Given the unfortunate tragedy that affected the Valparaíso region, the possibility arises of supporting the recovery of the affected areas and for these purposes there are different donation laws applicable to the case.
Below, we explain how the main disaster donation schemes work and their respective tax benefits.
1. Donations under Article 7 of Law 16,282.
This regulation contained in Decree with Force of Law No. 104 of 1977 provides that donations made to the State, to natural or legal persons of public law, foundations or corporations of private law, universities recognized by the State, that allow satisfying the basic needs of food, shelter, housing, hygiene, decoration, debris removal, education, communication and transportation of the inhabitants of the affected areas will be guided by the following rules and benefits:
a) There must be a Supreme Decree that declares the existence of an earthquake or catastrophe in a specific area.
b) The object of the donation may be money or goods of any nature or kind, to the extent that they satisfy the basic needs stated above of the inhabitants of the affected areas.
c) Donors can be First Category taxpayer companies, even in a situation of tax loss, and Second Category taxpayer dependent or independent workers.
d) They will be exempt from the donation tax of Law 16,271, as well as from the insinuation process.
e) The donation will be deductible as an expense in the year in which it is made. In the case of donations in kind made by a First Category taxpayer, their tax cost will be considered for the purposes of their deduction. Regarding Second Category or Complementary Global taxpayers, the readjusted acquisition value will be considered.
f) The donation will constitute non-income income for the donee person or entity.
g) Does not establish a limit for the amount of the donation.
h) Donations made under the protection of this regulation are not subject to the absolute general limit (LGA, for its initials in Spanish) provided in article 10 of Law 19,885 on donations that give rise to tax benefits. They will not be considered in the total sum of donations affected by this limit.
i) Dones who receive this type of donation must present Affidavit No. 1832 in the following year. Their accreditation will be carried out by all means permitted by law, that is, all documentation associated with the donation and its delivery.
2. Donations in favor of the National Reconstruction Fund created by Law No. 20,444.
Article 1 of Law 20,444 creates the National Reconstruction Fund (“The Fund”) whose purpose is to finance the construction, reconstruction, replacement, remodeling, restoration or rehabilitation of infrastructure, facilities, historical architectural heritage of heritage areas and typical areas, works and equipment, located in the communes, provinces or regions affected by earthquakes, tsunamis, volcanic eruptions, floods, mudslides or other catastrophes that may occur in the national territory. Donations made to the Fund will be guided by the following rules and benefits:
a) The donation must be made within a maximum period of two years from the issuance of the Supreme Decree that indicates the areas affected by a catastrophe.
b) The object of the donation, as a general rule, is money. However, First Category taxpayers who declare effective income based on a balance sheet according to complete accounting may make donations in kind.
c) They will be exempt from the donation tax of Law 16,271, as well as from the insinuation process.
d) Regarding First Category taxpayers, the amount of the donation and its consequent tax benefit differs depending on whether it is destined to the Fund without a specific destination, or if it is destined to finance specific works: (i) In the first case, a credit equivalent to 50% of the amount of donations made may be allocated, and the part that cannot be allocated as a credit may be deducted as an expense; (ii) If it is destined for a specific work, there is only the possibility of deducting the total amount of the donation as an expense.
e) In both cases, the total amount of the tax benefits (whether deduction as an expense or credit) may not exceed the amount of the taxable net income of the year in which the donation is made, or 1.6 per thousand (0.16%) of the company’s own tax capital at the end of the corresponding year, at the taxpayer’s choice.
f) Second Category, Complementary Global and Additional Tax Taxpayers will be entitled to a credit against the respective tax, of 40% of the amount donated in the first two cases and 35% in the last.
g) Likewise, the heirs or legatees of a taxpayer who makes monetary donations prior to his death will have the right to have 40% of what was donated be allocated as a credit against the payment of Inheritance, Assignment or Donation Tax (IHAD, for its initials in Spanish), with no time limit between the donation being made and the death of the donor.
h) Monetary donations made by hereditary inheritances will also be entitled to credit, provided that they were made within a period of three years from the death of the deceased.
i) Donations made to the Fund will not be subject to the LGA of Law 19,885 nor will they be considered in the total sum of donations affected by this limit.
j) If donations are made in kind, they will be free of all types of taxes, duties, fees and all charges that must be collected by Customs.
