Chile Update: New Economic Stimulus

A new stimulus is currently being discussed in order to inject liquidity into the markets with a particular focus of assisting SME′s through these difficult month. The end goal is reactivating the economy as the crisis passes. This will be helpful for many foreign companies who have Chilean entities.

Some of the main points being discussed are: 

THE FIRST CATEGORY TAX FOR SME′S IS REDUCED BY HALF FOR THE YEARS 2020, 2021 AND 2022. 

The Pro-SME Regime was incorporated by Law No. 21,210, published in February 2020, which modernizes tax legislation. This regime considers a 25% rate of First Category Tax and taxation of owners based on withdrawals. Additionally, it considers a Tax Transparency Regime, of an optional nature, in which the company is released from the First Category Tax, with the owners paying directly their personal taxes on the company’s income.

The proposal of the new stimulus is to reduce temporarily the First Category Tax for the companies under the Pro-SME Regime at a rate of 12.5% for the income obtained during the commercial years 2020, 2021 and 2022. For taxpayers benefiting from this rule, the rate of monthly provisional payments (PPM) of the First Category Tax that they have to pay will also be reduced by half, with respect to fiscal years 2020, 2021 and 2022. 

REFUND OF ACCUMULATED VAT TAX CREDIT FOR SME′s. 

The Project considers making a refund of the tax credit VAT borne by SMEs in the acquisition of goods or use of services between January and May 2020, to the extent that they maintain an accumulated balance as of June 2020 and provided that, as a result of the Covid-19 crisis, they present a decrease in their income. Therefore, two cumulative requirements must necessarily be met: (i) to maintain an accumulated VAT credit balance as of June 2020; and (ii) the SME’s income must have decreased as a result of the crisis that the country is going through, by a percentage equal to or greater than 30% of its sales.

This benefit is only available to SMEs that maintain good tax compliance, and must be requested from the SII, so that the refund can be made within 10 days. 

EXTENSION OF INSTANTANEOUS DEPRECIATION OF 100% UNTIL DECEMBER 31, 2022. 

Under Law No. 21,210, which modernizes tax legislation, a temporary benefit of 50% instantaneous depreciation was incorporated for investment in fixed assets, whether new or imported, between October 1, 2019 and December 31, 2021. 

A 100% instantaneous depreciation was also incorporated for investments made in fixed assets in the Araucanía Region. The Project of Law proposes to extend the instantaneous depreciation to 100% for all investments in fixed assets made throughout the country and until December 31, 2022.

This will allow taxpayers to reduce, for tax purposes, the total value of the assets in the same year in which they are acquired. In addition, it is considered a regime of instantaneous amortization in respect of certain intangible assets that are protected under the industrial property law, copyright and new plant varieties, thus recognizing the various forms of investment and technological development that account for an increasingly digitalized Chilean economy. Therefore, these assets may be valued for tax purposes at Ps.1 in the same business year in which they were acquired. 

TAX RESOURCES WILL BE ALLOCATED FOR THE REGIONAL CONTRIBUTION OF 1% FOR PROJECTS INITIATED UNTIL 2021. 

With the purpose of reactivating large projects, tax resources will be allocated to pay the 1% regional contribution accrued with respect to projects that are subject to the Environmental Impact Assessment until December 31, 2021, provided that the execution of the works is started within a period not exceeding 3 years from the date of obtaining a favorable environmental qualification resolution.

These projects will thus be free of the 1% regional contribution, which will be financed with treasury resources. A transitory change is generated with respect to the person obliged to pay this contribution, who in accordance with Law No. 21,210 on tax modernization had established that this contribution was to be paid by the taxpayer who submitted an investment project to the SEIA.

CONCLUSION:

The above changes to the tax law will be extremely beneficial for companies who have faced a difficult year. 

The reduction of the corporate tax (first category tax) and the VAT Refund will benefit a wide range of companies. The goal being to free up cash for companies to invest, hire workers, and stay afloat. It will also reduce the amount of tax prepaid each month (PPM) which will again help free up cash for companies to spend in other areas. 

The 100% instant depreciation and non payment of regional contributions will encourage large investments. These benefits will be highly regarded and useful for companies. It will encourage investments to be made now rather than being put off for future years. Companies that take advantage of these changes.

Currently, the law is being discussed in the Chamber of Deputies but has a very good chance of being passed quickly and with a broad range of support. We will be providing further updates over the coming days and weeks. 

Harris Gomez Group is a Common Law firm, with offices in Santiago, Bogotá, and Sydney. We also have legal teams in Mexico, Peru, Ecuador, Brazil, and Argentina. Over the last 19 years, our team of English speaking Lawyers and Attorneys have been supporting foreign companies with their growth in Latin America. Many of our clients are technology companies, service providers and engineering companies that focus on the mining, energy and infrastructure markets. 

To better understand how we can support your management team in the Region, please contact Cody Mcfarlane at [email protected]