The tax reform in Chile proposes two new tax systems: On one side, an attribution regime with a 25% tax rate corporate income, which will be immediately and automatically allocated or “attributed” to their shareholders (“Regime A”), with a final taxation of 35% on the top threshold bracket. On the other hand, a partial integrated regime will have a 27% corporate tax rate (“Regime B”) with a final taxation of 44.45% on the top threshold bracket.
The Semi-Integrated tax regime is based on complete accounting with partial attribution of the First Category Tax credit to business owners. Any segment can adhere to this regime and there is no income limit. This regime will enter into force as of January 2017. To adhere to these regime, taxpayers must inform the Internal Tax Service (SII, for its Spanish acronym) between June 1 and December 31, 2016 or at the start of activities.
The type of legal persons eligible to be part of the Semi-Integrated regime are:
- Open Stock Companies
- Closed Stock Companies
- Joint-stock Companies
- Limited Partnerships with Share Capital
To simplify the interaction of the tax systems, the general tax system is the Partially Integrated Tax System, and only exceptionally the Attributed Tax System. The companies that can apply to the regime A will be only those composed by natural persons under the umbrella of a limited liability company or as a permanent establishment.
Businesses under this regime must keep complete accounting ledgers, which include:
- Cash Flow Ledger
- Daily Ledger
- General Ledger
- Inventory Ledger
- Financial Statements
As well as complementary bookkeeping, which include:
- Daily Sales Ledger
- Wages Ledger
- Withheld Tax Ledger
In addition to records of:
- Own Attributed Income
- Exempt Income or Unearned Income
- Financial Profit Fund (difference between accelerated depreciation and normal depreciation)
- Income subject to Global Complementary Tax or Additional Tax
- Cumulative Balance of Loans
Under this tax regime, business owners must pay taxes based on their profit withdrawals. The First Category Tax for companies under this regime is 24% in 2016, will be of 25.5% in 2017 and of 27% as of 2018 and onwards. Regarding business owners, those that are residents in Chile must pay the Global Complementary Tax between 0% and 35%. If business owners reside abroad, or they are living less than 6 months in Chile – if it is more, they are considered residents for taxation purposes- they must pay the Additional Tax, which is 35%.
In this partial integrated regime, shareholders will still be allowed to defer personal and withholding taxes until such profits are effectively distributed. On the other hand, it only allows investors to use 65% of the credit for the taxes paid at the company level, which is why final taxation hikes up to 44.45%. It is important to note that there is an exemption, the 35% WHT will remain for foreign companies that originate from a country that Chile has a double taxation agreement in force with.
Those belonging to this regime must remain in it for five consecutive commercial years.
Additionally, taxpayers who have an average annual income equal to or below 100,000 Chilean Units of Account (UF, for its Spanish acronym) during the last three consecutive commercial years, can deduct from the Taxable Liquid Income an amount equivalent to up to 50% of the liquid income that remains invested in the company. The maximum deductible amount is of 4,000 UF. Articles 29 to 33 of Chile’s Income Tax Law stipulates the provisions to be followed in order for taxpayers to determine their taxable liquid income. Also, as of September 1, 2016, one UF is equivalent to 26,210.79 Chilean Pesos.
If you are unsure if your company should be in this regime or would like to learn more, both in terms of compliance and advantages, do not hesitate in contacting Biz Latin Hub. We will help you with your back office processes. Instead of pulling an all-nighter trying to understand this new regime, bookkeeping requirements, and legal implications, among others, you should call Biz Latin Hub, which already understands and knows Chilean tax and accounting laws and understands how to do business in Chile. For more information contact us firstname.lastname@example.org