The law today
This Friday, July 1, the Ministry of Finance announced the main pillars of the new tax reform that the Government intends to implement gradually.
The first bill is expected to be submitted to Congress within the next few days for discussion.
According to the minutes presented by the Government, the first bill will include, among others, the following proposals:
1. The creation of new brackets and rates of the Global Complementary Tax and the Single Second Category Tax.
2. Wealth tax, to which natural persons with domicile or residence in Chile, whose net worth exceeds US$ 5,000,000, will be subject.
3. New royalty to large mining companies.
4. New general regime for large unintegrated companies that replaces the current semi-integrated system and reduction of the First Category Tax rate from 27% to 25%.
5. Limitation and elimination of certain tax exemptions and the implementation of a series of measures to combat tax evasion and avoidance.
During this week, an indication to the Bill that Reduces or Eliminates Tax Exemptions was admitted and approved by the Finance Committee, which establishes an annual tax on the net worth of individuals whose net worth exceeds USD 5,000,000.
a. Taxable event: Patrimony of individuals with domicile or residence in Chile exceeding USD 5,000,000 (in addition to the patrimony of their relatives: spouse or civil partner and children not legally emancipated).
b. Determination of net worth: The total assets owned by the taxpayer must be computed and valued according to their market value. It allows the deduction of debts as long as they are reliably evidenced.
c. Taxable base: That part of the patrimony of individuals that exceeds USD 5,000,000.
d. Rate: 1.5% on that part exceeding USD 5,000,000 and 2.5% on that part exceeding USD 22,000,000.
e. Residence rules: For tax purposes, all those individuals who have had domicile or residence in Chile during 3 of the last 5 years prior to the year in which the tax must be declared and paid are considered domiciled or resident in the country.
f. Accrual, declaration and payment: The tax will accrue on December 31 of each year and must be declared and paid within 6 months from the date of accrual.
According to the proposed transitory rule, this tax would become effective and accrue as of its publication in the Official Gazette, affecting individuals and estates that meet the requirements as of December 31, 2021.
On Monday, November 1, 2021, the presidential candidate of the Apruebo Dignidad pact, Gabriel Boric, published his government program. The N°3 of the Second Chapter of said program is called “Changes with fiscal responsibility: tax reform and fiscal strengthening”, which contains a tax reform proposal that, according to the text, would raise, in regime, 8% of the GDP. The following are the main tax reforms proposed by this candidate:
1. New income tax regime.
– Disintegration of income tax for large companies and investment companies (first category tax would lose the character of credit imputable against final taxes).
– Modification of brackets and rate increases of the Global Complementary New income tax regime.
2. Reduction of exemptions.
– Elimination of the presumptive income regime.
– Elimination of the tax exemption on capital gains obtained in sales of shares and quotas with stock market presence.
– Elimination of the benefits applicable to DFL 2 real estate.
– Reduction of the tax exemption amount on capital gains obtained in the sale of real estate and elimination of the single 10% tax rate.
– Elimination of the tax exemption applicable to capital gains obtained in the sale of real estate acquired before 2004.
– Elimination of inheritance tax exemption with respect to life insurance.
– Elimination of the special VAT credit applicable to construction companies.
– Elimination of First Category Tax exemption applicable to Private Investment Funds.
3. Wealth taxes.
– Wealth tax on high net worth individuals.
– Tax on retained earnings in companies whose taxation with final taxes is pending.
– Increase of the Land Tax surcharge and new real estate valuation rule.
– Modification of inheritance and gift tax.
4. Green taxes.
– Increase of the specific tax on fuels and elimination of exemptions from such tax for industries and transportation.
5. Royalty to the great copper mining industry.
6. Measures against tax evasion and avoidance
Reduction and elimination of tax exemptions contemplated in the Bill that strengthens the Solidarity Pillar.
Last Monday, September 20, the Government submitted to the Chamber of Representatives a bill that contemplates a series of amendments to the social security regulations, with the purpose of expanding and strengthening the Solidarity Pillar. Likewise, and with the purpose of financing such reform, the bill contemplates the reduction and elimination of certain benefits and tax exemptions, among them:
1. Single withholding tax, to be declared annually, and at a 5% rate on the higher value obtained in the sale in the stock exchange of certain instruments with stock exchange presence, which are carried out as from the sixth month after the publication of the law in the Official Gazette. Notwithstanding the above, the tax treatment of income not constituting income is maintained for the higher value obtained in the disposals that comply with such characteristics, but which are carried out by institutional investors.
2. The elimination of the special VAT credit for construction companies with respect to construction and sales contracts entered into as of January 1, 2024, and the transitory reduction of the amount to be deducted from PPM by such companies with respect to such contracts entered into as of January 1, 2022.
3. Introduces requirements for accessing the tax benefits provided for affordable housing under DFL2, among them, that, as of January 1, 2022, the benefited owners must be individuals, who may take advantage of such benefits for a maximum of 2 homes per person, regardless of their date of acquisition.
4. VAT will be levied on services rendered in general, except for express exemptions, establishing the general rule whereby all services rendered as from January 1, 2022 will be subject to VAT, except for those services that are expressly exempted..
5. To impose the Inheritance and Donations Tax on the amounts obtained under life insurance contracts entered into as from the publication of the law in the Official Gazette, which will cease to be considered as income not constituting income, and will be taxed with the referred tax.
6. Taxpayers’ duty to inform the SII (tax revenue) of their income not constituting income, through the incorporation of an express rule that empowers the SII (tax revenue) to request such information from taxpayers.
7. Exclusion from payment of property tax surcharge to the Treasury and Municipalities.
New tax measures and tax credits to support micro, small and medium-size companies in the crisis generated by Covid-19.
On June 17, Laws No. 21.353 and No. 21.354 were published in the Official Gazette, which establish a series of tax measures, as well as fiscal charge bonds, in order to alleviate the effects of the crisis generated by Covid-19. The first of these measures is intended to support micro, small and medium-sized companies, and the second to support micro and small companies that meet the legal requirements.
The tax measures contemplated in Law No. 21.353 consist of:
1. Temporary reduction of penal interest rate for SMEs: For those SMEs that comply with the requirements to benefit from the Pro SME Regime, the penal interest rate is temporarily reduced to zero, for each month or fraction of a month, in case of delinquency in the payment of any kind of taxes and contributions owed, with respect to the drafts made by the SII. This measure will be in force as from July 1, 2021 until December 31 of the same year.
2. Refund of remaining VAT tax credit to SMEs: For those companies that meet the requirements to qualify for the Pro SME Regime, and that keep a Purchase and Sales Register, the option is established to request a refund of the accumulated remaining VAT tax credit determined from the VAT return made in the months of July, August and September 2021, corresponding to the tax periods of June, July and August 2021. The Treasury will pay up to an amount equivalent to the amount of the remainder determined in accordance with the rules of Article 23 of the Sales and Services Tax Law. In order to access such refund, taxpayers must comply, as of the date of filing the application, with the following copulative requirements:
a. To have obtained income from sales and services of the line of business in at least 2 months, continuous or discontinuous, in the period between January 1 and May 31, 2021;
b. That the return for the month of June 2021 results in a remaining VAT tax credit, generated by the acquisition of goods or use of services between March 1 and May 31, 2021;
c. Not being in the causes b) and d) of Art. 59 bis of the Tax Code, that is to say, having repeatedly incurred in the infractions established in numbers 6, 7 or 15 of Article 97 of the referred norm; or, the taxpayer being formalized or accused according to the Criminal Procedural Code for tax crime, or being condemned for this type of crimes while serving his sentence;
d. To have filed all VAT returns for the last 36 tax periods;
e. That the operations in respect of which the refund is applicable are duly registered in the Register of Purchases and Sales;
f. Not to have any tax debt, except for those taxpayers who are in compliance with a payment agreement with the Treasury, or those who sign such agreements between June 17 and August 31, 2021.
This reimbursement may only be requested once, in any of the months of July, August or September, up to the limit of the remaining tax credit, determined in accordance with the rules of Article 23 of the Sales and Services Tax Law.
3. Extension of validity of provisional patents: For all those provisional patents that have expired during the validity of Decree No. 4 of 2020, of the Ministry of Health, which decrees sanitary alert, and its extensions. These will remain in force until the term of one year, which will be counted from the day after the sanitary alert established by the referred decree or its extensions is terminated.
4. Flexibility of payment agreements: It establishes that as from June 17, 2021 and until December 31 of the same year, exceptionally, the Treasury Service shall grant facilities of up to 4 years for the payment in periodic installments of the taxes owed. Likewise, at the date of execution of the respective agreement with the Treasury Service, the latter will waive all interest and penalties for late payment of taxes that are overdue as of June 30, 2021. Said agreements will not generate interest and penalties as long as the debtor is in compliance and keeps the payment agreement in force.
The same power is contemplated for municipalities with respect to municipal patents and patents on the sale and consumption of alcoholic beverages.
Law No. 21,354 establishes, among other measures:
1. Relief bonus to micro and small companies: For one time only, a tax charge bonus is granted amounting to $1,000,000 for individuals and legal entities that have started activities taxed with First Category Tax as of March 31, 2020, which copulatively:
a. Have annual income from sales and services in excess of 0.01 and less than 25,000 UF in the calendar year 2020;
b. Have obtained income from sales and services for at least 2 months, continuous or discontinuous, during the calendar years 2020 or 2021; or, have hired at least one worker during the calendar year 2020, according to the sworn statement No. 1887 on salaries, filed with the SII;
c. They meet the requirements to be eligible for the Pro-SME Regime; and
d. They do not perform financial and insurance activities according to the economic activity codes of the SII.
2. Additional Variable Bonus: For those taxpayers that meet the requirements of the Micro and Small Business Relief Bonus, an additional one-time tax charge bonus is established, the amount of which will be determined by multiplying by 3 the average VAT tax debit declared for sales and services for the 12 months of the calendar year 2019. However, the bonus may not exceed $2,000,000.
An increase of 20% is contemplated in both bonuses mentioned in N°1 and N°2 above, for those cases in which the taxpayer natural person and the holder of an individual limited liability company is female.
3. Bonus for the payment of contributions: For natural and legal person employers, who meet the requirements indicated in N°1 above to access the Relief Bonus for micro and small companies, whose worker or workers have had the effects of their contracts suspended, between the entry into force of Law No. 21. 227 and March 31, 2021, and who have received from the Unemployment Fund Management Company at least one payment under such suspension, may access, only once, to a tax bond equivalent to the amount necessary to finance the greater amount resulting from the accrual of social security contributions for January, February and March 2021, or the last month that records declared and unpaid contributions, if no workers were recorded during such period, as the case may be.
This bonus may only be requested by natural and legal person employers that have hired up to 49 workers as of March 31, 2021, i.e., considered as micro and small companies, in accordance with the provisions of Art. 505 bis of the Labor Code. Likewise, the income limit set forth in letter a) of No. 1 above shall not be applicable to them.
This bonus shall be exclusively destined to the payment of the social security contributions of the aforementioned workers.
The bonds mentioned in N° 1, 2 and 3 above shall not be subject to any tax.
Last Friday, April 30, the Ministry of Finance announced the extension of Operation Income 2021, establishing an extension of the deadline for the declaration and payment of Income Tax until May 31 of this year.
This measure will be implemented through the issuance of a decree, which is expected to be published this week.
On April 24, 2021, Decree No. 611 of the Ministry of Finance was published, which grants powers in tax matters to the agencies indicated to support families and micro, small and medium-sized companies.
This Decree authorizes, among others, to:
a) The mayors, prior agreement of the respective municipal council, to extend the payment dates of the municipal patent installments corresponding to companies whose sales of the line of business in 2020 have not exceeded UF 100,000 and to authorize these companies to pay their patents in up to 6 monthly installments.
b) To the Internal Revenue Service to extend the terms for the payment of the land tax installments due on April 30, June 30, September 30 and November 30, 2021, which may be paid in four installments in the terms of payment of the same installments corresponding to the land tax for the year 2022.
Extension applicable to properties whose tax appraisal, as of January 1, 2021, does not exceed UF 5,000. Taxpayers owning more than one real estate property, the benefit applies to the one with the highest tax appraisal.
c) The Internal Revenue Service to extend the deadlines for the payment of land tax installments due on April 30 and June 30, 2021, which may be paid in two installments within the deadlines for the payment of the same installments corresponding to the land tax for the first semester of 2022.
Extension applicable to companies whose sales in 2020 have not exceeded UF 100,000 and that have experienced a decrease of 30% of their average monthly sales in January and February 2021, with respect to the average monthly sales in the same period of 2020.
d) To the General Treasury of the Republic to an extraordinary remission of penal interests and fines that have their origin in taxes owed.
For purposes of the next income tax return, we suggest taxpayers who file their effective income according to full accounting to pay attention, among other things, to the following matters:
a) Possibility of deducting, totally or partially, as a necessary expense those credits that are overdue and unpaid according to the new N°4 of Article 31 of the Income Tax Law.
b) To analyze the convenience of taking advantage of the transitory instantaneous depreciation regime contained in the Twenty-Second Transitory Article of Law No. 21,210 (Tax Modernization Law) on the acquisition of fixed assets, new or imported, as of June 1, 2020.
c) Examine the alternative of taking advantage of the savings incentive established in letter E) of Article 14 of the Income Tax Law to the extent that the average annual income of its business does not exceed UF 100,000 in the three previous business years.
In business year 2020 (TA 2021), taxpayers who were under one of the general tax regimes in force until December 31, 2019 (Semi-Integrated Regime and Attributed Income Regime) were reclassified and automatically transferred by the Internal Revenue Service to one of the new general tax regimes (Semi-Integrated Regime or Pro-SME Regime).
However, it is the responsibility of each taxpayer to verify whether it was reclassified and transferred to the corresponding regime (and, in turn, to the one that is convenient for it).
In practice, it has been found that a significant number of taxpayers were incorporated into the Pro-Sme Regime, and that they did not meet, at the date of their transfer, the requirements to join and/or remain in such tax regime. Likewise, other taxpayers were excluded from the referred regime, being reclassified as large companies, however, they complied with the requirements of the SME Clause.
Taxpayers have until April 30, 2021 to join the general tax regime that corresponds to them and/or is convenient for AT2022.
On September 2, 2020, Law No. 21.256 was published, establishing tax measures that are part of the emergency plan for economic and employment reactivation within a medium-term fiscal convergence framework.
This new law, among other things, establishes the following:
a) A transitory decrease of the First Category Tax rate to 10% for companies under the Pro-SME Regime, with respect to the income they receive or accrue during business years 2020, 2021 and 2022.
b) The option for VAT taxpaying companies under the Pro-SME Regime that meet the requirements set forth in this law to request a refund of the accumulated remainder of the VAT tax credit determined in the VAT returns for the months of July, August or September 2020.
c) The option for taxpayers who declare the First Category Tax on effective income determined according to complete accounting to depreciate instantly and integrate the physical assets of the fixed assets acquired new or imported between June 1, 2020 and December 31, 2022. This exceptional depreciation regime will also be applicable to certain intangible assets acquired by this class of taxpayers during the same period for the interest, development or maintenance of the company.