or they are divided among them as individuals or remitted abroad. The legal entities and the individuals who are non-residents or they are domiciled in Chile are taxed on all the income they have generated from the Chile sources. According to Chile taxation law, the general taxation or withholding tax is 35% and it is operated on all types of withdrawals, divided and remittances income abroad. A tax return is always required to file on monthly or annually basis and the tax accrued during which period the profits are withdrawn or distributed by the company to their individuals or sent abroad (Doing Business in Chile, pp. 23).

Value Added Taxation

VAT is known as the main consumption tax in Chile and it is applied on the sales and all types of services that may be used for the origination of interest charges, commissions or earnings in a commercial, industrial, financial, construction, or publicity sources. VAT is levied at a rate of 19% which is fixed by Chile taxation authorities on the sale of goods and services. Professional services which are rendered by employees or any other type of independent professionals are never charged with VAT. Exporters are also exempted from VAT and they are only entitled to pay VAT on the reimbursement of buying of goods and services that they mostly use as the parts of their exporting of products and services.

Foreign investment is also exempted from VAT on their capital contribution which is subjected to the provision of goods and services for these purposes. Chile has also signed a double taxation agreement with other countries and they have established agreements of free trade agreements (FAT) that are not relevant to their tributary system (Doing Business in Chile, pp. 27).

Custom Duty in Chile

Custom duties are imposed at the rate of 6% on the imported values and according to regional and bilateral reductions which are applied to some products and services according to Latin American Integration Association agreement. Chile has also reduced the custom duties on some certain items and has signed a free trade agreement with other countries in the region of Latin America.

Stamp Duty

Stamp duty in Chile is only applied to some certain type of documents including withdrawals or payments which are charged as payment orders, or money transfers from the bank accounts. Stamp duty is also levied on money loans and documentation which is related to the credits including Exchange, bonds issue and the debentures of any nature (Doing Business in Chile, pp. 27).