Governments enters bill that reduces or eliminate tax exemptions
Last Tuesday, December 21st 2021, the Executive submitted to the Chamber of Deputies a bill (the “Project”) by means of which the modification of various tax regulations is sought. The objective of the Project is to generate higher revenues to finance its Universal Guaranteed Pension (“PGU”) proposal presented on the same date.
Although the government had already promoted a bill with the objective of expanding and strengthening the solidarity pillar (“Short Pension Law”), this initiative was replaced by the current PGU proposal, processing in parallel the tax modifications required for its financing. It should be noted that was submitted with urgency and, therefore, should conclude its processing in the Chamber of Deputies within 15 days.
The Project promotes the modifications already analyzed in our Publication of September 21st, with the modifications described below:
- Single Tax on Capital Gains on Instruments with High Stock Market Presence
The Project maintains the tax for all taxpayers that are not institutional investors, but establishes a rate of 10% on the obtained profits. It should be noted that the Short Pension Law proposed a 5% rate in this regard.
The capital gain will be equal to the difference between the sale price of the respective security and, at the choice of the taxpayer: (i) its official closing price as of December 31st of the year of its acquisition, starting with the oldest, and does not contemplate any type of readjustment; (ii) its acquisition cost in accordance with the general rules, or (iii) in the case of instruments acquired prior to the entry into the force of the law, its official closing price as of December 31st, 2021.
Taxpayers without domicile or residence in Chile may only choose option (ii). Likewise, in such cases, the single tax will be withheld by the acquirer or broker or broker acting on behalf of the seller, at the time the price is paid. If the person obliged to withhold does not have enough information to determine the tax it must withhold 1% of the sale price.
- Reduction and subsequent elimination of the special VAT credit to Construction Companies.
The Project seeks to eliminate as of the year 2025 the benefit that construction companies have of recovering (i) 65% of the VAT that they charge on the sale or lump sum construction of homes whose value does not exceed UF 2,000 (with a ceiling of UF 225 per dwelling), as well as, and (ii) 12.35% of the value of sales of VAT-exempt homes acquired by beneficiaries of housing subsidies.
During the years 2023 and 2024, the benefits will remain in force, but with rates of 32.5% and 6.175%, respectively.
- Extension of the General Taxed Event VAT Services
Currently, only the services described in article 20 N ° 3 and 4 of the Income Tax Law (“LIR”) are taxed with VAT. These do not include, in general, professional services, consultancies and consultancies in general.
The Project proposes to establish, as a general rule, the allocation of VAT to all services as of January 1, 2023, except for express exceptions that include: (i) services provided by natural, dependent or independent persons; (ii) services provided by professional societies and (iii) health benefits and procedures of an outpatient nature and food or medical treatments to recover health that are typical of institutional health providers.
The Project differs from the Short Pension Law with respect to the date on which the modification would begin to take effect and the inclusion of the exemption for services provided by professional companies, among others.
- Effective limitation of tax benefits related to affordable housing (DFL 2)
The Project proposes to establish that the tax benefits that favor taxpayers who own affordable homes (tax exemptions; no allocation of rental income to final taxes; exclusion of the taxable base of the Inheritance and Donations Tax; among others) will only favor natural persons and up to the maximum limit of 2 dwellings, regardless of the date of acquisition of the property. In this way, the transitional rule that allowed real estate companies and natural persons to maintain the profit with respect to all DFL2 properties acquired before October 31sr, 2010 is eliminated.
Thus, the Project only modifies the Short Pension Law on the date on which it would come into force, that is, from January 1, 2023.
- Impairment with Inheritance Tax and Donations to Benefits from Life Insurance
The Project seeks to affect with Inheritance and Donations Tax all the benefits obtained by virtue of life insurance contracts that are entered into as of the publication of the law. Unlike the Short Pension Law, disability and survival insurance of Decree Law No. 3,500 of 1980 is excluded from this treatment, which will continue to be exempt from taxes.
For more information, check the processing of the project at this link.