COVID-19: Tax measures to mitigate the economic impacts
COVID-19: Tax measures to mitigate the economic impacts
Alert Tax Chile
The Chilean government presented a series of measures aimed to mitigate the economic impacts of the public health crisis of COVID-19 by providing greater liquidity for individuals and small businesses and by increasing tax revenues available for the national government to address this complex situation.
The main tax and donation-related measures adopted are summarized below:
1. Expenses incurred in dealing with issues arising from COVID-19 will be tax-deductible:
In accordance with the new definition of “expense” incorporated to article 31 of the Income Tax Law (Ley de Impuesto a la Renta o “ITL”), amended through Tax Modernization Law No. 21,210 (Ley de Modernización Tributario o “Tax Modernization Law”), the Chilean tax authorities have indicated that “those expenses incurred, voluntarily or mandatorily, by taxpayers in avoiding, containing or decreasing the spread of COVID-19 will be tax-deductible”.
In that regard and through the related Regulation, issued for public consultation, the Chilean Internal Revenue Service (Servicio de Impuestos Internos or “SII”) stated that “expenses made to mitigate or reduce the effects [of COVID-19] that, in general, aim to safeguard the interest of the taxpayer’s business, guaranteeing, for example, its present or future incomes, maintenance of or support for its employees (including payment of salaries even if workers are unable to go to their places of work due to force majeure), the preparation of strategic business plans and the building of customer loyalty, to avoid greater future expenses or any other expense made in the interest of, or for the development or maintenance of the business” will be deductible for income tax purposes.
2. Temporary reduction of Stamp Tax to 0%:
Law No. 21,215 temporarily reduces Stamp Tax (Ley de Timbres y Estampillas or “ITE”) to 0% on taxable transactions as defined in articles 1 No.3, 2, 2bis and 3 of Decree Law No. 3,475 of 1980 and carried out between April 1, 2020 and September 30, 2020 (both dates inclusive).
The taxable transactions benefiting from this temporary reduction to 0% include numerous operations that taxpayers perform on a daily basis to finance their activities, such as bills of exchange, promissory notes, credit facilities and other documents establishing a credit transaction, as well as extensions and renewals thereof; mandatory import documentation and documentation required to bring foreign goods into tax-free zones; the issue of short-term bonds or debt securities, and refinancing operations.
3. Extension of deadline for the first installment of Property Tax payment:
Payment of the first Real Estate Tax (Impuesto Territorial) installment, due in April 2020, has been postponed, allowing the tax to be paid in three equal installments added to the next three installments falling due in June, September and November 2020.
Extension is available to individuals paying their income tax (Impuesto Global Complementario or “IGC” and Impuesto Único de Segunda Categoría or“IUSC”), in respect of their real estate with a fiscal appraisal lower than CLP 133,000,000 at March 2020.
Postponement also applies to companies paying the Corporate Tax (Impuesto de Primera Categoría or “IDPC”) whose annual revenues are below UF 350,000 (including income of related companies as defined in article 8 No. 17 a) and b) of the Tax Code).
4. Suspension of Monthly Provisional Income Tax Payments (Pagos Provisionales Mensuales or “PPM”):
The IRS was instructed to suspend the obligation to pay the monthly provisional income tax payments due in April, May and June of this year. This benefit applies to all taxpayers required to make monthly PPM, irrespective of their annual revenue. Nevertheless, in principle taxpayers remain obligated to declare their PPM amounts by presenting timely the pertinent form.
5. Early refund to taxpayers (April, 2020):
The IRS and the Chilean General Treasury (“Tesorería General de la República or TGR”) have been instructed to make the corresponding refunds requested by taxpayers in Form No. 22 –Annual Income Tax Form- for the corresponding tax year in April 2020, through electronic means.
This benefit will apply to taxpayers that meet the requirements of the special tax rules on small and medium-sized enterprises established in article 14 letter d) of the ITL.
6. Extension of deadline for paying Income Tax (until July 31, 2020):
Small and medium-sized enterprise taxpayers (as defined in article 14 letter d) of the ITL) can postpone the payment of income tax as stated on form 22 for the corresponding tax year until July 31, 2020.
7. Extension of the deadline for selecting the new tax regimes established in the Tax Modernization Law (until July 31, 2020):
Tax Modernization Law established new tax regimes applicable with respect to income generated this year.
The new legislation provides that taxpayers entitled to select from the different regimes available had to do so by April 30, 2020. In view of the situation surrounding the COVID-19 pandemic, this deadline has been extended until July 31, 2020.
8. Refund of tax withholdings for independent professionals:
As tax relief for independent professionals, the IRS and the TGR have been instructed to refund, in April 2020, taxes withheld to them in January and February of this year.
9. Relief for late-payment interest and fines
In connection with: (i) payers of ICG and IUSC with annual income up to 90 UTA; and (ii) payers of IDPC with annual income up to UF 350,000 (including income of related companies as defined in article 8 No. 17 a) and b) of the Tax Code), the TGR is empowered to offer payment relief through special agreements and, partially or fully, in respect of late-payment interest and fines on income tax and property tax payments or on amounts accrued in April, May and June 2020.
The IRS and the TGR are empowered to suspend late-payment interest and fines for late filing or other administrative aspects related with tax returns established in the ITL and in the Value Added Tax Law (Ley sobre Impuesto a las Ventas y Servicios or “VAT”) until September 30, 2020.
The IRS and the TGR are empowered to offer full or partial relief in respect of late-payment interest on property tax, until September 30, 2020.
10. Extension of deadline for payments of VAT under Form 29:
VAT payments deadlines for April, May and June 2020 will be postponed until July 2020.
Taxpayers qualifying as small and medium-sized enterprises under article 14 letter d) of the ITL can pay VAT owed for those three months in 12 monthly installments, duly adjusted.
Taxpayers that do not meet the requirements of article 14 letter d) of the ITL but whose annual revenues are below UF 350,000 (including revenues of related companies as defined in article 8 No. 17 a) and b) of the Tax Code), can paid VAT owed for those three months in six monthly installments, duly adjusted.
a. Extension of the possibility to donate under the provisions of article 10 of Law No. 19,885:
Under the amendments made through Law No. 21,210, IDPC and IGC taxpayers that were previously barred from making donations now they can do so.
For IDPC taxpayers, the amendment allows companies with tax losses to make tax-deductible donations, without considering these items as a disallowed expense subject to article 21 LIR. In these cases, the maximum amount of all donations (known as the Absolute Global Limit) will be, at the taxpayer’s discretion, the equivalent of either 4.5 per mille of its capital declared for tax purposes or 1.6 per mille of its effective capital (according to the definition of those concepts included in the Tax Code) unless another statutory limit applies.
For IGC taxpayers, the range of individuals that can avail of tax relief for donations has been extended to those calculating their income subject to IGC pursuant to article 50 or 54 LIR.
These amendments entered into force on March 1, 2020.
b. Donations to the State:
In its Regulation in public consultation, the SII reiterated its instructions regarding donations to the State, stating that such donations: “a) Are exempt from all taxes; b) Are considered a necessary expense to produce income for the purposes established in the ITL; c) Are not subject to the Absolute Global Limit established in article 10 of Law No. 19,885; and d) Do not require a judicial resolution authorizing the donation”. Furthermore, said draft Regulation also provides that “as established in Regulation No. 59 of 2018, the limit of 250 UTM does not apply for donations in kind or in cash made in times of national emergencies or disasters or with respect to assets nearing the end of their useful lives”.
c. Donations made pursuant to article 7 of Law No. 16,282:
Through the draft Regulation, the SII also reiterated its instructions in relationto article 7 of Law No. 16,282. Under said article, “donations made in times of national emergencies or disasters to the State, natural persons, public law legal entities, private law corporations or foundations, or state-accredited universities, or that Chile makes to another country, it order to meet basic needs (food, clothing, shelter, health, sanitation, public safety, removal of debris, education, communication and transport for residents of affected areas) will be exempt from all payments or levies, in the same conditions as indicated in Decree Law No. 45 of 1973 and will not be taken into account in the calculation of the limits established in article 10 of Law No. 19,885”.
These donations do not require judicial authorization and are exempt from Donations Tax (Impuesto a las Donaciones) under Law No. 16,271. The SII also notes that this rule only applies to cash or in-kind donations made from the donor’s asset base, which can be deducted from taxable income for income tax purposes. Pursuant to article 17 No. 9 of the ITL, for donation recipients, amounts received as donations are inflows not considered income. Recipients must file Affidavit No. 1832 in March of the year following the donation.
Lastly, the Ruling under public consultation establishes that imports and exports of in-kind donations made under the rule will not be subject to “any taxes, rights, fees or other charges whatsoever levied by Customs.”
 In general and for these purposes, small and medium-sized enterprises are companies whose gross annual income averages for the previous three years is equal to or less than UF 75,000.
 For these purposes and in general, the following are understood to be related parties: (i) the parent and its subsidiaries; and (ii) all entities under a single parent company. The parent company is defined as “any person or entity, or group of persons or entities, that through an explicit agreement for concerted action, directly or indirectly through other persons or entities, is the owner, usufructuary or, through any other title, owns or has the right to more than 50% of shares, rights, participation units, profits or revenue, or voting rights at the shareholders’ meeting of any other entity or company, the latter being considered subsidiaries.