The Tax Administration recently received a request to rule on whether the incentives provided by the government in a construction contract were subject to value added tax (VAT).

According to the Regulations on Government Contracts, the administration may offer price incentives to contractors that perform public works. These incentives may consist of a payment in cash or the award of a public works concession.

Prior to approval, the administration's comptroller consulted the tax authorities regarding the treatment of these incentives for VAT purposes.

Considering that the price paid under a construction contract is subject to VAT under the VAT Act, the Tax Department decided that any additional price that may be paid as an incentive, either in cash or in kind (as in the case of the award of a public works concession) is also subject to VAT, as this price increase is also part of the taxable base.

For further information on this topic please contact Omar Morales at Montt y Cia SA by telephone (+56 22 233 8266) or email (omorales@monttcia.cl). The Montt y Cia SA website can be accessed at www.monttcia.cl.

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