Gartner paints a clear picture: the talent shortage won’t ease up until 2026, while worldwide IT spending is on the upswing. Faced with these pressing concerns, how do you grow without breaking the bank? The answer lies in untapped markets, such as Chile.
I’m Sergiy Ovcharenko, CBDO at Alcor, your go-to for establishing your own R&D center from 0 to 100 employees within a year in Eastern Europe and Latin America. We’ve aced the game in tech recruitment, legal & compliance, and operational support, all the while launching superb R&D offices for our clients, such as Grammarly, Ledger, Dotmatics, People.ai, and many more.
In this article, I’ll delve into the advantages of outsourcing software development to Chile, along with the hurdles and hiring alternatives. Stick around and learn whether Chile is a better destination in contrast to other Latin American countries. Let’s dive in!
IT Industry in Chile Overview
The outsourcing landscape in Chile is auspicious. In 2024, the Chilean IT outsourcing market is about to reach $657 million and will exceed $1,000 by 2028, while the overall IT services market should hit $2.5 billion. Moreover, the data from Statista also forecasts an annual growth rate of 5.23% for the Business Process Outsourcing sector.
Another good omen for IT outsourcing in Chile is the country’s consolidated economy. Among other countries in Latin America, Chile stands tall, boasting the most significant investment inflow alongside Mexico and Brazil. It has rebounded impressively, surpassing pre-pandemic levels by 54%. In 2021, its foreign direct investment stats soared by 57%, while in 2022, it grew by 31% more, resulting in a net FDI flow of nearly $21 billion.
Nevertheless, what matters even more for offshoring software development to Chile is its rising expenditure on research and development. Thanks to a consistent upward trajectory, it has reached almost $1.9 billion in 2022. Consequently, Chile rightfully secures its position among the South American countries with the highest projected R&D expenditures.
Advantages of IT Outsourcing to Chile
Top-Grade Tech Talent
Chilean developers amount to more than 61,000 and cluster in thriving tech hubs, such as Santiago, Valparaìso, and Concepciòn. Their top software engineering skills are statistical and computer programming, but they also shine bright in Java, Python, PHP, Perl, Node.js, and ASP.NET. As for English proficiency, Chileans are making strides and have already outpaced Indian coders and landed 10th position out of 20 LatAm countries.
More than that, Chile is the AI leader in the LatAm region and intends to invest heavily in preparing more Full-Stack, Front-End, and AI specialists, given the rising demand. According to the OECD, 30% of first-time Bachelor students prefer STEM more than any other field. With 32 universities ranked in Latin America, Chilean institutions are well-equipped to tackle this challenge, propelling the growth of outsourcing to Chile.
Practical Prices
Software outsourcing in Chile brings significant benefits regarding both salaries and taxes. For instance, the average salary of a middle Full-Stack Engineer in Chile ranges between $26K and $40K, while American developers earn up to $150K for the same services. Here’s an overview of compensation for other middle positions for software engineers in Chile:
| Position | Gross Annual Income, USD |
| Front End Software Developer | 25,000-40,000 |
| Back End Software Developer | 24,000-42,000 |
| Mobile Developer | 24,000-38,000 |
| Game Developer | 26,000-41,000 |
| Data Scientist | 22,000-38,000 |
Speaking about taxes, the second income tax convention between Chile and the United States entered into force in 2023, which contributes to reducing tax barriers between the two countries and makes outsourcing IT services to Chile even more favorable. Besides, companies that invest in R&D can benefit from a 35% tax credit, and the remaining 65% of the investment can be treated as a necessary business expense, provided that half of their personnel and subcontracting costs pertain to activities within Chile. Thus, the qualified taxpayer can receive a tax credit of up to $1 million, regardless of the total investment in R&D. This R&D incentive remains valid until the end of 2025.
Booming Business Environment
Another reason to dispel all doubts when you offshore to Chile is its promising business environment. Check it out: Chile is the most developed financial center and has the region’s most stable economy, boasting 303 startups. The country is one of the two only Latin American members of the OECD, along with Mexico. The latter report predicts a 2% increase in economic activity in 2024 despite a slight drop in 2023. Coupled with the A3 business environment, free-trade agreements, and flexible monetary and fiscal policies, these conditions will help the Chilean IT industry attract more investment.
Continuous Improvement
Chile isn’t resting on its laurels as an attractive investment location. Its government is actively pursuing progress, especially in STEM education. In Chile, the global K-12 education policy, general funding, and quality assurance measures are already in place. The government is implementing various initiatives to further enhance this, including engineering education reform and introducing ICT in public schools. Despite trials and tribulations, thanks to its comprehensive analysis, the Chilean government is forging ahead. In addition, Siemens is actively cooperating with Chilean universities to ensure that STEM education is flourishing.
Finally, the country’s GDP is forecast to increase continuously by 3% in total by 2028. All these indicators strongly favor offshoring to Chile, given its highly educated workforce and economic stability.
Challenges When Outsourcing to Chile
Legal Aspects
Since US and Chilean legislation differ, it is crucial to know what to expect — forewarned is forearmed. Firstly, draft contracts so as to avoid hidden employment risks. In addition, Chilean employment regulations are more stringent than in the US, so a contract’s termination must be accompanied by prior notice. As an employer, you should also provide fully paid annual leave of up to 15 working days for employees with more than one year of service. Last but not least, if you employ more than 25 workers, at least 85% of them should have Chilean nationality. As you can see, for a US employer, heeding all these regulations comes with more effort. Nonetheless, if you decide to nearshore to Chile, bear all this in mind or consider getting legal help.
Taxation
If you open a legal entity in Chile, you risk paying more taxes if your team members are non-residents. If they reside in Chile, then only a personal income tax at a progressive rate of 0% to 40% applies. However, if they don’t, there’s an additional 35% of Withholding Tax (WHT). Luckily, the US is in a double tax treaty with Chile, so the worst-case scenario of paying up to 44.45% of WHT isn’t in sight. Consequently, it makes sense as a government incentive to opt for hiring strictly Chilean talent, and this is what I’d recommend.
Chile vs Other Latin American Outsourcing Destinations
Chilean GDP outshines all others. According to what the IMF expects, it should reach $30K in 2024 and make Chile the first South American country to hit that high. But let’s explore other destinations.
Chile vs Mexico
Mexico abounds with software engineers — more than 700,000 devs who are as strong as Chilean programmers in Python and SQL but surpass them with superb skills in JavaScript, C#, React.js, and Angular. Chilean coders, on the other hand, are unparalleled in PHP, Node.js, and ASP.NET and speak better English. Mexico is also a startup heaven. As of 2023, it boasts 440 startups, unicorns such as Bitso, Clara, and Kavak, 38 IT clusters, 20 tech parks, and 4 IT hubs in Guadalajara, Mexico City, Monterrey, and Mérida. Meanwhile, the Mexican IT sector should reach $7.9 billion by 2028.
Chile vs Argentina
Software outsourcing to Argentina provides access to twice more 115,000 coders as in Chile. While as talented in Python as Chileans, Argentinian devs are also proficient in TensorFlow, Cloud APIs, SQL, R, and NLP and are renowned for the highest English proficiency levels in LatAm. Mostly gathered in tech hubs — Buenos Aires, Còrdoba, Mendoza — tech talents have already created 11 unicorns, including Globant, Uala, MercadoLibre, and over 500 startups. Lastly, Argentina’s IT services market is projected to skyrocket to $4.5 billion by 2028.
Chile vs Colombia
There are more than 150,000 software developers in Colombia, and the number is ever-increasing, with 13,000 STEM graduates joining the ranks each year. Colombian IT hubs include Bogotá, Medellín, and Cali, which together house 300 startups. Compared with Colombia, Chile proudly claims one more unicorn: Betterfly, Cornershop, and Notco are triumphant Chilean startups, while Colombia boasts Rappi and Habi. Colombian devs are unbeatable in Java, C++, Python, SQL, and Ruby, and the country’s ICT market should surge to $35 billion by 2027.
IT Outstaffing in Chile
Several models are worth considering if you are eager to hire developers in Chile. To start, you have the option of IT outsourcing or IT outstaffing in Chile. Outsourcing involves contracting a vendor to handle your software development needs; these companies assign tasks to their own employees. On the other hand, outstaffing allows you to manage the employees provided by the vendor directly.
These approaches do have drawbacks, including potential issues with product loyalty, buyout fees if you later intend to hire the team permanently, and possible intellectual property concerns. But what if you need the development team to be yours from the outset? Here are some alternatives:
- IT recruitment. Your partnering company cherrypicks top-notch candidates and provides support with background checks, legal compliance, and payroll & taxes.
- Employer of Record (EOR). You can hire software engineers without setting up a legal entity in Chile, while your partner covers payroll, employment, accounting, tax & benefits management.
- R&D office. You get a comprehensive solution to build your own team in Chile: the process covers IT recruitment, legal compliance, and full operational support with office lease and employee benefits included.
Picture this remarkable success story with our client, Sift, a top online fraud detection company based in the US. With a global team of 180 employees, Sift aimed higher by expanding with 30-35 developers and launching their own R&D branch abroad. Facing the challenge of having just one in-house recruiter for support roles, they turned to Alcor for help in filling their tech vacancies. The results blew them away: not only did we swiftly recruit a Head of R&D from the second CV, but we also turbocharged Sift’s employer brand on the local market. Within a year, we hired 30 top-tier software engineers and facilitated the seamless establishment of a fully compliant R&D hub overseas!
Tips to Make Outsourcing to Chile Easier
Define Your Needs
Before you decide to outsource software development to Chile, it’s vital to understand your business requirements. Are you leaning toward cost-effectiveness or top-notch quality? Do you require specialists with niche technology skills? How long and precisely what aspects do you intend to outsource?
Opt for a Suitable Model
Once you’ve assessed your needs, align them with the suitable models mentioned above. Short-term projects outside your core focus fit well with outsourcing or outstaffing. For long-term projects tied to your primary product, especially those demanding specialized expertise, consider IT recruitment or establishing an R&D center for rapid scalability.
Choose a Seasoned Provider
Partnering with the right provider is pivotal for success. Avoid opting for the cheapest option without due consideration. Instead, seek solid client testimonials, transparent communication, competitive pricing, a robust portfolio, expertise in tech recruitment, and a reliable track record. By doing so, you’ll set the stage for excellent results!
Your Own Software R&D Center in Chile
Put your complete trust in Alcor — we have 6+ years of experience in offering R&D services and IT recruitment in Santiago, Chile, Mexico, Argentina, Colombia, Poland, Romania, Bulgaria, and Ukraine.
Alcor has an all-in-one solution that covers launching your R&D branch, IT recruitment, and additional support, such as legal and compliance support, employer of record, employer branding, office lease, WFH support, and equipment procurement. With us, you’ll surpass any outsourcing or outstaffing gains because you’ll have your own fully operating team of tech gems abroad!
We guarantee to hire 20 software developers in 1 month: so confident in our stellar team of 40 recruiters that we promise to hire the rest at no charge to you should we not meet the deadline. With our 80% CV pass rate, shouldn’t it be just a breeze?