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Tax Policy

he Income Tax Law (LIR) sets down the principle that all natural

or legal persons domiciled or resident in Chile are obligated to

pay taxes on all their worldwide income, whether that income is earned

in or outside of the nation. On the contrary, non-residents of Chile

must pay taxes only on their income sourced from within the country.

The Chilean tax system has established the following general income


First Category Tax, assessable on income from the productive and

financial sectors (industrial, agricultural, real estate, construction

or commercial activities, capital gains, rent, etc.);

Second Category Tax, assessed on income from employment, both

under a contract and on a free-lance basis (such as wages and


Aggregate Complementary Tax, assessed on the total income of

natural persons domiciled or resident in Chile (be it from wages,

fees, compensation or income from another source); and

Additional Tax, which is similar to Aggregate Complementary Tax,

but payable by persons neither resident nor domiciled in Chile,

whether they are natural or legal persons. It is assessed on their

Chilean-sourced income.

The First Category tax rate is currently 22.5% and it will be 24% in

2016. Effective 2017, the rate will vary depending on the tax regime

that taxpayers choose. In accordance with the changes made by Law

20,780, under the attributed income system the rate will be 25% while

under the partially integrated system, the rate will be 25.5% in 2017

and 27% in 2018 and onward.

The attributed income regime means that all profits from a company

in the fiscal year assessable by First Category Tax are attributed to the

direct and indirect owners of that company, whether natural persons

resident and domiciled in Chile or abroad or foreign legal persons.

The attribution will be proportional to their equity interest. Said direct

and indirect owners must pay end taxes (Aggregate Complementary

Tax or Additional Tax) even if they have not withdrawn or received

profits from the company.

Under the partially integrated regime, the actual tax regime will remain

partially in place, so the direct owners of the company will pay tax on

an income-received basis, meaning only once they have withdrawn or

received a dividend from the company. Hence, the profits earned by

the company will be assessable only by First Category Tax as long as

they are not distributed to the owners.

Natural persons domiciled and resident in Chile must pay income

tax annually at a progressive rate that ranges from 0% to 42% (this

maximum rate will fall to 35% starting in 2017). 100% of the First

Category Tax paid by the company generating the profits can be used

as a credit against the profits withdrawn by, or distributed to, the


Taxpayers neither resident nor domiciled in Chile must pay a 35%

Additional Tax on income effectively withdrawn or distributed. They

have the right to credit the First Category Tax effectively paid by the

relevant company against the additional tax so that the total tax

burden does not exceed 35% per peso of profit earned.

Starting in 2017, the First Category Tax credit to which the payers

of Aggregate Complementary or Additional Tax are entitled will vary

depending on the taxation regime chosen by the company generating

the income. The credit against end taxes can be used in its entirety in

the case of profits under the presumed income regime and in part in

the case of profits under the partially integrated regime.

In this latter case, the right of taxpayers to the credit, whether or not

they are domiciled and resident in Chile, will be just 65% (100% of the

credit for First Category Tax paid by the company is imputed, but then

the taxpayer returns 35% of the imputed credit to the Government).

The exception to this rule will be triggered when the payer of Additional

Tax lives in a country with which Chile has an existing double taxation

treaty. In that case, said taxpayer will always have the right to impute

all of the First Category Tax credit.

The LIR also sets reduced Additional Tax rates for different types of

income, such as royalties, interest paid to financial institutions or

banks, payments for insurance and services. It also establishes an

exemption for residents and non-residents regarding the profits earned

on the sale of shares in open stock corporations, investments funds and

mutual funds that are actively traded on the Chilean Stock Exchange.