CHILE Law and Practice Contributed by: Felipe Díaz Toro, Victor Riadi and Ignacio Ruiz Rodríguez, EDN Abogados
regarding the valuation and protection of assets subject to custody is particularly relevant. In addition to the oversight performed by the CMF, both AGFs and AFIs are supervised by the Uni- dad de Análisis Financiero (Financial Analysis Unit, or UAF), which is an autonomous govern - mental agency responsible for the prevention of money laundering and terrorism financing. As a consequence, fund managers are the reporting entities for a wide scope of activities undertaken by FFMMs, FIs and FIPs as participants in the financial markets. To comply with local AML/ Know Your Customer (KYC) controls, source of funds declarations and ultimate beneficial own - ership information are mandatory for investment fund investors and fund managers. 2.5 Fund Finance Chilean investment fund regulation does not impose specific rules on alternative investment funds, notwithstanding the general provisions established under the LUF and the CMF’s gen - eral regulations concerning fund financing. • The financing market for investment funds is well developed but, in practice, investment funds are typically established as lenders or capital providers rather than borrowers. As a general rule, lending operations are consist - ently secured by some form of collateral asset or debt instrument. • For FFMMs that focus on alternative invest - ments and target non-qualified investors, Article 20 of the LUF stipulates a maximum debt threshold equivalent to 20% of the fund’s AuM. Additional regulations concern - ing borrowing limits are outlined in NCG 376. Furthermore, NCG 365 mandates that any restrictions on borrowings must be incorpo - rated as a provision in the by-laws of each investment fund. Such provisions generally
specify a maximum percentage of the fund’s AuM or committed capital. 2.6 Tax Regime There is no specific tax incentive scheme for alternative investment funds. Benefits are pro - vided to investment funds, regardless of the type of assets in which they invest. The main benefit consists in the exemption of corporate tax at the fund level. However, as mentioned in 2.3.1 Regulatory Regime , investment funds can - not directly undertake activities or own assets typically deemed as alternative investments, so an SPV portfolio company must be interposed between such activities or assets and the fund. The SPV will be fully liable to the general tax regime and, thus, subject to corporate tax rates. Both FIs and FIPs are allowed to defer taxation until distributions are made to investors. Pursu - ant to Article 80 of the LUF, mandatory distribu - tions of at least 30% of accrued profits must be made on a yearly basis. Once distributions are made to investors, dif - ferent tax consequences will arise depending on the intrinsic characteristics of the investors and, in some cases, whether the distribution was made by an FI or an FIP. • Resident Individuals: Natural persons as investors of an FI will be deemed final taxpay - ers and thus subject to a personal income tax on fund distributions, called • Impuesto Global Complementario (IGC) at a 0% to 40% progressive rate. Said final taxpayers are allowed to use 65% of the cor - porate tax levied at the SPV level as a credit against their due IGC. • Resident Entities: Local corporate enti - ties receiving fund distributions will not be deemed as final taxpayers and thus will not
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