Equity-based compensation in Chile

Equity-based compensation

What are the prevalent forms of equity compensation awards in your jurisdiction? What is a typical vesting period? Must the arrangements be offered to a broad group of employees, or can the employer select the participants?

Usually, stock option agreements for executives are the prevalent form of compensation award. Parties are free to agree the vesting period applicable to each equity compensation award, but the stocks involved in the plan shall be subscribed and paid within five years of the shareholders’ meeting where the capital was increased and the plan approved. The employer may select plan participants, considering the criteria indicated on question 12.

Must equity-based compensation be granted by the company’s board of directors (or its committee) or can the authority be delegated to officers or employees of the company? Are there limitations or requirements that apply to delegation?

See answer to question 3. Delegation is not possible.

Are there forms of equity compensation that are tax-advantageous or disadvantageous to employees or employers?

There is no special tax treatment for equity compensation awards.

Does equity-based compensation require registration or notice? Are exemptions, or simplified or expedited procedures available?

No.

Are there tax withholding requirements for equity-based awards?

In case of stock options, the beneficiary of such an option must be subject to taxation in Chile upon the acquisition of the option. The option means the right to acquire a given number of shares in the future. If the option is sold by the beneficiary, the capital gain will be taxable as well. In addition, the exercise of the option will be taxable. In this case, the tax basis will be the difference between the fair market value and the special value of the stocks sold by the employer. For employees, the applicable tax is employment tax. For board directors, the surtax applies.

Are inter-company chargeback agreements between a non-local parent company and local affiliate common? What issues arise?

Yes. They usually refer to operational services conducted by the local affiliate company. The extent of services rendered by the affiliate company on behalf of the parent company may lead to the determination that both companies are a single employer, thus considered jointly and severally liable for the obligations the executive is entitled to. Also, lack of a detailed scope of services may be the basis for a tax objection by the tax authority.

Are employee stock purchase plans prevalent or available? If so, are there any frequently encountered issues with such arrangements?

Employee stock purchase plans are prevalent. No issues arise frequently on such agreements.