Corporate - Deductions

Last reviewed - 08 February 2024

An FCT payer’s net taxable income is calculated by deducting from gross income those expenses incurred to generate it that have not already been deducted as costs.

As a general rule, expenses are not deductible for income tax purpose if they are not incurred to generate taxable income.

Depreciation and depletion

Depreciation rates are calculated based on the asset’s estimated useful life. The normal depreciation terms for new assets are as follows: heavy machinery, 15 years; trucks, 7 years; factory buildings, in general, 20 years to 40 years. At the request of the Foreign Investment Committee or the taxpayer, the Chilean IRS may reduce the normal useful life.

Annual depreciation is calculated based on the straight-line method. However, taxpayers may recover capitalised costs by using the accelerated depreciation method for up to one-third of the normal useful life regarding new or imported fixed assets, provided that the normal period of depreciation is at least three years.

Accelerated depreciation may be used only to reduce the taxable basis of the FCT. For the purpose of the tax applicable to distributions of dividends, accelerated depreciation is not considered.

No conformity is required between book and tax depreciation.

For tax purposes, depletion for natural mineral resources is allowed on a unit-of-production basis.

SMEs (sales capped at approximately USD 2.8 million) and companies with sales lower than approximately USD 3.8 million are entitled to faster types of depreciation methods (even instant depreciation), which they can use if certain requirements are met.

Instantaneous depreciation

Law No. 21,210, published in February 2020, incorporated a transitory benefit of instantaneous depreciation of 50% for the investment in fixed assets between 1 June 2019 and 31 December 2021, as well as an instantaneous depreciation of 100% for investments made in the Region of La Araucanía. 

Law No. 21,256 modified this legal provision, now extending the instantaneous depreciation to 100% for investments made throughout the country for fixed assets that are acquired between 1 June 2020 and 31 December 2022.

Additionally, an instantaneous amortisation regime is incorporated with respect to certain intangible assets that are acquired between 1 June 2020 and 31 December 2022 and that are protected in accordance with the law, such as industrial property, copyright, and new plant varieties, thus recognising the various forms of investment and technological development that evidence our increasingly digitised economy.

Note that the instantaneous depreciation contemplated in Law No. 21,210 continues to apply for assets acquired until May 2020.


Following a merger, the positive difference between the price paid for the shares of the absorbed entity (i.e. the acquisition cost of the shares) and its tax equity must be allocated proportionately among the non-monetary assets received from the absorbed entity, up to the fair market value (FMV) of those identifiable assets.

Any amount in excess of the FMV of those assets becomes an asset (i.e. goodwill) in the hands of the acquiring/surviving company that cannot be amortised. The change introduced by the recent Tax Reform qualifies this goodwill as an ‘intangible’ asset that can be deducted only upon the liquidation or termination of the company. This renders the goodwill a non-amortisable asset for Chilean tax purposes.

Start-up expenses

Start-up expenses must be capitalised and considered as an asset for tax purposes. However, they can be amortised over a six-year period counted from the year in which they were incurred or the start-up of commercial activities.

Furthermore, they are usually deducted when the income is generated.

Interest expenses

As long as the interest paid meets the general requirements set forth by the Income Tax Law, interest expenses can be deducted.

Bad debt

In general, bad debts are deductible only if (i) they are a consequence of operations related to the business purpose, (ii) they have been timely written off into the accounting records, and (iii) the company has prudentially exhausted all reasonable means to collect them.

Determination of whether the company has prudentially exhausted all reasonable means to collect the bad debts varies according to the total amount of the debts. Consequently, a simple estimation or general provision for bad debts is not allowable.

Additionally, unrelated party bad debts deduction is allowed where unpaid credits last for more than 365 days, or a percentage thereof, following the criteria defined by the Chilean IRS.

Charitable contributions

Charitable contributions may be deducted from gross income, provided they are made to the institutions established by certain laws (i.e. primary and secondary educational institutions, universities, professional or technical education institutions, National Fire Brigade, National Solidarity Fund, etc.).

In case of charitable contributions, the total annual tax deduction for this purpose is limited, as the deductible amount may not exceed 5% of the company's net taxable income.

Fines and penalties

Fines and penalties imposed for breaching the law or a contract might be deductible in some cases and meeting the relevant requirements. Additionally, deduction is usually available for the legal costs incurred in defending such an action.


Taxes imposed by Chilean laws are deductible, provided they are related to the company’s normal activities. However, income taxes and special contributions for promotion or improvement are not deductible.

Net operating losses

An indefinite carryforward of losses is allowed. Consistent with monetary correction, losses carried forward are adjusted by a cost-of-living increase.

Carryback losses are not allowed.

The PPUA is repealed from the commercial year 2024 onwards (i.e. the tax refunds received by companies whose losses have absorbed the profits received from their subsidiaries, which in turn have been subject to CIT, regarding withdrawals and dividends received as of that year).

The repeal would not affect the allocation of losses to the companies’ own present or future profits, nor the use of the CIT credit against final taxes, which will be controlled in the tax credit balance ledger (SAC by its acronym in Spanish) of the receiving entity.

Between years 2020 and 2023 the PPUA return will be reduced gradually as follows: 90% in commercial year 2020, 80% in commercial year 2021, 70% in commercial year 2022, and 50% in commercial year 2023.

Payments to foreign affiliates

The deductibility of payments made abroad for the use of trademarks, patents, formulas, and consulting and other similar services is limited to a maximum of 4% of the income derived from sales and services in the corresponding year, unless the royalty is subject to an income tax with a rate of greater than 30% in the country of residency of the beneficiary.

Deduction of payments made to foreign-related parties are allowed in the year in which they are effectively paid by the Chilean entity to the foreign-related party and only if the corresponding Additional WHT (if any) was paid.

Transfer pricing regulations in Chile are in line with general Organisation for Economic Co-operation and Development (OECD) principles (see the Group taxation section).