The tax reform establishes a new preferential framework for taxation for SMEs. The law defines small companies as those with average annual income not exceeding UF 25,000 (USD 1.1 mm approx.), and medium enterprises as those with average annual income not exceeding UF 100,000 (USD 4.3 mm approx.).
New Tax Framework for SMEs (Expansion of Article 14 ter)
The following are the main benefits of this special regime:
- Taxation on a cash basis. SMEs are allowed to use a simplified accounting based on income and disbursements, paying taxes only on the positive difference. In case the SME shareholders are all individuals, it will not be subject to corporate tax, and the relevant taxes will be triggered upon dividends distribution;
- Monthly Provisional Payments. 14 ter-taxpayers may opt to a reduced rate of PPM (Provisional Monthly Payments) of 0.25%. Also, if all of its shareholders are individuals residing in Chile, they may choose to determine the rate of PPM based on the effective rate of Personal Income Tax they are subject to;
- Rules promoting reinvestments. A 20% or 50% tax credit against the corporate tax will be available for reinvestments of the taxable income, depending on whether Regimen A or B is in place, respectively. This tax credit is capped at USD170,000 approx. and extended to medium enterprises with sales of up to USD4.1 million approx. per year;
- Withholding tax exemptions for certain services provided by non-residents;
- An extended term to pay VAT to the Treasury, and
- The sanction for the first infraction to any tax law might be to attend to training courses.
As counterbalance, the tax reform eliminates preferential tax regimes found in articles 14 bis and 14 quarter, which, although more limited in the number of potential recipients, allowed for broader tax exemptions.
Increased Tax Credit for Purchase of Fixed Assets
Instant and Super-Accelerated Depreciation
In the first case, businesses may depreciate investments in fixed assets using a useful life of one year, whether they are new or used. In the second, businesses may depreciate investments in fixed assets considering effectiveness of one-tenth of its normal useful life, but only if they are new or imported.
This benefit is only available to companies that have not opted to the article 14 ter special regime.