February 25, 2020
Official Information

Tax modernization becomes law and will increase fiscal revenues by US$2,200 million

Tax modernization becomes law and will increase fiscal revenues by US$2,200 million
President Sebastián Piñera emphasized that the law is conducive to growth, investment and job creation. It offers special benefits for small and medium-sized businesses and senior citizens.

On Tuesday, President Sebastián Piñera stressed the importance of the promulgation of the Tax Modernization Law to promote and finance a new social agenda, with a focus on entrepreneurship, growth, support for senior citizens and the development of small and medium-sized businesses (SMEs).

“Today, more than ever, Chile needs to keep alive this spirit of dialogue, collaboration and agreement,” said the President, during a ceremony at which he was accompanied by First Lady Cecilia Morel and the Ministers of Finance, Economy, the President’s Office, Social Development, Labor, Science and Agriculture.

As a whole, the Tax Modernization Law is expected to increase fiscal revenues by US$2,200 million, equivalent to 0.6% of GDP, levied from higher-income Chileans.

The law establishes a 100% integrated regime for SMEs, with a reduced First Category Tax rate of 25%. This will automatically apply to companies whose average annual income over the previous three years does not exceed 75,000 UF.

“It establishes a regime that is favorable to and motivates and stimulates the growth and development of micro, small and medium-sized enterprises, benefiting over 1 million MSMEs in our country,” indicated President Piñera.

In addition, it offers an optional tax transparency regime for use by the owners of SMEs who are natural persons. In this case, the company will be tax-exempt and its owners will pay personal tax directly on the company’s earnings.

The law also simplifies the tax system, establishing a single semi-integrated regime, with a tax rate of 27%, for large companies.

Under the law, senior citizens with a monthly income of around 650,000 pesos will be exempt from property tax while those whose income is around 1.5 million pesos will see a 50% reduction.

“This Tax Modernization Law fulfills four objectives: to favor growth, investment and employment, to increase legal certainty and the simplicity of our tax system, to benefit the most disadvantaged sectors and to ask the best-off sectors to make an effort and additional contribution,” stressed President Piñera.

The law also includes progressive measures so that higher-income taxpayers contribute more resources. A new Global Complementary Tax (IGC) bracket, with a rate of 40%, will apply to monthly incomes of over 15 million pesos and a surcharge on property tax will be levied on real estate with a total tax assessment in excess of 400 million pesos.

A new 1% regional tax will apply to new investment projects of more than US$10 million that must be reviewed by the Environmental Impact Evaluation System.

“We [now] have a tax system that is much more pro-investment, pro-innovation and pro-entrepreneurship,” said President Piñera.

The law also calls for the creation of a Taxpayer Defense Service (DEDECON) to ensure protection of the rights of taxpayers, especially SMEs and the most vulnerable people. It will be able to represent these taxpayers before the National Tax Service (SII), advise them and mediate in conflicts with the SII as well as issuing technical opinions within its sphere of action and carrying out studies related to its responsibilities.