Tax Increases in Chile

This post is from a Chilean reader of this blog. – Mark

A little help to your readers about a Tax Reform under heavy discussion in Chile presently.

Basically is going to affect much more Chilean business owners than foreigners. The reason? Foreigners have paid since very long a general income tax burden in Chile of 35%. However the higher bracket for wealthy Chileans is 40% today. It has meant a discrimination against wealthy Chileans. Some indications rise above the 40% the taxation for Chileans. Other indication level it to the same level than foreigners. The tax reform is still on the war zone, receiving bullets and bombs from the left wing and the right wing. So, the final outcome is unknown.

However, there are no indications at all to raise the 35% income tax applied to foreigners. Companies pay thus far a 20% corporate tax on accrued profits, but business owners had been able to deduct from his personal taxation, the amount paid by the company. So, a foreign business owner has to pay the difference when he withdraw his profits. It means the remaining 15%. Chileans do the same, when he withdraw the profits for personal use, he must pay the difference on April of each year.

The tax reform is rising the corporate tax on profits from 20% to 27%. This is one of the big changes. So, it means that foreigners will have to pay the difference: 8% when withdrawing profits. The final tax burden of investing in Chile may be lower for a foreigner if his country has an agreement with Chile to avoid double taxation or of he can use the amount paid in Chile as a credit to deduct from his taxation elsewhere.

However there is another big change against Chilean business owners. Presently we can deduct 100% of the corporate tax from our personal taxation. The taxation alien under cross fire, is coming out with the idea of allowing a 65% use of such corporate tax. So, Chilean business owner will actually pay more taxes. None of this has been said to be applied to foreigners yet.

The tax reform has other edges applied to foreigners, as eliminating DL 600, eliminating advantages for existing companies regarding accumulated gains and losses, etc. but it will make this post too lengthy. The tax reform is going to be revised by the Camara de Diputados ( The House of Representatives) for second time after modifications done on the Senate. So, there are some changes to be cooked by the House Chefs. The left wing Chef wants to add more chili and spices to the seafood paella and the right wing Chef wants to transform it on a chocolate fondue !! So, we still may expect a new dish, that as usual, all politicians from both sides, will celebrate as a victory. Nothing better to raise hope and health, to listen politicians after any election or big reforms: They are all happy and they are all winners. However, on the back stage, some will need more than a glass, they will command for a case of bottles to digest the new tax burden. At the end, as always, all of them will be “winers”.

My best regards

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