Time to repatriate foreign passive income?

The Reconstruction Bill presented a few days ago by President Kast's government includes a rule that seems repeated and at first glance has nothing new: the possibility of repatriating assets located abroad that have not been previously declared, first introduced in 2014 by Law No. 20,780 and then reissued in 2024 by Law No. 21,713.

However, the new standard would not be identical to previous versions, as it presents two important changes:

— Incentives are introduced for the effective repatriation of assets located abroad, establishing a reduced rate of 7% for assets that physically enter the country. To qualify, repatriated income must be invested in any type of real estate or local financial instruments for a minimum period of 5 years.

— It is permitted that not only undeclared or non-compliant income be repatriated, but also income that has not been recognized in Chile because (i) it has not been perceived, (ii) because the rule on passive income has not been applied (article 41G of the Income Tax Law – “LIR”), or (iii) because of the application of any other rule.

The above opens a window worth studying: the possibility of repatriating income accumulated in entities abroad that has not been recognized in Chile because it does not correspond to passive income or because the company is not controlled.

What's the advantage?

Let's say a father and his children own a company in Canada that has accumulated USD 3 million in income over the years. This income has not been recognized in Chile because the company is not a CFC or because such income is not considered passive under Article 41G.

Under current regulations, if this family were to repatriate those USD 3 million, this income would be subject to personal income tax levied on each partner in proportion to their share, with a maximum marginal rate of 40%. However, if the new repatriation law is approved, this tax burden drops to 7% as the sole tax, provided that these earnings remain invested in Chile through the purchase of real estate or financial instruments for a minimum period of 5 years.

In other words, this family could repatriate these USD 3MM to, for example, participate in a multi-family real estate project , paying only a 7% tax instead of the personal income tax.

Although the regulation will surely undergo modifications and improvements throughout the legislative process (there are gaps, such as the accreditation of taxes paid abroad and greater detail on investment in Chile), it will undoubtedly be an interesting alternative to study for financing projects in Chile with very low taxation.

In upcoming columns, we will explore other interesting possibilities that would open up with the Reconstruction Law, and we invite you to explore our website dedicated to the Reconstruction Plan , where we will be uploading updates and material prepared by our team.