This chapter contains a description of tax provisions applied to agriculture in 2019, unless otherwise specified. They include taxes on income and profit, property, good and services, environmental taxes, and tax incentives for R&D and innovation.
Taxation in Agriculture
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Chapter 8. Chile
Abstract
8.1. Overview
Agriculture is a significant sector of Chile’s economy and accounts for 2.9% of GDP and 9.3% of employment. The proportion of land used for agriculture is around 21% (i.e. the sum of annual and permanent crops; planted, permanent and rotational meadows; fallow and resting lands; and natural and improved pastures).
For tax purposes the sector is largely treated the same as other economic activities although farmers (as well as miners and transporters) with annual incomes below a certain low threshold are allowed to calculate taxable income on a presumed income and are not required to keep accounts. Annual property taxes on farmland are levied at a lower tax rate than other real estate (1% instead of 1.4%) on the value of the agricultural land assessed by the Internal Revenue Service rather than its market value.
8.2. Income taxation
Taxpayers who exploit agricultural land are subject to the general regime of the Income Tax Law (LIR) and therefore, the same First Category Tax (FCT) rates that affect all taxpayers are applied. Tax rates are 25% for taxpayers in the fully integrated system (i.e. tax is charged on income regardless of whether dividends are distributed) or 27% if taxpayers choose the partially integrated system (i.e. income is taxed only if dividends are distributed).
As a general rule under the LIR taxpayers must declare their activity’s taxable income based on accounts. However, Article 34 of the LIR establishes that taxpayers whose activity is the exploitation of agricultural land, mining, or transporting cargo or passengers, may choose to pay the FCT on the basis of a presumed income, thereby they are released from the obligation of having to keep accounts.
To benefit from this regime, farmers must meet the following requirements:
sales or annual net income of the first category must be below UTM1 9 000 (using the 2019 value of UTM, this is approximately CLP 432 000 or USD 640 000 per annum)
be natural persons who act as natural entrepreneurs, individual limited liability companies, communities, cooperatives, partnerships and stock companies, made up of individuals.
In addition, natural persons, owners of agricultural land, and members natural persons of companies that exploit agricultural land (as shareholders), are subject to the Global Complementary Tax with progressive rates for income brackets, or the Additional Tax, with a rate of 35%, if they lack residence or domicile in Chile.
8.3. Property taxation
There is an annual Territorial Tax of 1.4% levied on the official valuation of real estate. Farming properties are usually charged a lower tax rate of 1% applied to the assessed value of the agricultural land.
However for the four year period, from 1 January 2016 until 31 December 2019, the tax rate charged on agricultural real estate will be 0.86% (instead of 1%) due to a mechanism stipulated in the law that prevents increases of more of 10% of the tax to be paid arising from the appraisal of the value of land. Appraisals are undertaken every four years by the Internal Revenue Service, as explained below.
In accordance with Law No. 17.235, under the Territorial Tax, the Internal Revenue Service must appraise the value of agricultural land every four years. The appraisal of this land is determined by multiplying its surface according to its soil class (in hectares) by the unit value that corresponds to it (CLP/ha). This sum is then reduced by a percentage deduction according to the farm’s location, i.e. its distance from supply centres and services. In the event whereby one farm is made up of different soil types, prior to adjusting its appraisal value by its location, the assessed values of the different surfaces are added together according to their respective soil class unit value.
There are no transfer taxes in Chile currently levied on the sale of real estate, whether agricultural or non-agricultural.
8.4. Tax on goods and services
A standard value added tax (VAT) of 19% is charged on all goods and services. However, not all services are subject to VAT in Chile, including services that are directly related to agricultural activity.
Energy taxes apply on petrol and diesel oil used by land transport companies that transit through streets, roads and public roads. Excises taxes for petrol and diesel are levied at the time of first sale or importation on the producer or importer of the fuels. In the other sales of these products those taxes are not applied again. Exporters and people who carry out activities in which they do not use fuel to transit through streets and roads are able to recover this tax. Therefore, farmers are able to recover the specific tax on diesel oil consumed by the agricultural machinery they use in their exploitation. .
8.5. Environmental taxes
In 2017, Chile began applying a green tax on stationary sources emitting local (PM, NO, SO2) and global (CO2) pollutants. The tax is charged annually on the emissions produced by establishments whose fixed sources produce thermal power greater than or equal to 50 thermal megawatts, individually or as a whole. In the case of local pollutants, the tax is calculated using a formula which aims to recognise the damage generated by emissions. As a result, the tax is higher in areas with larger populations in which pollution levels are considered to be saturated or latent. For CO2 emissions, the tax is set at CLP or USD 5 for each tonne discharged. The tax does not apply to fixed sources that use non-conventional renewable energy sources which rely primarily on biomass. There are no special rules for the agricultural sector.
8.6. Tax incentives for R&D and innovation
Chile offers a R&D tax credit for the introduction of innovation. The R&D tax credit covers 35% of companies’ internal expenditures on R&D. However, there are no special rules for the agricultural sector. There is no information about the uptake by the agricultural sector of the tax credits in comparison to the industrial sector.
8.7. Other taxes
Chile does not provide any tax concessions to the agriculture sector through its social security system.
Note
← 1. UTM: Monthly tax unit which is equal to CLP 48 350 in 2019 (http://www.sii.cl/valores_y_fechas/utm/utm2019.htm)