If enacted, the proposals generally would be effective in tax year 2018 (with certain transition rules available).
Among the proposals are provisions that could affect foreign investors with operations or a presence in Chile. Read a separate report of those proposals in this edition of TaxNewsFlash-Americas.
Changes to the income tax system
Several changes being considered would aim to broaden the tax base and increase tax collection. Among these changes are proposals to:
- Introduce CFC rules for passive income earned through controlled foreign corporations
- Introduce stricter thin capitalization rules
- Limit and / or disallow certain deductions, including limits on the use of tax losses, and with respect to interest on debt used to fund business acquisitions and on payments made to non-resident related parties
- Repeal and / or limit the preferential capital gains tax regime for shares and corporate interest (as well as for real estate involving individual resident taxpayers)
- Increase to 40%, the tax penalty applicable for certain non-deductible expenses, transfer pricing adjustments, and other tax adjustments
- Make changes to employee stock option taxation
Introduction of general anti-avoidance rules
The proposal contains what is viewed as a very broad general anti-avoidance rule. The tax administration would be given the authority to recharacterize any transaction that is deemed to be abusive, artificial or inconsistent with its substance.
Attorneys, accountants, and other tax advisors would be subject to penalties for participating in elusive tax planning. The penalty could may as high as 100% of the amount of the taxes avoided.
Stamp tax rate increase
The maximum stamp tax rate would be increased from 0.4% to 0.8% beginning in 2016. The stamp tax applies on the principal amount of debt instruments or documents containing a credit operation.
Other tax measures
The individual income tax rate for resident individuals would be reduced from 40% to 35%.
The individual income tax rate reduction would be paid for with several changes aimed at expanding the tax basis—such as a limitation on the tax exemption available for real estate dispositions, repeal of the reduced tax rate for capital gains, and limit or repeal of presumptive income tax systems.
Other changes proposed provide:
- “Decree 600 treatment” would be repealed for new investment projects after 1 January 2016
- The rules governing mutual funds and investment funds would be modified to limit the preferential capital gains treatment and tax-free investment regimes currently available for collective investment vehicles.
- A value added tax (VAT) system would be introduced for for real estate sales made by traders and there would be a limit on the special VAT credit for construction companies.
- Carbon taxes would be introduced to target fixed sources of polluting emissions.
Read an April 2014 report (Spanish) [PDF 134 KB] prepared by the KPMG member firm in Chile.
For more information, contact a tax professional with KPMG in Chile:
+56 227 981 341