Chile: New Tax Reform Bill under discussion

The Executive of Chile submitted Message No. 064-370 to the National Congress in July – its new Tax Reform Bill. With these reforms, the Chilean government expects to collect 4.1% of GDP within four years. This bill aims to address, among other issues, the gap between the total mandatory tax burden in OECD countries and Chile’s burden (which has a difference of almost 8 points of GDP), along with the stability of Chile’s tax revenues (which have hardly changed in the last three decades).

Although the reforms are yet to be agreed and now under discussion in congress, these some of the main points that will affect companies and multinationals:

• Income tax will go from an integrated system to being dual or semi-dual, therefore the taxation of the company differs from that of its partners.
• While the First Category Tax (IDPC) reduces from 27% to 25%, a development rate of 2% of profits is to be established.
• A capital income tax (IRC) of 22% will be established.
• Persons whose rates of complementary global tax (IGC) are effectively less than 22% may reliquidate the tax on capital income – considering them to have an income taxed with the complementary global tax.
• The total taxation of dividends may not exceed 43%.

The Project includes initiatives for SMEs:

• The preferential regimes that SMEs can access are maintained.
• Newly created SMEs will be eligible for a special VAT credit for the first twelve months, with the following breakdown: 100% for the first three months, 50% for the next three months and 25% for the last six months.
• With this measure, SMEs will be able to access the tax incentive for R&D, which allows 35% of R&D expenditure to be used as a credit against the first category tax.
• Interest rates of 1% on tax debts.

And the Project includes measures to combat tax evasion:

• Announces the creation of a register of final beneficiaries.
• Update of the transfer pricing standard.
• Modifies the rule on preferential regimes in line with the current recommendations from the Global Forum on Transparency and Exchange of Information
• The role of the anonymous whistle-blower is created.

The Project also includes updates related to investment funds, including: a modification of exemptions, the fact that they will be considered taxpayers of the IDP (with the exception of venture capital), and that non-resident contributors will be taxed according to the general rules.

It should be noted that this bill may undergo modifications before final approval is granted. Auxadi’s team of professionals in Chile is closely watching for any modifications to the current tax regulations and we will advise you of any changes.