Tax Reform proposal 2022 issued by Chilean government.

The Ministry of Finance, Mario Marcel described the general guidelines of the new tax reform proposal, jointly with President Gabriel Boric.

Below we point out the general guidelines of this new Tax Reform proposal:

Corporate Income tax (First Category Tax) and Individual Income tax for large companies.

• Replacement of the previous integrated income tax system for large companies, with the new Tax Reform, taxation of large companies would be separated from the taxation of their owners.

Previously our tax law integrated the taxation of large companies with the taxation of their shareholders or quota holders, where the Corporate Income tax paid by the companies when distributing dividends to shareholders is to be allocated as a credit in relation to their shareholders individual taxes.

It’s important to note that this will not be applicable  for foreign investors domiciled in countries with avoidance of double taxation treaties with Chile or for small and medium size companies,  as the  integrated tax system or credit system will still apply for these taxpayers.

• Specific tax on dividends distributed to individuals at a rate of 22%. Individuals resident in Chile, may re allocate this tax adding the dividend to the tax basis of their personal income tax.
• The corporate income tax rate is reduced from 27% to 25%
• A new tax called “Development Tax”  is created with a tax rate of 2%, which could be paid by crediting expenditures aimed at improving the company and economy productivity, such as R+D or high technology equipment.
• New capital gain tax at a 22% tax rate.
•  New limit for the use of tax loss “carryforward”, 50% of the net taxable income  yearly.

Income Tax: specific cases.

• A 1.8% annual rate applicable to retained earnings in investment companies  that receive more than 50% of  their income from passive income.
• Capital Gains of purchase of  stock market instruments: Same tax treatment of dividends.
• Eliminates DFL 2, benefit for the rent of 140m2 properties.
• Limits to presumptive income regime to micro enterprises with income up to 2.400UF/US$ 85,000 approx.

Individual taxes.

Modification of the brackets and rates of the  individual taxes, starting to apply changes for those with monthly income over US$ 4,100, approx/CLP$4.030.000, now with a marginal tax rate of 26%, continuing to be a progressive income tax.

The new maximum marginal rate would be 43%,  applicable for monthly income higher than US$ 8,200/CLP$8.057.000, approx.

Benefits to middle class on individual taxes.

Housing rental: individuals may deduct from the tax base of the personal tax on rental expenses, with a cap of 8 UTA approx. ($CLP450,000 or USD490 per month).

Family care: individuals may deduct from their tax base the expense associated with the care of children under 2 years of age and people with severe dependency, capped at 10 UTA approx. ($550,000 per month/USD 600).

Wealth tax

In order to levy the wealthiest individuals domiciled or resident in Chile.

Progressive and marginal rates with three brackets; (i) assets valued up to US$ 4,9 million- exempt from the tax; (ii) assets valued between US$ 5 and 15 million would be subject to a 1% rate; and (iii)  assets exceeding US$ 15 million would be subject to a 1.8% rate.

Mining royalty

For mining companies with a production exceeding 50,000 metric tons of fine copper per year.

Two categories were set forth:

(i) ad valorem,  a rate would be applied on sales for 50.000-200.000 metric tons tax rates ranging from 1% marginal tax rate up to 2%, and on sales for more than 200.000,  marginal tax rates ranging from 1% to 7%, depending both on the price of copper and the quantity; and

(ii) profitability margins, rates from 2% to 32% of the companies’ operating income, depending on the price of copper.

Other measures to enhance compliance.

• Create a registry of beneficial owners by which all companies must inform the Chilean SII about the entities/individuals that directly or indirectly  have a participation equal or greater than 10% in their ownership.
• Modification of the general anti-avoidance rule (GAAR) to allow its administrative application by the Chilean SII.
• Creation of the anonymous whistleblower in tax matters, with a right to obtain 10% of the sanction obtained.
• Higher sanctions for tax crimes.

Please for further information contact CFA professionals.