Chile

As a general rule, for purposes of the FCT, corporate income is determined on an accrual basis.

Inventory valuation

Inventories must be valued in accordance with monetary correction provisions, basically by adjusting raw material content and direct labour to replacement cost (which is generally the most recent cost) but excluding indirect costs. No conformity is required between book and tax reporting for income determination. Last in first out (LIFO) is not allowed for tax purposes.

Capital gains

Capital gains are subject to normal taxation unless special provisions, such as those pertaining to gains on the sale of shares/quotas or monetary correction on capital repayments, establish exemptions.

Under domestic laws, in certain circumstances, the capital gains derived from the following securities will be subject to a preferential tax treatment:

• Stock of listed local companies.
• Investment funds’ quotas listed on an authorised stock exchange market.
• Mutual funds’ quotas if the fund invests in stock trade values.
• Investment funds’ quotas not participating in a stock exchange market or mutual funds, where at least 90% of the investment portfolio is in a stock exchange market.

Note that, due to indirect sales provisions, capital gains arising from the sale of foreign companies holding Chilean assets may be subject to Chilean taxation if certain requirements are met.

Shares or quotas capital gains

As a general rule, capital gains derived from the alienation of shares or quotas from Chilean entities are subject to the general tax regime.

Real estate (property) alienation

Real estate (property) acquired before 1 January 2004 and sold after 1 January 2017

In the case of real estate (property) acquired before 1 January 2004 and sold after 1 January 2017, the capital gain exemption upon the alienation of real estate will apply without limitations.

Real estate (property) alienation general rule

Capital gains obtained upon the alienation of real estate (property) will be considered as non-taxable income as long as the following joint requirements are met: (i) the seller should be a final taxpayer; (ii) the acquirer must not be a related entity; (iii) more than one year must have elapsed between the acquisition date and the alienation date or four years in case of alienation of buildings per floors or apartments or in case of land subdivision; and (iv) the total capital gains obtained by the taxpayer upon the alienation of real estates, during its whole life, should not exceed 8,000 unidades de fomento (UF, which is a determined amount of Chilean pesos duly adjusted for inflation on a daily basis), regardless of the number of real estates owned by the taxpayer and the transfers performed.

If the requirements mentioned in (i), (ii), and (iii) above are not met, the total capital gain will be subject to the general taxation regime. If the above requirements are met, but the capital gain exceeds UF 8,000, the excess will be subject to: (i) surtax as a sole tax, on an accrued or cash basis, with the option of reassessment within ten years, or (ii) 10% sole and replacement tax, applied on a cash basis.

Dividend income

As a general rule, dividends received by Chilean entities from other Chilean entities that have already been subject to FCT are not subject to the FCT again at an entity level. However, when these dividends are distributed (depending on the applicable income tax system) up-stream and the ownership chain reaches the final Chilean owners or the foreign owners, they will be taxed with the Global Complementary Tax or the Additional WHT, respectively.

Interest income

No specific provision exists in Chile for interest income; consequently, interest income is subject to FCT.

Royalty income

Royalties paid to a Chilean entity are subject to the general income taxation; consequently, royalty income is subject to FCT.

Foreign income

Resident entities are subject to taxes on their worldwide income. In general terms, foreign income and dividends received by a domestic entity are subject to Chilean taxation in the commercial year when they are received (i.e. on a cash basis); however, certain foreign income needs to be recognised on an accrued basis (i.e. income from foreign PEs and passive income from CFCs). A tax credit for taxes paid abroad is granted, subject to the regulations of the Income Tax Law.

Branches of foreign corporations are taxed on their income without regard to the results of the head office.