When planning for asset protection in Chile, it should be first understood who or what you are protecting your assets from. If you are trying to protect your assets from an asteroid hitting them, it is a very different set of plans than trying to protect them from some sort of legal liability claim. We will be only dealing with the latter here. It should be also be stated from the start, there is no such thing as a 100% guaranteed protection from all the possible legal issues that an asset, investment, or estate might be subjected to; and, this is probably true in almost every country of the World. We depend on a legal framework to define our property rights over an asset, and thus we will always be subject to the legal mechanisms created to end those rights.
So, assets start with property rights, and how strong those legal property rights are enforced in any given country or jurisdiction. Asset protection, starts with enhancing or leveraging those property rights to extend the protection. In short, it is about making it incredibly difficult and / or expensive for anyone to gain rights over an asset. As the saying goes, possession is 9/10ths of the law. We would extend that to include Chile, and possession is 9/10ths of the law everywhere. So, for the purpose of asset protection planning, maintaining possession of the asset is the goal.
So, first, let us look at property rights in Chile. Specifically how property rights exist in Chile, and more importantly property rights of foreigners. There are three basic principles of the Chilean constitution that should thus be noted, as they are basis for asset protection in Chile:
A) That private property rights are respected in all forms, unless there is a compelling state need, and that owners should be compensated at market prices for any expropriation by the state through a transparent procedure.
B) That foreign owners of private property in Chile shall have the same rights and obligations as Chilean citizens and residents.
C) That both foreigners, Citizens, and residents of Chile have the right to access the courts to defend their property rights.
In short, Foreign citizens have the same rights to property, and thus same legal protections as Chilean citizens and residents before the courts and under the law. Again, to implement a plan for asset protection, is to seek to enhance those basic legal protections, by applying additional legal protection.
So, how much protection do you need for your assets in Chile?
To answer how much protection do you need, you should first understand how difficult it is for someone to bring a legal claim in Chile (i.e. know your enemy). Thus, the first line of defense is bureaucratic. Chile is extraordinarily bureaucratic. Chile is not a common law country, so rarely do courts accept something like “good intentions” or “almost complied with the formalities”. Court procedures are typically very slow and must be followed exactly. Formalities that are not complied with, are breeding grounds for appeals. Frequently rather ho hum, run of the mill sort of civil cases, frequently take technicalities to not only the appeals court level, but the Chilean supreme court; and in any given case, multiple points may be appealed along the way.
There are very few situations in which someone may bring a claim in court against someone's property, without that claim being “legally noisy”. That is, the owner of the property must be notified, to allow them to legally defend against the claim, in a very strict formal manner, by official court channels, public notifications, and / or served by court appointed process server. Often that notification must be given in a very specific way, at an official place of residence, by a specific court appointed person.
In the case of a foreigner, with official domicile or residency outside of Chile, this becomes a rather slow and error prone logistical task of navigating official diplomatic channels. It can be done, but it is expensive and time consuming, and most attorneys in Chile have no experience with the procedure involved in serving and international legal notice by diplomatic channels. There is a good chance, even if an opposing party managed to complete this task, the lack of experience of the parties involved will generate grounds for appeal or other challenges to the procedure used.
Degrees of separation from the asset
Often the normal legal channels are sufficient protection. Chile has very strong private property laws, and the overwhelming majority of laws are written with a bend in the direction of protecting owners of private property first, and the party bringing the claim second. As a general rule, those that bring a legal claims in court, are typically at a disadvantage from the start in terms of costs (they must pay their own legal bills), time (cases can range from 2-6 years with appeals), and burden of proof (they will need to have a compelling case). Attorneys in Chile rarely take cases on a contingency basis. Further, Chile has no such things as punitive damages. A person may only be sued for actual damages. Thus, your legal exposure is from the start capped in a way, by the simple costs and difficulty in bringing a claim in court. Thus, the higher value the asset in Chile, the more it makes sense to protect the asset with more in-depth defense of the asset in Chile.
Creating degrees of legal separation between yourself (the true owner or beneficiary), and the asset in Chile, may be worth the work. In some cases, simply placing the asset in the name of a family member or someone else you trust will suffice in terms of legal protection.
There are also specialized legal protection available for family assets. For example, a house where your family lives may be declared “family property”, and this removes the house from being considered as an asset to be included in any proceeds awarded by the court. In short, you can not leave someone and their family homeless, even if a judgment is issued against the person. Please note, this also has very important implications for limiting what you may do with the property without consulting your family.
In other instances, creating a holding company in Chile, or other legal entity, is a good strategy for providing privacy and a fire-wall of protection against legal claims. This is typically used by companies in Chile to create one company that has extraordinary risk attached to it (e.g. employee claims), while another company structure say holds title to factory. The usefulness of this is fairly endless, and is the basis of corporate law in many ways.
Increased protection may also be generated by increasing the legal abstraction level of any assets' ownership. For example, a company in some other foreign country, may own the shares of a company in Chile, that own for example a factory in Chile or other tangible asset. Although, on the surface this seems like a simple and appealing solution, you need to carefully calculate the costs associated with maintaining such a structure.
For a low value estate or asset, the costs over many years of maintaining this structure could quickly eat in to any profits or even original capital. Companies in Chile need to for example file monthly declarations to the Chilean internal revenue service, an accountant must be paid to handle this, even if the company does not generate any income for the month. Some company structures, may be subject to sales tax on certain assets sales; as opposed to private citizen directly owning a property, and selling the property either tax free or at a lesser tax rate.
A simple mortgage over real estate. One of the more common, and simple methods, is to place a private mortgage over a property. This could be in theory for any amount you like, including much more than the market value of the property. This must be registered on the title to be fully effective, and ideally placed as a first order mortgage or lean. In the event of a court ordered auction of the property, the mortgage holder is first in line to be paid. Any other claim or debt on the property, will be secondary and paid out of remaining funds from the public auction. It is possible for a mortgage owner, to simply use the debt to acquire the property at auction, free of most types of other leans. This is often a cost effective way to protect real estate, but it must be implemented carefully and correctly, to be effective.
Asset protection and taxes
We will caution, Chile is a party to many international tax information sharing agreements around the World; and is increasingly implementing measures to assist foreign tax authorities in finding assets being hidden in Chile.
An asset protection scheme may be legal in Chile; but, that does not mean it is legal in any jurisdiction you may owe taxes or have other legal considerations. Just because some foreign government or agency can not directly attach your asset in Chile, does not mean they can not punish you in other ways for placing assets in Chile (e.g. hold you in contempt of court).
You will need to discuss any tax implications of an asset protection structure, with an attorney or tax expert in those other jurisdictions. We are happy to work with your foreign attorneys and tax experts, to find you a system that will comply with the laws of Chile and any other jurisdiction you may need to consider in planning for your asset protection in Chile.
If you would like assistance with assessing your exposure and possible strategies for protecting your assets in Chile, please feel free to contact us.