The Program - Start-Up Chile – Entrepreneurs Welcome
startupchile.org
startupchile.org
[1] - http://www.shaharnechmad.com/2011/02/19/building-your-dreams...
I can vouch that Chile is certainly a great country to live in. Very warm people who always helped us out when we needed it, and if you get time to travel around it's incredible how diverse the culture and landscape is.
As far as the business / regulatory climate is very progressive - I believe Transparency International gives them higher marks than the US on government corruption. I never had any run-ins with bribery or other shady practices. All the cops I met there were super-chill too - like they were actually supposed to help people...
Great country - I hope this program does them well.
I see on one of the pages that the business income tax is 17% and individual income tax is progressive (up to 40%), VAT is 19%. Then you have some weird "general tax on payments abroad" that's 35%, "license fees" 30% and "advisory services" 30%, "interest on loans" 4%-35%.
In the double taxation paragraph, dividends are taxed at 15% so I guess these aren't one of those amounts where the 35% "general tax on payments abroad" applies. That is assuming they allow you to send dividends abroad.
I guess this isn't seen as important since a startup is mostly burning cash (ie. the $40.000 grant and some?) but it just seems odd to me to just move 1 year in Chile without understanding all these rules and more.
* companies are taxed on profits not revenues (!!) * legitimate expenses made to foreign companies are not subject to the fees you describe * income earned abroad by new residents to Chile is not taxed for three years (!!!)
Practically, start a foreign-incorporated business to collect payments internationally and start a Chilean company to hire local staff and cover development costs in country. If your Chilean business makes such an embarrassing amount of money that you cannot spend it, then congratulations! You can spend some of your profit to restructure.... :)
What do you mean by this?
>* legitimate expenses made to foreign companies are not subject to the fees you describe
If legitimate means there is some bureaucratic mechanism behind to justify those expenses, it would be a problem if the red tape is too much to bear.
>* income earned abroad by new residents to Chile is not taxed for three years (!!!)
This is nice.
>Practically, start a foreign-incorporated business to collect payments internationally and start a Chilean company to hire local staff and cover development costs in country.
This might be subject to some transfer pricing reviews.
>If your Chilean business makes such an embarrassing amount of money that you cannot spend it, then congratulations! You can spend some of your profit to restructure.... :)
I might be old-fashion, but I believe a company is supposed to pay dividends (hence my concern about taxation). But I guess that if you are running a startup, paying dividends is the least of your problems, staying liquid is the name of the game.
Businesses are always taxed on profits, not on revenues.
Even better, these tax rates on both services and on dividends may be further reduced by bilateral treaties. Chile has tax treaties with many OECD members and South American countries. See http://www.sii.cl/pagina/jurisprudencia/convenios.htm
US citizens/permanent residents should note a few things. Like trevalyan says, don't let it discourage you --- but be aware of the issues that could come up. If you participate in the program, you will become an owner of a "Controlled Foreign Company". You have to file a Form 5471 every year with the IRS and an FBAR declaration (TD F 90-22.1) with the US Treasury Department for any bank accounts owned by you or your Chilean company. 5471 in particular is a pain in the ass. Also if you go back to the US afterwards and continue running your Chilean company, it can get very complicated --- look up "Subpart F" (Internal Revenue Code sections 951-965), in particular "foreign base company services income" --- start at http://www.law.cornell.edu/uscode/26/usc_sup_01_26_10_A_20_1...
Another (less pressing) problem is that Chile has signed a tax treaty with the US, but it is not yet ratified by either side's legislature. Until the treaty has been ratified and the IRS determines that it meets their requirements, dividends that a US citizen receives from a Chilean company are NOT qualified dividends. They will be taxed at your ordinary US income tax rate and not the reduced rate of 15%. But I'd imagine by the time you are profitable enough to think of paying dividends, the treaty will be settled and this will no longer be a problem (though of course, the provisions for qualified dividends may have sunsetted by that time!)
Smart plan if you ask me.
State governments in the US do this all the time but focus on attracting big industry and factories to bring jobs, with tens of millions spent just to bring in one company, free land sometimes, and giant tax breaks like no taxes paid for 10 years.
Chile is applying this thinking to the micro side of things, small companies with high potential that don't require a lot of money to keep afloat long enough to get traction. Software companies as one example seldom have to build factories or require specialized toxic chemicals. They can be run out of an apartment, and can end up bringing in tons of money from other countries through sales of product and services.
This is like y-combinator, but you don't sell equity, you get more than $17,000 (this year's special case excepted), you are living in a LOW cost area instead of a HIGH cost area. On the downside it will be more difficult to get venture capital and you pay more for computers and stuff because there is an import tariff.
This plan has huge potential and will probably make Santiago into the next silicon valley. There are tons of states that have talked about creating a new silicon valley, and it is always nonsensical pipe dreams run by fools. This is the first time I have seen a plan laid out that has a very good chance of succeeding.
Why on earth wouldn't ANY sane country want to import as many go-getting highly skilled young entrepreneurs full of energy as possible? It's always amazed me that other countries haven't figured this out, but they are often stuck fighting the last war in that 19th century factory mindset. Most countries have entrepreneur visas that require investments of millions of dollars, etc. That means they miss out on the giant growth that occurs when these tiny tech companies take off.
Also, here is an excerpt from TechCrunch's article on Startup Chile 2010 (formatting is mine):
"Seems too good to be true, doesn’t it?
No obligation to stay; no equity ownership in return for the money; no onerous contracts that promise a pound of flesh—as VCs typically demand.
Why would Chile do this? Because they’re betting that if they get enough smart, talented people there, three things will happen: first, many of the entrepreneurs going there will fall in love with the country and decide to stay; second, they will enrich the local ecosystem by teaching local entrepreneurs about global markets; and third, their tech community will develop stronger links to the world. Who knows, a couple of startups may also hit home runs. After all, isn’t this how Silicon Valley left tech centers like Boston in the dust and became the world’s tech leader?"
Source: http://techcrunch.com/2010/08/21/chop-shop-workers-and-boots...
Disclaimer: I am not affiliated with Startup Chile in any way. Hopefully someone from the organization can answer your questions.
Another point required in the docs is you must incorporate and leave your base of operations in Chile.
The one big question I have is how is the talent pool If I setup shop in Chile? I don't want to outsource.
The expenses need to be reasonable (there is a nominal review process), but I haven't run into problems. You can expense most things except alcohol and cigarettes as long as they are related to the business. This includes giving yourself and your staff salaries of up to around $3k USD per month. So a team of two can rent a nice apartment, pay for airfare and insurance, and spend the remainder on personal salaries -- effectively paying themselves to start a business.
Eating out costs about the same as the US and Canada, but cost-of-living is otherwise much lower. And Santiago is an amazing city. Chile has a smaller pool of technical workers than elsewhere, so you can work with people here but are probably best off being a developer. And there's no requirement to incorporate and leave your base of operations in Chile.
Particularly points 3.i, and 3.iii talk about incorporation in Chile as a requirement. 3.iii talks about the 'intention' of leaving operations in Chile. I've copy/pasted the section.
It's pretty hard to develop and do CEO/partner duties at the same time, especially in such an early stage. In fact I would think doing the hustle is about as much time consuming as doing the dev work. Also, It's hard to tell Chile that your not going to hire anyone because you couldn't find anyone; while taking their money. For more specific note, if you look at the requirements (dinners, talks, evaluations, presentations, publications), I don't see you'd find time to do more than 20% dev work without hiring someone.
I would love to take Chile up on their offer, and as a super hyper serious startup founder I'm excited BUT at the same time very weary of anything 'too good to be true'.
Section 3 below: 3. RESULTS AND ANTICIPATED IMPACTS. At a minimum, it is anticipated that the Projects and their Participants:
i. Are incorporated to the national entrepreneurship environment and execute their Project in Chile for at least 24 (twenty-four) weeks.
ii. Carry out activities required for the fulfillment of the goals proposed in their Projects.
iii. Are incorporated in Chile as formal companies, with the intention of leaving operations in Chile.
iv. Contract local talent.
v. Attend at least 70% of the events 3 of the Program.
vi. Lead at least 6 (six) group workshops.
vii. Attend meetings with potential investors with the intention of raising capital during their participation.
viii. Participate as mentors of national entrepreneurs.
ix. Create and publish 3 (three) notes in English on the basis of their experience in international media
* Update: Edited for spelling mistakes.
Very practically, if your goal is a quick acquisition by a company in California this is not the place for you. But if you're starting a business that can drive revenue this is a huge win in a number of ways. Either you'll get cash-flow positive or more without giving out equity or you'll be able to expand faster than you would simply bootstrapping, or you'll be in a better position to raise investment six months out.
EDIT: worth noting -- the subsidy is denominated in Chilean Pesos (20 million CLP). So it's technically something like 42.5k USD at this point. You have to spend it all in six months though so it's possible not to use it all.
Compare this to the USA Startup program that's spending $200k on a standardized startup application. Y-combinator could create the same by adding 'oh, and contribute to building standardized form' to the end of their conditions for their funding : It would be hacked together within a week by 30+ teams of very smart people... Alternatively, get participation from a collaborating set of VCs : Free PR if you contribute.
1. The T&C states max cash salary of $700. Is the $3K you mention including other salary components or do you mean they accept up to 4 founders/employees on payroll?
2. Would they accept putting in a premium domain name (purchase price way over 4K) as required own investment of 10% of the 40K?
3. Would they welcome applications from a non-developer solo founder (me) explicitly looking for Chilean developers?
4. Although possible according to the T&C, is it allowed in practice to hire foreign developers until Chili dev is found? (I already have devs supporting my idea, possible subcontractors if there is budget to work with, but none of them willing to move to Chili.)
5. Would you be willing to pre-screen my application for tips and potentially leads to interested local talent?
6. What are people's plan after the 6/12 months expire? Would applying for Ycombinator be realistic and acceptable in the program's spirit?
Thanks!
2. The focus is genuinely on helping people ramp up their businesses, not nickle-and-diming them on how they are spending matching funds. Life is easiest if you expect to spend a few thousand of your own on random stuff it won't make sense to expense.
3. My guess is that 30% of the accepted applicants are single-founder (my own is and own ownership structure never came up). The focus is funding businesses that can earn money and scale and have a reason to come to Chile.
4. You need to be able to provide a proof of payment (receipts, etc.) in order to expense stuff. If you have a foreign company you can write yourself an invoice. Again, it just has to be reasonable in the context of your project.
5. If you have specific questions about your application you're probably best off writing the team. I'm happy to share a sanitized copy of my application if that would help but don't have the time to review yours.
6. Some teams are staying, some teams are going. If it's investment you want you'll have options down here too if you're fundable.
If it doesn't take too much time to sanitize, I'd love to see your application.
(My email is judgedotme@gmail.com. Don't send your pitch if your business is AssertID, as there is some overlap.)
The government there does seem to "get it". There are, of course, several problems as in every Latin American country, but mitigated.
I forwarded the link to several friends, some of which are thinking about starting their own company, and I'll strongly consider it as soon as I finish my Master's.
The important thing to remember is that the Chilean government is not doing this for job creation or direct financial return (their economy is strong), they are doing it to build out an international network and to encourage their own entrepreneurs to think more globally and take bigger risks. If you look at what they're spending ($10M to $50M USD) versus what they're getting, it starts to make more sense.