Key aspects of the tax credits, development tax and exemptions project

On february 26, the Ministry of Finance presented its proposal for the Tax Credits, Development Tax and Exemptions Law. This law establishes the creation of credits consisting of the allocation of a fixed amount against the first category tax (IDPC) to investment projects with a strong impact on the economy and a reduction of exemptions.

The most relevant aspects of the project are detailed below:

Tax credit

The initiative proposes the creation of tax credits, consisting of the allocation of a fixed amount against the IDPC to investment projects with a strong impact on the development of the economy. The allocation will be evaluated by a Committee of independent experts (Committee of Tax Benefits for Investment and Sustainable Development), through competitive, open mechanisms and with objective criteria, and will be awarded to those projects that obtain the highest score. The companies that have access to the amount of credit requested may use it to reduce the payment of IDPC, for an unlimited number of years, until the total imputation of the credit.

As a limit, no investment project may be awarded more than 20% of the total amount of the credit allocated for a given year, and no taxpayer, nor its related parties, may have access to more than 20% of the credits allocated for a given year.

Development Rate

Along with a reduction in the IDPC from 27% to 25%, a Development Tax of 1% of the net taxable income (RLI) is created, which may be fully deducted to credit expenses that benefit the productivity and competitiveness of companies and the economy.

Among the disbursements that may be credited against the Development Tax are:

• Romer Tax.
• Investment in private R&D: For the part that is not a credit against the IDPC through incentives to private R&D.
• Preparation, filing and defense of industrial patents.
• Acquisition of goods or services developed by companies with CORFO support.
• ISO certifications.

Regarding the “Romer Tax”, it is proposed to apply a variant of the tax proposed by Paul Romer, which was intended to finance sectoral public goods. Companies will be able to join Sector Innovation Boards, constituted to carry out research, development and open innovation, among several participants of an industry. The contributions made by the companies to the Innovation Boards will be creditable disbursements against the development tax.

Reduction of exemptions

Regarding this point, the project proposes the following:

• Raise the single tax on publicly traded capital gains from 10% to the rate to which all capital income is subject, maintaining the exemption for institutional investors.
• Tax with IDPC the profits generated by Private Investment Funds, except for those that prove that their investment policy is for venture capital.
• Eliminate the permanent deferral of the IDPC on dividends from Public Investment Funds to legal entities. In addition to eliminating the single 10% tax on distributions to foreign institutional investors, and taxing them according to the general rules.
• Reducing the presumptive income ceilings in all sectors (transportation, agriculture and mining) to 2,400 UF of sales.
• Limit the benefit to the deduction of interest on mortgage loans to a single loan.
• Focus the exemption of income from rental housing (DFL2) on middle-income sectors, excluding high-income individuals.
• Eliminate the exemption of 10 UTA on income from the sale of certain assets.

For more information on these topics you can contact our Tax team:

Rodrigo Albagli | Partner | ralbagli@az.cl

Álvaro Rosenblut | Partner | arosenblut@az.cl

David Ancelovici | Director Tax Group | dancelovici@az.cl

Pablo Trucco | Senior Associate | ptrucco@az.cl

Elisabet Pinto | Associate | epinto@az.cl

Valentina Herrera | Associate | vherrera@az.cl