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Law No. 21,681 (Law), published in the Chilean Official Gazette on 1 July 2024, creates a Temporary Emergency Fund for fires and establishes other measures for reconstruction, establishing an optional regime of substitute tax for final taxes (e.g., dividend withholding tax), referred to hereafter as "ISIF."

Background

Under current law, dividend distributions made from Chile are subject to a dividend withholding tax at a 35% rate. All (100%) of the corporate income tax paid by the Chilean company (currently 27%) may be creditable against this tax.

If the beneficiary of the credit is not resident in a country that has signed a tax treaty with Chile, the use of this credit may be limited to 65%.

New, transitory law

Taxpayers who meet the requirements established in the Law may choose to benefit from the ISIF regime until the last banking day of January 2025 (i.e., 31 January 2025), applying an ISIF at a rate of 12% on part or all of the accumulated taxable profits contained in the registry of taxable income (RAI) determined as of 31 December 2023. However, a credit for the corporate income tax paid by the company may not be claimed against the dividend withholding tax for the portion of taxable income that benefited from the ISIF regime.

The profits that qualify for the ISIF in accordance with the Law will not be considered withdrawn, distributed or remitted by the final taxpayers. However, the profits will be considered to have fully complied with the income tax law and can be distributed out of Chile without further taxation.

Note that this special and transitory regime may be particularly attractive in cases where (1) a taxpayer has accumulated taxable profits in Chile that have not been fully subject to corporate income tax at the level of the Chilean company or (2) the shareholders are not located in a tax treaty jurisdiction.