Chilean Tax Reform
A new project to reform and modernize the Chilean tax system, and boost investment in the country, was presented by the government of President Sebastián Piñera on August 23, 2018. Through this website, and as with the two previous tax reforms, Carey will offer an analysis of the main proposed changes.
Tax Reform 2020
After almost two years of legislative discussion, Law No. 21,210 was published last Monday, February 24, with the objective of modernizing tax legislation. In order to facilitate its understanding, the following is a description of the main reforms incorporated.
Amendments to the tax system
The partially integrated system is established as a single taxation regime for big companies, with a Corporate Tax rate of 27%. The attributed income system is eliminated.Right to use only 65% of the Corporate Tax paid as a credit against final taxes is...
Capital gains regulation
Transfer of financial instruments made by virtue of a repurchase agreement with a bank, broker or securities dealer are not considered as a sale. The income obtained under this operation is considered as a financial interest. A short selling of...
Disproportionate distributions
The IRS is empowered to review the reasons for a distribution of profits in disproportion to the equity interest. If there is no justification, the IRS may apply to the company a sole tax of 40% on the excess distribution.In the event that the...
Expense deductibility
An expense is considered necessary to generate income when:It has an ability to generate income, either in the same or future years;It is related to the interest, development or maintenance of the business;It has not been previously deducted as a cost;It...
Regulations for financial operations
The use of the 'market maker' so that the capital gain from the sale of shares and quotas does not constitute taxable income is restricted (article No. 107 ITL). The non-income treatment applies only for the period of one year from the first...
Taxation on individuals
The concept of "tax resident" is modified, establishing that any person who remains in Chile, whether continuously or not, for a period or periods exceeding 183 days in total within any twelve-month period will be a tax resident in Chile. A new 40% bracket...
New rules for foreign investors
A definition is included in the law following the OECD guidelines. Definition considers fixed place of business, independent agent test and excludes preparatory or auxiliary activities. Thin-capitalization rulesProject finance with third-party debt is not...
Foreign investments made by Chilean-residents
New regulation standardizes the treatment of foreign tax credits.Extends the types of income which grant credit:Dividend and profit distributions;Income for the use of intangibles;Professional or technical services and export services;Income derived from...
Tax compliance regulations
Amendments to withholding rules regarding the WHT applicable to dividends and profit distributions abroad. The Corporate Tax credit must be applied according to the provisional Corporate Tax rate that corresponds to assign in the year of the profit...
Special Programs
The taxpayers subject to the Corporate Tax that as of the end of the 2019 business year maintain a balance of retained taxable profits generated before January 1st, 2017, can choose to pay a sole and substitute tax at a fixed rate of 30%, which will...
Taxpayers’ rights
The IRS is not authorized to re-audit or review records, legal criteria or evidence that were already subject to a previous audit process, even if the statute of limitations has not yet ended. This, unless new information arises and other additional...
Audits and taxpayers´ defense
Hierarchical appealProceeds against decisions which, in resolving a Voluntary Administrative Reconsideration (“RAV”, for its Spanish acronym), they contain defects or errors of law.While its resolution is pending, it suspends the term to file a tax...
Legal tax claim procedure
The IRS is expressly allowed to accept the tax claim. Evidentiary inadmissibility or Tax Discovery is eliminated. Tax Courts are authorized to promote conciliation hearings at any time during the first instance stage. The filing of an appeal...
Taxpayer’s protection office
The taxpayer’s protection office is created as a new decentralized service, with legal personality and its own assets, subject to the supervision of the President of the Republic, through the Ministry of Finance. The purpose of the taxpayer’s...
VAT on digital services
A new special taxable event is provided (Article 8, n. of VAT Law), which taxes:The intermediation of services rendered in Chile, or sales made in Chile or abroad, provided that the latter give rise to an import;The supply of digital entertainment...
Taxable event service
Services involving affected and unaffected or exempt activities Each service is taxed independently according to its nature. In case they cannot be individualized, the whole service is subject to VAT. BACK
VAT on real estate sales
Recurrency The presumption of recurrency, by virtue of which a seller is considered to be recurrent in real estate sales when a period of one year or less elapses between the acquisition or construction of a property and its sale, is...
VAT tax credit on construction
The limit of 65% of the Tax Credit in the construction of houses which value does not exceed UF 2,000 is maintained. BACK
VAT on the leasing of furnished or equipped properties
It is specified that the movable property or facilities included in the property must be sufficient for the property’s use as housing or workplace, or for the exercise of industrial or commercial activity, as appropriate. BACK
VAT return and recovery
The requirement to have an accumulated fiscal credit related to the acquisition of fixed assets is reduced from 6 to 2 consecutive tax periods (months).The time frame for the IRS to resolve this application is reduced from 60 days to 20 days from the date...
Other regulations
It is established that companies or investment companies that obtain passive income are subject to municipal license tax.According to the transitory rules, this amendment only aims to provide legal certainty on this subject (after a few contradictory court...
Inheritances and Donations Tax (“IDT”)
Definition of donation: concept of article 1,386 of the Civil Code. All acts or contracts celebrated abroad that comply with the aforementioned definition (independently of the formalities of the respective country) will be considered as a...
Updates
Approval of the Bill by the House of Representatives (third constitutional stage)
The House of Representatives approves the amendments to the Bill. made by the Senate, with the exception of matters relating to taxes on polluting sources. Due to the discordance in the approval of the mentioned modification, it will be discussed and resolved in a...
Approval of the Bill by the Senate (second constitutional stage)
The Senate votes on the Bill and approves it with minor amendments. After that, the Bill goes to the third constitutional stage in the House of Representatives.
Senate Finance Committee Report
The Senate Finance Committee issues its report on the Tax Modernization Bill (the "Bill"). Through this report, the Commission approves almost in their entirety the indications presented by the Government last December 18th.
December 18th, amendments
In order to materialize the “memorandum of understanding” reached by the Chilean Finance Ministry and the Senate Finance Committee on December 18, 2019, the amendments to the Tax Modernization Project were presented for their legislative discussion, which are focused on SMEs, entrepreneurship and economic growth.
If the Tax Modernization Project is approved by the Senate, it will be sent back to the House of Representantives, as the originating Chamber. Once the amendments made by the Senate are approved by the House of Representantives, the bill will be sent to the President of the Republic to proceed with the final procedures of approval, enactment and publication of the law.
Amendments to the tax system
The partially integrated regime approved by the Chamber of Deputies is maintained as the only tax regime, confirming the elimination of the attributed income regime.The methods of calculation of the credit for Corporate Tax in respect of distributions,...
Surcharge of Real Estate Tax
A surcharge of Real Estate Tax is established, applied on the tax appraisal of real estate that jointly exceeds 670 Annual Tax Units ("UTA", in spanish) (app. US$ 530,000)The surcharge applies to individuals, corporations and entities without legal...
Regulation for financial operations
The use of the "market maker" to access the exemption on capital gains made on the sale of shares and quotas is restricted. Its use is limited to 1 year from the respective initial public offering of securities.
Other regulations
It is established that companies or investment companies that obtain passive income are subject to municipal license tax.According to the transitory rules, this amendment only aims to provide legal certainty on this subject (after a few contradictory court...
General anti-avoidance rule (“GAAR”)
The modifications proposed in the Tax Modernization Project are eliminated, maintaining the current GAAR rule intact.
Instant depreciation
On physical fixed assetsExtends the period of acquisition of assets that will be subject to the benefit of instant depreciation, including assets acquired between October 1, 2019 and December 31, 2121.
Special Programs
Capital repatriationThe incorporation of a new special period for the declaration of goods and income abroad that, having been subject to taxes in the country, have not been timely declared and taxed, is eliminated.
Taxation on individuals
A new 40% rate bracket is created which will tax income exceeding the following amounts:Labor Income Tax, monthly income over 310 UTM (approx. USD $20,700).Personal Income Tax, annual income over 310 UTA (approx. USD $247,400).In the case of the Personal...
Foreign Investors
Refund obligation for Withholding Tax taxpayersExtends until December 31, 2026, the period during which taxpayers who are residents of countries with which Chile has signed a treaty to avoid double taxation will be able to use 100% of the Corporate Tax...
Foreign investments made by Chilean-residents
The modifications made by the initial tax modernization project are eliminated. The rule currently in force is maintained. Regarding the new faculties of the Tax Authority to request information from taxpayers, the figure of the "trust" and its...
Audits and taxpayers´ defense
Taxpayer’s protection office It is empowered to represent lower-income taxpayers in administrative proceedings before the Tax Authority.
Tax litigation
Modifications to the tax claim procedure that did not reach the quorum of approval in the Chamber of Deputies are reinstated, among them:The filing of an appeal for annulment (“recurso de casación en la forma”) against the first instance judgement issued...
May 8th, amendments
Bill´s Proposals
- Amendments to the tax system
- General anti-avoidance rule (“GAAR”)
- Expense deductibility
- VAT Law
- Foreign investors
- Taxation on individuals
- Audits and taxpayers´ defense
- Appraisal authority and tax-free reorganization rules
- Foreign investments made by Chilean-residents
- Financial operations
- Tax compliance
- Digital Services
- Special Programs
- Non-profit organizations
- SME’s tax system
- Green Tax
- Estate and gift tax
