Chilean Government launches the “Let’s Invest in Chile” plan, which aims to increase investment through 28 specific measures

Chile’s Government has launched the new “Let’s Invest in Chile” plan, a strategy which aims to increase investment by five percentage points next year.

It consists of a package of measures based on recommendations from Chilean and international institutions, in addition to proposals from trade associations to boost the country’s economy. As investment is a key factor for driving growth, the Chilean Government recognizes the importance of providing assurance to the private sector and large companies that the country offers a favorable environment for investment, decarbonization, and green investment.

This plan, which will be implemented from September of this year, aims to revive investment through six areas of action and a total of 28 measures that will be assessed periodically by a public-private task force.

Measures

I. Tax incentives for private investment

1. Amendment to the compensation mechanism for deferring income tax payment through companies with passive income.

2. Creation of a tax incentive for investment projects with a multiplier effect and green projects. A US$500 million tax credit fund for first category (corporate) tax will be created, to be allocated to investment projects with a high multiplier effect.

3. A temporary semi-instantaneous depreciation mechanism will be applied during 2023. An extraordinary semi-instantaneous depreciation period will be opened for the whole of 2023, similar to the one that was opened during the 2020 tax reform.

4. Changes with regard to the treatment of tax losses will be postponed from coming into force. Losses can thus be set against future tax payments for all taxable income until 2024; in 2025, losses worth up to 80% of taxable income may be set against future tax payments; in 2026, up to 65%; and from 2027 onwards, losses worth up to 50% of taxable income may be set against future tax payments.

5. The ad valorem rate for new and expanding copper mining projects will be reduced. New copper mining projects will be exempt from paying the ad valorem royalty component for five years, so margins will not be impacted at the time that investment decisions are being made.

6. The reduction in first category tax for SMEs will be extended for two years. In 2023, a rate of 15% will be maintained, while in 2024 the rate will be 20%.

7. Elimination of the changes in the taxation of leasing contracts. The taxation of leasing contracts will be restored, such that the lessee can continue deducting the fees paid or accrued within the tax year as a deductible expense and the lessor will be able to depreciate those goods that are registered as assets.

II. Improvements in access to financing

8. The State will guarantee financing of the 10% mortgage deposit to buy a first home. This will allow banks to provide financing for up to 90%, with no additional costs for provisions to cover the credit risk. This will also result in lower savings requirements and greater dynamism in the real estate market.

9. Extension of the financing coverage for the purchase of new homes up to 100% for auctioned properties. The beneficiaries of this measure will be debtors who apply the DS01 and DS19 Section 3 subsidies, which correspond to homes worth more than UF 1,600 (55 million Chilean pesos, or US$56,000 approx.).

10. Chilean economic development agency CORFO second-tier credit program. In 2022, 64 billion Chilean pesos (US$65 million approx.) will be allocated to refinancing loans granted by banks and other non-financial institutions to small and medium-sized companies. In 2023, an additional 69 billion Chilean pesos (US$70 million approx.) will be allocated to green hydrogen projects and implementing the Chile Apoya (Chile Supports) Plan.

III. Improving public investment: Infrastructure for development

11. Increase in public investment in 2023 and improvement in administrative processes. Basic public investment will increase by 10% in 2023 compared to 2022. The Temporary Emergency Fund (TEF) will also be replaced by a US$1.84 billion Infrastructure for Development Program. Total public investment will thus be 30% higher in 2023 than in 2021.

12. The Public Investment Rules, Instructions, and Procedures will be updated in order to simplify the procedures for less complex works. This measure will be implemented in November 2022, and the delay in smaller projects is expected to be decreased by half.

13. Update of circular 33 in order to simplify the process for authorizing maintenance works. Maintenance works are investment projects that involve an amount of up to 30% of the cost of the total works. The Ministry of Social Development will be responsible for this measure, which will be implemented from January 2023.

14. Recovery of unfinished public works. The process through which a company abandons a project will be redesigned, in order to decrease the time required for resuming works and reduce the impact on its progress.

15. Extension of polynomial readjustment coverage. In August, the Ministry of Public Works began to extend polynomial readjustment coverage for public infrastructure contracts. This is an adjustment in payments that reflect variations in the cost of materials for works tendered by the ministry. Implementation will start with the tenders for new contracts from September 2022.

16. The regional investment portfolio will be coordinated with regional governments. A joint working agreement will be signed between regional and central authorities to plan the implementation of public investments each year.

17. Portfolio of investments with integrated production. A monitoring committee will be set up to oversee public investment that enables other investment projects.

18. BancoEstado Confirming: Chilean state-owned bank BancoEstado will introduce a confirming tool which makes it possible to bring forward the payment of invoices to suppliers through simple and fast transactions. The Ministry of Public Works will implement this tool with 663 contractors from September 2022.

19. Acceleration of the construction of high-quality bike lanes. High-quality projects will be developed to construct 190 km of bike lanes in cities with air pollution reduction plans.

20. Technical cooperation between the Development Bank of Latin America (CAF) and regional governments. Technical collaboration will be established from the fourth quarter of 2022 that will aim to assess the management capabilities of regional governments, identify technical shortfalls for implementing investments, develop capabilities, and strengthen competencies among teams.

IV. Promoting foreign investment

21. Investment attaché offices will be reopened abroad. Investment attaché offices will be reopened in Europe and North America during the fourth quarter of 2022. These markets account for 60% of the foreign direct investment (FDI) stock in Chile. This measure is expected to result in the materialization of projects worth more than US$1.5 billion in 2023.

22. Strengthening of the investment promotion team. The institutional structure and main functions of the agency will be ready during September 2022. This initiative is expected to significantly increase the number of investment projects and facilitate projects that are already under evaluation, attracting additional investment of more than US$2 billion in 2023.

V. Improvements in the effectiveness of regulation and permit procedures

23. The Ministry of Economy’s Large-Scale Projects Office will be strengthened. Greater resources will be provided for the digitalization of processes, with emphasis on strategic projects for the decarbonization of the energy matrix and fair socio-ecological transition.

24. Fund for strengthening critical services in the processing of projects. A special fund will be created in the 2023 budget to streamline the processing of the permits required for undertaking investments.

25. A coordinating agency will be created to implement a single point of contact for sectoral permits from 2023. A committee of experts will be entrusted with the design of a new institutional framework that effectively coordinates the granting of sectoral permits by the State.

VI. Public-private partnerships for investment

26. Public-private efforts to promote investment. Four public-private task forces will be convened in sectors including construction, energy, transport, and mining to create a set of measures that will reduce the number of stalled construction projects and generate more favorable conditions for upcoming projects.

27. Regional public investment operating committee coordinated by the Ministry of Economy. A permanent task force will be set up between the ministries of Energy, Mining and Economy; InvestChile; and the development and investment divisions of each regional government to periodically monitor the progress of projects in each region.

28. Public safety in production activities. A task force for collaboration and coordination between the agencies responsible for public order and private-sector organizations will be convened. This proposal is aligned with different trade associations, such as the association of power generators (Generadoras de Chile), the Federation of Chilean Industry (SOFOFA), and the Confederation of Production and Commerce (CPC).