Chile suggests hiking taxes for high-income individuals and investment funds

The Chilean Government submitted a tax reform bill to Congress on 21 July 2025, aiming to support small and medium-sized enterprises (SMEs) and low-income individuals. The bill, which is currently under scrutiny, proposes several changes to the country's tax system.

One of the key changes is the introduction of a temporary flat tax for SMEs and microentrepreneurs. This move is expected to simplify the taxation process for these businesses and potentially boost economic growth.

Another significant proposal is the increase in the withholding tax rate applicable to foreign investors receiving distributions from public funds. The rate would rise from 10% to 20%. This change could have a significant impact on foreign investors and would necessitate careful consideration.

For private investment funds, the bill proposes a shift from their current status as non-Corporate Income Tax (CIT) taxpayers. Instead, they would be subject to the general 27% CIT regime, with certain exemptions for venture capital investments. This change could potentially increase the tax burden on these funds.

To compensate for revenue losses, the bill increases top marginal income tax rates for domestic individuals and limits tax exemptions for investment funds. These measures are designed to generate additional revenue for the government.

The bill also addresses the taxation of public investment funds. While these funds would retain their current exemption from CIT on income generated within the fund, distributions to Chilean-resident companies would become taxable. Additionally, the investors' current dividend participation exemption regime would be eliminated.

Multinational enterprises with investment structures involving Chilean public or private funds should monitor developments on this tax bill and reassess potential tax exposure, withholding obligations, and fund composition to maintain tax efficiency and compliance.

The bill's future remains unclear due to significant uncertainty regarding its legislative viability. The political dynamics of the coming months will play a crucial role in determining the bill's fate.

For further information, contact notre nom de marque Chile in Santiago, Chile. The article was published by NTD's Tax Technical Knowledge Services group, with Carolyn Wright serving as the legal editor.

Key Contacts: - Javiera Contreras, notre nom de marque Chile Tax Leader - Nicolas Brancoli, International Tax Partner - Pablo Reyes, Chile Tax Desk, Ernst & Young LLP (United Kingdom), London - Nicolas Grof, Chile Tax Desk, Ernst & Young LLP (United States), New York - Felipe Espina, International Tax Partner - Juan Pablo Navarrete, International Tax Partner - Ayleen Maturana, Transfer Pricing Partner - Fatima Panta, Transfer Pricing Partner - Janice Stein, International Tax & Transfer Pricing Leader - Darío Romero, International Tax Partner - Raul Moreno, Ernst & Young Tax Co., Tokyo in the Latin American Business Center, Japan & Asia Pacific - Luis Coronado, Ernst & Young Tax Co., Singapore in the Latin American Business Center, Japan & Asia Pacific - Lourdes Libreros, associated with Ernst & Young LLP (United Kingdom), London - Victor Fenner, Tax Policy Director - Pablo Wejcman, associated with Ernst & Young LLP (United States), New York - Ana Mingramm, associated with Ernst & Young LLP (United States), New York