What Is the Chile Corporate Tax Rate?
Understand Chile's corporate tax framework, focusing on its integrated system that connects the tax on profits with the tax on owner distributions.
Chile’s corporate tax framework is an integrated system that taxes business profits at the corporate level and again upon distribution to owners, with mechanisms to prevent double taxation. The system’s core components are a primary corporate income tax and a subsequent tax on profit distributions. Understanding this interconnected relationship is fundamental to grasping how corporate income is taxed in the country.
The Main Corporate Income Tax Regimes
Chile has two main corporate income tax regimes, and the applicable regime depends on the company’s size and nature. The primary tax on corporate profits is the First-Category Tax (FCT), which is levied on a company’s annual accrued income. This tax is paid by the company directly, regardless of whether the profits are retained for reinvestment or distributed to the company’s owners.
For most large businesses, this tax operates under the Semi-Integrated System, with the FCT rate set at 27%. For small and medium-sized enterprises (SMEs) that meet certain annual sales limits, a separate, fully integrated system applies with a lower FCT rate of 25%.
A tax reform has been proposed in Chile that could alter this framework. The proposal includes reducing the main corporate income tax rate from 27% to 25%, creating a new 2% tax on corporate profits, and introducing a 22% “Tax on Capital Income” for profit distributions to individuals in non-treaty countries, which would not allow for any credit from the corporate tax paid.
Taxation of Profit Distributions
When a Chilean company distributes its profits to non-resident owners, a final withholding tax known as the Additional Tax is applied at a statutory rate of 35%. This tax is withheld by the distributing company and is calculated on a “grossed-up” amount, which represents the pre-tax profit that generated the distribution.
The integration between the FCT and the Additional Tax is a central feature of the system. Under the Semi-Integrated System, non-resident owners in countries without a tax treaty with Chile can only credit 65% of the FCT paid by the company, resulting in a higher overall tax burden. In contrast, non-resident owners in countries with an active tax treaty and all owners of companies under the SME regime are permitted to use 100% of the FCT as a credit.
For example, under the Semi-Integrated System, assume a company has profits of $100 and pays the 27% FCT, leaving $73 for distribution. When distributed to a non-resident owner in a non-treaty country, the taxable base is grossed-up to $100. The initial Additional Tax is $35, but the owner can credit 65% of the FCT ($17.55), resulting in a final tax of $17.45. If the owner were in a treaty country, they could credit the full $27, resulting in a final tax of only $8.
Calculating Taxable Income
A company’s taxable income, the base for the First-Category Tax, is determined by subtracting deductible expenses from total gross revenues. The general rule is that an expense must be necessary for producing the company’s income.
Examples of deductible expenses include:
- Employee salaries and benefits
- Rent for office or factory space
- Costs of raw materials and inventory
- Payments for services like utilities and telecommunications
The law also permits the deduction of depreciation on fixed assets, allowing companies to expense the cost of assets like machinery and vehicles over their useful lives. Certain expenditures are explicitly non-deductible, including the corporate income tax itself and penalties for legal infractions. The Chilean Internal Revenue Service (SII) requires that all claimed expenses be properly documented with invoices or other legally valid proof of payment.
Other Significant Business Taxes
Beyond income taxes, businesses in Chile are subject to other taxes. The most prominent is the Value-Added Tax (VAT), known locally as IVA, with a general rate of 19% applied to the sale of most goods and services. Companies charge IVA on their sales (a “VAT debit”) and are entitled to a credit for the IVA they pay on their own purchases and expenses (a “VAT credit”).
Each month or quarter, the business calculates the difference between the VAT debits and credits. If debits exceed credits, the company remits the difference to the tax authority; if credits exceed debits, the balance can often be carried forward.
Another tax is the Stamp Tax, which is levied on documents that formalize credit or financial operations, including promissory notes and certain loan agreements. The tax rate is 0.066% per month on the value of the document, with a maximum cap of 0.8%.
Tax Filing and Payment Obligations
Compliance with corporate tax obligations in Chile involves a structured annual and monthly process. The primary requirement is the filing of an annual income tax return, Form 22. This form is used to declare the company’s First-Category Tax liability for the preceding fiscal year, which aligns with the calendar year. The deadline for filing Form 22 is in April.
To ensure consistent tax collection, companies are required to make Monthly Provisional Payments (Pagos Provisionales Mensuales – PPM) toward their anticipated annual FCT liability. The PPM rate is determined based on the company’s past tax performance and is applied to monthly gross revenues. These payments act as an advance on the final tax bill.
All tax filings and payments are managed through the online portal of the Chilean Internal Revenue Service (Servicio de Impuestos Internos – SII). Businesses must register with the SII to obtain a tax identification number (RUT) and gain access to the online platform to fulfill their reporting duties.