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Josefina Casals |
César Agliati |
Recently enacted Law No. 20.448 (MK3 or Stock Market Law 3) introduced amendments to certain laws in order to improve the liquidity, financial innovation, and integration of the Chilean stock market. One of the most relevant changes in this regard was made to Decree Law No. 1.328 (Mutual Funds Law) and to Decree Law No. 824 (Chilean Income Tax Law), by means of incorporating a new financial instrument in Chile, the exchange-traded funds or ETF, which are widely in use around the world.
ETF are funds traded in the secondary market that track an index such as Dow Jones, IBEX, and IPSA (Índice Selectivo de Precios de Acciones or Selected Stocks' Prices Index, the Chilean index), among others. These funds allow for the broadening of investment portfolios, since one EFT includes a wide range of underlying assets, either local or foreign, thus reducing the risk of such investment.
Since ETF are traded in the secondary market, their shares can be bought and sold at any time throughout the day, at different prices depending on the stock market fluctuations, and not at a daily-calculated price as is the case for regular funds. Likewise, contribution and redemption of ETFs can be made either in money or in securities.
Income tax benefits
As set forth in the new Article 107 of the Chilean Income Tax Law -introduced by Law No. 20.448- capital gains derived from the transfer of a Chilean ETF would not be subject to income taxes as long as the requirements mentioned in the referred Article are met.
Such requirements relate primarily to the way in which the ETF's shares have been acquired and transferred (for example, in a Chilean stock exchange or over an ETF's issuance process), and also to the trading of such instruments in a Stock Exchange for certain amounts of money within certain periods of time (presencia bursátil). Therefore, in case the ETF's shares are acquired or sold by means of a private contract between individuals, the tax exemption benefits would not apply.
ETF should be registered before the SVS (the Chilean Securities and Exchange Commission – Superintendencia de Valores y Seguros or SVS) and before a Chilean stock exchange.
Furthermore, in order to have access to the tax benefits incorporated by Law No. 20.448, at least 90% of the underlying assets of an ETF should consist of Chilean stock-listed corporations' shares or certain foreign securities, among other instruments.
The possibility of having foreign securities as part of the 90% of the ETF's underlying assets appears as an important change in relation with the tax exemption regime applicable under Article 18 ter of the Chilean Income Tax Law. According to this regime, capital gains derived from a fund transfer could be exempted from income tax only if at least the 90% its underlying assets consist in certain Chilean stock-listed corporation's shares.
Amendments would be in force from the month following a new Mutual Funds Law's rule being enacted by the Minister of Finance.
Taking into consideration the new income tax exemption regime applicable in Chile over capital gains derived from ETF's shares transfer, it may be possible to observe an increase in Chilean investment over foreign securities through the use of such an instrument.
Josefina Casals (josefina.casals@cl.pwc.com) and César Agliati (agliati.cesar@cl.pwc.com)
PricewaterhouseCoopers
Tel: +56 2 9400101
Fax: +56 2 940 0503
Website: www.pwc.com/cl
