WORLD TRADE  
ORGANIZATION  G/SCM/N/95/CHL 
24 March 2004 
 (04-1318) 
Committee on Subsidies and Countervailing Measures Original:   Spanish 
  
SUBSIDIES 
 
Updating and New and Full Notifications Pursuant to Article XVI.1 of the 
 
GATT 1994 and Article 25 of the SCM Agreement  
 
CHILE 
   The following communication, dated 19 March 2004, is being circulated at the request of the 
delegation of Chile. 
 
_______________ 
 
 
TABLE OF CONTENTS 
 
Page
 
  
I.
 TAX CREDIT FOR INVESTMENT IN THE PROVINCES OF ARICA AND 
PARINACOTA (REGION 1)...............................................................................................2  
II. EXEMPTION FROM FIRST-CATEGORY TAX UNDER THE INCOME TAX     
LAW ON FISCAL-YEAR PROFITS OF MANAGEMENT COMPANIES AND   USERS IN THE FREE ZONES IN THE CITIES OF  IQUIQUE (REGION 1)           
AND PUNTA ARENAS (R EGION XII).............................................................................3
 
III. FUND FOR THE PROMOTION AND DEVELOPMENT OF REMOTE AREAS ......5  
IV. SIMPLIFIED SYSTEM OF REFUNDS FOR MINOR EXPORTS.................................6  
V. SYSTEM OF DEFERRED PAYMENT OF CUSTOMS DUTIES, TAX CREDIT     
AND OTHER TAX BENEFITS ..........................................................................................7  
VI. MOTOR VEHICLE STATUTE..........................................................................................9  
 G/SCM/N/95/CHL 
Page 2  
 
 I. TAX CREDIT FOR INVESTMENT IN THE PROVINCES OF ARICA AND 
PARINACOTA (REGION 1) 
1. Title
 
 Tax Credit for Investment in the Provi nces of Arica and Parinacota (Region I) 
 
2. Period  
 To June 2003. 
 3. Objectives
 
 To reverse the declining economy of the provinces of Arica and Parinacota, making use both 
of their advantageous geographical position fo r trade purposes and their tourist attractions, 
strengthening entrepreneurship and conso lidating Arica as an inter-ocean corridor. 
 4. Background and authority
 
Background :  Arica and Parinacota, as outlying provin ces, are at a disadvantage in relation to 
the development of the rest of the country. 
 Authority:
  Law No. 19,420, published in the Offi cial Journal of 23 October 1995, amended 
by Laws Nos. 19,478 (Official Journal of 24 October 1996) and 19,669 (Official Journal of 
5 May 2000).  Decree having force of law (DFL) No. 1 of the Ministry of Finance, published in the 
Official Journal of 11 September 2001,  contains the revised, coordinate d and consolidated text of Law 
No. 19,420. 
 5. Form of the subsidy
 
 Tax credit in the form of a tax allowance. 
 
6. To whom and how the subsidy is provided  
 Taxpayers with investment projects amounting to more than UTM 2,000 (Chilean monthly 
tax units - equivalent to US$84,125 at average June  2003 rates) for projects in the province of Arica 
and more than UTM 1,000 (equivalent to US$425,062 at average June 2003 rates) for projects in the 
province of Parinacota.  
 They are eligible for a tax credit of 30 per cen t of the value of certain non-convertible assets, 
namely, buildings, machinery and equipment, in cluding immovable property intended primarily for 
commercial exploitation for tourist purposes, direct ly tied in with the production of goods or the 
supply of services of the taxpayer's business or activ ity, purchased new or finished in the financial 
year. 
 
 For investment operations carried out in Parin acota, the tax credit is 40 per cent.  The same 
percentage is applied to investments made in Arica in immovable property intended primarily for 
commercial exploitation for tourist purposes, and iden tified as being of particular interest by the 
Director of the National Tourism Service.  
 Taxpayers are also eligible for this credit if th ey invest in the construction of buildings for use 
as offices or dwellings, whether or not they incl ude business premises, car parks or shops, consisting  G/SCM/N/95/CHL 
 Page 3 
 
 
 of more than five units, in places specified in the Law, with a built area of not less than 1,000m2 and 
completed or built during the financial year.   The taxes are forgiven by deducting the cred it from the first-category tax payable as from the 
trading year of the purchase or construction of the property. 
 
7. Amount of the subsidy
 
 In 2002, the used tax credit amounted to Ch$3,419 million, equivalent to US$4,821,060 
(average June 2003 rates).  
8. Duration
 
 This incentive became effective, retroactiv ely, as from 1 January 1995.  The period for 
eligibility is up to 31 December 2007.2 
  The benefit will apply only in regard to assets incorporated in the investment project on any 
of the above-mentioned dates on which the benefit is still effective, although the credit may be 
recovered up to the year 2030.  9. Statistical data
 
 No data available. 
 
 
II. EXEMPTION FROM FIRST-CATEGORY TAX UNDER THE INCOME TAX LAW 
ON FISCAL YEAR PROFITS OF MANAGEMENT COMPANIES AND USERS IN THE FREE ZONES IN THE CITIES OF IQUIQUE (REGION 1) AND PUNTA ARENAS (REGION XII)  
1. Title
 
 Exemption from first-category tax under th e Income Tax Law on fiscal year profits of 
management companies and users in the free zone s in the cities of Iquique (Region I) and Punta 
Arenas (Region XII)  2. Period
 
 To June 2003. 
 3. Objectives
: 
 To stimulate the economic development of Region I and Region XII, so as to form an 
attractive area for investment, economic activ ity, settlement, growth and sovereignty. 
 
4. Background and authority  
Background :  These areas, because of their location and geographical features, are at a 
disadvantage in relation to the development of the rest of the country. 
Authority :  The legal authority is contained in Mini stry of Finance Decree No. 341, published 
in the Official Journal of 8 June 1977, the revised, coordinated and consolidated text of which is set G/SCM/N/95/CHL 
Page 4  
 
 forth in Decree having force of Law No. 2 of the Ministry of Finance, published in the Official 
Journal of 10 August 2001.  5. Form of the subsidy
 
 
 In practice, the subsidy is a temporary financial benefit.  It is not equal to the overall amount 
of the tax exemption.   Indeed, the 1984 Income Tax Law provided for a first-category tax (on companies) and a second-category tax (on natural persons).  Accordingl y, the owners of an enterprise can discount the 
amount of first-category tax paid (15 per cent on a company's annual profits) from the amount payable 
as second-category tax (a progressive tax that re presents a percentage of withdrawn profits).
1 
  Since the companies concerned benefit from first-category tax exemption, management companies and users in free zones have nothing to discount from their second-category tax and must 
therefore pay the full amount of this tax.  The be nefit of the exemption therefore amounts strictly to 
the financial cost not incurred for the period betw een the time when the first-category tax became 
payable and the time (or times) when profits are withdrawn and the corresponding second-category tax becomes payable.  6. To whom and how the subsidy is provided
 
 
 This incentive is for management companies a nd users (all legal persons) in the free zones of 
Iquique (Region I) and Punta Arenas (Region XII).  They must meet the requirements established by 
both the Ministry of Finance and the Ministry of Economic Affairs, Developm ent and Reconstruction, 
under contracts containing conditions freely agreed on with the interested party. 
 
 These benefits also apply to manufacturing co mpanies already established or setting up in 
Arica, and manufacturing companies in the Alto Hospicio district in Iquique.2 
  Beneficiaries are exempt from the first-category tax under the Income Tax Law on fiscal-year profits.  
 
7. Amount of the subsidy
 
  There are no official calculations of low tax revenue.  
8. Duration
 
  This incentive took effect on 25 June 1975 for Iquique and Punta Arenas and on 10 December 1976 for Arica.  In both cases it is of indefinite duration. 
 9. Statistical Data
 
 
 No statistical calculation has been made to assess the trade effects of the subsidy. 
 
                                                      
1 The level of income considered for the second- category tax includes income  other than withdrawn 
profits, such as salaries, etc. 
2 Law No. 19,669.  G/SCM/N/95/CHL 
 Page 5 
 
 
 III. FUND FOR THE PROMOTION AND DEVELOPMENT OF REMOTE AREAS 
1. Title  
  Fund for the Promotion and Development of Remote Areas  
2. Period
 
  To June 2003.  3. Objectives
 
 
 To contribute to the development of the disadvantaged regions of Tarapacá, Aysén.  Presidente Carlos Ibáñez del Campo, Maga llanes and the Chilean Antarctic territories
 and the 
provinces of Chiloé and Palena, by providing assistan ce to small and medium-sized investors wishing 
to invest or reinvest in production in these remote regions. 
 
4. Background and Authority  
 
Background :  Being in outlying regions and provinces, these areas are at a disadvantage in 
relation to the development of the rest of the country. 
 
Authority :  This fund was created by virtue of Ar ticles 38 and 39 of Decree Law No. 3,529 of 
the Ministry of Finance, published in the Official  Journal of 6 December 1980.  Decree No. 15 of the 
Ministry of Finance, published in the Official Journal of 20 April 1981, lays down the terms and 
conditions of this fund.  
5. Form of the subsidy
 
  Direct transfer.  6. To whom and how the subsidy is provided
 
 
 Funds may only be accorded for investments by  small and medium-sized investors, producers 
of goods and services in the sectors of construction,  machinery, equipment, special animal feed and 
small-scale fishing.  The annual amount of individual investment or reinvestment must not exceed UF 50,000
3 (unidades de fomento or promotion units, i ndex-adjusted for inflation), equivalent to 
US$1,195,583 (average J une 2003 rate).  Funds granted under this programme may not be accepted 
together with any other benefit granted by the G overnment of Chile for the same goods or services. 
  This fund makes a contribution of 20 per cent of the cost of the investment or reinvestment in 
projects carried out until 31 December 2007.  7. Amount of the subsidy
 
 
 The amount paid out by the Treasury in 2002 was Ch$797,783 (rou ghly equivalent to 
US$1,124,937 at June 2003 values).  
                                                     
 
3 Law No. 19,669. G/SCM/N/95/CHL 
Page 6  
 
 8. Duration
 
  This facility is only available until 31 December 2007.
4 
 9. Statistical data
 
 
 No data available.     
IV. SIMPLIFIED SYSTEM OF REFUNDS FOR MINOR EXPORTS 
1. Title
 
  Simplified System of Refunds for Minor Exports  2. Period
 
 
 To June 2003.  3. Objectives
 
  To simplify the refunding of duties on imported inputs incorporated in minor exports, so as to 
avoid the administrative complexities that the overall system may involve for an emerging exporter.   
 4. Background and authority 
 
  Background
:  On the date of entry into force of  the Law establishing this programme, the 
drawback mechanism, in other wo rds, the mechanism for the effec tive recovery of customs duties 
paid on imports incorporated in export products, was difficult to use for small exporters starting out in 
the export business.  This meant that they were  less competitive on international markets.  To 
overcome this problem, a mechanism was establishe d as an alternative to the general drawback 
system and it provides for a simplified refund of le vies affecting the cost of inputs used in minor 
exports. 
 
 Authority :  Law No. 18,480, published in the Official Journal of 19 December 1985, and 
Supreme Decree No. 56 of the Ministry of Econo mic Affairs, Development and Reconstruction, 
published in the Official Journal is 15 May 2003, which contains the current schedule of products 
excluded from the scheme.  Law No. 19,589, published in the Official Journal of 14 November 1998, 
amending Law No. 18,480. 
 5. Form of the subsidy
 
  This simplified system no longer constitutes a subsidy.   Law No. 19,589, published in the 
Official Journal of 14 November 1998, provided for th e gradual alignment of this instrument with the 
WTO Agreement on Subsidies and Countervailing M easures.  The subsidy component of this 
instrument was eliminated as from January 2003.    Indeed, Law No. 19,589 progressively reduced the percentage of the refund from several rates  to a single rate of 3 per cent, valid as of 1 January 2003.  Besides, as of that same date, the 3 per cent 
simplified refund is granted exclusively to exports th at include at least 50 per cent of imported inputs 
                                                     
 
4 Law No. 19,669.  G/SCM/N/95/CHL 
 Page 7 
 
 
 (Article 5(e), 2(i), of Law No. 19,589).  Fi nally, the refund on inputs was eliminated on 
1 January 1999.  This system will not be notifie d in future, as it does not constitute a subsidy. 
 6. To whom and how the subsidy is provided
 
 
 The beneficiaries are exporters of products under tariff headings involving small amounts.  
This category covers products for which exports in the 1983-1984 biennium were not more than 
US$2.5 million or US$5 million in 1990.    The Law establishes a simplified refund of 3 per cent on the f.o.b. exported value.  The 
maximum export value for the single rate of 3 per cent is $18 million, which is updated each year.   
 7. Amount of the subsidy
 
  There are no official calculations of the subs idy component of the simplified refund system, 
as applied at 31 December 2002.  The total amount  refunded in 2002 was US$86 million, but a large 
part of that figure was for drawback within the strict meaning of the term.     In 2002, approximately 8.4 per cent of Chilean exports used this mechanism.    8. Duration
 
 
 The Law does not establish a time-limit.  However, as the products reach the ceilings 
specified in the Law, they exit the system.  This is  reflected in the schedule of exclusions issued by 
the Ministry of Economic Affairs, Developmen t and Reconstruction by 31 March each year.   
 
9. Statistical data  
  No data available.    
V. SYSTEM OF DEFERRED PAYMENT OF CUSTOMS DUTIES, TAX CREDIT AND 
OTHER TAX BENEFITS 
1. Title
 
  System of Deferred Payment of Customs Duties, Tax Credit and Other Tax Benefits 
 
2. Period
 
  To June 2003.  3. Objectives
 
 
 The objective has been to promote technologi cal innovation by transfer incorporated in 
production investment, stimulating the purchase of  capital goods, both imported and locally produced, 
especially in the case of export-oriented activities.    4. Background and authority
 
 
 Background :  Need to encourage technological mode rnization by investment in capital goods, 
strengthening the production infrastructure for goods and services for the foreign market.   
 G/SCM/N/95/CHL 
Page 8  
 
  Authority
:  Law No. 18,634, published in the Official Journal of 5 August 1987, and the 
regulations thereto, Ministry of Finance Supreme Decree No. 1,157, published in the Official Journal 
of 19 April 1990, and amendments thereto.  Law No . 19,589, published in the Official Journal of 
14 November 1998, amending Law No. 18,634.   
5. Form of the subsidy
 
  Deferred payment of tariffs or tax credits do not in themselves constitute subsidies.   
  A subsidy exists only if a debt is partly or wholly forgiven, when the capital goods have been 
intended for the production of export goods or services.   
  Article 6 of Law No. 19,589 provided for the e limination of this subsidy (debt reduction) as 
of the entry into force of the Law (14 November 1998).  
 Nevertheless, the first trans itional Article of Law No. 19,589 retained the possibility of debt 
reductions (in specified cases) for companies that requested the deferred payment of tariffs or tax 
credit before 14 November 1998 (principle  of non-retroactivity of the Law). 
  The same transitional provision established a special regime for companies taking advantage 
of deferred payment of tariffs or tax credit between 14 November 1998 and 31 December 2002.  
Under that regime, only instalments with expiry da tes up to 31 December 2005 are eligible for debt 
reduction.  The same provision lays down special methods of payment.   The transitional period established by Law No. 19,589 came to an end as of 1 January 2003, 
so that both importers of capital goods and purch asers of domestically manufactured capital goods are 
now entitled only to deferred payment or to the tax credit, as applicable, and these mechanisms do not 
constitute a subsidy.   For the above reasons, this programme will not be reported in future notifications. 
 6. To whom and how the subsidy is provided
 
 
 The beneficiaries were producers and exporters  (direct and indirect) of goods and services 
obtained with capital goods which were eligible fo r a deferred payment or for a tax credit.   
  Capital goods (machinery, vehicles, equipment a nd tools) eligible for the deferred payment or 
tax credit scheme are those directly or indirectly intended for the production of goods or services or 
the marketing thereof, with an economic life of not less than three years, of a minimum value of US$3,988.23 (adjustable each year).  In the case of  vehicles, the minimum value is US$5,051.75.   
  The Law contemplates three instruments.  The first two are not subsidies nor are they specific 
programmes.  Although they need not be notified,  they are described hereunder solely for the 
purposes of explaining the third instrument:   
 
The Law establishes that the pa yment of customs duties on imports of capital goods may be 
deferred up to a maximum period of seven years, payabl e in three instalments.  The debt is subject to 
a (market) interest rate established by the Central Bank of Chile.   
 
Purchasers of Chilean-manufactured capital goods are entitled to a tax credit equivalent to 
73 per cent of the current customs duty on the net invoice value of the goods.  This debt to the tax authorities is subject to a (market) interest rate  established by the Cent ral Bank of Chile and the 
beneficiary must repay the authorities within a maximum period of seven years.   G/SCM/N/95/CHL 
 Page 9 
 
 
  
The subsidy arose when the tax authorities partly or wholly forgave amounts due for deferred 
payments of import duties on capital goods or cred its granted in the case of Chilean-manufactured 
capital goods.  This occurred when the exporte r used the capital goods to produce exports. 
 
 As mentioned earlier, Article 6 of Law No. 19,589 provided for the elimination of this 
subsidy (debt reduction).  7. Amount of the subsidy
 
 
 The debt reduction for deferred payment of tariffs was US$201.2 million in 2002, while the 
reduction for tax credits amounted to US$14.1 million during the same period.  8. Duration
 
 
 The subsidy (debt reduction for exporters) no longe r exists in respect of capital goods eligible 
for deferred payment or tax credit as of 1 January 2003.  The other two components of the programme, i.e. deferred payment or tax credit, ar e maintained as they do not constitute a subsidy. 
 9. Statistical data
 
 
 No data available. 
  
VI. MOTOR VEHICLE STATUTE 
1. Title
 
 
 Motor Vehicle Statute  2. Period
 
  To June 2003. 
 
3. Objectives
 
  To turn the automobile sect or into a dynamic export sector, based on efficiency, thereby 
doing away with the special support it previously received. 
 
4. Background and authority
 
  Background
:  To provide a safer transition to the normal regime in other sectors of the 
economy.   
 Authority
:  Law No. 18,483, which entered into  force on 28 December 1985, amended by 
Law No. 19,589, published in the Official Journa l of 14 November 1998.  Law No. 19,912, published 
in the Official Journal of 4 November 2003, Article  4 of which repealed the only remaining subsidy 
component provided for by law.  G/SCM/N/95/CHL 
Page 10  
 
 5. Form of the subsidy
 
  Tax credits, in form of tax rebates, ended on  31 December 1998 by virtue of the Law itself. 
Exemption from payment of ad valorem  duty, which in practice ceased to be used as from 
1 February 2003 and was officially eliminated by Law No. 19,912, took the form of a tax allowance.  
 
 This programme will not be notified ag ain, as it does not constitute a subsidy. 
 6. To whom and how the subsidy is provided
 
 
 End processors that assembled motor vehicles and were entered as such in the appropriate 
register and also used minimum percentages of  local content established in the Law itself. 
  Tax credit for local content  and tax credit to promote exports  ended on 31 December 1998. 
 
 The only benefit available until 31 January 2003 was exemption from payment of ad valorem  
duty.  Under a programme approved by the Motor Vehicle Commission, when end processors exported local components, CKD and SKD imports were  totally or partially exempt from the payment 
of an ad valorem  duty at the general rate of customs du ties payable on foreign goods being imported 
into the country.  This benefit was granted up to  an amount equivalent to local component exports 
over a period of 12 months. 
 
 In all, assembly firms could not under these a rrangements obtain benefits higher than 35 per 
cent of the customs value of the finished vehicle.  7. Amount of the subsidy
 
 
 The amount of the tax credits and the compensatory trade in 2000 was US$604,803.27.  8. Duration
 
  This incentive came into e ffect on 28 December 1985 and lasted until 31 December 1998 in 
the case of tax credits, there being no time-limi t in the case of exemption from payment of  
ad valorem  duty.  The tax credits have been abolished, and the exemption from payment of ad 
valorem  duty was abolished by Law No. 19,912. 
 9. Statistical data
 
 
 No data available.  
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