Chile

Corporate - Taxes on corporate income

Last reviewed - 29 January 2020

First Category Tax (FCT)

The basic tax on income of a legal entity domiciled or resident in Chile and engaged in commerce, mining, fishing, or industrial activities is the FCT, which is assessed at a 25% rate for entities subject to the attributed income system (AIS) and 27% rate for entities subject to the partially integrated system (PIS) on the entity's worldwide income.

Final taxation (i.e. at the Chilean final owner's level or at the foreign owner's level) will depend on the income tax regime to which the Chilean entity is subject to.

Income taxation systems in force

As of 1 January 2017, the 2014 Tax Reform replaced the former totally integrated income tax system with two new income tax systems, the co-existing AIS and PIS.

Attributed income system (AIS)

In general terms, under the AIS, companies have to attribute all the 'attributable income' (mainly the taxable basis for corporate purposes) up-stream to the final owners, subject to the Global Complementary Tax or the Additional WHT.

In this scenario, final owners are subject to the Global Complementary Tax (a progressive tax ranging from 0% to 35%) or Additional WHT (at 35%) regardless of whether a dividend was effectively distributed or not, with a 100% tax credit for the FCT paid at the attributing entity's level. The final owner is responsible for paying the difference between the FCT and the corresponding final tax.

Consequently, a foreign entity or individual subject to this regime is subject to a total Chilean tax burden of 35% (the Additional WHT rate), being able to credit the 25% FCT paid by the company.

For example:

Taxable income 100.00
FCT (25%) 25.00
Gross up amount 100.00
Additional WHT on attributed income (35%) 35.00
Tax credit (100% of FCT paid) (25.00)
Difference to be paid 10.00
Total taxes paid in Chile (FCT plus difference to be paid) 35.00
Total tax burden 35%

As of 1 January 2017, taxpayers that may elect this system are companies whose owners are exclusively final taxpayers. In certain cases, companies by shares will be able to opt for this system, provided certain requirements are met. Additionally, the AIS is the default system to those taxpayers who do not expressly choose to be subject to the PIS and who have partners, owners, or co-owners who are exclusively individuals domiciled or resident in Chile.

Note that the Taxable Profits Fund (FUT for its Spanish acronym) ledger is replaced by a ledger that records the profits with an average tax credit rate for the FCT paid, creditable against final taxes. Also, as of 1 January 2017, ledgers that must be kept by taxpayers have been simplified and profit allocation order has also been modified. Now taxpayers need to keep the following ledgers and allocate accordingly: (i) own attributed income (including historic FUT); (ii) differences between normal and accelerated depreciation; and (iii) income not subject to final taxes and profits that are not considered income (this ledger includes the Non Taxable Profits Fund [FUNT for its Spanish acronym] determined on 31 December 2016). Any amount exceeding this allocation order will be subject to final taxes, unless it corresponds to paid-in capital.

Partially integrated system (PIS)

Under the PIS, final income taxation is applied upon effective dividend disbursements or profit withdrawals. Consequently, Chilean final owners subject to the Global Complementary Tax or foreign owners subject to the 35% Additional WHT are levied with these final taxes upon effective distribution of profits, with a tax credit of 65% of the FCT paid at the entity level.

However, the tax credit for the FCT paid at the entity level is 100% if the final owner is domiciled or resident in a country with which Chile has a DTT in force.

Therefore, final owners subject to the Additional WHT, residents, or those domiciled in a DTT country will continue having a total Chilean tax burden of 35% (the Additional WHT rate), whilst other foreign investors' total Chilean tax burden will be 44.45% since the 27% FCT rate became applicable in commercial year 2018. This total tax burden of 44.45% is calculated as follows:

Taxable income 100.00
FCT (27%) 27.00
Distribution abroad 73.00
Gross up amount 100.00
Additional WHT on attributed income (35%) 35.00
Tax credit (65% of FCT paid) (17.55)
Difference to be paid 17.45
Total taxes paid in Chile (FCT plus difference to be paid) 44.45
Total tax burden 44.45%

In general terms, stock corporations, limited joint-stock entities, and companies that at least have one shareholder who is not a final taxpayer will be mandatorily subject to this income taxation regime.

In this income tax system, there has also been a ledger simplification and modification of the allocation order: (i) income subject to taxation, determined according to the entity’s tax equity (including historic FUT); (ii) differences between normal and accelerated depreciation; (iii) income not subject to final taxes and profits that are not considered income (this ledger includes the FUNT determined on 31 December 2016); and (iv) accumulated tax credits balance.

Additionally, the FUT ledger has been eliminated and an average rate is applicable; assigned credits from the historic FUT will be allocated according to an average tax credit rate, annually determined, according to the result from the division of the total accumulated tax credits for the FCT paid by the tax profits registered in the FUT.

Common rules for both new taxation systems

  • A voluntary payment of the FCT is established in case the entity attributing or distributing income has no corporate tax credits available for the use of the final owners. These voluntary FCT payments under the AIS will be deductible from net taxable income, whilst under the PIS, they will be considered as a tax credit against the FCT due.
  • Taxpayer will have to be subject to one of the aforementioned systems for at least five years. After such period, they may change from one system to another. However, in order to change from one system to another, all FCTs due will need to be paid as if the entity had ceased in its activities.
  • Additionally, Law N° 20,899 provides that entities subject to the AIS will change to PIS as of 1 January of the year in which one of its owners is an entity who is not a final taxpayer.
  • Taxpayers will need to keep a registry regarding the 'accumulated tax credit balance' in order to control the available FCT credit.

Local income taxes

Chilean legislation does not establish any provincial or local income taxes.