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Chile: Government and Senate’s Finance Commission agree on a range of tax changes

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Mauricio Valenzuela and Santiago Tubio of PwC outline the main amendments put forward by the executive branch to increase Chilean tax efficiency.

On November 8 2019, the Chilean government reached an agreement with the Senate's Finance Commission to introduce amendments to the 2018 Modernisation Tax Bill (under discussion in the Chilean Senate).

The aim of the tax agreement is to encourage growth, investment, entrepreneurships, savings and employment. It is expected that some of the amendment will be introduced in a separate tax bill within 2020. Proposed amendments are expected to be implemented with the objective to:

i) Strengthen tax collection and increase tax revenues, to be in position to finance the government's new social agenda;

ii) Introduce tax benefits/reliefs to senior population; and

iii) Introduce incentives/reliefs and simplification rules for small and medium-sized enterprises (SMEs).

The main highlights of the tax agreement are as follows:

  • Full integration of corporate-level tax and final taxes: According to the agreement, the full integration of corporate-level tax and final taxes proposed in the 2018 Modernisation Tax Bill for all companies, will be limited only to SMEs whose sales do not exceed $2.8 million annually. The partially integrated method would remain for the companies exceeding such threshold – i.e. large enterprise.

  • Progressive repeal of payments per absorbed profits (PPUA): In a Chile-to-Chile profit distribution, the distribution goes with a corporate income tax (CIT) credit attached to be used against final taxes (e.g. Chilean additional withholding tax – 35%). When the Chilean recipient entity is in a tax loss position, profits received offset existing tax losses. In that scenario, the recipient entity is entitled to claim the refund (PPUA) of the CIT credit attached to the profit absorbed.The tax agreement proposes to gradually repeal the ability to request a tax refund for the CIT paid by its subsidiaries domiciled in Chile in the event the holding company is in a tax loss position.

  • New real estate tax: A new real estate tax would be incorporated. Real estate with a fiscal value of $600,000 or more should be subject to tax. The tax would be included as a surcharge of the current real estate contributions on a progressive basis. It ranges from a 0.075% rate up to a 0.275% rate.

  • Private investment fund (FIP): The agreement introduces new requirements for FIPs to be incorporated (e.g. minimum of eight unrelated related parties not being able to hold a 20% or more interest in the FIP). Limitations are also introduced to the use of market maker agreements and the tax benefits arising from the disposal of fund's quotas, listed in a stock exchange market (actively traded exemption).

The Ministry of Finance is now preparing a draft of the agreement in order to submit it to the Chilean Congress for discussion. Through the above-mentioned measures, the government expects to collect $2 billion more, in order to satisfy the social requests.

This is a developing news, so multinationals with Chilean subsidiaries should closely monitor the measures and determine how it may affect their operations in Chile.

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