As Chile prepares to inaugurate President José Antonio Kast on March 11, 2026, the national conversation has centered on a proposal shared by both Kast and his former opponent, Evelyn Matthei: cutting the corporate tax rate from 27% to 23%.
While lowering the headline rate is a step toward growth, it addresses only the surface of Chile’s fiscal challenges. To truly unlock economic potential, the new administration must tackle two structural flaws that leave Chilean businesses at a global disadvantage: critically weak capital allowances and an outdated worldwide taxation system.
The Hidden Burden: Chile’s Capital Cost Recovery
Even with a lower headline rate, the “real” cost of doing business in Chile is driven by how the tax code handles investment. Capital cost recovery—the ability of a company to deduct the cost of machinery, buildings, and patents from their taxable income—is the engine of industrial growth.
Despite indexing for inflation, Chile currently offers the least competitive capital allowances in the OECD.
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Machinery & Buildings: Chilean firms can only deduct 70.6% of machinery costs and 42.3% of industrial building costs in real terms. This trails significantly behind the OECD averages of 85.7% and 49.9%, respectively.
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Intangibles: Chile is an outlier as the only OECD nation that prohibits businesses from deducting the costs of patents and intellectual property, whereas the OECD average allows for a 76.7% deduction.
The Solution: Full Expensing
By returning to the “full expensing” model used between 2020 and 2022—allowing companies to write off 100% of an investment in the year it is made—Chile would instantly jump from the worst to the best investment climate in the developed world.
Global Competitiveness: The Case for Territorial Taxation
Chile remains one of only three OECD countries (alongside Mexico and Colombia) that still uses a worldwide tax system. This means the Chilean government taxes the income its companies earn abroad, creating a massive hurdle for international expansion.
| Tax System | How it Works | Impact on Chilean Firms |
| Worldwide (Current) | Taxes profits earned anywhere in the world at the Chilean rate. | Chilean firms in low-tax countries pay more than their local competitors. |
| Territorial (Proposed) | Taxes only the income earned within national borders. | Allows Chilean firms to compete on a level playing field in foreign markets. |
Under the current rules, if a Chilean firm operates in a country with a 15% tax rate, they must still pay the difference to reach Chile’s 27%. Meanwhile, their competitors from territorial-system countries (like the UK or Canada) enjoy the lower local rate. Adopting a participation exemption—exempting foreign earnings from domestic tax—is essential for Chile to build global champions.
A Roadmap for the New Administration
A simple rate cut is a blunt instrument. For more surgical, revenue-efficient growth, the Kast administration should prioritize:
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Restoring Full Expensing: Making it cheaper for businesses to buy equipment and build infrastructure today.
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Neutral Cost Recovery: Expanding inflation indexing to include a real return on capital for delayed deductions, ensuring the value of an investment isn’t eroded by time.
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Shifting to Territorial Tax: Eliminating the “home-country penalty” on Chilean companies operating abroad.
By focusing on these structural reforms, Chile can lower the cost of capital and empower its industries to compete both at home and on the global stage.