This income has three types of taxation at the present time:
- General Regimen
- Special Regimen for First Category Income Tax in Singular Character (in Spanish, IRPCU)
- Income not constituting taxable income according to Article 107 of the Income Tax Law (in Spanish, LIR)
These regimens apply until December 31, 2016. Changes established in the Tax Reform Act as contained in Law 20.780 will take effect on January 1, 2017.
Gain (Greater Value) Concept
Only the gain or the greater value of the sale value over the “acquisition cost” of the stock is subject to taxation.
The term acquisition cost refers to the effective, direct disbursement made to acquire shares (price per quantity) plus the monetary correction/adjustment depending on the Consumer Price Index (IPC) variation generated in the time span between the acquisition date and the date of the sale/transfer of the share.
Regularity Concept
A primary element to determine whether to apply the general regimen or the special regimen is the determination of whether the assignee (the seller) executes the operation with habitual or regular character.
- If it is habitual or regular, it is considered ordinary income subject to the general regimen
- If it is not habitual or regular, it is considered special income subject to the special regimen
Regularity is determined by a variety of criteria which are summarized in the following situations:
- If the taxpayer’s line of business is to be an investor in stocks, whether it is primary, secondary or when it is not mentioned, the General Manager is authorized to execute these operations on behalf of the company, it is considered regular by line of business and it is an ordinary income.
- If the taxpayer is not regular by line of business and less than a year has passed between the purchase date and the sale date, it is an ordinary income.
- If the taxpayer is not regular by line of business and more than a year has passed between the purchase date and the sale date, it is a special income.
- Regardless of the dates between the purchase and the sale or if it is regular by line of business, if a sale/transfer is made to a related organization (when the seller is the owner of the buyer), the transaction generates ordinary income.
- Even if the seller is regular by line of business and sells shares of a corporation of which, before the sale, the seller possessed more than 50% of the equity, for this specific sale it is not considered habitual or regular and special income is generated.
- If the seller is not regular by line of business and the shares sold were acquired before January 31, 1984, the gain or greater value is not taxable income.
Taxation under the General Regimen
This regimen consists of applying to the gain obtained: the First Category Income Tax (IRPC), the rate which is 22.5% for tax year 2015, and the Global Complementary or Additional Tax[1] (IGC-A) when the income is withdrawn by the owner of the company that made the sale/transfer (and paid the IRPC), or the natural person who executed the transaction affected by the IRPC and the ICG-A as applicable.
The IRPC is given as a credit against the IGC-A.
Taxation under the Special Regimen
In this case, the income generated is only taxed under the IRPCU, which means it is not re-taxed with the IGC-A.
Income Not Constituting Taxable Income According to Article 107 of the Income Tax Law (LIR)
This provision states that the gain is considered as non-taxable income, i.e., it is not affected by any tax and is not declared, when the following requirements apply both at the time of the acquisition of the share and at the time of the sale/transfer of the share. This only applies to corporations whose shares are traded publicly.
Requirements at the Moment of Acquisition
- Must be acquired in a stock exchange in a country authorized by the Securities and Insurance Commission (in Spanish, Superintendencia de Valores y Seguros, SVS)
- Must be acquired in a public securities offering (in Spanish, Oferta Pública de Adquisición, OPA)
- Must be “first issue” shares at the time of establishing a public corporation or in an increase in capital of a public corporation
- Must be acquired in an exchange of public securities
- Must be acquired in a redemption of securities under Article 109 of the Income Tax Law (LIR)
Requirements at the Moment of Sale/Transfer
- Must be sold/transferred in a transaction in a stock exchange authorized by the SVS
- Must be sold/transferred in public offering of securities, (OPA)
- Must be contributed to acquire the type of shares indicated in Article 109 of the Income Tax Law (LIR)
- At the date of the sale/transfer, must have market presence or have had it 90 days prior to the sale/transfer
[1] The Global Complementary Tax affects natural persons domiciled and residing in Chile and has a rate ranging from 4% to 40% depending on the section in accordance with the declared income. The Additional Tax affects natural or legal persons not domiciled nor residing in Chile, for Chilean source income generated in one business year. Its rate is 35%. As both taxes apply after an income being affected with the IRPC, they are designated together (IGC-A), not meaning they are a single tax.