Bill No. 17,725

Compensatory measures and their impact on high income individuals and investments

Bill 17725-05, in addition to introducing benefits for the middle class and SMEs, incorporates compensatory measures to maintain fiscal neutrality. These modifications primarily affect high-income taxpayers, investors, and collective investment structures, focusing tax increases on segments with greater tax-paying capacity.

Increase in Personal Income Tax Rates

The bill modifies the marginal rates of the two highest tax brackets for the Global Complementary Tax and the Single Second Category Tax, exclusively affecting individuals with monthly incomes exceeding 120 UTM (approximately USD $8,850 monthly), or annual incomes exceeding 120 UTA (approximately USD $106,200).

The 120-150 UTA bracket increases its marginal rate from 35% to 38%. For income exceeding 150 UTA, a new bracket is created with a marginal rate of 40%. These rates return to levels similar to those existing before Law No. 20,630.

The increase falls exclusively on the top income decile in the country. Individuals with income below 120 UTM per month experience no change whatsoever. Consistent with these changes, article 52 bis of the Income Tax Law, applicable to senior government officials, is also repealed, making them subject to the general tax scale.

Elimination of Exemption for Private Investment Funds

One of the most significant modifications for institutional investors is the elimination of the First Category Tax exemption for Private Investment Funds (FIPs). The bill subjects FIPs to the general regime of Article 14 A of the Income Tax Law, requiring them to pay First Category Tax (corporate tax) on their profits. Meanwhile, investors will be taxed on profits withdrawn, with credit for corporate tax paid by the FIP.

The exemption is maintained for FIPs that invest in venture capital. To qualify for this exception, the fund must maintain at least 85% of its assets invested in venture capital for 300 days per year (continuous or discontinuous). Funds must annually request certification from CORFO proving compliance.

This modification is particularly relevant for investors who use FIPs as wealth investment vehicles, as the elimination of the exemption would increase the effective tax burden.

Modifications to Investment Funds and Mutual Funds

The bill establishes that First Category Tax taxpayers who receive profits from Investment Funds or Mutual Funds must incorporate them into their taxable income for the fiscal year, paying corporate-level tax on them.

For contributors without domicile or residence in Chile, the bill increases the single tax rate on remitted profits from 10% to 20%.

Elimination of Capital Gains Exemptions

The bill eliminates two existing exemptions that benefit individuals in investment transactions.

Currently, capital gains from the sale of shares, rights on companies, mining claims, water rights, bonds, and debt securities are considered non-taxable income as long as they do not exceed 10 UTA annually (approximately USD $4,500). The bill would eliminate this exemption starting January 1, 2026, taxing all such gains.

On the other hand, both residents and non-residents individuals can currently access an exemption of 8,000 UF for gains on the sale of real estate in Chile. The modification would eliminate this possibility for individuals who are neither residents nor domiciled in the country.

The effective date is subject to legislative approval of the bill. Family offices, institutional investors, and high-income taxpayers should stay informed about the progress of the legislative process to timely adjust their wealth and investment strategies.

Note: This article is for informational and educational purposes regarding the bill under consideration. It does not constitute specific legal or tax advice. To evaluate the impact on your wealth situation or explore any of these topics in greater depth, contact us.