Reforming to Move Forward: Tax Reform Bill Under Discussion
CONTEXT
It is mid-April, and companies are reporting their tax position for the 2025 fiscal year. However, the tax landscape does not stand still. Through Presidential Message No. 018-374, dated April 22, the current administration has introduced a bill that combines the response to the Ñuble and Biobío emergency with several modifications to our tax system. The debate is no longer only whether a tax response to reconstruction was necessary, but rather what kind of reform emerges when that response is built upon ten measures that simultaneously affect the corporate tax rate, system integration, legal certainty, and asset regularization.
The Message proposes a set of permanent and temporary measures that significantly reshape the competitive position of the Chilean tax system while also front-loading revenue to finance reconstruction.
Over the past decade, Chilean tax reforms have generally moved in one direction: broadening tax bases, increasing rates (or applying restitution mechanisms), strengthening enforcement, and limiting special regimes or eliminating exemptions, under the assumption that the fiscal problem was primarily one of revenue. The Message shifts this strategy, arguing that part of the stagnation in investment and formal employment stems precisely from this cumulative dynamic. It proposes a course correction that combines structural relief, legal certainty, and temporary asset regularization mechanisms. In other words, it reopens a debate that seemed settled in Chile: how to balance tax burden while maintaining an attractive system.
A) System Structure: Corporate Tax Rate, Integration, and Certainty
The most notable change is the gradual reduction of the First Category (corporate) tax rate from the current 27% to a permanent 23% over four years: 25.5% for fiscal year 2027, 24% for 2028, and 23% from 2029 onward. This would affect companies currently under the partially integrated regime.
However, the reduction does not stand alone. It is accompanied by the reinstatement of full system integration through the gradual elimination of the 35% restitution requirement on corporate tax credits established in Articles 56 and 63 of the Income Tax Law. This restitution decreases from 35% to 30% in tax year 2028, to 20% in 2029, and reaches 0% from 2030 onward.
Together, these measures rebuild a framework lost after the elimination of the FUT as of December 31, 2016, which the Message explicitly links to Chile’s loss of competitiveness relative to OECD countries, where the average corporate tax rate is around 24%.
The bill also reinstates a contractual tax invariability regime for 25 years for investors (domestic or foreign) committing at least USD 50 million in productive projects (mining, energy, infrastructure, telecommunications, R&D, etc.).
Additionally, the Message proposes eliminating the 10% flat tax on capital gains from publicly traded securities introduced by Law No. 21,420. The bill restores the previous regime, under which such transactions were treated as non-taxable income, as was the case prior to September 2022.
B) Measures on Employment and Housing
Alongside the redesign of corporate taxation, the bill introduces a new tax credit to support formal employment (Article 33 ter of the Income Tax Law). The formula is progressive: 15% of gross wages for salaries up to 7.8 UTM, decreasing linearly until it phases out at 12 UTM.
The credit is structured to provide monthly liquidity: it is first applied against provisional monthly payments, then against VAT liabilities, and finally against corporate income tax, with carryforward indexed to UTM. In practice, this shifts part of labor costs from employers to the tax system, focusing on wage segments where informality is most prevalent.
Given current conditions in the real estate market, the government proposes:
- A temporary VAT exemption on the first sale of new homes (with municipal approval at the time of publication), valid for 12 months and applicable also to parking spaces and storage units sold together with the property.
- The creation of a permanent 5% flat tax regime on rental income from DFL 2 housing, mandatory for individuals from the third property onward and optional for qualifying legal entities, subject to size limits and minimum holding periods.
Additionally, a more socially oriented measure introduces a full exemption from property tax on the primary residence of owners over 65, subject to strict conditions and penalties for misuse.
C) Temporary Asset Regularization, Revenue Measures, and Family Planning
Several measures are explicitly revenue-oriented to finance reconstruction:
Capital Repatriation
A voluntary, extraordinary 12-month program allows the regularization of assets or income held abroad—including crypto assets—through a 10% flat tax, reduced to 7% if funds are repatriated and invested in Chile for at least five years. Declared value becomes the tax basis of the asset, effectively closing future tax exposure.
New Substitute Tax
A voluntary mechanism allows, for eight months, the taxation of accumulated balances (FUR, STUT, and excess withdrawals from historical FUT) at a 10% flat rate without credit rights.
Both mechanisms follow a familiar logic in Chilean tax history: accelerating revenue collection in exchange for closing uncertain or long-deferred tax liabilities.
A complementary measure introduces a temporary 50% reduction in the donations tax for one year, subject to formal requirements, legal inheritance rules, and caps relative to the donor’s net worth. It effectively encourages early intergenerational wealth transfers, generating upfront tax revenue.
D) Other Relevant Measures
The bill also includes complementary actions:
- Elimination of the SENCE tax incentive due to its high fiscal cost and limited evidence of effectiveness.
- Strengthening of the Internal Revenue Service’s audit powers, allowing broader access to cross-government data.
- Temporary tax debt relief programs with significant penalties and interest reductions.
- Municipal debt regularization mechanisms for local taxes and fees.
These measures aim to convert uncertain future collections into immediate fiscal revenue while improving taxpayer compliance.
E) Action Plan
From a technical perspective, the proposal raises a key design challenge: the corporate tax cut and full integration will only take full effect by 2029–2030, while asset regularization mechanisms take effect almost immediately.
This timing asymmetry raises questions about short-term fiscal sufficiency, the interaction of tax credits, and consistency with international commitments. For taxpayers, the temporary window requires proactive planning: reviewing historical balances, evaluating repatriation opportunities, considering donations, and assessing the impact of employment credits.
Rather than a closed solution, the bill invites a broader technical discussion among advisors, taxpayers, industry groups, academia, and government on how to balance gradualism, certainty, and revenue.
Unforced Errors: How Organizations Destroy Value from Within
Many organizations do not fail because of external conditions, competition, or even flawed strategies—often, their strategies are sound. They fail because they gradually begin to destroy value from within.
This process is subtle and progressive. It does not result from a single bad decision but from the accumulation of small inconsistencies in management. Over time, these erode the organization’s ability to sustain performance, often leading to serious financial issues.
These are akin to “unforced errors” in tennis—mistakes not imposed by external pressure but generated internally. They appear in projects lacking clear purpose or profitability, overlapping initiatives, and constantly shifting priorities that confuse teams.
Gradually, focus is lost. Direction becomes blurred—or worse, misguided. Talent leaves, teams become misaligned, and decisions—though well-intentioned—fragment rather than integrate. Initially, these errors may be financially sustainable, making them harder to detect, but over time they weaken the organization’s capacity to create value.
At the root is not necessarily a lack of technical capability or strategy, but a loss of coherence in three fundamental dimensions: governance, decision-making, and leadership.
Governance defines who decides, how decisions are made, and under what criteria. When clear, it enables alignment and efficiency; when diffuse, it leads to confusion, duplication, and weakened accountability.
Decision-making, as Herbert Simon argued, occurs under bounded rationality—limited information, pressure, and cognitive biases. The key is not speed, but sound judgment. Without it, decisions become reactive, fragmented, and inconsistent, gradually eroding financial strength.
Leadership is the ability to align people and give meaning to collective action. As Edgar Schein noted, leadership and culture are inseparable. Weak or inconsistent leadership fragments culture and weakens execution, making even good decisions difficult to implement.
Underlying all three is ethics—not as abstract principles, but as the framework guiding governance, decisions, and leadership. Drawing on the perspectives of Amartya Sen and Martha Nussbaum, organizational success should not be measured solely by outcomes, but by the capabilities it enables or restricts.
Ethics also involves recognizing one’s limitations—understanding where one adds value and where others should contribute. Many cases of value destruction stem not from bad intentions, but from the inability to acknowledge these limits and leverage collective strengths.
Ultimately, organizational problems rarely lie only in strategy or external conditions. More often, they are rooted in how the organization is managed—its governance, decision-making, leadership, and ethical coherence. Because while organizations create value externally, they can also, quietly, begin to lose it from within.