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February 7, 2022

Chile enacts tax reform to fund pension reform

The tax reform imposes a 10% capital gains tax on gain from the sale of certain shares, progressively eliminates the value-added tax (VAT) deduction for construction companies and broadly applies VAT to services.

On 4 February 2022, Chile enacted tax reform (Law No. 21.240) that reduces or eliminates certain tax exemptions for the purpose of financing Law No. 21.419 (the new pension law). The tax reform is effective on different dates depending on the issue involved (see below).

The Ministry of Finance expects to collect 0.67% of GDP with the new measures.

10% tax on capital gains realized on the sale of shares of publicly held corporations, mutual funds, investment fund shares or other financial instruments (Article 107 of the Income Tax Law (ITL))

Previously, capital gains realized on the sale of shares of publicly held corporations, mutual funds, investment fund shares or other financial instruments with a stock market presence were exempt from tax to the extent certain requirements are met.

Law 21.240 eliminates this exemption (except for institutional investors) and applies a 10% tax on the capital gains.

The buyer, broker or agent must withhold the corresponding tax. If the withholding agent does not have sufficient information to determine the capital gain, the new provisions require the withholding agent to withhold 1% of the gross purchase price.

The 10% tax will be effective six months after the first day of the month following the publication of Law 21.240 in the Official Gazette (September 2022).

Elimination of tax benefits for housing subject to DFL-2 acquired before 2010

Currently, tax benefits apply to all housing that is subject to Decree Law No 2 (DFL-2) (i.e., housing that is no bigger than 140 square meters) and acquired by individuals before 2010, regardless of the number of homes an individual may own. These benefits include deductions on inheritance and land taxes and an income tax exemption for rental revenues, among others.

Beginning 1 January 2023, Law 21.240 limits the tax benefits for DFL-2 housing to the first and second homes acquired by individuals, regardless of the acquisition date of the real estate assets.

Progressive elimination of special VAT deduction for construction companies

Currently, construction companies may deduct from their provisional monthly payments (i.e., monthly advance corporate income tax payments) 65% of the VAT applied to the sale of housing whose value is UF 2,000 (approx. US$78,000) or less, with a cap of UF 225 (approx. US$8,800) per housing unit (UF is Unidades de Fomento, the Chilean index that reflects the variation in the Consumer Price Index). Construction companies could also deduct 12.35% of the value of sales of VAT-exempt housing units acquired by beneficiaries of housing subsidies.

Law 21.240 progressively eliminates both deductions. During 2023 and 2024, the law reduces the deductions to 32.5% for the VAT applied to the sale of housing whose value is UF 2,000 (approx. US$78,000) or less and 6.175% of the sales value of VAT-exempt housing. Beginning 1 January 2025, the deductions are eliminated.

VAT on the provision of services

Currently, Chile levies VAT on a restricted list of services (i.e., those listed in Articles 20(3) and (4) of the ITL).

Law 21.240 applies VAT broadly to all services unless the service is explicitly exempt or subject to different tax treatment.

Healthcare, education, and public transport services are expressly exempt from VAT. Conversely, technical and professional advice, as well as consulting services in general, are subject to VAT.

This new rule applies from 1 January 2023, onwards.

Life insurance subject to inheritance tax

Under the previous tax regime, the inheritance tax did not apply to proceeds that beneficiaries received from life insurance policies. Law 21.240 subjects those proceeds to inheritance tax beginning on 4 February 2022.

Property tax hike

Law 21.240 increases the maximum progressive rate of the property surtax from 0.275% to 0.425%. The surtax applies to real estate appraised at more than 670 Annual Tax Units (UTA) (approx. CLP400 million, US$500,000).

This measure is effective 1 January 2023.

Elimination of the fixed asset investment credit for large companies

Currently, taxpayers that acquire new fixed assets may apply a credit against the corporate income tax, which is calculated on 4% to 6% of the assets’ value, depending on the taxpayer’s annual sales.

Beginning 1 January 2023, Law 21.240 eliminates the credit for taxpayers with average annual sales of more than UF 100,000 (approx. US$3.9 million) in the last three years.

New tax on luxury goods

Law 21.240 establishes a new tax on luxury goods equal to 2% of the goods’ market value.

The tax applies to the following goods: (1) yachts, helicopters and manned aircraft (with a market value of more than UTA 122; approx. US$95,000); and (2) automobiles, station wagons and similar vehicles (with a market value that exceeds UTA 62, approx. US$48,000).

The tax does not apply to luxury goods owned by companies that carry out activities listed in Articles 20(1), (3), (4) and (5) of the ITL, provided that the goods are intended for the development of the listed activities.

Financial leasing contracts

Currently, financial leasing is treated, for tax purposes, as a lease with a purchase option in which the lessee does not recognize the asset as a fixed asset; instead, the lessee registers lease payments as an expense, and the lessor claimed the depreciation.

Law 21.240 aligns the tax treatment of financial leasing contracts with the accounting treatment to allow financial leasing contracts to be treated as finance operations for tax purposes, permitting lessees to depreciate the property.

This new rule applies for financial leasing contracts entered into beginning 1 January 2023.

Modifications to the mining concession system

Mining concessions are regulated under a patent protection regime, which means the right to explore and exploit depends on an annual payment.

Law 21.240 modifies the mining concession system as follows:

  • Exploration patents. The law eliminates renewals of patents but extends the patent term from two to four years. It also increases the payment from 1/50 Monthly Tax Units (UTM) (approx. US$1.30) per hectare to 3/50 UTM (approx. US$3.80) per hectare.

  • Exploitation patents. The law treats already granted patents for non-metallic mining and metallic mining the same and fixes the patent price at 1/10 UTM (approx. US$6.40) per hectare. Previously granted exploitation patents are not affected by the new pricing, provided the taxpayer can prove it carried out mining work that permanently allows it to develop mining operations. The law also includes progressive pricing for exploitation patents, from 4/10 UTM (approx. US$25.60) per hectare to 12 UTM (approx. US$820) per hectare for taxpayers that have previously granted exploitation patents but cannot prove they carried out mining work. This provision applies without distinction to metallic and non-metallic work, depending on the years the concessions were granted.

  • Concessions that are in process of environmental qualification resolution and have not initiated mining work. The law sets the patent at 3/10 UTM (approx. US$19.10) per hectare.


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 Abogados, Latin American Business Center, Madrid

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific


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