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Amendments to income tax credits approved by Congress — Orbitax Tax News & Alerts

On 23 January 2007, the Senate approved a Bill on "investment incentives", which is consequently ready to be sanctioned by the President.

(a) The Bill modifies the tax credit for acquisition or construction of tangible fixed assets which may be set-off against the First Category Tax to be paid in the same tax period in which the acquisition takes place or the construction is completed (Art. 33 bis of the Income Tax Law). The Bill increases (i) the amount that may be deducted from 4% to 6% of the value of the tangible fixed assets acquired new or built during the tax period, and (ii) the maximum annual amount from 500 to 650 monthly tax unit (UTM). This is a transitory measure that would be in force until 31 December 2009.

(b) The Bill also modifies the tax credit granted for taxes paid abroad by harmonizing, in respect of dividends or profit distributions derived abroad, the maximum amount that may be set off against the domestic income tax to be paid in respect of the same income.

Currently, the unilateral tax credit for the avoidance of double taxation of foreign-source income is limited to the lesser of the foreign tax effectively paid or the First Category Tax (17%) calculated on the foreign-source income; and in respect of countries with which Chile has a tax treaty in force, the credit is granted with respect to all income referred to in the tax treaty up to 30%.

The Bill establishes that the foreign tax credit for each type of income is the lesser of the foreign tax effectively paid on the foreign-source income or 30% of the foreign source taxable income, as grossed up with the tax credit.