Chile: Taxation Of Resident Entities

Last Updated: 24 September 1997

A resident company is liable for corporate income tax, called first category tax (impuesto de primera categoria), on its worldwide income. A company is considered resident if it has been constituted, incorporated, or set up in Chile.


The first category tax rate is currently 15%.


First category tax is levied on net taxable income, which is arrived at by deducting from gross accrued revenue the costs and expenses necessary to produce that revenue and then making adjustments for inflation in accordance with tax rules, a procedure referred to as monetary correction (see "ACCOUNTING FOR INFLATION"). Book profits and net taxable income normally differ.

Inventory Valuation

Normally, closing inventory is valued at the most recent cost. In the case of inventory acquired in Chile, cost is acquisition cost, plus, if the company chooses, freight and insurance as far as the company's warehouse, but excluding indirect costs. In the case of imported inventory, cost is the cost, insurance, and freight value of the goods, plus customs duties, clearance expenses, and again, if the company chooses, freight and insurance as far as its warehouse. The cost of sales must be determined by the first-in, first-out (FIFO) or average cost method. Whichever method is chosen must be used consistently for at least five years.

Dividend Income

Dividends received by one resident company from another resident company are exempt from first category tax in the recipient company's hands. If, however, a resident company has a current loss or accumulated losses brought forward from previous years, it may use the losses against dividends received in the current year from another resident company and thereby obtain a refund of the first category tax borne on the profits out of which the dividends are paid.

Foreign-Source Income

Foreign-source income is included in a resident company's taxable income after the deduction of foreign taxes, if no tax credit is available. When credit is available, gross foreign-source income is included in a resident company's taxable income, with a cap for foreign taxes of 15%.

Credit for withholding taxes abroad is available against the resident company's first category tax when the shares or rights in the foreign entity have been acquired through the bankers' foreign exchange market. The credit has a top limit of 15% of the grossed-up foreign-source income. Taxes on branch foreign-source income are also eligible for the credit when set up with funds sent through the bankers' foreign exchange market.

Capital Gains

In general, capital gains are treated as normal income subject to first category tax. A few gains, however, are exempt, and some other gains-such as those from the occasional disposal of shares held by a company for at least one year-are subject to a final, separate tax of 15%.

Exchange Differences

All exchange profits and losses are taxable and deductible, respectively, whether realized or unrealized.


In general, expenses are deductible, provided that they are necessary to generate taxable income, are paid or incurred in the period in which a deduction is sought, and can be substantiated to the satisfaction of the tax authorities.


For tax purposes, depreciation must be computed by the straight-line method over the asset's useful life. The tax authorities have specified the normal useful lives of fixed assets in different activities, such as manufacturing, mining, and fishing. In manufacturing, for example, the specified useful lives are 20 years for machinery in general, 10 years for heavy tools, 5 years for light tools, 10 years for cars and pickup trucks, and 25 to 100 years for buildings (depending on the structure). Fixed assets are revalued in accordance with monetary correction rules before depreciation rates are applied (see "ACCOUNTING FOR INFLATION").

A company may opt to apply accelerated depreciation to fixed assets that have a normal useful life of at least five years and that were purchased new in Chile or imported into Chile new or used. Under the accelerated depreciation system, the depreciation period is reduced to one-third of the asset's normal useful life, ignoring fractions of years. Thus, an asset whose normal useful life is nine years may be depreciated over three years, and an asset whose normal useful life is five years may be depreciated in one year.


Interest is deductible as it is incurred. Interest on amounts borrowed to finance the purchase of fixed assets must be capitalized until the assets start to be used for production.

Directors' and management remuneration

Normally, directors' and management remuneration may be deducted in full. The tax authorities may restrict the amount of the deduction, however, if they consider that a person with influence in the company has been paid an excessively high fee.


Chilean taxes other than income taxes and real estate tax are generally deductible. Real estate tax can usually be credited against first category tax.

Expense allocations

A company may not deduct allocations made to it of overhead expenses incurred by a foreign parent company or shareholder company.


A loss incurred in one year, adjusted for inflation, may be carried forward indefinitely for setoff against the profits of subsequent years. Losses may also be carried back indefinitely against the retained profits of prior years with the result that first category tax paid on those profits is refunded.

In a corporate merger, the absorbing company may not use the unrelieved losses of the absorbed companies for setoff against its own profits.

The information in this article was correct as of 9 July 1996.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information contact Anthony Cook, Deloitte & Touche, Santiago, Chile on Tel: +56 2 638 4186, Fax: +56 2 639 1522.

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