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New tax incentive law for private investment in Research and Development in Chile

On September 6, 2012, the amendment to the Law No. became effective extending the Tax Incentives for Private Investment in Research and Development, also known as R&D Law. With this initiative, that provides tax benefits to private investment in R & D, is sought to encourage innovation, doubling the GDP percentage for this item over a four years period and improve the competitiveness of Chilean companies
This tax incentive is aimed at companies (corporate income taxpayers or first category taxpayers), which declare their actual income through full accounting procedures and allows said company to obtain a 35% tax credit of the amount invested in R&D in the same commercial year, that is having a direct tax benefit of a 35% of the investment.

To qualify for this benefit, companies must apply or be accredited by the Chilean government through the Corporation for the Promotion of Production “CORFO” presenting a project that once accepted, is certified to qualify for this benefit.

Regarding the remaining 65% of the certified R&D contract value, the company may deduce these expenditures as a necessary expense to produce the income, achieving a 13% of additional indirect tax benefit, thereby, obtaining a total tax benefit of up to 48%.

But, what can be added to this tax benefit? The cap of the tax incentive is 900,000 Euros and accepted expense items include Human Resources, Operational Expenses such as: Materials, Subcontracts, Lease of Movable and Immovable Property and Basic Services. Also included are the Intellectual Property-Industrial Property -Copyrights and investments in movable and immovable fixed assets through depreciation quota.

In addition, this can be considered as expenses those incurred as from the commencement date of the R & D project, although CORFO certification is subsequent.

This new law is a substantial improvement from its predecessor because, not only had a cap of about 300,000 Euros, but also because differs from the previous tax benefit Law (published in 2008) mainly by the fact that R&D projects certified by CORFO had to be made mainly by third-parties named Research Centers, a requirement that has been deleted.

Despite these changes and the huge benefits provided by this tax incentive, in 2013 only 15 companies have been certified to date, probably by lack of knowledge of the companies on the added value of innovation development and competitiveness, not otherwise can be explained the low usage of this kind of incentive, which has been so successful in other countries.

Carmen Sánchez-Puelles