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Chile: Tax Reform in Chile

In March 2014, the recently elected President of Chile submitted a Bill to Congress with the goal of performing several changes through a structural tax reform to generate revenues. This reform is focused on four clear objectives:

  • To increase the tax burden and generate revenue to finance the permanent expenditure items including education, health and finance.
  • To improve income distribution through greater tax equality with the concept that those who earn more are taxed more.
  • To introduce more efficient mechanisms for savings and investments, instant depreciation for small and medium sized businesses, 6% credit for investments in fixed assets to deduct the tax paid by the companies.
  • To reduce tax evasion and tax avoidance.

Corporate tax rate
Among the main measures in the tax reform bill, the President announced a gradual increase of the corporate tax rate from 20% (current) to 25% by 2017 (in 2014 to 21%, in 2015 to 22.5%, in 2016 to 24% and in 2017 to 25%).

Elimination of the actual ‘FUT’ (Taxable Earnings Fund)
Currently partners and shareholders are taxed just for their withdrawn profit (tax rate is from 5% up to 40%). The reform project states that owners of companies will be taxed on all profits of their companies and not just on their withdrawn profits. This implies the end of the Taxable Earnings Fund (FUT) from 2017 operating year (2018 tax year).

Reduction of the maximum tax on individuals
The President announced that the maximum tax rate will be adjusted for individuals by proposing to reduce the maximum tax rate on individuals from 40% (current) to 35%.

Pollution taxes, alcohol and sugar added beverage
A series of taxes for environmental care will be applicable:

  • A tax on emissions from industries
  • An additional tax charge on importing diesel vehicles for private use
  • Increase of the additional tax on alcoholic and sugar added beverages

Real estate
Elimination of article 14a(bis) and 14c(quater) from the Income Tax Law to simplify the taxation system and elimination of the exemption from tax on the sale of real estate. The usual sale of property will be subject to VAT.
This project is currently in the Chamber of Deputies with the aim of having it approved before 21 May. Once approved by the Chamber of Deputies, it will go to the Senate for subject to approval or rejection. It is expected that this reform will be passed before 30 September 2014.

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