February 5, 2020
Taking a more detailed look at Chile’s recently passed tax reform bill
The tax reform would make the “semi-integrated” tax regime mandatory for dividend distributions from large Chilean companies to their non-Chilean shareholders. It also would make significant changes to the value-added tax provisions applicable to non-Chilean holding companies. Taxpayers should continue to monitor the enactment of the tax reform bill and the applicability dates, as most provisions would be effective in 2020.
On 29 January 2020, the Chilean Congress approved a tax reform bill that would make the “semi-integrated” tax regime mandatory for dividend distributions from large Chilean companies to their non-Chilean shareholders. The bill would also expand the types of expenses a Chilean company may deduct from its corporate taxable income, define permanent establishment and make significant changes to the value-added tax (VAT) for non-Chilean companies, among other things.
The tax reform process started in August 2018. A tax reform bill was originally passed by the House in August 2019 and then went to the Senate, where it was heavily amended in December 2019. It was finally approved by both chambers on 29 January.
Once enacted, most of the bill’s provisions will be effective in 2020.
‘Semi-integrated’ tax regime
The tax reform bill would make the “semi-integrated” tax regime mandatory for large taxpayers and eliminate the alternative “attributed” tax regime, which has existed since 2017 but has not been widely used.
Like the alternative “attributed” tax regime, the “semi-integrated” tax regime has been in force since 2017 as one of the alternative tax regimes available to Chilean taxpayers and consists of an overall 35% withholding rate applicable to dividend distributions from Chilean companies to their non-Chilean shareholders. Shareholders may credit the corporate tax (27% rate) paid against the 35% withholding tax (WHT), unless the countries in which the shareholders reside do not have a signed income tax treaty with Chile. In those cases, non-tax treaty shareholders will only be allowed to partially credit the corporate tax paid by the Chilean company against the withholding tax, triggering an overall tax rate of 44.5%.
VAT and other taxes applicable to non-Chilean holding companies
The tax reform bill would significantly modify the VAT and other taxes applicable to non-Chilean holding companies as follows:
The tax reform bill would:
From a procedural perspective, the bill also would frame taxpayer rights and establish deadlines applicable to the Chilean IRS in administrative audit procedures. In addition, it would simplify the rules for submitting evidence in judicial audits.
The general anti-avoidance rules and the definition of “preferential jurisdiction” currently included in the Chilean legislation would remain without changes.
For additional information with respect to this Alert, please contact the following:
EY Chile, Santiago
Ernst & Young LLP (United States), Latin American Business Center, New York
Ernst & Young LLP (United Kingdom), Latin American Business Center, London
Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific