In general, participation in cash incentive plans is a common practice that Chilean companies offer to employees, but participation in share-based plans has not been traditionally common. However, in the last decade, shared-based plans have gained greater presence, especially among key employees of multinational and start-up companies seeking to attract and retain key talent.

The most common types of plans in Chile are the following.

Cash Incentive Plans

The most common cash incentive plans are:

• Commissions: These represent the percentage on the price of sales or purchases, or on the number of other operations which the employer makes with the collaboration of the employee. They are quite common in the retail sector.
• Performance Bonuses: This the most common incentive and can be short or long term. They are granted based on individual, team or company performance indicators. They often represent a percentage of the employee’s monthly salary.
• Productivity Bonuses: They are granted when certain levels of production or efficiency are achieved.
• Seniority Bonus: Seniority bonuses are granted upon reaching a certain number of years of service with the same employer. They are usually granted from five years of seniority in a company.
• Holiday Bonus: This is given as an incentive, when the employee takes a minimum number of days, usually ten or 15, so that the employee uses more consecutive holiday days.
• National Holiday Bonus (aguinaldo): This benefit consists of an extra amount of money given to employees on certain dates such as Christmas or national holidays. In Chile, it is a common practice in the private sector, but it is not mandatory.
• Punctuality and Attendance Bonuses: These are rewards for employees who adhere to their schedules and attend work regularly. They are most common in the construction, mining, retail and service sectors.

Share-Based Plans

The most common plans in this category are stock options, which allow employees to purchase company shares at a preferential price in the future.

Stock options, contrary to the comparative experience, were first regulated in 2000, through the Corporations Law as compensation plans for company executives. It is only recently that a new, more complete and comprehensive regulation was introduced in 2020, through the Tax Modernisation Law 21,210, which regulates stock options and their taxation for the company and the employee.

In general terms, the main differences between cash and share incentive plans offered by public and private companies in Chile can be summarised as follows.

Public Companies

Regulation

Public companies are regulated by law, meaning there are specific rules that determine which bonuses must be paid, their amounts and the corresponding readjustments. They do not depend on the company’s or employee’s discretion but are instead mandatory and established by current legislation, specifically in the public sector readjustment law, which is discussed annually.

Source

Public companies are regulated by law.

Cash incentive plans

The most common cash incentive plans paid by the state to public sector workers are: (i) holiday bonus; (ii) Christmas bonus; and (iii) national holiday bonus.

Share incentive plans

These are not contemplated in the public sector, meaning employees of public companies do not have access to share-based incentive plans.

Private Companies

Regulation

There are no legally mandated bonuses. All cash incentives must be agreed upon between the employer and the employee, in the employment contract, addendum or collective agreement. Once agreed, they become mandatory for the company.

Source

The source of these plans is the employment contract or collective agreement.

Cash incentive plans

These can vary and depend in most cases entirely on the employer’s willingness to pay such bonuses. The most common are undoubtedly the annual performance bonus and the Christmas and national holiday bonus.

Share incentive plans

Unlike the public sector, private companies can offer share-based incentive plans, which may take different forms, such as stock options or equity participation programmes. These plans depend entirely on the company’s discretion and the terms agreed upon with the employee.

In summary, while in the public sector, cash incentive plans are regulated by law and share incentives plans do not exist; in private companies, there are no legally mandated bonuses, but both cash and share incentives can be agreed upon, depending on the terms negotiated between the parties.

Approval of the Pension Reform Law

On 29 January 2025, the Pension Reform Law was approved in Chile, which will have the effect of increasing what the employer must withhold from remunerations from 10% to 11%, as a mandatory contribution, in the next 12 months. The same law provides for a gradual increase of another 6%, to be effective between 2026 and 2033.

The law states that these contributions will be paid and supported by the employer, so the employee will not see their remuneration affected. In this case, if the benefits paid to the workers are taxable – ie, subject to contributions, the employer must pay an additional percentage point for them.

The most common forms of cash and share incentive plans vary depending on the company and employee level.

Cash Incentive Plans

• Annual bonuses are based on individual, team or company performance, often representing a percentage of base salary. These bonuses are common in all sectors.
• Short-term performance bonuses are awarded upon achieving specific goals within a set period.

Share Incentive Plans

• Stock options allow employees to purchase shares at a predetermined price after a vesting period. As indicated in 1.1 Market Practice (General), these are not as popular in companies, but they have been seen to appear more frequently.
• Restricted stock units (RSUs): In Chile, only stock option plans are expressly regulated, whereas RSUs are not. The Chilean tax authority (SII), through various rulings issued in 2022, distinguishes between RSUs and stock options in terms of their tax treatment:
1. RSUs are non-transferable rights that grant employees ownership of shares once certain conditions are met, without an option for the employee to purchase the shares.
2. Stock options, on the other hand, provide employees with the right to acquire shares at a specified price within a predetermined period.

In addition, the SII has determined that RSUs do not qualify for the special tax treatment under Article 17 No 8 (l) of the LIR (that states that the granting and exercise of the option do not constitute income, but the capital gain from the sale is subject to global complementary or additional tax, not income tax), as they do not involve a purchase option exercised by the employee. However, the SII has subtly implied, without explicitly stating, that RSUs may be considered a benefit or remuneration for the employee, subject to the single second category tax at the moment the employee acquires ownership of the shares.

In terms of popularity, cash bonuses are the most widely used across companies, as they provide immediate incentives. For executives and key employees, share-based incentives such as stock options are relatively common, as they align employee interests with shareholders and encourage long-term retention.

Generally, the offer, grant, vesting or exercise of share awards, or the issue or transfer of shares under a share plan does not give rise to any prospectus or similar securities law implications for either the parent company or the local employer.

The only exception may occur in the issue of shares under a share plan, in the case of companies incorporated as a corporation (Sociedad Anónima) (SA) registered in the Securities Registry, which are subject to the duty to report essential facts or information to the Financial Market Commission (CMF), in accordance with the provisions of Article 9 of Law 18,045 of the Securities Market Law.

In this regard, General Standard No 30 of 1989 states that the qualification of the information as an essential fact is limited to those events that are capable of significantly affecting:

• the assets and obligations of the entity;
• the performance of the entity’s business; and
• the entity’s financial position.

Therefore, if the grant, issue or transfer of shares produces an effect on the assets, performance or financial position of the corporation, it will be considered an essential fact, subject to the obligation to inform the CMF.

The promotion and communication of a share plan to the employees is not restricted in any way in Chilean legislation.

The local employer can provide funding for the costs of the stock option plan. A common practice is for companies to detail this funding in the respective Employee Stock Ownership Plan (ESOP). 

The most common form of financing is the grant of a loan to finance the employee for the purchase of a certain number of shares. Usually, this credit has a contemplated interest rate.

The grant of stock options by a company incorporated in Chile typically follows this process.

• Board Resolution: The board of directors must approve the stock option plan and the specific grants to eligible participants. This resolution outlines the terms and conditions of the options, including the vesting schedule, exercise price and any other relevant provisions.
• Shareholders’ Meeting Approval: If the stock options involve the issuance of new shares or modifications to the company’s capital structure, approval from the shareholders’ meeting is required. This is particularly relevant when the stock option plan results in a capital increase or when the company’s by-laws mandate shareholder approval for such programmes.
• Private Agreement: Once the necessary corporate approvals are obtained, the stock options are formally granted to the participants through a private agreement (usually in a contract addendum or ESOPs) which specifies the terms of the plan.

The general rule is that there are no exchange control restrictions or reporting requirements that could arise from:

• an employee sending local currency out of Chile in order to pay for shares/an option exercise price;
• the employee selling shares and sending currency into Chile;
• the local employer sending funds out of Chile to provide funding for the plan; or
• the employee selling shares and sending currency into Chile.

All purchases, sales, transactions, remittances or the transfer of foreign currency carried out by or through Formal Exchange Market (El Mercado Cambiario Formal, MCF) entities must be reported to the Central Bank of Chile (Banco Central de Chile, BCCh), and in the case of transactions for amounts over USD10,000, the tax identification number (Rol Único Tributario, RUT) of the beneficiary must be identified.

In relation to the tax burden related to the grant, vesting and sale of a stock option, the current regime distinguishes between compensation plans established in employment contracts and those that are not found in employment contracts.

Options That are Agreed in Individual Contracts or Collective Bargaining Agreements

Neither the grant nor exercise of the option is subject to tax or payment of social security contributions.

The sale of the shares will be taxed with final taxes according to the general rules. For these purposes, the higher value will be constituted by the difference between the sale price and the amount corresponding to the values paid by the transferor on the occasion of the delivery or acquisition and exercise of the option, duly adjusted.

Options That are not Agreed in Labour Instruments

These options will not constitute income at the time of grant.

The exercise of the option will constitute higher remuneration for the beneficiary, which will be affected with the corresponding tax (IUSC, IGC or IU) for the difference between the book value or the market value of the acquired share at the date of the exercise, and the amount paid at the moment of the exercise of the option.

The sale of the shares or the options will be taxed.

The amount that would be granted by the company to the employee in consideration for their work performance would constitute remuneration, at the time the employee exercises the purchase option, and for the amount that would result from deducting from the value at that time of the shares, the previously determined pre-set value of the shares, paid by the employee.

Since there is no specific regulation for restricted shares, this answer is limited to the provisions of 2.6 Employee Tax and Social Security: Share Options/Awards/RSUs.

Regarding the obligation to withhold income tax and pay social security contributions in relation to share options, a distinction must be made.

• When the benefit is not agreed in the employment contract, the taxation will occur when the employee exercises the option. The difference between the book value or market value of the share acquired at the date of the exercise, and the amount paid at the time of the exercise of the option, will constitute higher remuneration for the employee. The withholding obligation will fall on the employer, who must withhold the amount on the income of the employee.
1. There is an obligation to withhold income tax, when the option is exercised. The applicable tax is the Single Second Category Tax (IUSC), a progressive tax with rates ranging from 0% to 40%.
2. Since the exercise of the option is considered as income, it will be included in the calculation of the taxable base of the salary, and the corresponding deductions of social security contributions will be made.
• When the benefit is agreed in the employment contract, there is no obligation to withhold income tax, when the option is granted, exercised or sold. Therefore, since it is not considered remuneration, it is not subject to social security deductions.

Voluntary Pension Savings (APV)

APV, or voluntary pension savings, is an additional savings contribution beyond the mandatory 10% that employees voluntarily make to improve their pension amount. With this savings, employees can get closer to their desired retirement amount or retire earlier.

Collective Voluntary Pension Savings (APVC)

Collective Voluntary Pension Savings (APVC) is a savings modality in which the company contributes a certain percentage to the savings made by an employee in their APVC account. This allows the employee to increase and/or anticipate their pension while also obtaining attractive tax benefits. The company may offer all its employees the option to join one or more voluntary savings plans previously agreed upon with the AFP or another authorised institution.

Both APV and APVC offer the following tax benefits.

Benefits for the Employer

Company contributions to APVC plans will be recognised as deductible expenses for tax purposes. Deductible expenses are those that the company can subtract from its taxable base, thereby reducing the amount on which taxes must be paid.

Benefits for the Employee

Tax regime – tax upon withdrawal (Letter B, Article 20 L of DL 3,500)

This is the traditional option, under which no taxes are paid when making contributions to voluntary savings because they are deducted from the taxable base. This results in an immediate tax benefit. However, when withdrawing the savings, the employee must pay the corresponding tax on the withdrawn amount.

Tax regime – tax upon saving (Letter A, Article 20 of DL 3,500)

This is a new taxation alternative, in which the employee pays the corresponding taxes at the time of saving. As a result, when withdrawing the savings, the employee is not taxed on the principal amount but only on the actual returns earned. Additionally, the employee is entitled to a government bonus of 15% of the savings allocated to increasing or advancing their pension. The annual bonus cannot exceed 6 UTM (approximately CLP275,994).

As a general rule, it is not possible to apply malus and/or claw-back to share and cash awards in the Chilean jurisdiction.

According to Article 54 bis of the Labour Code, earned wages become part of the worker’s assets, and any clause implying their return, reimbursement or compensation by the worker to the employer after the wages have been earned is considered non-existent, unless such subsequent events result from the worker’s failure to fulfil the obligations contained in their employment contract.

In addition, Article 58 of the Labour Code states that any deductions must be agreed upon between the employee and the employer.

The conflicts with either of these regulations with malus and claw-back clauses can be the following.

Malus Clause

The malus clause, as a principle, would imply the reduction of an already earned remuneration (such as a bonus or incentive), which could contradict the protection established by Article 54 bis. That is, it could not be applied to wages already earned that the worker is entitled to receive, unless the employee has clearly breached their contractual obligations. However, there is the issue of enforcing the clause, due to the high probability that this would lead to litigation, and ultimately, the breach of contractual obligations is defined by a court.

Claw-Back Clause

Claw-back clauses allow the company to recover compensation already paid to the employee if it is discovered that the payments were made under fraudulent, misleading or incorrect circumstances. Claw-back clauses would conflict with the Articles mentioned above.

The main labour issues or considerations regarding cash or share plans are as follows.

Acquired Right

The main problems or risks of paying a cash or share plan are effectively that a periodic payment may become an acquired right, or that for purposes of termination of the employment contract, the employee may claim to be entitled.

Therefore, it is mandatory that any modification to the labour conditions, in this case remuneration, be included in the employment contract or attached document, delimiting the conditions of the bonus and generally agreeing that this bonus or payment does not constitute an acquired right.

Enhanced Compensation

It can also be considered enhanced compensation if the cash or share plan is seen as part of the monthly wage of the employee. A cash or share plan can be considered part of the monthly wage of the employee, if it meets the remuneration conditions, which are:

• it is a fixed stipend;
• it is paid in cash;
• it is paid in equal periods determined in the contract; and
• it is related to the provision of services during a regular working day.

For the above reasons, if an employee receives the same cash plan every month, it will be considered an integral part of the remuneration, which will have effects on the payment of severance compensation (in lieu of notice or compensation for years of service).

On the other hand, if the bonus or share plan is paid annually or sporadically, it will not be considered as remuneration, according to Article 172 of the Labour Code.

Obtaining Approval Prior to Offering to Employees

There is no works council, trade union or similar body whose approval is needed to establish a cash or share plan.

Awards are not commonly subject to post-vesting or post-employment holding periods, there being no industry in which they are common. That said, although it is not common, it is a practice that is permitted in Chilean legislation, given that it does not contravene any legal provision. 

In some cases, and given that stock options are intended to retain key talent, they often have provisions that in the event that the employee leaves the position, a term is given for the employee to sell their shares to their former employer.

In summary, post-vesting and post-employment holding periods are not prohibited, but they are not common, and there is no industry in which they are a common practice.

Employee consent is required for the collection and transfer of personal data in relation to a cash or share plan, given that these two concepts fall within what the Law 19,628 on Privacy Protection defines as the processing of personal data, which is extremely broad.

In fact, the concept of processing of personal data refers to “any operation or complex of operations or technical procedures, whether automated or not, which makes it possible to collect, store, record, organize, elaborate, select, extract, compare, interconnect, dissociate, communicate, assign, transfer, transmit or cancel personal data, or use them in any other way”.

For this reason, any action taken by the employer that involves this processing requires the written consent of the employee.

That said, if authorisation for processing personal data was previously given in the employment contract, it is not necessary for the cash or share incentive plan to include a new authorisation.

While there is no specific legal regulation in the Labour Code requiring that documents to be signed or applicable to employees in Chile be in Spanish, the Labour Bureau (the entity responsible for overseeing compliance with labour legislation), through its administrative rulings, specifically Ordinance No 1124/29 has established that any labour document that may have an official or public purpose must be written in Spanish or accompanied by a corresponding Spanish translation.

Therefore, since the cash or share incentive plan has legal effects on the employee and may be considered a labour document, subject to audit by this agency, its translation into Spanish is mandatory.

For this reason, it is quite common for these documents to be drafted in a dual-column format, including the Spanish version alongside the foreign language version.

There are no corporate governance guidelines or disclosure requirements in relation to share and cash plans in Chile, except for reporting essential facts with the CMF in the case of corporations. 

Obligation to Keep an Auxiliary Book of Remuneration

Pursuant to Article 62 of the Labour Code, every employer with five or more employees must have an auxiliary remuneration book, which must be stamped by the Internal Revenue Service.

What must be reported by the employer

According to Supreme Decree No 375, of 1969, of the Labour Code, the Auxiliary Remuneration Book must contain at least a list of the company’s employees – taxable remuneration, non-taxable remuneration and total remuneration.

Employers must register the remuneration payments made to their respective employees monthly with the Labour Bureau. This obligation applies to all employees regardless of their position in the company. This information is uploaded electronically, on a monthly basis through the Labour Directorate’s website.