Chile Raises Tax, Tightens Tax Rules

March 12, 2012 Taxation in Chile

ChileSANTIAGO – Chile is set to raise taxes for large companies, and tighten the rules on taxation of foreign companies, while lowering obligations for small companies and individuals.

During a television interview on March 11th the President of Chile Sebastian Pinera announced that, in an effort to raise funds for development projects and improve income distributions in the country, the government would soon introduce new legislation to maintain the corporate income tax rate at 20 percent and to tighten the rules surrounding taxation of foreign companies operating in Chile.

Following the earthquake in Chile in 2010, the government introduced a temporary change to the corporate tax regulations, hiking the tax rate from 18 percent to 20 percent in order to find extra revenues to fund reconstruction projects. The new legislation will maintain the current corporate tax rate into the future, effectively making the temporary increase permanent. The temporary tax measure was originally scheduled to be rolled back in 2013.

According to the President, in the future the funds raised by collections of the tax will specifically be used to pay for expansions and improvements in the national education system.

Sebastian Pinera indicated that the tax would only apply to the profits of large companies, and small enterprises would see a decrease in their cumulative tax liabilities. However, the President chose not to disclose any details on what form the reductions will take. He added that individuals will probably also see a drop in their tax obligations.

In an effort to raise greater tax revenues, the government will improve the current legislations and regulations surrounding the taxation of foreign companies, specifically with the aim of reducing the occurrence of tax evasion. The President said that work will be done to modernize the rules for transfer pricing and treatment of double taxation agreements.

The legislation to implement the described changes is expected to be brought in front of Congress in April.

Photo by srish