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Venture capital: Chilean reforms fail the entrepreneur test

Government’s attempt to develop venture capital industry lack clarity.

A reform of company law in Chile designed to create a strong venture capital market does not go far enough, according to leading Chilean financial experts.

In July, the government of Michelle Bachelet, who became Chile’s first female president in March, introduced a bill to congress that would allow the creation of limited partnership companies. The new type of company, called sociedad por acciones (equities company), would more clearly separate the role of shareholders and managers.

Under the proposed law – expected to be approved by congress before December – shareholders in the new type of company would not be subject to capital gains tax (CGT) if they sold their stock during the first three years of investment.

CGT is a progressive tax in Chile ranging from zero to 40% in line with the level of capital gain. Under the reforms, these rates would only apply to shareholders after three years.

However, Patricio Arrau, principal partner of Santiago financial consultants Gerens, who has been leading the business community’s push for a dynamic venture capital market, says: “The new reforms put too many requisites on entrepreneurs who wish to invest in this type of company

“Unfortunately, Chile’s taxation authorities are reluctant to take on the role necessary for this reform to work properly.

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