Following tax reform changes in Chile (introduced by Law Nº 20,780), a new foreign investment statute is set to go into effect and replace the prior foreign investment regime. The new foreign investment statute will be effective when it is published in the official gazette.
This new foreign investment statute would allow for the continued enforceability of rights and liabilities arising from contracts already in place under the prior foreign investment regime (Decree Law 600) for the entire period of those contracts.
The new foreign investment statute also would authorize the Chilean president to establish strategies and policies for promoting and encouraging foreign direct investments in Chile. A new committee of ministers would be established to provide relevant advice to the president, and a new governmental agency would be established for promoting and encouraging foreign direct investment.
The new statute would apply for “foreign direct investment” in Chile, defined as:
Foreign direct investment also would include the investment—i.e., acquisition or shareholding—in a legal entity incorporated under the Chilean law that, directly or indirectly, grants to the foreign investor at least 10% of the voting rights in the Chilean entity.
Foreign investors would be entitled to repatriate the invested capital and net profits, after satisfying the applicable Chilean tax liabilities. Additionally, foreign investors will have access to the formal exchange market so that they could sell or acquire foreign currency needed for their investments or for organizing the invested capital and the net profits.
Under the new regime, foreign investors would be subject in all respects to the general tax rules (i.e., no “tax stability agreements” or tax invariability rulings).
However, value added tax (VAT) exemptions would be available for foreign investors and for Chilean companies receiving foreign investment, in connection with imports of capital assets for the development, exploration or exploitation in Chile of foreign direct investment projects.
The procedure for applying for the VAT exemption would be modified, beginning 1 January 2016. In this regard, the foreign direct investment project would have to have generate income (taxed, non-taxed or exempted from VAT) for at least 12 months, beginning from the date of the import or acquisition in Chile of the relevant capital assets. The VAT exemption request would have to be submitted to the Finance Ministry, which then would verify that the legal requirements were met.
For a period of four years, measured from 1 January 2016 (or from the date when the new statute becomes law if after 1 January 2016), foreign investors may apply the provisions available under the prior regime (Decree Law 600), and thus may avail themselves of the rights and liabilities under Decree Law 600 (including “tax stability agreements” whether applicable for income tax or mining tax).
Nevertheless, the tax rate applicable under the income tax stability agreement would be 44.45% (instead of the current 42% rate).
For more information, contact a tax professional with KPMG’s Latin America Markets practice or with the KPMG member firm in Chile:
(305) 913 2789
(562) 2798 1412
(562) 2798 1412
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