Newsletter

Chilean Tax reform

2 March, 2020

The tax reform approved by the National Congress in January has been published. The legal body introduces, among other provisions, material changes to the tax regimes for companies in Chile, with the corresponding tax effect to their partners or shareholders, both domiciled in Chile and abroad. New facts taxed with the value added tax are introduced, at the same time that essential concepts for the adequate determination of the taxes are revised, as in the case of necessary expenses to produce income. We invite you to learn about the content of the law.

 

Income Tax

Corporate Income Tax

Regimes of Articles 14 A), 14 B) and 14 Ter of the Income Tax Law are eliminated, creating a general regime whose tax rate is consolidated at 27% for all taxpayers except those who opt for the SME Regime of Article 14 D), who shall be taxed at a rate of 25%. (01.01.2020)

Partners or shareholders of corporate taxpayers shall be taxed on withdrawals or dividends based on income received (except for taxpayers under the SME Regime who opt for a tax transparency regime); and shall be entitled to use 65% of the corporate tax as a credit against final taxes, whether it is the global complementary tax or withholding tax, with which the global tax burden (corporate tax plus final tax) may reach up to 44.45% of the dividend increased by the corporate tax burden.

The credit for corporate tax shall be 100% of the same, in the case of partners or shareholders resident in countries that have a Double Taxation Treaty that is in force, or that was entered into prior to 01.01.2020 but is not yet in force (in the latter case, the benefit shall apply until 12.31. 2026).

Article 14 D), on SME Regime, shall be applicable only to companies with annual sales below UF 75,000, being the regime applicable by default unless the choice of the general regime is informed to the Chilean IRS.

  • It does not apply to companies whose income from the exploitation of real estate (except agricultural), securities, participation in association contracts or joint ventures and/or equity interests, exceeds 35% of total income.
  • Taxable income of the corporate tax is determined by considering the income received and the expenses actually paid, as a general rule.
  • They shall be entitled to instant depreciation.
  • They may consider as re-investment in the same company and reduce taxable income by up to 50%, with a cap of UF 5,000.

 

Other Income Tax Law Provisions

  • Single Tax on Disproportionate Distributions: 35% on the amount of the disproportionate payment, in those companies with related partners that are not proportional to the equity interest and do not have economic or commercial reasonableness. (01.01.2020)
  • Substitute Tax: There is a possibility to benefit from a Substitute Tax regime, for the balances as of December 31, 2019, all or part of the accumulated Taxable Profits as of December 31, 2016, with a single rate of 30%, with the right to the credit for the Corporate Tax paid. (01.01.2020 – 04.30.2022)
  • Phasing out of Provisional Payments for Absorbed Taxable Profits (“PPUA”); which from financial year 2024 shall not be feasible to return.
  • Instant depreciation of 50% for the acquisition of new assets for new investment or expansion projects, acquired between 10.01.2019 and 12.31.2021, valid for all companies subject to Corporate Tax; accelerated depreciation may be applied to the remaining 50%.  Regarding to the Araucanía Region, instant depreciation shall be 100% in all acquisitions of new fixed assets.
  • New concept of accepted expenses: It is defined as those that have the ability to generate income in the same or future years, aimed at developing or maintaining the business. (01.24.2020)
  • New limit on the sueldo empresarial[1]: Its limitation on the taxable amount is eliminated, establishing that its limit will correspond to the fair value and proportionate to the nature of the work carried out by the partner or shareholder. (01.24.2020)
  • Increase in the rate of the Labor Tax and the Global Complementary Tax: A new last stretch of this tax is incorporated, of 40%, which will affect monthly income greater than 310 UTM (approximately CLP 15,414,130) for the Labor Tax (dependent workers) and annual income greater than 310 UTA (approximately CLP 185,000,000) for the Global Complementary Tax.
[1] Salary received by the partner or shareholder that actually works for the relevant company.

 

Value Added Tax

  • Digital VAT: Special taxable services provided from abroad are incorporated, among others, advertising, supply of digital entertainment, provision of software and other computer services. (06.01.2020)
  • Mandatory Electronic Invoice for Services: Mandatory from 6 months or 12 months from publication of the law depending on whether or not it is an issuer of electronic invoices.
  • Bank and similar card issuers must withhold and pay this tax, which shall be exempt from Withholding Tax.

 

Tax Code

  • New taxpayer rights are incorporated.
  • Hierarchical appeal against Voluntary Administrative Appeal for Reconsideration is created.
  • It is allowed to pay only the capital and adjustment of tax obligations with pending legal claims. (Two years of validity)
  • The cassation appeal in the form is introduced in tax matters.

 

Inheritance and Donations Tax

An exemption from Inheritance Tax is established for those assets inherited from the first deceased spouse in the actual possession left at the death of the surviving spouse.  Exemption from gift tax for up to 250 UTM.

 

Property Tax

  • Surcharge on Property Tax: of a progressive nature, it shall affect real estate whose value is greater than 670 UTA:
  • Appraisals on 670 UTA up to 1,175 UTA (400 to 700 million approximately) 0.075% surcharge
  • Appraisals on 1,175 UTA and up to 1,510 UTA (700 to 900 million) 0.15% surcharge
  • Appraisals on 1,510 UTA (900 million approximately) 0.275% surcharge
  • It will apply from June 2020.

 

Cristóbal Riffo
Attorney Alessandri Abogados.

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