Sandra Benedetto, Jonatan Israel and Nicolás Foppiano of PwC Chile discuss how the Chilean government has moved to assist businesses and taxpayers affected by the coronavirus outbreak.
On March 19, only 16 days after the first case of COVID-19 was confirmed in Chile, the Chilean government has followed the international trend of attempting to mitigate the economic effects caused by the pandemic by setting forth a series of measures through an economic emergency action plan.
The full suite of measures, which includes a range of employment, public health and tax actions, involves the spending of public funding equivalent to $11.75 billion, a sum equivalent to 4.7% of Chilean GDP. This is the most ambitious financial aid package in recent Chilean history.
The main goals of the tax measures are to protect jobs, companies and investments. In this sense, the measures are intended to grant liquidity to companies by postponing some tax obligations and reducing costs of obtaining finance. These measures are very significant and hopefully will assist Chilean companies to keep afloat during the mandatory quarantine period that has already begun.
Income tax measures
The most relevant measures affecting income tax relate to a suspension on the provisional monthly payments (PPMs) for three months beginning from April. PPMs are advanced income tax payments which have been made monthly by every tax payer, that are allocated against their yearly income tax obligation. This measure, applicable to all enterprises no matter the size, will make sure that such cash flow does not go directly to Chilean Treasury, allowing taxpayers to define a different use of such funds to more pressing matters.
Besides the above, for small and medium enterprises (SMEs), the income restitution that is generally performed in May will be moved to April, providing SMEs with more funds to comply with their different obligations. In respect to the payment of income tax for the commercial year 2019, SMEs will be allowed to make payments until July 2020 and not April 30, without accruing fines or interest.
Compliance obligations have also benefited as there have been some extensions in deadlines, mainly for those filings that were due by the end of March. The Chilean Internal Revenue Service (IRS) has accordingly extended the due date to the first days of April, while also allowing for online filing in most of the cases.
Finally, the Chilean government has announced that expenses incurred by companies that relate to the COVID-19 crisis will be deductible. This is only relevant for Chilean tax purpose expenses to be deductible when they are necessary to produce income.
SMEs, with sales equal or less than approximately $12 million, are allowed to defer the payment of VAT debit for the next three months from April onwards. These taxpayers will be able to pay the VAT debit corresponding to these three months in 6 or 12 installments with 0% interest rate.
Chilean stamp tax
The Chilean government sent a bill to congress to temporarily reduce the rate of Chilean stamp tax to 0%. The tax applies broadly to credit transactions, such as bank loans, credit lines and promissory notes, among others. This temporary reduction will last for six months.
The Chilean Congress has already approved this bill, which provides for an excellent incentive for companies to obtain debt financing through third or related parties with lower costs.
Other tax measures
SMEs have granted a deferral on their real estate tax obligations for assets with a fiscal value lower than approximately $160,000. The referred tax will be collected in three instalments together with the next three real estate tax installments in the months of June, September and November.
The Chilean government has also stated that in the case of tax debts, easements will be granted to reach payment agreements.