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Chile: Proposed taxation on an attributed basis



Rodrigo Winter

Loreto Pelegrí

Chilean Income Tax Law provides for an integrated tax system consisting of a 20% corporate income tax rate applicable on an accrual basis and in case the company decides to distribute those profits to the final shareholders, they will be subject to either surtax (a progressive tax applicable on tax brackets to Chilean individuals being the highest tax bracket equal to 40%) or to additional withholding tax (a 35% withholding tax applicable to a foreign individual or corporation) on a cash basis, being the corporate tax already paid, a credit against the final tax. Under this mechanism, Chilean companies were able to defer the payment of the final taxes as long as they did not distribute dividends to its final shareholders being the company able to reinvest those amounts.

On April 1 2014 the Chilean government sent a Tax Reform Bill to the Congress proposing to amend many tax provisions of the Chilean Income Tax Law, the Tax Code, and other tax laws. This Tax Reform Bill is expected to become the biggest tax amendment in the past 30 years.

Among the changes, the Bill proposes a gradual increase of the corporate income tax currently assessed at 20% rate to 21% for year 2014; 22.5% for year 2015; 24% for year 2016 and 25% for year 2017.

The Bill also proposes to decrease the surtax higher tax bracket from the 40% rate to 35% equalise such rate with the additional withholding tax rate applicable to foreign corporations or individuals.

Moreover, from 2017 onwards, the Bill preserves the integrated tax system applying a 25% corporate tax rate at the company level and a further 35% at the final shareholders' level being the 25% already paid, a tax credit against either surtax or additional withholding tax. This 35% final tax rate will be applicable on an attributed basis regardless of a profit distribution from the company to the shareholders.

Since the final tax burden will correspond in many cases to 35% and the corporate tax credit will only correspond to 25%, the Bill creates a 10% withholding tax applicable at the company level in order to avoid that the final shareholder could end up by paying the difference in circumstances when no cash flow has been distributed.

Currently, there is a discussion in Congress regarding the lawfulness of applying taxes on profits which do not correspond yet to the shareholders since they have not been distributed and in some cases may never have been received.

Rodrigo Winter ( and Loreto Pelegrí (


Tel: +56 2 294 00588


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