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 SMEs 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) is triggered on a cash basis.
FCT is totally creditable against final tax in the SME regime but only partially in the PIS (only 65% is creditable). However, foreign owners of a PIS entity that are resident in a DTT jurisdiction are entitled to full credit as well.
First Category Tax Reduction for SMEs
Due to the pandemic that has affected the world in the last year, the Chilean government developed an “Emergency Plan for Economic and Employment Reactivation”.
One of the most relevant measures adopted was to establish a temporary reduction of the first category tax for SMEs.
In this way, those taxpayers who are covered by the SMEs regime established in article 14 letter D) of the Income Tax Law, "ITL" (micro, small and medium-sized companies), will be reduced the first category tax to pay for the 2020, 2021 and 2022 business years.
Thus, the government through a new law established a temporarily reduction of the rate of this tax, from 25% to 10% during three business years, subject to measures to focus the incentive and prevent misuse.
Likewise, the taxpayers who benefit from this reduction will have their monthly provisional payment rate (“PPM”) that corresponds to them paid in fiscal years 2020, 2021 and 2022 halved. This reduction in PPMs will apply with respect to the filing and payment that must be made in the following month from the publication of the law in the Official Gazette.
Income taxation systems in force
The attribution regime of taxation is repealed as of 2020.
A full integration regime is introduced for SMEs (i.e. with sales not exceeding approximately USD 2.8 million annually) so that the corporate level tax should be fully creditable against final taxes.
For large enterprises, the current PIS regime of taxation is applicable (i.e. 27% CIT rate and shareholder’s taxation on a cash basis with full or partial CIT credit depending on whether the non-resident shareholder is resident or not in countries with which Chile has a DTT in force).
Accordingly, in a PIS non-tax treaty scenario, the overall taxation in Chile should be 44.45% (27% + (35% - (65% x 27%))). See the Withholding taxes section for more information.
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% (27% + (35% - (100% x 27%))). See the Withholding taxes section for more information.
Please note that non-resident shareholders in jurisdictions that have signed a DTT with Chile prior to 1 January 2020 that are not yet in force (currently the United States and the United Arab Emirates) are entitled to full tax credit for FCT paid until 31 December 2026.
Taxpayers will need to keep a registry regarding the 'accumulated tax credit balance' in order to control the available FCT credit.
Law No. 21,210, published in February of 2020, incorporated a transitory benefit of instantaneous depreciation of 50%, for the investment in fixed assets between June 1, 2019 until December 31, 2021, and 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 assets of fixed assets that are acquired between June 1, 2020 and December 31, 2022.
Additionally, an instantaneous amortization regime is incorporated with respect to certain intangible assets that are acquired between June 1, 2020 and December 31, 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 digitized economy.
Note that the instantaneous depreciation contemplated in Law No. 21,210 continues to apply for assets acquired until May 2020.
Local income taxes
Chilean legislation does not establish any provincial or local income taxes.