Tax Free Zone
Although there were no amendments to the main tax laws during the second quarter of the year, important amendments have been made to the following laws and rulings.
The Free Zone Law was amended pursuant to Law 19,669 published in the Official Gazette on May 5 2000. The new law regulates the acquisition of merchandise from the tax free zone in the city of Arica. Circular 42 of the Internal Revenue Service (IRS) (dated June 15 2000) issues general instructions for the application of the rules.
Pursuant to Law 19,677 (published in the Official Gazette on May 20 2000), an exemption to stamp tax has been granted for documents relating to the renegotiation of debts with banks or financial institutions. Certain conditions must be met concerning maturity of the debts, maximum sales threshold of the debtor and term to negotiate, which is 90 days from publication of the law (until August 20 2000).
Circular 45 of the IRS (dated July 5 2000) issues general instructions for the application of the exemption from stamp tax stated in Article 3 of Law 19,677.
The following are responses of the IRS to questions posed by taxpayers between April and June 2000.
Ruling 1174 contains the IRS's response to queries posed by the government of Costa Rica regarding the tax treatment of income arising from repurchase clauses in the sale of securities.
In the case of sale of securities with a repurchase clause, the IRS has determined that profits arising from such negotiations are subject to general taxation as set forth in the Income Tax Law, that is (i) 15% first category tax and (ii) surtax or additional tax. First category tax that is paid can be credited against applicable surtax or additional tax.
Ruling 1414 rectifies Ruling 180 (January 21 2000), stating that (i) capital gains obtained in the sale of shares of foreign companies abroad is subject to general taxation as set forth in the Income Tax Law and (ii) the requirements for the taxation of capital gains from the sale of shares of domestic companies do not apply.
The ruling confirms that capital gains may not benefit from the alternative tax treatment set forth in Article 2 of Law 19,578/1998. The article provides that, in certain cases, taxpayers may opt to pay taxes on the capital gain under the regular tax system, or pay 15% on the capital gain as a sole tax.
For further information on this topic please contact Ricardo Escobar or Bárbara Vidaurre at Carey y Cía by telephone (+56 2 365 7216) or by fax (+56 2 633 1980) or by e-mail ([email protected] or [email protected])
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