Corporate tax in Chile

Summary

Corporate Income Tax Rate (%) 24
Capital Gains Tax Rate (%) 24 / 35 (a)
Branch Tax Rate (%) 24
Withholding Tax (%)
Dividends 35 (b) (c)
Interest 35 (b) (d)
Royalties from Patents, Trademarks, Formulas and Similar Items 0 / 15 / 20 / 30 (b) (e)
Technical Services 15 / 20 (f)
Other Fees and Compensation for Services Rendered Abroad 35 (b)
Branch Remittance Tax 35 (g)
Net Operating Losses (Years) (h)
Carryback Unlimited (.i)
Carryforward Unlimited

a) See Section B.

b) The tax applies to payments to nonresidents.

c) The 35% tax is applied to the amount of the grossed-up dividend. A credit equal to the corporate tax paid is available.

d) A reduced rate of 4% applies to certain interest payments including, but not limited to, interest paid on loans granted by foreign banks, insurance compa­nies, financial institutions, and interest paid with respect to import opera­tions.

e) No withholding tax is imposed on payments related to standard software if certain requirements are met. A reduced withholding tax rate of 15% applies to payments with respect to the following:

  • Invention patents
  • Models
  • Industrial drawings and designs
  • Layout sketches or layouts of integrated circuits
  • New vegetable patents
  • Use or exploitation of computer programs (software)

The reduced tax rate does not apply to payments made to related entities or to companies resident in countries included in a list prepared by the Chilean Ministry of Finance containing the territories considered to be tax havens. As a result, the withholding tax rate for such payments is 30%. Two companies are considered to be related if one of the following conditions is satisfied:

  • Either company owns 10% or more of the other company’s capital.
  • Either company participates in 10% or more of the other company’s reve­nues.
  • A shareholder or owner owns 10% or more of each company or participates in 10% or more of its revenue.

A reduced withholding tax rate of 20% applies to payments for television broadcasting and cinematographic materials.

f) A 15% rate applies to payments for engineering, technical assistance, profes­sional and other technical services rendered in Chile or abroad. However, if the parties are related (see footnote [e] above) or if the payments are being made to a company domiciled in a country included in the tax-haven list (see footnote [e] above), the withholding tax rate is 20%.

g) The 35% tax is applied to the grossed-up branch remittance. A credit is avail­able for the corporate tax paid at the branch level.

h) See Section C.

i) The carryback of losses will no longer be available, effective from the 2017 accounting period.

Taxes on corporate income and gains

Corporate income tax. Chilean resident corporations and branches of foreign entities are subject to income tax on their worldwide in­come. A resident corporation is one that is incorporated in Chile. The corporate income tax is applied to accrued net income, with the exception of foreign-source income, which is computed on a cash basis.

Rates of corporate tax. The corporate income tax rate is 24%. The corporate tax paid by the company is fully creditable against the tax applicable to the distribution of profits to nonresident partners or shareholders, or to resident individual partners or shareholders.

Dividends. Dividends or profit distributions between resident enti­ties are not subject to tax. Dividends received from foreign sub­sidiaries are taxed as ordinary income. A foreign tax credit is available with respect to such dividends.

Dividends paid by a Chilean company to a nonresident entity or individual are subject to a 35% withholding tax. However, the 24% corporate income tax is fully creditable. This withholding tax rate is not reduced by tax treaties.

New tax regimes. New corporate tax regimes will be effective from 1 January 2017. From 1 June 2016 to 31 December 2016, companies must notify the Internal Revenue Service (IRS) of their election of one of these tax regimes. The new regimes are describ­ed below.

Attributed Income Regime. Under the Attributed Income Regime (Regime A), income received or accrued by a company will be annually attributed to its shareholders or partners regardless of the effective dividend distributions. Companies will be subject to a 25% corporate income tax. The corporate income tax paid by the company will be fully creditable against the tax imposed on the shareholders, resulting in a 35% overall rate in the case of non­resident owners.

Distributed Income Regime. Under the Distributed Income Regime (Regime B), shareholders or partners will be taxed only on the actual distribution of dividends or profits by the company. Compa­nies will be subject to a 25.5% corporate income tax, which will be increased to 27%, effective from 2018. Under Regime B, share­holders or partners will be able to use 65% of the corporate in­come tax paid by the company as credit against the withholding tax. As a result of this rule, nonresident shareholders will be taxed at a 44.45% overall rate unless they are domiciled in a treaty coun­try. In such case, the corporate income tax will be fully creditable.

Mining tax. A special tax on mining activities is imposed on indi­viduals or legal entities that extract minerals subject to conces­sion and sell these minerals in any state of production. The tax is imposed at progressive rates ranging from 0% to 14%, depending on the amount of the sales and the operational margin of the tax­payer. The tax base is corporate income with certain adjustments.

Sales made by related mining entities are attributed to the tax­payer for purposes of determining the tax rate.

The mining tax is imposed in addition to the income tax. How­ever, the mining tax may be deducted as an expense for income tax purposes for the year in which the tax is due.

Chilean Holding Company regime. Under the Chilean Holding Company (CHC) regime, a participation exemption is granted with respect to dividends distributed by the CHC’s foreign sub­sidiaries or capital gains derived by the CHC from the disposal of such entities. To apply for the regime, the requirements contained in Article 41 D of the Income Tax Law must be met.

Capital gains. Capital gains derived by foreign investors are taxed at the regular 35% corporate rate if the capital gains relate to the disposal of shares or quotas in Chilean entities. A capital gain can be subject to a 24% corporate tax as a sole tax until 31 December 2016 if the following conditions are satisfied:

  • The shares or quotas were owned for at least one year.
  • The seller is not habitually engaged in the sale of shares.
  • The parties to the transaction are not related.

If any of these conditions is not met, the 35% general rate applies to the amount of the capital gain.

Sales of shares of companies listed on the stock exchange are exempt from income tax under certain conditions. Under certain double tax treaties, the tax rate on capital gains may be reduced to 20%, 17% or 16%.

Indirect transfers of Chilean shares are subject to capital gains tax at a rate of 35% if either of the following circumstances exists:

  • Chilean assets represent more than 20% of the fair market value of the foreign company that is transferred.
  • The fair market value of the Chilean assets is greater than approximately USD180 million.

The above measure may also apply if a tax haven resident entity is transferred under certain conditions. Limitations apply to the measure if the indirect transfer is made within a group reorganiza­tion process and if no capital gains are triggered.

Administration. All accounting periods in Chile must end on 31 December. Income taxes must be paid during the month of April.

Provisional monthly payments on account of final annual income tax are due on the 12th day of each month.

Foreign tax relief. A foreign tax credit may be claimed up to a limit of 22.5%, 32% or 35% of the foreign-source income, depending on the nature of the income and the existence of a double tax treaty.

Determination of trading income

General. Taxable income, determined in accordance with gener­ally accepted accounting principles, includes all profits, with the exception of specified items that are not considered income for tax purposes.

In general, all necessary expenses for producing income, sustained and justified, may be deducted to determine taxable income. How­ever, expenses related to automobiles are not deductible. Interest associated with investment in Chilean companies is deductible for corporate tax purposes.

Payments to related parties of royalties and interest, for freight, insurance, and leases and of the types of income indicated in Article 59 of the Income Tax Law can only be deducted on a cash basis if the following requirements are met:

  • The applicable withholding tax, if any, is declared and paid.
  • The remittance of funds abroad is effectively made.

Inventories. For inventory valuation, the first-in, first-out (FIFO) method and the weighted average cost method are accepted by law. A corresponding monetary correction must be added to cost.

Monetary correction. The Income Tax Law contains monetary ad­justment rules. These rules, known as monetary correction, re quire taxpayers to revalue certain assets and liabilities annually based on the changes reflected in the consumer price index (CPI) and in foreign-exchange rates. The different indices that are used to ad­just assets and liabilities may result in taxable profits or losses.

The following adjustments must be made for monetary correc­tion purposes:

  • The initial net value of fixed tangible assets is restated based on the change in the CPI, which is fixed monthly by the National Statistical Service. Depreciation is computed on the value of the assets after restatement.
  • Inventories existing at the balance-sheet date are restated to their replacement cost.
  • Credits, rights and liabilities that are in a foreign currency or linked to price indices are adjusted based on the change in the foreign-exchange rate or the relevant index. Investments in for­eign entities are treated as foreign-currency denominated assets.

Depreciation. Depreciation must be calculated using the straight-line method. The tax authority has established the following normal periods of depreciation.

Manufacturing industry and trade Years
Machinery 15
Heavy tools 8
Light tools 3
General installations 10
Trucks 7
Cars, pickups, station wagons and buses 7
Computers, computer systems, peripherals and similar items 6

 

Buildings and mining industries Years
Solid buildings 80
Semisolid buildings 20 to 50
Buildings of light materials 10
Bulldozers, tractors, Caterpillars and other machines employed in heavy construction 8
Drilling equipment, internal combustion engines, soldering equipment and similar equipment 6
Machines employed in mining activities (general rate) 9

Annual depreciation rates must be applied after the revaluation of fixed assets according to the rules of monetary correction (see Monetary correction). Accelerated depreciation may be applied to new or imported fixed assets and to imported fixed assets with normal useful lives of three years or more. The accelerated meth­od allows the calculation of depreciation based on a useful life for an asset equivalent to one-third of the normal useful life establish­ed by the Chilean tax authorities. However, accelerated deprecia­tion may be used only in determining trading income for corporate tax purposes.

The recent Chilean tax reform introduced other depreciation mech­anisms, which are immediate depreciation for micro-companies and small-sized companies and depreciation rates of up to 1/10 of the useful life for medium-sized companies.

Relief for losses. Losses must first be carried back to offset un dis-tributed profits of prior years and then may be carried forward without a time limit. If a qualified change of ownership occurs, accumulated tax losses may not be deducted from income gener­ated after the ownership change.

The carryback of losses will no longer be available, effective from the 2017 accounting period.

Value-added tax

Value-added tax (VAT) applies to sales and other transactions regarding tangible personal property, as well as to payments for certain services. It also applies to the habitual sale of real estate. The general tax rate is 19%. VAT is imposed under a credit-debit system.

Miscellaneous matters

Foreign-exchange controls. The Central Bank of Chile must be informed of all transactions exceeding USD10,000. Other annual information requirements are imposed.

Taxpayers must report annually their permanent investments in foreign companies, investments in foreign branches and details regarding their foreign-source income.

Individuals or entities domiciled or resident in Chile must inform the Chilean IRS if they become trustees or administrators of trusts created in accordance with foreign law.

Transfer pricing. Changes to the transfer-pricing regulations are designed to conform the Chilean rules to the Organisation for Economic Co-operation and Development (OECD) guidelines and to introduce tax filing obligations.

Acceptable transfer-pricing methods include the following:

  • Comparable uncontrolled price
  • Resale price
  • Cost-plus
  • Profit-split
  • Transactional net margin

Any other method may be used if none of the above methods applies to the transaction. The most suitable method should be used, taking into account the facts and circumstances of each related-party transaction.

Taxpayers must file an annual sworn statement identifying related-party transactions and transfer-pricing methods, and providing other information requested by the Chilean IRS through regula­tions. In addition, taxpayers must keep all relevant information supporting compliance with the transfer-pricing rules.

Debt-to-equity rules. Excess indebtedness exists if the “debt” of a Chilean entity exceeds three times its “equity.” For this pur­pose, “equity” equals the tax equity (capital propio tributario) with certain adjustments. “Debt” includes all debt, regardless of whether it is foreign or local or related or unrelated, as well as the debt at the level of the company’s permanent establishments abroad. If excess indebtedness exists, a 35% tax (with a credit for any withholding tax paid) applies to the foreign related-party debt subject to a withholding tax of 4% or lower, as a penalty tax to the debtor. The concept of relationship also includes any type of guarantee.

Controlled foreign corporations. In general, foreign-source income is taxed on a cash basis. However, under the controlled foreign corporation (CFC) rules, Chilean resident taxpayers are taxed on an accrual basis on passive income received or accrued by a CFC.

Under the CFC rules, passive income includes the following:

  • Dividends or profit distributions
  • Interest (unless the controlled entity is a bank or financial insti­tution)
  • Royalties
  • Capital gains
  • Income from the lease of real property (unless the exploitation of real property is the principal activity of the controlled entity)
  • Income from the assignment of certain assets
  • Specified Chilean-source income

Control of a foreign entity is deemed to exist in any of the fol­lowing circumstances:

  • 50% or more of the capital, profit or voting rights is directly or indirectly owned by a Chilean taxpayer.
  • The Chilean taxpayer has a decisive influence on the adminis­tration of the foreign entity.
  • The foreign entity is domiciled in a country or territory with a preferential tax regime, unless proven otherwise (that is, a for­eign entity is deemed controlled if it is domiciled in a tax-haven or preferred jurisdiction, unless the Chilean taxpayer demon­strates that it does not control it).

Treaty withholding tax rates

The table below lists the withholding tax rates under the Chilean treaties in force. All of these treaties are based on the OECD model convention.

Dividends

%

Interest (f)

%

Patent and know-how royalties %
Australia 15 (a) 4/15 (b) 5/10 (c)
Belgium 15 (a) 4/15 (b) 5/10 (c)
Brazil 10/15 (a) 4/15 15
Canada 10/15 (a) 4/15 (b) 15 (c)
Colombia 0/7 (a) 4/15 10 (c)
Croatia 5/15 (a) 4/15 5/10
Denmark 5/15 (a) 4/15 (b) 5/15 (c)
Ecuador 5/15 (a) 4/15 (b) 10/15 (c)
France 15 (a) 4/15 5/10
Ireland 5/15 (a) 4/15 (b) 5/10 (c)
Korea (South) 5/10 (a) 4/10/15 (b) 5/15 (c)
Malaysia 5/15 (a) 4/15 (b) 10
Mexico 5/10 (a) 4/15 (b) 15 (c)
New Zealand 15 (a) 4/10/15 (b) 10 (c)
Norway 5/15 (a) 4/15 (b) 5/15 (c)
Paraguay 10 (a) 4/10/15 (b) 15 (c)
Peru 10/15 (a) 4/15 15 (c)
Poland 5/15 (a) 4/15 (b) 5/15 (c)
Portugal 10/15 (a) 4/10/15 (b) 5/10
Russian Federation 5/10 (a) 4/15 (b) 5/10
Spain 5/10 (a) 4/15 (b) 5/10 (c)
Sweden 5/10 (a) 4/15 5/10
Thailand 10 (a) 4/10/15 10/15
United Kingdom 5/15 (a) 3/15 (b) 5/10 (c)
Switzerland 15 (a) 4/15 (b) 5/10 (c)
Non-treaty countries 35 (e) 4/35 (d)(f) 15/30 (g)
    a) With respect to Chile, the treaty withholding tax rates for dividends do not apply to the 35% withholding tax applicable under domestic law as long as the corporate tax is creditable against the withholding tax.
    b) These treaties have a most-favored nation (MFN) clause with respect to interest.
    c) These treaties have an MFN clause with respect to royalties. In the case of the Peru treaty, the clause applies after a five-year period beginning on the effec­tive date of the Chile-Peru treaty.
    d) From a Chilean standpoint, the Chile-Argentina treaty no longer applies as of 1 January 2013. Consequently, any payment made on or after that date is taxed under local law (that is, the non-treaty country rates apply). Also, see the paragraph below after the footnotes.
    e) For dividends paid from Chile, the withholding tax rate is 35% of the grossed-up dividend less a credit for the corporate tax paid (at the existing rate).
    f) Under Chilean domestic law, a reduced 4% tax rate applies to the following interest payments:
    – Interest paid on loans granted by foreign banks, financial institutions and insurance companies
    – Interest paid on bonds
    – Interest paid with respect to import operations

(g) The withholding tax rate is reduced to 15% for payments with respect to the following:

  • Invention patents
  • Models
  • Industrial drawings and designs
  • Layout sketches or layouts of integrated circuits
  • New vegetable patents
  • The use or exploitation of computer programs (software)

The reduced tax rate does not apply to payments made to related parties or to companies resident in countries included in a list prepared by the Chilean Ministry of Finance containing the territories that are considered to be tax havens. The withholding tax rate for such payments is 30%.

Chile has signed tax treaties with Argentina, Austria, China, South Africa and the United States, which are awaiting ratification by the Chilean Congress.