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The Boric administration sent a tax reform bill (the Bill) to Congress on July 21, 2025 which significantly reduces the favorable tax treatment of Chilean investment funds in an effort to finance certain benefits for SMEs and middle class tax payers.
Chilean investment funds have hitherto been efficient aggregators of capital and have been at the center of significant growth of the financial services industry in Chile. This may change if the proposals contained in the Bill make it through Congress.
One of the proposals is to introduce rules in the investment fund statute that seek to avoid the permanent deferral of the corporate tax. Thus, profits distributed by investment funds must be recognized as taxable net income by the taxpayers who receive them. The effective date of this proposal would be January 1, 2026.
This proposal is particularly disadvantageous for funds that tend to make frequent distributions.
This means that the Bill creates a disincentive to structure investments in alternative assets, such as private equity, private credit, infrastructure and real estate, via Chilean investment funds.
Moreover, Chilean insurance companies will be adversely affected, given that for regulatory reasons, as opposed to other types of institutional investors, the most practical way of gaining exposure to alternative assets is via locally registered feeder funds. The negative tax treatment imposed by the Bill will make it more expensive and inefficient for insurance companies to invest their regulatory capital and technical reserves in private equity, private credit, infrastructure or real estate.
But not only Chilean investors would be adversely affected.
The Bill also introduces a significant increase of the tax rate applicable to foreign investors for distributions made by Chilean investment funds. The rate is doubled, rising from 10% to 20%.
The effective date of this increase would also be January 1, 2026
This significant increase in tax rates reduces the incentive for foreign investors to use the Chilean regulated investment fund industry to invest in Chile.
Finally, the Bill almost completely closes the door for the use of local private funds. Indeed, they will now be subject to Chilean corporate tax, except when they invest in venture capital, as would have to certified every year for each particular fund by a government agency called CORFO. The effective date for this amendment would be January 1, 2027.
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