WORLD TRADE  
ORGANIZATION  G/SCM/N/123/CHL 
6 September 2006 
 
 (06-4309) 
Committee on Subsidies and 
Countervailing Measures Original:   Spanish 
 
 
 
SUBSIDIES 
 
Updating and New and Full Notifications Purs uant to Article XVI.1 of the GATT 1994  
and Article 25 of the SCM Agreement  
 
CHILE 
   The following communication, dated 1 September 2006, is being circulated at the request of 
the delegation of Chile. 
 
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TABLE OF CONTENTS 
 
Page
 
 
I. TAX CREDIT FOR INVESTMENT IN THE PROVINCES OF ARICA AND 
PARINACOTA (REGION I) 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 IQUI QUE (REGION 1) 
AND PUNTA ARENAS (REGION XII) 3
 
III. FUND FOR THE PROMOTION AND DEVELOPMENT OF REMOTE AREAS 4
 
 
 G/SCM/N/123/CHL 
Page 2  
 
  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 2006.  
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 pr ovinces, are at a disadvantage in relation to 
the development of the rest of the country.  
 Authority:  Law No. 19,420, 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 revised, coordi nated 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 is the subsidy provided
 
 
 Taxpayers with investment projects amounting to more than UTM 2,000 (Chilean monthly 
tax units - equivalent to US$117,254 at average June 2006 rates) for projects in the province of Arica and more than UTM 1,000 (equivalent to US$58,627 at average June 2006 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 id entified 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 pa rks or shops, consisting  G/SCM/N/123/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 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
 
  In 2005, the used tax credit amounted to Ch$6,464 million, equivalent to US$11,920,467 
(average June 2006 rates). 
 
8. Duration
 
  This incentive became effective, retroactiv ely, as from 1 January 1995.  The period for 
eligibility is up to 31 December 2007. 
 
 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 2006. 
 
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 Ministry of Finance Decree No. 341, published 
in the Official Journal of 8 June 1977, the 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. G/SCM/N/123/CHL 
Page 4  
 
   
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 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.  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 Ministry of Ec onomic 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. 
 
III. FUND FOR THE PROMOTION AND DEVELOPMENT OF REMOTE AREAS 
1. Title
 
  Fund for the Promotion and Development of Remote Areas. 
                                                     
 
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/123/CHL 
 Page 5 
 
 
   
2. Period  
  To June 2006.  
3. Objectives
 
  To contribute to the development of the disadvantaged regions of Tarapacá, Aysén, Presidente Carlos Ibáñez del Ca mpo, Magallanes and the Chilean Antarctic territories and the 
provinces of Chiloé and Palena, by providing assistance 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 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 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 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.  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$1,668,440 (average June 2006 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. 
  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 200 5 was Ch$1,336 million (roughly equivalent to 
US$2,463,961 at average June 2006 values).  
8. Duration
 
  This facility is only available until 31 December 2007.
4 
 
                                                      
3 Law No. 19,669. 
4 Law No. 19,669. G/SCM/N/123/CHL 
Page 6  
 
  9. Statistical data
 
  No data available.  
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