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Chile: Tax proposals affecting multinational entities and investors

Chile: Tax proposals affecting multinational entities

Chile’s government and the main opposition parties reached an agreement on principles to govern tax measures for raising tax revenues in response to anti-government demonstrations and strikes affecting Chile for the past three weeks. These changes are expected to raise additional tax revenue of approximately U.S. $2 billion, with this revenue dedicated to provide for more social program spending in different areas—including increased support for small and medium enterprises (SMEs), entrepreneurship and growth, and enhanced benefits for elder citizens.


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It is expected that details of these measures will be sent to the Chilean Congress in the following days with legislative consideration and discussion to follow over a 15-day period. 


Some of the changes proposed would include:

  • Creation of a new top marginal personal income tax bracket of 40%
  • Stricter requirements for the special tax treatment for private investment funds
  • Repeal of the ability to use tax losses to obtain a cash refund of the corporate tax imputation credit
  • Continuation of the partially integrated corporate tax system for large businesses
  • Extension of the existing measure allowing for immediate expensing with regard to the acquisition of capital assets as a tax incentive to promote investment

More details

The proposed measures that could affect multinational entities and investors with operations in Chile include the following:

  • Creation of new top marginal personal income tax bracket of 40% for taxpayers with monthly income in excess of CLP 15 million (approximately U.S. $20,000) including employment income and benefits.
  • Stricter requirements for private investment funds to benefit from preferential tax treatment, and limiting instances when contracts with market-makers comply with the “substantially traded” requirement for the availability of capital gains tax exemption for publicly traded investment funds.
  • Repeal of the provision allowing for a corporate tax refund that is currently available by using tax losses against dividends received from Chilean affiliates that carry an imputation credit. The elimination of the refund would not affect the deductibility of tax losses against the taxpayer’s business income, and also would not affect the deduction of the imputation credit against shareholder taxes payable on distributions. The proposal is that the measure to repeal this refund rule would be gradually phased-in over a four-year period, according to the following schedule:

Year 2020


Year 2021


Year 2022


Year 2023


  • Under the proposal, the partially integrated corporate tax system would still be available for large businesses. Under this system, an imputation credit limited to only 65% of the corporate tax paid on the underlying tax profits is deductible against the second-level tax payable on distributions to non-resident shareholders and domestic individual shareholders. The government’s original plan sought to return to a system under which a full imputation credit would be available, but as proposed, it would only be available for small and medium enterprises (annual revenue up to UF 75,000* equivalent to approximately U.S. $2.8 million). As a result, the temporary availability of the full imputation credit for U.S. shareholders would expire by 31 December 2021, unless a pending Chile-United States income tax treaty is ratified and enters into force. Shareholders that are residents in countries having income tax treaties in effect with Chile (currently, more than 20 countries including Canada, Mexico, most of the countries in South America, Spain, France, the United Kingdom, China, Korea, Japan, Australia) would continue to be eligible for a full imputation credit.

*UF refers to “development units”

  • The immediate expensing of 50% of the value of capital assets acquired for investments within the country would be extended until 31 December 2021 as an investment incentive.

Other measures concern:

  • A new real estate surtax applicable to taxpayers that own residential property with a tax value of CLP 400 million or more (approximately U.S. $535,000) at marginal rates that would increase progressively from 0.075%, up to 0.275%, for the portion of the fiscal value in excess of CLP 900 million (approximately U.S. $1.2 million)
  • An elective flow-through tax system for SMEs (those with annual revenue of up to approximately U.S. $2.8 million) under which annual taxable income would only be subject to the owners’ individual (personal) tax, based on actual cash flows and with a simplified accounting system

What’s next?

Once the detailed technical content of these proposals is finalized, the measures would be included in the tax modernization bill that has already been approved by the lower house of Congress. The parties have committed to discuss these measures in the Senate within 15 days.

Other measures of the tax modernization bill would be expected to remain in place—including changes made in line with the OECD’s base erosion and profit shifting (BEPS) initiative, which include imposition of value added tax (VAT) on digital services and the adoption of an expanded permanent establishment definition.


For more information, contact a tax professional with KPMG’s Americas Center or with the KPMG member firm in Chile:

Christian Athanasoulas | +1 (617) 988 1015 |          

Alfonso A-Pallete | +1 (305) 913 2789 |

Francisco Lyon | +56 2 2997 1401 |

Rodrigo Stein | +56 2 2997 1412 |

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