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Chile: New Economic Stimulus

On June 14, the Ministry of Finance and the three main opposition political parties reached an agreement on the new emergency plan to face the economic and social effects caused by the health emergency of COVID-19. 

This agreement contemplates 3 main pillars: (i) an additional fiscal framework up to US$12 billion over the next two years; (ii) protection of family income; (ii) economic and employment recovery plan. 

In words of the Ministry of Finance, “… the budgetary framework of the next budget law to be presented to Congress next September is defined in advance, where an expansive, extraordinary, and transitory fiscal scenario is established for the years 2020 and 2021, including the creation of the COVID Fund, with a commitment to medium-term fiscal consolidation from 2022, in order to contribute to the stabilization of public debt and the fundamental macroeconomic variables.” 

This means that the new stimulus has been built considering the future effects of Covid-19 and recovering the economy from the health emergency.

In relation with the economic aspect of this plan (economic stimulus), the main measures published are: 

Employment subsidies 

  • Temporarily increase the coverage of current hiring subsidies for youth and women from the most vulnerable 40% to 60%. 
  • Monthly subsidy for half a minimum wage for a period of 12 months with a gross remuneration cap of 20 UTM (CLP$1,000,000 approx.) 
  • Establish a hiring tax credit equivalent to 23% of the value of the remuneration of each new dependent worker.  

Measures of adaptability and flexibility of hours and functions

  • Allow our regulatory framework to temporarily introduce time and function adjustments so that workers can adapt to work in compliance with the new health regulations, to protect their health, give them security and respect minimum physical distance criteria, within the framework of recommendations of the health authority in this regard. 

Tax Incentives 

  • Reduces by half the first category tax of the Pro-Pyme regime of the income tax law for 2020, 2021 and 2022. 
  • Extend the suspension of PPM payment by 3 months. 
  • Exceptionally, make a refund of the remaining VAT (IVA) tax credit to SMEs (that meet conditions of good tax compliance). 
  • Extend the instant depreciation scheme to 100% until 12/31/2022. 
  • By 2021, release the regional contribution of 1% to investment projects, where said amount will be contributed to the regions at the expense of the tax coffers. 

Regulatory and time streamlining for investment projects 

  • Reduce regulatory deadlines and procedures within the administrative framework based on the recommendations of the National Productivity Commission. 
  • Reduce time for granting permits for investment starts and deadlines for environmental evaluation of large projects, also through administrative channels, ensuring strict compliance with environmental regulations. 

SME Financing 

  • Improvements to loans with the state guarantee FOGAPE-COVID, modifying the deductible and expanding guarantees for small businesses. 
  • Support to small companies through SERCOTEC, FOSIS, INDAP and CORFO programs (accelerate CRECE fund). 

Administrative facilities for re-entrepreneurship and recapitalization of SMEs 

  • That SMEs that start operations can have a one-year term to obtain all the essential permits.
  • Improve the company reorganization and liquidation law to reduce costs and reorganization times for SMEs. 
  • Encourage new legal and administrative vehicles to buy debt from the SMEs most affected by the crisis, with the option of capital conversion and keeping the original partners in the property. 

Decrease deadlines for State responses to SMEs and investors 

  • Strengthen professional teams to shorten response times to companies to facilitate reactivation. 

Facilitation of access to credit 

  • Grant partial state guarantee (60%) in bond issuance or obtaining credits from large companies not covered by the current FOGAPE-Covid
  • Specific interest rate in the market and the beneficiary pays the State a commission consistent with risk. 

Conclusion: 

The plan put forward has measures of various types (employment, tax, loans, etc.). SMEs are the main focus of these economic stimulus measures. In this way, with these benefits, the hope is that businesses are able to recover faster.

This agreement enhances the measures put forward in the first stimulus, with the Government as a guarantor in some cases, which shows a commitment from the State to help businesses affected by Covid-19. Without a doubt, there are some benefits such as cutting the corporate tax rate in half that will be hugely beneficial to companies operating in Chile since they will be carried forward into next year.

Harris Gomez Group is a Common Law firm, with offices in Santiago, Bogotá, and Sydney. We also have legal teams in Mexico, Peru, Ecuador, Brazil, and Argentina. Over the last 19 years, our team of English speaking Lawyers and Attorneys have been supporting foreign companies with their growth in Latin America. Many of our clients are technology companies, service providers and engineering companies that focus on the mining, energy and infrastructure markets.