On September 20, 2021, the Executive submitted into the Chamber of Deputies a bill that increases the amount and coverage of certain pensions (the “Project”). To finance the increase in pensions, the Project proposes the modification of tax regulations that, unless expressly ruled, will enter into force in the month subsequent to the date of publication of the law. The main amendments are summarized below.
(i) 5% Sole Tax on Capital Gains on Instruments with High Stock Market Presence.
The Project eliminates, for all taxpayers that are not institutional investors, the exemption from income tax that currently benefits the profits obtained from the sale, generally on the stock market, of securities with a stock market presence or of certain funds whose underlying investment is securities with a stock market presence. In replacement of the exemption, the Project establishes a sole income tax of 5% in the same cases previously covered by the exemption.
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 31 of the year of acquisition, starting with the oldest, and without considering any kind 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 force of the law, their official closing price as of December 31, 2021.
The sole tax will be withheld by the acquirer or broker or securities agent acting on behalf of the seller, at the moment the price is paid. If the person obliged to withhold does not have sufficient information to determine the tax, he must withhold 3% of the sale price.
The sole tax will be applied after six months from the first day of the month following the publication of the law. Thus, for example, if the Project is approved in December 2021, the sole tax will levy on disposals of stock market securities that take place as of July 1, 2022.
(ii) Reduction and subsequent elimination of the special VAT credit to Construction Companies.
The Project eliminates the benefit that construction companies have to recover (i) 65% of the VAT that they recharge on the sale or lump sum construction of homes whose value does not exceed UF 2,000 (with a ceiling of UF 225 per home), as well as (ii) 12.35% of the value of sales of VAT-exempt homes acquired by beneficiaries of housing subsidies.
However, the Project (i) maintains the full benefit for sales or lump sum construction contracts entered into until December 31, 2021, if they have obtained the municipal building permit prior to said date and provided that as of December 31, 2021. December 2022 the works have already started; and (ii) it reduces the profit by half for sales or lump sum construction contracts that are entered into from January 1, 2022, provided that they obtain the respective municipal building permit and the works have started before 1 January 2024.
(iii) Extension of the General Taxed Fact 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 advisory services in general.
The Project proposes to establish, as a general rule, the allocation with VAT to all services as of January 1, 2022, including professional consulting or advisory services, except for express exceptions that include: (i) personal, dependent or independent services (existing exemption remains); and (ii) outpatient health benefits and procedures, when these are provided without accommodation, food, or medical treatments to restore health, which are typical of institutional health providers.
On the other hand, through the Project it is proposed to limit the scope of the VAT exemption to Correos de Chile only to correspondence services, excluding parcel or package delivery services.
(iv) Effective limitation of tax benefits related to affordable housing (DFL 2).
The reform 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. The modification would take effect as of January 1, 2022.
(v) Levy with Inheritance Tax and Donations to Benefits from Life Insurance.
The Project proposes 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.
The Project was entered urgently for Immediate Discussion; therefore, it is expected that within the next few days it will be discussed in the General and Particular Chamber of Deputies.
