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Bill approved regarding the administration of funds and portfolios
The bill of the law referring to the administration of investment funds, mutual funds and individual portfolios (LUF) has just completed its third and final approval stage in the Chilean Congress. Taxand Chile discusses the main tax aspects of LUF.
LUF includes rules that clearly establish the tax treatment of funds, whether public or private, setting forth the Chilean Internal Revenue Service or Servicio de Impuestos Internos (SII)’s controlling authority and the information obligations that the manager companies must fulfill.
With regards to private investment funds, these remain in similar terms as they are currently under Law N°18,815, whereas additional restrictions regarding the independence of the manager company and minimum number of shareholders are provided, as well as the IRS’s greater oversight capacity.
Certain special rules of the current law are adjusted, which were originally considered to encourage foreign investment in Chile or the administration of foreign resources by local managers, with the purpose of providing the regulated funds sufficient mechanisms to transform Chile into a investment platform in the region. Therefore, in broad terms:
- Value Added Tax exemption is established regarding the management commissions corresponding to foreign investors
- A sole 10% tax to capital gains and distributions income for foreign investors is established
- A tax exemption for such investors is established as long as the fund (in general terms):
- (i) Invests at least 80% abroad
- (ii) Is obligated to annually distribute the total Chilean-investment income (only dividends and interests received from third parties in the case of mutual funds), distribution regarding which the foreign investor shall pay the referred to sole 10% tax or 4% in case such income arises from investments made in certain debt titles
LUF provides other amendments to different legal texts, especially adjustments to Chilean income tax law and to Law N°20,190, regarding risk capital incentive. Particularly Article 11 of Chilean income tax law remains applicable to investment funds (shares of funds that invests more than 90% abroad and the remaining percentage in Chile solely in certain bank titles are not considered to be situated in Chile for tax purposes) and new requirements are established so that investment funds shares can benefit from Article 107 of such law (tax exemption on capital gains for shares with stock market presence).
Likewise LUF provides several transitory rules regarding the validity and the date on which such law will be enforceable to the manager companies, funds, FICE and FICER and private funds, among others.
Also published in Thomson Reuters' Taxnet Pro, 29 November 2013
LUF contemplates a common-regulatory framework for investment funds and mutual industry that suppresses certain dissimilarities and rigidities of the current applicable rules. For these purposes, the LUF would mainly integrate the mutual funds and investment funds regulations, repealing the laws and regulations that currently rule such funds, which include foreign capital investments funds and foreign risk capital investment funds regulations (Law N°18,657).