CORPORATE TAXES SIGNIFICANT DEVELOPMENTS
There have been no significant tax or regulatory developments in the past year.
TAXES ON CORPORATE INCOME
First Category tax/The basic tax on income of a Chilean corporation engaged in commerce, mining, fishing, or industry is the First Category income tax, which is assessed at rate of 15%. Nondomiciled and nonresident shareholders and partners are subject to a 35% withholding of Additional tax on distribution or remittance, with a 15% credit granted, provided amounts distributed were subject to the First Category tax; this results in an effective tax rate of 35%.
CORPORATE RESIDENCE
Companies constituted in Chile are considered to be domiciled in the country.
OTHER TAXES
Value-added tax/Value-added tax is payable on transfers and services at a rate of 18%.The same tax is applicable to imports.
Special taxes/Alcoholic and nonalcohloic beverages and certain luxury items, such as jewels, are subject to additional sales taxes,ranging from 13% to 70%.
BRANCH INCOME
Branches are subject to the First Category income tax, assessed at a rate of 15%. They are also subject to a 35% Additional tax on amounts remitted or withdrawn during a given calendar year, less the 15% credit, payable in April of the year following distribution. At the time of distribution there is a 35% withholding less the 15% credit, which is offset against
the tax due in April. Thus, the tax burden for a branch is 35%.
INCOME DETERMINATION
Inventory valuation/LIFO is not allowed. Inventories must be valued in accordance with monetary correction provisions, basically by adjusting raw material content and dircet labor to replacement cost (which is generally the most recent cost),but excluding indirect costs. No conformity is required between book and tax reporting for income determination.
Capital gains/Capital gains are subject to normal taxation unless special provisions, such as those pertaining to gains on the sale of shares or monetary correction on capital repayments, establish exemptions.
Intercompany dividends/Dividends received from Chilean corporations are exempt from the First Category tax.
Foreign income/Resident corporations are subject to taxes on their worldwide income. In general, foreign income and dividends received by a domestic corporation are subject to Chilean taxation in the financial year when received.
A tax credit for taxes paid abroad is granted, subject to the regulations of the Income Tax Law.
Branches of foreign corporations are taxed on their income without regard to the results of the head office.
Stock dividends/Stock dividends are not taxed.
DEDUCTIONS
Depreciation and depletion/Depreciation rates are calculated on the estimated useful life ot the assets. The normal periods of depreciation for new assets working under normal conditions are as follows:heavy machinery, 20 years; trucks, 7 years; factory buildings, in general, 25 to 40 years. At the request of the Foreign Investment Committee or the taxpayer, the Internal Revenue Service(IRS) may reduce the normal useful life.
Taxpayers have the right to apply accelerated depreciation up to one-third of the normal useful life with regard to new or imported fixed assets, provided the normal period of depreciation is equal to or more than five years.
No conformity is required between book and tax depreciation.
Annual depreciation is taken by the straight-line method. Gains or losses at book value on the sale of fixed assets are considered operational profits or losses. Normally, the sale will not be subject to sales tax unless they are sold before 12 months from the date of acquisition. For tax purposes, depletion for natural mineral resources is allowed on a
unit-of-production basis.
Amortization of goodwill is not allowed for tax purposes.
Net operating losses/An indefinite carryforward of losses is allowed.
Consistent with monetary correction, losses are carried forward, adjusted by the cost-of-living increase. No carrybacks are allowed.
Payments to foreign affiliates/A recent amendment to the Income Tax Law established certain regulations for the deductibility of payments made abroad for the use of trademarks, patents, formulas, and consulting and similar services. These payments are a deductible expense up to a maximum of 4% of the income derived from sales and services in the corresponding year. There are some exceptions to this 4% limit.
The same amendment established certain transfer pricing regulations in connection with intercompany charges applicable to operations between a branch and its head office as well as between a foreign company and a Chilean company in which the former has direct or indirect participation.
Taxes/Taxes imposed by Chilean
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