explain the FUT tax please

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bert.douglas
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explain the FUT tax please

Postby bert.douglas » Wed Oct 30, 2013 2:19 pm

Bachelet is proposing to end the FUT.
First what is it? I have spent a couple of hours reading, but still don't get it.

Second is that good or bad?

paladin
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Re: explain the FUT tax please

Postby paladin » Wed Oct 30, 2013 6:22 pm

In simple words, the govt allows corporations to defer income tax on their undistributed profits. This was enacted to encourage companies to plough profits back into expanding their businesses instead of distributing them as dividends. So for example, a company must pay 20% on its net profit each year. if they dont distribute the net after tax profit, it goes into a FUT ledger. If and when they distribute any of that balance, then an additional tax of 20% is payable. Bachelets proposal is to force companies to get rid of anything they have in their FUT account, whether they distribute those profits or not, hence enabling the govt to collect more cash. There is talk that this may be compensated partly by the introduction of accelerated depreciation. So if a company invests a load of cash into fixed assets, they will be able to depreciate them for taxurposes, over say 3 years instead of say 10 years. So tax wise, if a company plays it right, it could end up cashflow wise in more or less the same position.

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Re: explain the FUT tax please

Postby admin » Wed Oct 30, 2013 7:16 pm

should they eliminate it? yea.

however done wrong it could bankrupt a lot of companies because they do not have the liquidity to do it.
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Andres
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Re: explain the FUT tax please

Postby Andres » Wed Oct 30, 2013 8:27 pm

Here is an explanation from an SII website, though it is dated, as the present rate is 20%, not 15%: http://www.sii.cl/aprenda_sobre_impuest ... ingles.htm

I disagree with Charles/admin. The Chilean First Category Tax (= the tax which is recorded in the FUT) works almost the same as Australia's corporate tax system.
That is, the government gets some tax when the company makes a profit, but the final tax payable by the shareholder depends upon the income bracket of the shareholder in the year they receive the profit.
If the shareholder's marginal tax rate is >20%, they pay more tax; if their marginal tax rate is <20%, the tax paid by the company is credited against other tax owed.

It also makes it easier to administer when a dividend is paid by one company to another.

In my opinion, it is a lot more fair and easier to administer than the US system.

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Re: explain the FUT tax please

Postby nwdiver » Wed Oct 30, 2013 11:12 pm

Also the profit can cross into another industry, thus the diversification many companies have, if the FUT is changed this will not happen and old money won't cross over into new industries, you may have to equip up to protect profits in the wrong year and have problems.
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