According to Law 20,780 on “Tax Reform” published last September 29th 2014, the rate of First Category Tax to be applied by companies was changed, increasing from 20% to 25% or 27%, according to the regime opting taxpayers.

The companies which are obliged from the business year 2017 to apply the provisions of paragraph A) of Article 14 of the LIR (imputed rent), will be taxed at the First Category Tax at a rate of 25%, while subject to the provisions of paragraph B) of the same article (semi integrated system) for the business year 2017 will be taxed at a rate of 25.5%, a rate that from 2018 business year will increase to 27%. According to Article 84 letter a) of the Law on Income Tax, taxpayers who pay taxes with actual income and comprehensive accounting are required every year in April to recalculate their PPM rates.

1) Calculation of average rate: This “average” is calculated by adding the percentages that the taxpayer must necessarily apply to each of the monthly gross income of the previous year, regardless of whether or not he responds to that interim payment. The total obtained shall be divided by 12 or by the number of months covering the exercise, expressing the result in two decimals, the third decimal approaching the upper hundredth when 0.005 or more and neglecting less than five thousandths figures.

2) Increase or decrease in average rate:

% Increase or decrease: ((IDPC – PPM that should have been paid) / PPM to be paid) x 100

The above percentage will have two decimals, the third decimal approaching the upper hundredth when 0.005 or more. Due to higher tax rate and instructed at No. 1), the number IX), the third article of the transitional provisions of Law No. 20,780, for the calculation the rate of the PPMO to be applied on gross income from April 2016 to March 2017, IDPL of the declaration in April 2016 should be recalculated on for the business year 2015 RLI, applying the current rate of that tax for the calendar year 2016, i.e. 24%.

If the amount of PPMO readjusted exceeds the amount of the IDPC, certain of these elements in the manner indicated above, the average rate should be reduced by the percentage resulting from the application of the above formula. On the contrary, if the first category tax exceeds the amount of the p.p.m. mandatory readjusted, the average rate shall be increased by the percentage obtained by the aforementioned formula.

3) Duration of the calculated rate:

The recalculated rate of PPMO should be applied to the gross revenues of April 2016 until March 2017, however, those taxpayers with income of rotation during commercial year 2016 over 100,000 UF should adjust this variable rate multiplied by the factor 1.042 (25/24) or 1,063 (25.5 / 24) depending on the general arrangements for implementing or default for them, and apply it in the months of January, February and March 2017.

Finally, it should be noted that in cases where the rate is not determinable, because it occurred losses in the previous year or can not be determined because it is the first commercial exercise or other circumstances, this percentage will be considered 1 %.