Corporate - Significant developments

Last reviewed - 31 July 2021

Chilean Congress approves Modernisation Tax Bill

On 29 January 2020, the Chilean Congress approved the so-called 'Modernisation Tax Bill' after a year and a half of discussion. The original bill went through substantial amendments both in the House of Representatives and in the Senate, incorporating the amendments agreed to in December 2019 in the so-called 'Tax Agreement' between the Senate’s Finance Commission and the Government, to finance the new social agenda. Chile published Law No. 21,210 on the modernisation of tax legislation in the Official Gazette on 24 February 2020.

Integration of corporate tax and final taxes

The attribution regime of taxation is repealed.

A full integration regime is introduced for small and medium enterprises (SMEs) (i.e. with sales not exceeding approximately 2.8 million United States dollars [USD] annually) so that the corporate level tax should be fully creditable against final taxes.

For large enterprises, the current partially integrated system (PIS) of taxation is applicable (i.e. 27% corporate income tax [CIT] rate and shareholder’s taxation on a cash basis with full or partial CIT credit depending on whether the non-resident shareholders is resident or not in countries with which Chile has a double tax treaty [DTT] in force).

Accordingly, in a PIS non-tax treaty scenario, the total tax burden will be 44.45%. For Chilean individuals, their total Chilean tax burden could go up to taxation of 44.45% in the top threshold bracket.

For non-resident shareholders who are resident in a tax treaty jurisdiction and beneficiaries of dividend income under the respective tax treaty, the overall taxation under the PIS regime should be capped to 35%, the latter being their total Chilean tax burden.


  • The concept of tax-deductible expense is redefined, establishing that these will be those "that have the ability to generate income in the same or future commercial years and that are associated with the interest, development, or maintenance of the business …"
  • The deduction of specific goods donated to non-profit institutions is allowed.
  • 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 Internal Revenue Service (IRS).
  • Tax deduction of a shareholder´s remuneration who actually works for the company is allowed, to the extent is reasonable. In addition, remunerations paid to a shareholder’s spouse or civil partner or children will be accepted as a tax expense under the same terms and conditions.
  • Tax deduction of voluntary environmental expenses is allowed, provided they are established by the competent authority and with certain limits. The excess is not accepted as tax expense.
  • Disbursements or discounts imposed by the authority to compensate damage to customers or users, in a strict liability scenario, will be considered as expenses.
  • Disbursements in judicial or extrajudicial transactions will also be deductible, in an unrelated party scenario. This includes penalty clauses.

Progressive repeal of tax refunds of Payments per Absorbed Profits (PPUA)

The PPUA is repealed as of 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 will 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 refund 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.

Private Investment Funds (FIP) and Investment Funds.

Article 92 from Law No. 20,712 is amended by introducing new incorporation requirements for FIPs (e.g. non-related parties not being able to hold a 20% ownership interest in the fund each; the 20% ownership limitation considers any related party’s interest).

In addition, the amendment states that if, after a year since this Law enters into force, the FIPs do not meet the requirements stated in the proposed provision, the fund would be considered as a corporation for tax purposes during the commercial year in which the FIP failed to comply with the new requirements.

However, the amendment states that if the FIP subsequently complies with the new requirements, it shall be considered again as a fund for tax purposes, for the income obtained from 1 January of the following commercial year to the one that meets the requirements.

International rules

  • The definition of permanent establishment (PE) is incorporated in the Income Tax Law, which was previously regulated only through jurisprudence issued by the Chilean IRS.
  • Foreign Tax Credit (FTC) rules are reformulated. The FTC limit for countries without a DTT raises from the current 32% to 35%.
  • When a Chilean entity holds shares in another Chilean entity through a foreign company, the withholding tax (WHT) paid by the Chilean entity will be creditable.
  • Royalties derived from research and development (R&D) projects under Law No. 20,241 will no longer be considered as passive income for controlled foreign company (CFC) purposes.
  • Limitation for the 4% WHT rate in case of back-to-back structures. New requirements are established for the application of the 4% rate. Among these, it is stated that the loan should not be granted through certain types of 'structured agreement'. This rule will apply to the interest paid, transferred into account, or made available to taxpayers not domiciled in Chile, for loans granted as of the effective date of the Law, as well as those granted prior to that date, whenever they have been novated, assigned, or the amount of the credit or interest rate is modified later.

    In addition, a new concept and requirements to qualify as a foreign or international financial institution (FFI) are incorporated.
  • The deadline for the non-application of the restitution of the 35% of the CIT credit applicable to the PIS regime for countries with which Chile has signed, prior to 1 January 2020 , a DTT that is not in force (currently the United States and the United Arab Emirates) is extended until 31 December 2026.

Value-added tax (VAT) on digital services

A new taxable event is incorporated in Article 8 letter (n) of the VAT Law (D.L. 825) in order to tax with VAT the services provided by digital platforms and other tech companies.

Regional development contribution of 1%

A special contribution of 1% over the acquisition value of all fixed assets of one same investment industrial project is incorporated. Requirements for the project are the following:

  • Involves an investment equal to or greater than USD 10 million in tangible fixed assets.
  • Must pass through the Environmental Impact Assessment System (SEIA).

The tax will be applied to the acquisition value of all physical assets of the fixed assets, but only in the part that exceeds the amount of USD 10 million.