President Piñera welcomes the Tax Modernization bill becoming law as it will encourage equitable economic growth: "Now, more than ever, Chile needs to keep alive this spirit of dialogue"
The President stressed that this law favors growth, investment and jobs. It will increase tax revenues by US$2.2 billion, but offers special benefits for small- and medium-sized businesses and for senior citizens.
President Sebastián Piñera welcomed the enactment of the Tax Modernization bill this Tuesday. The bill will promote and finance a new social agenda, while maintaining focus on entrepreneurship, growth, support for senior citizens, and SME development.
“Now, more than ever, Chile needs to keep alive this spirit of dialogue, collaboration and agreement,” the President said during his address at a ceremony, which was also attended by First Lady Cecilia Morel, along with the following ministers: Treasury, Economy, Secretary General of the Presidency, Social Development, Employment, Science and Agriculture.
The Tax Modernization Law is expected to bring in total additional revenue of US$2.2 billion, equivalent to 0.6% of GDP, and requires greater contributions from Chileans with higher incomes.
It establishes a fully integrated regime for SMEs subject to a reduced corporate income tax rate of 25%, which will apply automatically to companies with average annual revenue over the last three years that does not exceed UF 75,000 (approximately US$2.6 million based on the current value of this index-linked unit).
“It establishes a favorable regime that will motivate and stimulate growth and the development of micro, small- and medium-sized enterprises, thereby benefiting over a million MSMEs in Chile,” the President said.
It establishes an optional tax transparency regime if the owners of SMEs are individuals. In this case, the company will not pay income tax and its owners will pay personal income tax directly on the company's profits.
It simplifies the tax system with a single semi-integrated regime for large companies subject to a corporate income tax rate of 27%.
The law exempts senior citizens from paying real estate taxes if their income is below around 650,000 Chilean pesos (around US$800) a month, and reduces these taxes by 50% if their income is below 1.5 million pesos (around US$1,845) a month.
President Piñera added "this Tax Modernization Law fulfills four objectives: it favors growth, investment and jobs; it secures greater legal certainty and simplicity for our taxation system; it benefits marginalized sectors; and it also asks for an additional commitment and contribution from the most privileged sectors."
Progressive collection measures will be implemented to ensure that higher-income taxpayers contribute more resources. A new band will be applied to the Overall Complementary Tax (Impuesto Global Complementario, IGC) with a 40% rate for taxpayers with monthly income over 15 million pesos (around US$18,000), and a surcharge will be applied to real estate taxes when the fiscal valuation of all a taxpayer’s properties exceeds 400 million pesos (around US$492,000).
It incorporates a regional contribution of 1% to new investment projects that exceed US$10 million and which are subject to Environmental Impact Assessments.
The President said, "We now have a taxation system that is far more pro-investment, pro-innovation and pro-entrepreneurship."
The law will also set up the Taxpayer's Ombudsman (Defensoría del Contribuyente, DEDECON), whose purpose is to protect and safeguard the rights of taxpayers, especially SMEs and the most vulnerable people, to represent these taxpayers with the Internal Revenue Service (SII), guide them, mediate in conflicts with the SII, issue technical opinions on matters that lie within its remit, and undertake research to fulfill its purpose.