Blog›Tax Basics ›What is a tax credit? And why it's worth more than a deductible expense

“Tax credit” comes up in every conversation about incentives, but it is rarely explained well. And the difference matters: one peso of tax credit is worth far more than one peso of deductible expense.

The simple definition

A tax credit is an amount subtracted directly from the tax you owe. It does not reduce the base used to calculate the tax; it reduces the tax itself, peso for peso.

A deductible expense, by contrast, is subtracted from income before the tax is calculated. Its real value depends on the rate: at a 27% rate, every $100 of deductible expense saves $27 of tax.

The difference in an example

Take a company under the general regime of Chile’s First Category (corporate) Tax, at a 27% rate, with CLP $10,000,000 to “take off” its taxes.

The same amount is worth almost four times as much as a credit. That is why incentives that grant tax credits are so powerful.

How it works in the R&D Law: 35% + 65%

The R&D Law combines both mechanisms on the expenditure certified by Corfo:

• 35% is used as a credit against First Category Tax.
• 65% is deducted as an expense when calculating taxable income, even if it is not needed to generate that year’s income.

Example with a CLP $100,000,000 project

In other words, at a 27% rate the government effectively funds about half of the R&D project. Had the same spending been treated only as a normal deductible expense, the saving would have been $27,000,000.

The exact saving depends on your company’s tax regime and its position in each tax year. Corfo publishes an official benefit calculator on the program page.

Limits worth knowing

Annual cap. The credit cannot exceed 15,000 UTM per taxpayer in each tax year, across all its projects and contracts.

Unused credit. If the company has losses or owes less tax than the credit, the balance is not refunded, but it is inflation-adjusted and can be used in later years.

Public grants. If part of the project is funded with public money (for example a Corfo or ANID grant), the benefit only applies to what the company paid with its own resources.

No double-dipping. Spending claimed under the R&D Law cannot also be used for other tax benefits on the same outlays.

When can you start using it?

• The 65% expense can be deducted from the date the certification application (or notice of intent) is submitted.
• The 35% credit is used once Corfo certifies the project by formal resolution. If the notice-of-intent route was used, the credit applies retroactively and may require amending prior tax returns, with a refund of any overpayment.

We explain that process in What is a Corfo certificate?.

In short

• A tax credit reduces tax peso for peso; a deductible expense only reduces the base.
• The R&D Law grants 35% as a credit and 65% as an expense, which at a 27% rate means saving roughly 52% of certified spending.
• The credit is capped at 15,000 UTM per year, and unused amounts carry forward but are not refunded.

This article is for information only and is not tax advice for your specific case. Sources: Law 20,241, Corfo’s FAQ and SII Circular No. 19.