Answer ... Public AIFs and private AIFs are tax transparent vehicles. As a result, they do not pay entity-level income taxes. However, all AIFs must obtain a tax identification number from the Chilean Internal Revenue Service (Servicio de Impuestos Internos (SII)). Authorised FMs and private FMs must account and report to the SII capital contributions, distributions and tax credits corresponding to participants in AIFs.
Answer ... Management fees and performance fees charged by authorised FMs or private FMs are taxed as compensation for services and are subject to value added tax. At the time of writing, the VAT rate in Chile is 19%.
Fees charged by advisers are also taxed as compensation for services and subject to VAT.
Fees from investments made by participants without a domicile or residence in Chile are nevertheless VAT exempt.
Answer ... Earnings by participants in an AIF are subject to income tax according to their particular tax status. Individuals and legal entities whose domicile or residence is in Chile are liable to taxation on their income from any source, whether in the country or overseas. Non-residents are subject to taxation only in connection with income that originates in Chile. In general, income is considered to originate in Chile when it arises from assets located or activities undertaken in Chile.
Participants in AIFs, whether organised as public AIFs or private AIFs, are subject to tax on distributions of the underlying income and gains of the fund. Although allocations of the underlying income and gains are periodically reflected in the net asset value of the fund units, capital appreciation of investments in AIFs is not taxed until the disposal of the fund units.
The Single Fund Act promoted foreign investments in Chilean AIFs by granting certain benefits to non-resident investors. Distributions of income and gains which non-residents participants receive from a Chilean AIF are subject to a single income tax at a rate of 10%, rather than the general income tax rate applicable to non-residents (35%). These distributions may even be tax exempt if the relevant AIF invests primarily in securities issued or assets located abroad and certain other regulatory requirements are met.
Answer ... Chile has committed and implemented procedures to follow the standards established in the US Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS).
In connection with FATCA, Chile has an Intergovernmental Agreement with the United States of America for Cooperation to Facilitate the Implementation of FATCA (IGA). Specifically, Chile has subscribed to IGA Model 2, which directs local financial institutions and their branches (FFIs) to enter into agreements with the US Internal Revenue Service (IRS) and make direct disclosure of their US accountholders. Pursuant to the IGA, local FFIs may be required to withhold on payments to recalcitrant accountholders (as defined in section 1471(d)(6) of the US IRS Code) and non-participating FFIs. The IGA also regulates the functions and obligations of the SII has and its interaction and collaboration duties with the IRS.
The CRS became fully effective in 2018. Chile signed the Convention on Mutual Administrative Assistance in Tax Matters in 2013 and primary legislation to implement the CRS was introduced in late 2017, enabling the SII to obtain information from FIIs on the holdings of non-residents. In September 2018 the necessary legal and regulatory framework for the introduction of the automatic exchange of financial accounts information entered into force, and FFIs must now submit yearly to the SII details on financial accounts held by non-residents.
Answer ... Since public AIFs and private AIFs do not pay entity-level income tax, when structuring an AIF, the main concern is to fulfil all requirements needed for the vehicle to qualify for and preserve the investment tax status. This is particularly relevant for private AIFs, as the Single Funds Act imposes corporate tax on all private AIFs that fail to comply with the fund tax status requirements.