WORLD TRADE  
ORGANIZATION  G/SCM/N/155/CHL 
24 November 2008 
 (08-5752) 
Committee on Subsidies and 
Countervailing Measures Original:   Spanish 
 
 
 
SUBSIDIES 
 
New and Full Notification Pursuant to Article XVI:1 of the GATT 1994 and  
Article 25 of the Agreement on S ubsidies and Countervailing Measures  
 
CHILE 
   The following notification, dated 18 November 2008, is being circulated at the request of the 
delegation of Chile. 
 
_______________ 
 G/SCM/N/155/CHL 
Page 2  
 
  TABLE OF CONTENTS 
 
Page
 
 
I. TAX CREDIT FOR INVESTMENT IN THE PROVINCES OF ARICA AND 
PARINACOTA (REGION I)................................................................................................ 3  
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 IQUI QUE (REGION I) 
AND PUNTA ARENAS (R EGION XII).............................................................................. 5
 
III. FUND FOR THE PROMOTION AND DEVELOPMENT OF REMOTE 
AREAS.......................................................................................................................... .......... 7  
 
  G/SCM/N/155/CHL 
 Page 3 
 
 
  I. TAX CREDIT FOR INVESTMENT IN THE PROVINCES OF ARICA AND 
PARINACOTA (REGION I) 
1. Title  
 Tax Credit for Investment in the Provin ces of Arica and Parinacota (Region I). 
 
2. Period  
 To June 2008. 
 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 provinces,  are at a disadvantage in relation to the 
development of the rest of the country.   Authority
 
 
 Law No. 19,420, known as the Arica Law, published in the Official 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 revi sed, coordinated and consolidated text of 
Law No. 19,420 and has most recently been amended by  Law No. 20,268 published on 24 June 2008.   
 5. Form of the subsidy
 
 Tax credit in the form of a tax allowance. 
 
6. To whom and how is the subsidy provided  
 Taxpayers with investment proj ects amounting to more than UTM1 2,000 (Chilean monthly 
tax units - equivalent to US$142,724 at average June 2008 rates) in the province of Arica and more than UTM 1,000 (equivalent to US$71,362 at average June 2008 rates) 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. 
                                                     
 
1 The most recent amendment set forth in Law No. 20,268 provides that for 2008 and 2009, investment 
projects must amount to more than UTM 1,000;  for 2010,  they must amount to more than UTM 1,500;  and for 
2011, more than UTM 2,000. G/SCM/N/155/CHL 
Page 4  
 
   
 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 pa rks or shops, consisting 
of more than five units, in places specified in the Law, with a built area of not less than 1,000m
2 and 
completed or built during the financial year. 
 
 For investments made in buildings and immova ble property in the province of Parinacota, the 
tax credit is 40 per cent.  The same percentage is applied to investments made in Arica in immovable 
property intended primarily for commercial exploita tion for tourist purposes, and identified as being 
of particular interest by reasoned d ecision of the National Tourism Service. 
 
 The taxes are forgiven by de ducting the credit from the first-category tax payable as from the 
trading year of the purchase or construction of the property.  7. Amount of the subsidy
 
 The tax credit granted is 30 to 40 per cent of the value of the assets, depending on the place 
where the investment is made.  8. Duration
 
 This incentive became effective, retroactiv ely, as from 1 January 1995.  The period for 
eligibility was initially up to 31 December 2007, but was extended, by Law No. 20,268, until 2011. 
 
 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 2034.  
9. Statistical data
 
Law No. 19,420, Arica Law  2007 2006 2005 
Credit    
No. taxpayers 27 37 42 
Total amount (US$ thousand) 18,876 15,332 10,701 
Investment    
No. taxpayers 66 79 64 
Total amount (US$ thousand) 101,554 88,191 243,137 
Source :  Internal Revenue Service (SII).  G/SCM/N/155/CHL 
 Page 5 
 
 
  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 I) 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 2008. 
 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 basis for the Free Zones Law is cont ained in Ministry of Finance Decree No. 341, 
published in the Official Journal of 8 June 1977, th e revised, coordinated and consolidated text of 
which is set 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 (17 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).
2 
 
 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 benefit 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. 
                                                     
 
2 The level of income considered for the second- category tax includes income other than withdrawn 
profits, such as salaries, etc. G/SCM/N/155/CHL 
Page 6  
 
   
6. To whom and how is the subsidy 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.
3 
 
 Beneficiaries are exempt from the first-category tax under the Income Tax Law on fiscal-year 
profits.  7. Amount of the subsidy
 
 The owners of an enterprise can discount the amount of first-category tax paid (17 per cent on 
a company's annual profits) from the amount payable as second-category tax (a progressive tax that 
represents a percentage of withdrawn profits).  8. Duration
 
 This incentive took effect on 25 June  1975 for Iquique and Punta Arenas and on 
10 December 1976 for Arica. 
 
 Law No. 19,946 ( Ley Austral II ) extended these free-zone benefits to the region of Aisén.  
The Free Zones Law is of an indefinite duration, neve rtheless, the duration of th e benefits is linked to 
the extension of the concession contract for the mana gement of these sites, which for both Iquique and 
Punta Arenas will be valid until 2030. 
 
9. Statistical data  
Law No. 19,420, Arica Law  2007 2006 2005 
Credit    
No. taxpayers   620 662 586 
Total amount (US$ thousand) 26,267 48,061 20,308 
Source :  Internal Revenue Service (SII). 
                                                      
3 Law No. 19,669.  G/SCM/N/155/CHL 
 Page 7 
 
 
  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 2008. 
 3. Objectives
 
 To contribute to the development of the disadva ntaged regions of Tara pacá, Aisén, Presidente 
Carlos Ibáñez del Campo, Magallanes and the Ch ilean Antarctic territories and the provinces of 
Chiloé and Palena, by providing assistance to small a nd 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 Articles 38 and 39 of Decree Law No. 3,529 of the 
Ministry of Finance, published in the Official Journal of 6 December 1980.   Decree having Force of Law (DFL) No. 15 of 1981 of the Ministry of Finance lays down the terms and conditions of this fund.  Decree having Force of Law (DFL) No. 3 of 2001 of the Ministry 
of Finance establishes the revised, coordinated and c onsolidated text of DFL No. 15.  The benefits 
currently set forth in DFL No. 15 are valid until 31 December 2008 according to an explanatory note 
to Budget Law No. 20.232.
4 
 5. Form of the subsidy
 
 Direct transfer. 
 
6. To whom and how is the subsidy 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, whose net annual sales do not exceed UF 40,000 ( unidades de fomento  or 
development units), which is equi valent to US$1,641,190 (average  June 2008 rate).  The annual 
amount of individual investment or reinvestment must not exceed UF 50,0005, equivalent to 
US$2,051,994 (average June 2008 ra te).  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. 
 
                                                      
4 Public Sector Budget Law No. 20,232 of 2008, 50-01-02-33-01-002. 
5 Law No. 19,669.  Establishes new development measures for the provinces of Arica and Parinacota. G/SCM/N/155/CHL 
Page 8  
 
  7. Amount of the subsidy
 
 This fund makes a contribution of 20 per cent of the cost of the investment or reinvestment in 
projects carried out until 31 December 2008.  The be nefits of DFL No. 15 may be requested until 
2010.  
8. Duration
 
 This facility will remain in effect only until 31 December 2008.6 
 9. Statistical data
 
 The amount paid out by the Treasury in 2007 was Ch$1,359 million, roughly equivalent to 
US$2,753,185 (average June 2008 rate). 
 
__________  
                                                      
6 Public Sector Budget Law No. 20,232 of 2008, 50-01-02-33-01-002.