10 de Diciembre, 2016
Chile Clarifies Investment Fund Rules After Tax Overhaul
Investment funds won't be subject to corporate income tax until they distribute returns to participants but will have to make monthly provisional tax payments, Chile's tax authority Servicio de Impuestos Internos has said in a new circular on the subject.
Published on Dec. 7, Circular No. 67 sets out SII's position on changes introduced through Chile's Single Tax Law (No. 20,712) to the way funds are taxed. The legislation, signed into law on Dec. 24, 2013, replaced four existing laws covering investment funds (Law No. 18,815), mutual funds (Decree Law 1,328), foreign capital and risk capital funds (Law No. 18,657) and fund managers (Law No. 18,045), with a single piece of legislation.
Under the new law, funds aren't subject to corporate income tax (for example, on capital gains earned through the acquisition of shares) so their income isn't taxed until it is distributed to participants.
For tax purposes, the law identifies three kinds of funds: mutual funds, investment funds and private investment funds —which have fewer than 50 participants.
Final contributors can claim back tax paid on fund's incomes, for example dividends from companies, as credit against their own tax.
Treatment of Private Funds Addressed
Circular 67, which was published after SII received 92 queries and comments from taxpayers, law firms, consultants and business associations, aims to clarify SII's position on a series of issues that aren't clear in the law, Fernando Leigh, a tax partner at EY Chile, told Bloomberg BNA on Dec. 20.
For example, private investment funds created before the Single Funds Law came into force must be treated as Sociedad Anonima (S.A.) if they don't comply with certain legal requisites. However, funds that are taxed as S.A. may not become a S.A. but rather must bring the business to a close and liquidate the assets.
SII also sets out that from 2015 private investment funds must pay monthly provisional tax payments like other companies. Offshore funds will continue to be exempt of tax in Chile even if they fail to fulfill the legal requisites.
Assets acquired by private investment funds prior to the implementation of the law may be costed against the profits to be distributed to participants.
Comments Sought on Other Changes
SII also published for public consultation a draft circular indicating modifications to the Single Funds Law by two major pieces of tax legislation approved by the current government, (Laws No. 20,780 and 20,899). Taxpayers have 10 days to comment via the SII's website.
Although funds won't be subject to either of the two regimes of corporate income tax created by the overhaul of the tax code, the draft rules make clear how payments between funds and companies subject to the semi-integrated regime will be treated.
Companies registered under the semi-integrated regime will pay corporate income tax at 27 percent on all income distributed to owners, partners or shareholders. They may claim back 65 percent of the tax paid by the company against their own tax bill.
Funds will be able to claim back as tax credit 65 percent of taxes paid outside of Chile, while profits distributed to foreigners will continue to be taxed at 10 percent.
Friendly Tax Regime for Investors
According to Leigh, the tax regime established for investment funds in Chile remains attractive for both local and foreign investors, with benefits on capital gains when selling quotas and allowing them to put off paying tax in some cases.
“It would have been good to establish greater incentives for foreign investors, but in general I don't see a setback,” the lawyer said.
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