Capital Contribution

A capital contribution refers to a financial investment made by a person or entity into a company or organization, usually in the form of cash, assets, or securities. It is a way for investors to become owners or stakeholders in the company and share in its potential profits and growth.

Capital contributions in Chile don't have a minimum amount required, but we highly recommend it is the necessary amount for the company to reach a break-even situation or further loans or capital increases might be needed in the future.

Capital contributions can be made by individuals, corporations, or other organizations, and the amount of their contribution is often reflected in the ownership percentage of the company or organization. Capital may be paid for up to five years since the registration of the company and this must be established in the company's bylaws.

Capital contributions are an important source of funding for startups and growing businesses and can help to provide the resources needed for expansion and growth.

In the case of "excess debt," meaning a debt-to-equity ratio higher than 3:1, thin capitalization rules will apply and interest on the excess debt with related parties will be taxed at the debtor company's level with a 35% single tax, which will be charged to the debtor. This tax may be considered a deductible expense for the interest payer and can be credited against the Additional Tax withheld and paid at a rate of 4% or reduced due to a double taxation agreement, calculated proportionally.