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Projected Reforms for Capital Markets

18 Mar 2011

Over the past 10 years the Chilean Ministry of Finance has driven several reforms related to capital markets regulations to allow Chilean capital market development. Currently the authority is working on new amendments, "Mercado de Capitales Bicentenario". Their purpose is the achievement of greater liquidity, higher safety standards for transactions, more transparency and greater financial integration with global markets. Part of this ambitious reform plan is to regulate the tax applicable on derivatives and likewise to provide a unified legislation regarding investment funds, mutual funds and other funds regulated by Chilean Law. Taxand Chile reviews the projected reforms for capital markets matters and expected impact on the tax on foreign investors.

A bill regarding taxation of derivatives was sent to Congress in September 2010 by the Executive Branch and is currently being discussed. Please bear in mind that, unlike other jurisdictions, Chilean Tax Law is currently silent with respect to derivative contracts, which is a matter regulated only in relation to banking and capital markets. The purpose of this bill is to define taxation affecting derivatives contracts whether referring to a Chilean domiciled or resident party or non domiciled or resident party.

In relation to the second matter, government has announced its intention to file a bill to Congress during the first semester of this year 2011. For this purpose the Ministry of Finance created a work group with representatives of the public and the private sectors, who will develop and implement the referred "Funds Law". Luis Alberto Letelier based in Taxand Chile and a partner with Barros & Err?zuriz Abogados, has been invited to join this working group.

Specifically the proposal is designed to provide a simple and symmetrical legal frame referred to as the common aspects that the different funds have in Chile. The goal is to provide specific requirements considering the type and number of investors and the liquidity of the investment and likewise a common tax treatment. This amendment should be applicable to the following vehicles: Mutual Funds, Investment Funds regulated by Law N? 18.815, Foreign Capital Investment Funds regulated by Law N? 18.657 and Housing Funds regulated by Law N? 19.281.

Your Taxand contact for further queries is:
Carola Trucco
T. +562 378 8933

Taxand's Take

There are certain reforms on capital markets matters expected to have an impact on the tax on foreign investors. Such amendments should benefit foreign investors or at least clarify issues that were not clearly provided in the current tax legislation. Taxand Chile will continue to actively monitor the developments in this area and the impact of any proposals.

Taxand's Take Author

Carola Trucco