New Tax Incentives for SME’s Operating in Chile

If you are running a small or mid-sized company in Chile, or thinking about entering the market, there is some good news that was recently released.

As of July, Chile passed a reform (Law No. 21.755)  that introduces significant tax incentives for companies operating under the Pro SME regime. The goal? Help small to medium size businesses improve cashflow and invest more in growth.

But what does this mean if you are a foreign company already operating (or planning to operate) in Chile? Let’s break it down.

First Things First — What Is a Pro SME

In Chile, a Pro SME (small to medium size business) is a defined tax regime of the Income Tax Law that comes with real benefits. To qualify, your company must meet a few criteria:

• Average gross income under 75,000 UF (~USD $3.1 million) over the past three years
• Initial effective capital under 85,000 UF (~USD $3.5 million)
• No more than 35% of income can be passive (rent, interest, dividends)
• Use of simplified accounting based on actual cash flow (not accrual)

If you meet those conditions, you can choose between:

• General Regime – where the company pays corporate income tax, and owners pay taxes on distributions.
• Transparent Regime – where the company doesn’t pay corporate tax, and all income is taxed directly at the shareholder level.

What is Changing with New Law? 

There are two key changes introduced by this reform that could offer significant financial and operational benefits for qualifying companies. These updates are designed to reduce tax burdens and enhance cash flow, making it easier for businesses—especially small and medium-sized enterprises—to grow and invest in their operations.

Lower Corporate Tax Rates (IDPC)

• From 2025 to 2027, the First Category Income Tax (IDPC) rate drops from 25% to just 12.5%.
• In 2028, the rate will rise slightly to 15%, but only if the social security milestones are met.

Reduced Monthly Tax Prepayments (PPM)

Monthly Tax Prepayments (PPM) — or Pagos Provisionales Mensuales in Spanish — are advance payments that companies and individuals with business income in Chile must make every month toward their annual income tax. Starting in September 2025, the Monthly Provisional Payments (PPM) are also cut in half:

• If your gross income exceeds 50,000 UF: your PPM drops from 0.5% to 0.25%
• If you’re below that threshold: the rate goes from 0.25% to 0.125%

Are You Eligible?

To take full advantage of the tax benefits under the Pro SME regime, companies must meet a specific set of criteria. These requirements are designed to ensure the incentives are targeted toward genuinely small and medium-sized enterprises operating within Chile. Here’s what your business needs to qualify:

• Be enrolled in the Pro SME regime
• Stay below the 75,000 UF average gross income limit over 3 years
• Not have related companies that exceed that income limit
• Be fully compliant with labor and pension obligations

Note: The UF (Unidad de Fomento) is a Chilean inflation-indexed unit of account, adjusted daily by the Central Bank. It’s used for everything from loans to real estate — and, yes, tax calculations.

Why This Matters for Foreign Companies

If you are a foreign company operating in Chile through a local entity, particularly in the mining, technology, or industrial services sectors, and your annual revenue still qualifies under the Pro SME thresholds, this reform presents a valuable opportunity to reduce your corporate tax.

The temporary reduction in corporate tax and monthly tax prepayments (PPM) can significantly reduce your operational costs, freeing up resources for reinvestment, hiring, or scaling your operations.

For newer entrants into the Chilean market, the Pro SME regime is especially attractive, as lowers your tax burden during the critical early stages of your expansion and frees up cash each month that can be reinvested back into the business.

Ax Legal specializes in helping foreign businesses navigate the legal and tax landscape of Chile and Latin America with confidence.

Ax Legal helps industrial technology, engineering, and service companies to navigate the legal and commercial aspects of operating their business in Latin America. With deep knowledge of the industrial and natural resource sectors, we provide actionable and practical advice to help streamline our clients’ entries into Latin America, improve how they operate in the region, and to protect their interests.

Over the years, our team of legal and commercial advisors have developed a track record of working with companies of all sizes from Australia, Canada, the U.S., and Europe. The one common factor that connects our clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.

To better understand how we can support you in the Region, please contact Cody Mcfarlane at cmm@ax.legal