On August 21st President Sebastián Piñera announced the main guidelines of a tax reform that will be submitted to Congress.

Baraona Marshall & Cia. has created this web page to contribute to the understanding and debate of the forthcoming tax modifications.  Information published in this website is of a general character and contents are not necessarily complete or strictly accurate.  Likewise, it is subject to updates and corrections on a permanent basis.

We invite you to collaborate with this initiative sending comments or documentation to comunicaciones@baraona.cl


The 2014 Tax Reform introduced major changes to Chile’s tax system. Then, in February 2016, Law No. 20,899 attempted to simplify that reform.

Until the approval of the new project, the Chilean Tax System has been transformed – in a simplified view- into:

The Ministry of Finance has set up an informative website on the 2018 Tax Modernization Project, which you can check in the link below.


FULl Integration

The current “attribution” income regime, whereby a company’s taxable income is allocated to the partners or shareholders, would be abolished. Also, the semi-integrated regime would be modified; therefore, the First Category Tax paid by companies would stand as full credit against the Global Complementary Tax and Additional Tax paid by individuals and foreign investors, respectively.

Compared to the current semi-integrated regime, the aggregate income-tax rate that would be applied on business income would decrease 945 bps (9.45%).  In the case of foreign investors, this reduction does not extend to investments from jurisdictions that have entered into a tax treaty with Chile, because they already benefit from this reduced rate under current law.

Compared to the current attribution regime, other than for SMEs, the reform implies an increase of the corporate tax  from 25% to 27%.  However, the aggregate income-tax burden remains at 35%.  In return, the Global Complementary Tax and Additional Tax would be applied only on effective distributions of profits or dividends, and not directly on the profits of the company, as it happens today.


SMEs would enter automatically into a single tax regime with the following characteristics:

  • Reduced 25% income tax rate.
  • Individual taxation based on actual distributions.
  • Instant depreciation of investments in fixed assets.

The reform would not increase the range of companies that qualify as SMEs, as was expected.


A series of reforms to provide greater legal assurances to taxpayers were announced.  These include:

  • Creation of the Defender of Taxpayer Rights (DEDECON).
  • Strengthening taxpayers’ rights.
  • Digital records of all audits and records.
  • Ability to settle tax litigation obtaining up to 100% waiver of interests and penalties.

Establishing a default positive resolution of any request presented by a taxpayer that is not timely resolved by the tax authority.


The general anti-avoidance rules would be modified.  The announcement suggests that the goal of the reform is to make the GAAR more effective and set clearer boundaries of application of the GAAR.

It will be necessary to analyze the specific text to determine whether the reform is able to reconcile both objectives.


The “modernization” aspects of the announced reform may end up being the more transcendental:


  • Amendment of the test for expense deduction. The reform would provide that all expenses linked to a taxable activity would be deductible, as opposed to the current itemized analysis of each expense’s ability to generate taxable income. Also, the business-judgment of the entrepreneur, as to what expenses are necessary, would be respected.
  • Update to the tax-free reorganization rules.
  • Update to the rules on international taxation.
  • Electronic Invoicing.

Taxpayer Rights

Creation of the «Defender of Taxpayer Rights» («DEDECON») and new catalog

The Reform creates a new entity, called Defender of Taxpayer Rights («DEDECON»), which reports to the Ministry of Finance. The DEDECON will be in charge of ensuring respect for the taxpayers‘ rights. Although it will not have jurisdictional or judicial representation powers, it will have a relevant role in mediating the conflicts that arise between the IRS and the taxpayers.

In addition, the entity may receive complaints from taxpayers, make recommendations, act as a mediation entity, assist in the agreements between the IRS and taxpayers, perform relevant studies in tax matters, propose amendments to tax regulations, develop research work, issue technical opinions, and have regular meetings with the IRS.

Likewise, the Reform amends Article 8 bis and 8 ter of the Tax Code as well as other norms that contemplate the faculties of the IRS. The Tax Reform establishes the following additional rights, among others:

  • The right to be informed of their tax situation and the status of a procedure;
  • The right to admit into evidence acts, contracts, etc., by means of evidence;
  • The right to not be required to meet unfulfilled requirements in the case of acts celebrated abroad;
  • The right to obtain certifications if there are no pending procedures; and
  • The right to not be audited for the same items and periods that have already been subject to a previous audit.


Currently, in the case of natural persons residents in Chile and who choose to pay based on the income received, in the case of transfer of shares, the greater value is subject to a Personal Income Tax at a rate equivalent to the marginal average rate of the Personal Income Tax during the period in which the taxpayer owned the shares. In the case of non-residents, a Withholding Tax at a 35% tax rate is applied.

The Tax Reform establishes the possibility for individuals to be subject to a single tax over capital gains at a 20% tax rate, thus reducing the current rate. However, this reduced capital gains tax rate of 20% only benefits natural persons who are residents in Chile.


As a revenue-generating measure, the Tax Reform establishes a transitional regime for 1 year, which will come into effect two months after the publication of the Reform.

Consequently, it will be possible to declare assets located abroad (rents and goods of all kinds, including real estate), and pay a single tax at a 10% tax rate of the equity value of the respective asset.

The equity value of the assets must be declared on the tax return for the 2020 Fiscal Year. 
The rate is higher than the 8% rate applied in the 2015 amnesty.


The reform would include a series of investment incentives, including:

  •  Instant depreciation of 100% of fixed-asset investments in the Araucanía region during the next two years.
  • Instant depreciation of 50% of fixed-asset investments during the next two years generally (other than in the Araucanía region).
  • The upper limit of the price of housing for the use of special VAT credit is raised from UF 2,000 to UF 4,000.
  • Shortening the term for the refund of VAT on the acquisition of fixed assets.
  • The special tax regimes for extreme zones is extended until 2035.

Accelerated depreciation

The Tax Reform proposes a transitional regime, granting the possibility of deducting from the taxable base of the Corporate Tax, 50% of the value of new or imported fixed assets (including work and construction investments), that were bought as part of the investment in a new project (broadly defined). The previous provided that the investment is made within 24 months after the approval of the Reform. The remaining 50% can be amortized according to the general rules (normal or accelerated depreciation).

    Substitute TAX

    30% tax on accumulated earnings, as a substitute of the personal income tax that would be payable by shareholders upon distribution (ie, dividends would be tax exempt for the shareholders).  Corporate taxes paid on the same earnings would be creditable towards the 30% tax.

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    responsibility limitation

    Contents and documents in this web page do not imply legal advice. It´s objective is merely informative and is subject to improvements and renovations as the project is fully reported and progresses in the different estates, until its publication. Baraona Marshall & Cia. is not responsible for the content of web pages with links to or from our website.