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Chile Tax Update: Procedure to Apply for the New Tax Systems

Written by Osvaldo Cabezas and Karem Duffoo.

The new tax reform went into force on February 24, 2020. The attributed income system is eliminated and three new tax systems related to the first category taxpayers (“corporate tax”.) will come into force as of January 1, 2020, in addition to the presumed income system.

You can see our previous blog post here that details the new systems.

Recently, the Internal Revenue Service (hereinafter “SII”) issued the Exempt Resolution No. 82, with instructions about how to apply for the new Income Tax Systems,.

As we have pointed out in previous blogs, the following Income Tax systems were incorporated:

  1. General System of article 14 letters A) and B), for taxpayers who determine/do not determine their effective income according to complete accounting, respectively.
  2. Pro SME System of No. 3 letter D) of article 14, based on withdrawals or distributions.
  3. An optional regime of tax transparency of N ° 8 of letter D) of article 14 or “Pro Pyme Transparente”.

Therefore, considering the instructions established in said Resolution No. 82, companies will need to do the following to elect the tax system that they will be part of moving forward:

I. Registration in the new tax regimes.

To enroll in one of the new tax regimes, you have the following possibilities:

1. Future investors and recently incorporated companies.

Regarding future foreign investors who wish to open a company in Chile, there will be a web application of the Internal Revenue Service (www.sii.cl) to facilitate registration within a tax system. The process must be carried out once the company has been incorporated and obtained a tax identification number (RUT).

This also applies to all those taxpayers who have been registered within a tax system that is no longer in force. Specifically, all companies that started up their business from January 1st, 2020 to February 24th, 2020 (date of publication of Law 21.210).

2. Transfer of taxpayers subject to the systems of the previous law.

Internal Revenue Service carried out an automatic tax regime transfer, for those taxpayers who were subject to the previous tax systems.

For such automatic transfer of regime, the following criteria were considered:

  • Taxpayers who as of December 31st, 2019 were registered within article 14 ter letter A) (the old SME System) and fulfilled the requirements of the new “Pro Pyme Transparente” system, was transferred to this new regime.
  • Taxpayers who fulfilled the requirements of the new Pro Pyme System (independent of the tax regime to which they were subject as of December 31, 2019), were transferred to the said regime.
  • Taxpayers who did not meet the requirements of any Pro Pyme regimes (independent of the tax regime to which they were subject as of December 31, 2019), were transferred to the regime of letter A) of article 14.

Therefore, it will not be necessary to carry out any procedure, unless the taxpayer decides to modify the system initially assigned, as will be seen in point II below.

3. Automatic allocation for taxpayers who do not exercise the option.

Those taxpayers who do not opt ​​for a tax regime when starting their activities will be automatically part of an allocation process, where it will be assessed if they meet the requirements to benefit from the Pro Pyme regime, in which case they will be assigned such system.

Taxpayers who do not meet the respective requirements will be allocated within the general regime of letter A) of article 14.

The foregoing does not prevent taxpayers from changing their regime, under the terms of point II below.

II. Change of tax regime and type of accounting.

Those taxpayers who are already included in a tax regime may choose to change from said system. The aforementioned option must be exercised between January 1st and April 30th of each commercial year, excepting the year 2020, in which case it will be possible to carry it out until July 31, 2020.

Regarding SMEs, the Ministry of Finance is expected to issue a decree postponing the deadline for exercising this option, until September 30th, 2020.

In the future, those taxpayers who opt for the Pro Pyme Transparente regime will be able to do so until April 30th of the business year following the startup of their activities, to the extent that they had not made that choice before.

To modify the regime, the taxpayer must enter the SII website (www.sii.cl) and make said amendment through the application of Tax Regimes.

III. Forced change of tax regime.

If during the business year, the taxpayer ceases to meet the requirements to remain in one of the regimes, they must abandon it as of the following business year.

To do this, the tax regime must be modified according to its new characteristics, between January 1st and April 30th of the year following the non-compliance with the requirements, in accordance with the procedure established in the previous points.

Failure to make the change, in no case means that the taxpayer can remain in a regime for which does not meet the applicable requirements.

Conclusion:

It will be important for companies to understand the tax regimes and where they fit. In most cases, companies will most likely not need to do anything but it will be important for companies to review to ensure that this is the case.

We will inform our clients of any new modifications that may arise on the matter, particularly regarding the COVID outbreak.

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. 

To better understand how we can support your management team in the Region, please contact Cody Mcfarlane at cmm@hgomezgroup.com