Tax benefits for donations

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On April 12, 2022, Law No. 21,440 was published, which amends Decree Law No. 3,063, of 1979, on Municipal Revenues, and creates a new regime of donations with tax benefits in support of non-profit entities.

Relevant points to be highlighted from this law are the following:

Donations, donors and donatees

Objects and Purposes: Donations may consist of money and/or tangible and intangible assets (the latter only if they are subject to registration by law, e.g., intellectual/industrial property, etc.). Also, the new purposes for which such donations can be made are: social development, community and housing development, health, education, science, culture, sports, environment, worship activities, gender equity and promotion of diversity, promotion and protection of human rights, child and family protection, protection of native peoples and migrants, strengthening of democracy, natural disasters, defense of animals, humanitarian aid in foreign countries and any other purpose of general interest being established by a supreme decree issued by the Ministry of Finance.

It should be noted that this new statute does not repeal any donation law currently in force.

Donors: Donations can be made by companies (also called First Category Income Taxpayers) and also individuals, and the latter regarding their personal income (Final Taxes Taxpayers) and/or their employment income (Second Category Taxpayers).

Donees: can only be non-profit entities that promote one or more of the purposes indicated above, of public benefit and that are registered in the public registry to be kept by the Ministry of Finance for such purpose.

Tax benefits
a) They will not be taxed with donations’ tax;
b) Shall be exempted from the “insinuation” procedure (authorization by a Tribunal required under the Chilean Law for regular donations); and
c) May be an accepted expense for tax purposes, as long as it does not exceed the limits established in the same regulation. In case of exceeding such limits, it will be considered a non-accepted expense, thus not reducing the tax base. The limit differs according to the type of donor:

• Taxpayers of the First Category Tax: they may deduct the lowest amount between 20,000 UTM (approx. US$ 1,360,000) and, at the donor’s choice, 5% of the taxable base, 4.8 per thousand of the tax equity or 1.6 per thousand of the effective capital. The indicated limits will apply even in case of tax loss.
• Taxpayers of the Second Category and Final Taxes: the deduction will correspond to the lowest amount between 10,000 UTM (approx. US$ 680,000) and 5% of the taxable base of the corresponding tax.

d) Will not be subject to the Global Limit established in Article 10 of Law No. 19,885, previously established for all the donations that were made subject to the Chilean Law.

It is worth mentioning that the tax benefits applicable to the donations covered by this law, as well as the public registry of non-profit entities, will become effective as of July 1 of this year. In addition to this, the regulation that establishes how to comply with the requirements for non- profit entities to be registered in the public registry shall be issued before July 12 of this year.

Mario Gorziglia
mgorziglia@prieto.cl

Leonidas Prieto
lprieto@prieto.cl

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