Chile Approves Extensive Tax Reform

September 11, 2014 Taxation in Chile

CHILE – The government of Chile will use an array of new tax hikes to fund universal free education in the country.

On June 11th the Congress of Chile voted on and approved a new tax reform bill, which will raise taxes and provide funding for new projects aimed at reducing inequality in the country.

Under the conditions stipulated in the reform bill, the government will drop the current Taxable Profits Fund, which allows companies to obtain tax credits for reinvesting their profits.

Corporate tax system will also be overhauled, with companies now given the option of either paying 27 percent corporate income tax, with the ability to claim limited tax deductions for reinvesting some profits into pre-approved activities, or the alternative choice of paying a headline rate of 25 percent on corporate profits, along with an extra tax at a rate of 10 percent at a shareholder level, regardless of whether the profits are distributed or not.

The current corporate tax rate is set at 20 percent, with no extra taxes at the shareholders’ level.

New taxes will also be instated on carbon emission from thermo-electrical plants with a production capacity exceeding 50MW, along with alcohol, tobacco, and sugar sweetened beverages.

Alongside the tax hikes, the government will raise the threshold for its simplified tax payment system for small businesses, and will also introduce an “instant depreciation system” to help small businesses soften their initial financial burdens.

All of the extra funds to be collected from the new tax hikes will be used to provide free education from the primary level to university.

Photo By: Brian Turner