Taxation

INCOMETAX

The architecture of the system General structure and concept of income

The Income Tax Law (Article 1 of DL 824 of 1974) taxes income in broad terms, as all benefits, profits and increases in net worth that are received, accrued or attributed, whatever their nature, origin or name. It combines a company-level tax with final taxes at the owner level. The company-level tax is the First Category Tax (IDPC). The final taxes are two: the Global Complementary Tax — on individuals domiciled or resident in Chile, on their worldwide income, at graduated rates — and the Additional Tax — on persons and entities without domicile or residence in Chile, on their Chilean-source income, generally at a 35% rate. There is also the Second Category Single Tax on employment income. The IDPC paid by the company operates as a full or partial credit against the owner’s final tax; this integration is the centerpiece of the system and defines the investment’s total burden.

Residence, domicile and source Persons and entities domiciled or resident in Chile are taxed on their worldwide income; non-residents, only on their Chilean-source income. This distinction determines the investor’s entire taxation. An individual is a resident when they remain in Chile, continuously or not, for more than 183 days within any twelve-month period. The Income Tax Law does not define domicile, so the Civil Code applies, which understands it as residence accompanied by the intention to remain. As an incentive, a foreigner who establishes domicile or residence in Chile is taxed only on Chilean-source income during the first three years, a period the authority may extend; thereafter, they are taxed on worldwide income. Income is Chilean-source when it derives from assets located in Chile or activities carried out in the country, regardless of the taxpayer’s domicile.

INCOMETAX

Income tax regimes

Law 21,210 of 2020 reorganized the income tax regimes by company size and nature of activity. The two relevant to most investors are the partially integrated general regime — or semi-integrated — and the Pro Pyme regime. The partially integrated general regime (Article 14, letter A of the LIR) is the rule for larger companies. It applies a 27% IDPC on net taxable income, determined under full accounting. Owners are taxed on withdrawal, remittance or distribution, and credit 65% of the IDPC; the remaining 35% must be clawed back, hence the name “partially integrated.” The Pro Pyme regime (Article 14, letter D, No. 3), for smaller companies, applies a permanent 25% IDPC on a cash flow basis and integrates the credit fully, without the 35% clawback. There are also the tax transparency regime, the presumed income regime — for certain agricultural, mining and transport activities — and a special regime for taxpayers whose owners are not subject to final taxes, such as foundations and corporations.

Regime Statute IDPC rate Credit integration Tax base

Pro Pyme Art. 14 D N° 3, 25% permanent; 12.5% for business years 100% (no Simplified cash flow general LIR (DL 824) 2025, 2026 and 2027, and 15% for business clawback) year 2028

Pro Pyme Art. 14 D N° 8, Exempt at company level Direct attribution Cash flow, taxed at transparent LIR (DL 824) to the owner owner level

Presumed Art. 34, LIR (DL IDPC on a presumed base, by activity By activity Presumed (percentage income 824) of a reference value)

INCOMETAX

First Category and Global Complementary taxes

First Category Tax The IDPC taxes capital income, per the classification of Article 20 of the LIR. It is a proportional-rate tax, declared and paid annually. It covers income from commerce, industry, mining, real estate exploitation, income from movable capital and, in general, any income whose taxation is not provided for in another category or exempted.

The tax base is net taxable income, determined by deducting direct costs from gross income, then necessary expenses, and applying the legal adjustments, including monetary correction for inflation. An expense is deductible when it is necessary to produce the income of the current or future years, relates to the business, is paid or owed in the period and is substantiated before the SII. For payments abroad, deduction is on a paid basis and requires the corresponding Additional Tax to be declared and paid. Tax losses are carried forward indefinitely, but not back; they are non-transferable and may only be used by whoever generated them. During the year, IDPC taxpayers make monthly provisional payments (PPM) on account of the annual tax, which is paid with the April return, adjusted for inflation.

Global Complementary Tax The Global Complementary Tax applies to individuals domiciled or resident in Chile on their worldwide income, at a progressive rate starting at 0% and reaching a top marginal rate of 40%. Its base gathers income withdrawn from or distributed by companies, gains on movable capital and employment income, the latter added only to increase the rate. The IDPC paid by the company on the profits it distributes is credited; when it exceeds the final tax, the individual may request a refund of the excess. Under the partially integrated regime, the creditable amount is 65% of the IDPC, raising the owner’s maximum burden to 44.45%.

INCOMETAX

Employment income and the Additional Tax

Second Category Single Tax The Second Category Single Tax applies to dependent employment income — wages, salaries and, in general, remuneration and pensions of those providing services under subordination and dependence — pursuant to Articles 42 No. 1 and 43 No. 1 of the LIR. It is a withholding tax; the employer deducts and remits it monthly, so the worker generally files no annual return for this income. Its rate is progressive in brackets over monthly remuneration, mirroring the Global Complementary Tax structure on a monthly basis. It starts with an exempt bracket and reaches a top marginal rate of 40%. Brackets are expressed in monthly tax units (UTM), which indexes the scale to inflation. The tax is “single” while the worker earns income from one employer only. When they receive simultaneous remuneration from more than one employer, or also earn other income subject to final taxes, they must re-liquidate in the annual Global Complementary Tax return, crediting the tax already withheld. Fees under Article 42 No. 2 of the LIR are not subject to this single tax; they are taxed under the Global Complementary Tax.

TAXBURDEN

Integration: 35% with a treaty, 44.45% without

The system integrates the company’s tax with the owner’s. The company pays IDPC; upon distributing profit, the owner pays the final tax and credits the IDPC already paid. The decisive question is what percentage of that credit can be applied, which under the partially integrated general regime depends on the owner’s residence. If resident in a country with a treaty in force, they credit 100% of the IDPC and the combined burden stays at 35%. If resident in a country without a treaty, they credit only 65%, must return the remaining 35%, and the combined burden rises to 44.45%. This same clawback affects individual shareholders resident in Chile. The table shows the mechanics on a profit of 100 under the partially integrated regime.

Item With treaty Without treaty

Net taxable income 100 100

IDPC (27%) paid by the company 27 27

Profit distributed to the foreign shareholder 73 73

Grossed-up Additional Tax base 100 100

Additional Tax (35%) 35 35

17.55 (65% of IDPC, after the IDPC credit (net of clawback) 27 (100% creditable) clawback)

Additional Tax payable (35 minus net credit) 8 17.45

Total tax burden 35% 44.45%

Net remittance received by the investor 65 55.55

Under the Pro Pyme regime the credit is applied in full, without clawback, so the owner’s combined burden does not reach 44.45% even if resident in a country without a treaty. This makes Pro Pyme attractive not only for its lower IDPC rate, but for its full integration.

IVA

Value Added Tax

VAT is an indirect consumption tax, governed by DL 825 of 1974, operating on a debit-and-credit basis. The VAT charged on the taxpayer’s sales and services is its fiscal debit; the VAT borne on its purchases is its fiscal credit. The difference, when debit exceeds credit, is the tax payable for the period. The general rate is 19%, set by Article 14 of DL 825, in force in 2026. As a general rule, taxable events include the habitual sale of tangible movable goods and constructed real estate located in Chile and services rendered or used in the country, plus imports, construction contracts, the leasing of furnished real estate and the licensing of trademarks, patents and processes.

Chilean VAT follows the destination principle. It taxes imports, but not exports; although exports are exempt, the exporter may recover the fiscal credit borne on purchases and services destined for its export activity, even through a cash refund. There is also a mechanism to recover VAT borne on fixed asset acquisitions, designed not to penalize investment.

Digital services from abroad Law 21,210 brought digital services provided from abroad into VAT. A foreign provider supplying remote services to be used in Chile by consumers who are not VAT taxpayers must charge and remit the tax, for services such as digital entertainment, software, storage, platforms, IT infrastructure and advertising. If the user in Chile is a VAT taxpayer, the obligation to declare and pay shifts to that user.

Exemptions and administration Among the exemptions relevant to the investor is the import of capital goods destined for investment projects, under the foreign investment framework, which requires an application to the Ministry of Finance and compliance with the requirements of Article 12, letter B of the VAT Law. Exports of goods and certain services classified as exports by the National Customs Service are also exempt. VAT is declared and paid monthly, no later than the 12th of the following month, extended to the 20th when filed online. The system requires documentary support — invoices, credit and debit notes, dispatch guides, today generally electronic — to use the credit-and-debit mechanism.

REMITTANCESABROAD

Taxation of foreign investment and remittances

A non-resident is taxed only on Chilean-source income. Remittances sent by the Chilean company or subsidiary to its foreign owners are, depending on their nature, subject to the Additional Tax at rates the law differentiates and treaties may reduce.

Profit distributions. Subject to a 35% Additional Tax, with the right to credit the IDPC under the integration rules already described. They produce the 35% burden with a treaty or 44.45% without one.

Interest. As a general rule, 35%. A reduced 4% rate applies to loans granted from abroad by foreign or international banks or financial institutions, subject to conditions; treaties may lower it, usually to 10% or 15% depending on the creditor’s country. The thin capitalization rule of Article 41 F of the LIR applies: when total annual indebtedness exceeds three times equity at year-end, the excess is taxed with a single 35% tax, with the right to credit the Additional Tax declared and paid on those items.

Royalties. As a general rule, 30% under Article 59 of the LIR. The rate drops to 15% for certain royalties, such as those paid for the use of invention patents, utility models, industrial designs and drawings, and for the use of certain computer programs, without prejudice to treaties. To deduct as an expense a royalty paid abroad to a related entity, the payment must not, as a general rule, exceed 4% of the year’s sales and services revenue, unless the rate in the beneficiary’s country is 30% or higher or the transaction is between unrelated parties.

Services. As a general rule, 35%, with a reduced 15% rate for certain engineering, technical and professional services rendered inside or outside Chile. The law exempts from withholding certain services rendered abroad — freight, loading and unloading, storage, certain insurance and reinsurance operations, export commissions, international telecommunications — subject to the requirements of Article 59 of the LIR and to treaties.

Indirect sales. Capital gains of a non-resident on the disposal of shares or rights in companies formed abroad are subject to a 35% Additional Tax when those companies have an underlying asset located in Chile and the legal requirements are met, regardless of the buyer’s domicile. This prevents the sale of a foreign company from leaving the underlying Chilean asset untaxed.

SME REGIMES

SME regimes and benefits

The Income Tax Law offers regimes aimed at small and medium-sized companies, introduced by Law 21,210 of 2020. To qualify as an SME, gross revenue must not exceed an average of UF 75,000 over the last three years, counting related parties, with a cap of UF 85,000 in any single year; effective capital at the start of activities must not exceed UF 85,000; and at least 65% of revenue must come from non-passive activities.

Pro Pyme general (Art. 14 D No. 3). A permanent 25% IDPC rate, temporarily reduced to 12.5% for business years 2025, 2026 and 2027, and to 15% for business year 2028, under Law 21,755, published on July 11, 2025; the temporary reduction is conditional on the employer contribution of the pension reform reaching the level set for each year. It is taxed on a cash flow basis, with immediate depreciation of fixed assets, and owners credit the IDPC paid in full, without the general regime’s 35% clawback. Disallowed expenses are subject to a 40% penalty tax. The PPM has a preferential 0.25% rate in the start-up year and when prior-year gross business revenue does not exceed UF 50,000; above that, the rate is 0.5%; the same Law 21,755 halved these provisional payments for business years 2025 to 2027.

Pro Pyme transparent (Art. 14 D No. 8). Available to SMEs whose owners are final-tax taxpayers, upon notice before the close of the fourth month of the year. The company is exempt from IDPC, and owners are taxed on an attributed basis on the income the company generates, regardless of withdrawals; the penalty tax on disallowed expenses does not apply. For structures with foreign investors, it requires verifying that the owners qualify as Global Complementary Tax or Additional Tax taxpayers.

Presumed income (Art. 34). An exception that can benefit agricultural, mining and transport SMEs, when effective income exceeds the presumed amount. The annual sales or net revenue limits are UF 9,000 for agriculture, UF 5,000 for transport and UF 17,000 for mining. Income is presumed at 10% of the property’s fiscal appraisal in agriculture; 10% of the vehicle’s current market value in transport; and per the legal scale on annual sales in mining. The option is exercised within the first four months of the year; whoever abandons it cannot return to it for five years.

Other benefits. The savings incentive of Article 14 E of the LIR, which allows deducting a portion of reinvested net taxable income, subject to a legal cap; instant or accelerated depreciation under certain regimes; and the fixed asset investment credit of Article 33 bis of the LIR, applied against the IDPC, with an annual cap of 500 UTM. Their availability depends on the regime, the revenue level and the type of asset or investment.

TRANSFER PRICING

Transfer pricing and anti-avoidance rules

Transfer pricing Cross-border transactions between a Chilean taxpayer and related parties abroad must be agreed at market values. Article 41 E of the LIR empowers the SII to challenge prices, values or returns when they do not reflect market conditions between independent parties, and imposes an annual transfer pricing sworn declaration filed each June. When the SII identifies a discrepancy with normal market value, the adjustment is subject to the single tax of the first paragraph of Article 21 of the LIR, currently 40%, plus a possible 5% fine on the difference under Article 41 E, unless the taxpayer timely provided the required information.

General anti-avoidance rule A hallmark of the system is the primacy of substance over form. Article 4 bis of the Tax Code requires tax obligations to be recognized and enforced according to the legal nature of the facts, acts or transactions performed, regardless of the form or name the parties gave them. It is the basis of the general anti-avoidance rule, which distinguishes two figures. Abuse of legal forms exists when, through acts with no relevant legal or economic result or effect other than the tax saving, the taxable event is avoided, the base is reduced or the obligation is deferred. Simulation exists when acts conceal the configuration of the taxable event, its true amount or its date. The law simultaneously recognizes legitimate tax options, allowing a reasonable choice among the alternatives the law itself provides.

LEY 21.713

The tax compliance reform

Law 21,713 of 2024 — enacted on October 21 and published on October 24, 2024 — reformed the tax compliance regime across the board. It amends the Tax Code, the Income Tax Law and the VAT Law, among other statutes. Its contents include the general anti-avoidance rule and the concept of abuse — adjusted shortly afterwards by Law 21,716 of 2024 — the SII’s access to banking information and bank secrecy, passive income, exporter VAT, purchases through digital platforms, the fight against informality and organized crime, and the creation of a Tax Council within the SII. The reform confirms the Chilean system’s direction toward greater compliance control. For the investor, aggressive tax planning has less room and transaction documentation gains importance.

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