Project Evaluation: Legal, Tax, and Labor Considerations
Price Elasticity of Demand
The percentage change in quantity demanded of a product with a percentage change in the price of that good. Its value will indicate the sensitivity of the quantity demanded of a product to price changes, highlighting the importance of studying the variable price for the project.
- <1: Demand is inelastic, meaning the quantity demanded responds to a lesser extent than the change in prices.
- >1: Demand is elastic, meaning the quantity demanded responds to a greater proportion than the change in prices.
- =1: Demand is unitary, meaning the quantity demanded responds in equal proportion to the change in prices.
Legal Framework
This study seeks to determine the legal framework for the implementation and operation of a project, which involves commercial, tax, labor, and regulatory issues.
Informal Company
Defined as an establishment that has not complied with legal regulations, especially regarding commercial and tax aspects. Otherwise, it is considered a formal company. Informality in a project makes it very difficult to predict its viability and profitability.
Tax
A charge levied by the State (Treasury) on individuals or companies for the development of a particular activity. Taxes constitute government revenues, which the IRS allocates to finance its various programs.
General Taxes
- Income Category 1: Based on earnings generated by income received or accrued, affecting businesses. It relates to stock companies, private limited companies, partnerships limited by shares, simple partnerships, and sole proprietorships.
- Income Category 2: Based on income received from labor activity exceeding 13.5 UTM monthly. Income for those earning less than or equal to this amount is exempt from tax. It relates to individuals (dependent and independent professionals), affecting wages, salaries, pensions, fees, etc.
- Global Complementary Tax: A personal, comprehensive, progressive, and additional tax paid annually by individuals domiciled or residing in Chile on their taxable income determined according to the 1st and 2nd categories. The applicable tax rate should be considered, and the income tax paid by the company (project) provides a credit for this tax.
- Value Added Tax (VAT): Calculated as the difference between a percentage of sales minus purchases.
The Sales Tax and Services affects the final consumer but is generated at each stage of marketing the property. The amount payable arises from the difference between the debit tax (the sum of the sales tax and services provided in one month) and the tax credit (the tax on invoices, use of services, and imports, including the tax paid on imported goods).
Specific Taxes
Some productive and/or business activities are subject to specific taxes that must be identified if applicable to the project, as they can directly affect its operational cash flows. Examples include:
- The cigarette tax
- The tax on gasoline
- The taxation of the public transport industry and freight
- The existence of over-tariff rates
Grants
A monetary contribution given by the State (Treasury) to individuals or companies to encourage the development of a particular activity.
Territorial Franchise and Other
Special consideration should be given to territorial franchises, specifically free zones, where the importation and manufacture of certain products are exempt from certain taxes.
Commercial Law
- Development of the articles of association before a Notary Public
- Publication of the company extract in the Official Journal
- Registration of the extract in the National Register of Commerce
Types of Society
Society of People
- Limited Liability: Societies in which two or more individuals associate and whose responsibilities are limited to the amount of their contributions.
- Encomenditas: Societies in which two or more individuals join, splitting into two groups: one contributes capital and the other, work (manager).
Capital Companies
- Corporations: Input in these societies is expressed in shares, which are used to elect the society’s directors.
- Encomenditas per Share: Similar to Encomenditas people, but the capital portion is expressed in shares.
Labor Legislation
Most projects involve labor, either in recruiting new staff or dismissing existing staff during the project.
Contract Work
The law mandates that employers create an employment contract, which is subject to regulations that must be understood from a project perspective.
Contract Group
Refers to the regulation of trade unions. It’s important to note that the terms of individual contracts for union members are extended to those established in collective bargaining.
Special Regulations
These regulations mainly refer to local (community) regulations. In each case, the study should consider the economic impact on the project, i.e., how it affects revenues and operating expenses.