laws are deductible, provided they are related to the normal activities of the company. However, income taxes and special contributions for promotion or improvement are not deductible.
Other significant items/Deductions for allowable grants may not exceed 2% of the taxable income or 1.6% of the net equity of the company at the end of the period.
Charges in respect of monetary correction, including exchange losses, are deductible, provided they arise from credits used for the company's business.
GROUP TAXATION
Consolidated returns are not allowed.
TAX INCENTIVES
Inward investment/The principal incentives are the following.
1.Tax benefits and other incentives for companies operating in the northernmost and southernmost parts of the country.
2.Tax benefits to forestry companies.
Capital investment/The principal incentives to encourage foreign capital contributions are statutory guarantees covering the repatriation of capital, remittance of profits, nondiscrimination toward foreign investment, and access to the foreign exchange market for remittance purposes. In general, foreign investors are subject to the same legislation as national investors. A guaranteed income tax rate of 42% may
be granted for 10 years or, provided the capital investment project exceeds US$50 million, 20 years
The Andean Pact is no longer in force in Chile.
Other incentives/The principal incentives for exports are as follows.
1.Reimbursement of taxes paid in the importation or acquisition of goods required in the export activity.
2.Payment of customs duties may be deferred for seven years in the case of certain capital goods and written off every year in the same proportion as the increase of exports of goods produced with the imported assets.
3.Chile has signed free-trade agreements with Mexico and Canada
and has joined Mercosur with associate member status. All these agreements provide for reduced customs duties.
WITHHOLDING TAXES
Dividends paid to a nonresident recipient are subject to a 35% withholding of Additional tax, with a credit available that is equivalent to the income tax effectively paid at the corporate level, corresponding to the First Category tax paid by the corporation. This credit is added to the amount that is distributed to form the taxable base for the Additional tax. Consequently, the tax burden for a nonresident recipient of
dividends, including taxes at the company level, is 35%.
Branches are subject to a 35% Additional tax on amounts remitted or withdrawn, less the 15% credit. See"Branch income" above.
In the case of a foreign investor that has applied for the 42% tax invariability, the effective tax burden is also 42%.
Interest and royalties paid to nonresidents are generally subject to a flat 35% and 30% Additional withholding tax, respectively. Interest on loans granted by foreign banking or other financial institutions is subject to a sole 4% Additional withholding tax, provided the credit has been approved by the Central Bank.
Tax treaties/Chile and Argentina ratified a treaty in 1986 to avoid double taxation, following the Andean Pact moded. The treaties with Canada and Mexico have been agreed, and aproveal is pending in the Chilean Congress. Chile has also ratified several treaties covering air and, in some cases, maritime traffic.
TAX ADMINISTRATION
Returns/The tax year coincides with the calendar year. The tax system is one of selfassessment by the taxpayer, with occasional auditing by the tax authorities. Tax returns must be filed with the IRS before April 30 of each year on income of the previous calendar year. Tax returns constitute a self-assessment.
Payment of tax/Taxes are payable at the time of submitting the annual tax return in April of each year. Taxpayers, in general, are subject to monthly advance payments on account of their yearly income taxes. The difference between the advance payments and the final tax bill is payable in cash at the time of filing the tax return. If perpayments exceed the final tax bill, the excess is reimbursed by the Teasury.
CORPORATION TAX CALCULATION
Payable in 2000 on 1999 income
DOMESTIC CORPORATION
Net income before taxes(Note 1)…………………C$1,000,000
Taxable income…………………………………… C$1,000,000
First Category tax-15%…………………………… (150,000)
Available for distribution
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