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Hiring formally comes with costs, and for many small businesses, that cost is the difference between having someone on the books or in the informal sector. The Reconstruction Law aims to tip that balance with a direct tax benefit.
Here's what the formal employment tax credit is, how it's calculated, and which companies should consider it.
This credit is directly deducted from a company's First Category Income Tax (IDPC) for hiring workers in mid-to-low salary brackets. In practice, the State subsidizes part of the cost of having formal employees with salaries in that range, reducing the tax the company pays at the end of the year.
The backdrop to this is informal employment, which in Chile affects a significant portion of the workforce, leaving these workers without social security, formal healthcare, or access to credit. Lowering the tax cost of formal hiring is one of the levers the project uses to move the needle, tackling the problem from the employer's side rather than solely through enforcement.
The credit is equivalent to 15% of the gross remuneration for workers earning up to 7.8 monthly UTM, and it decreases as remuneration rises, reaching 0% at 12 UTM. In other words, the closer the salary is to the lower end of the bracket, the greater the relative benefit.
To put this into pesos, using the May 2026 UTM ($70,588): 7.8 UTM is equivalent to approximately $550,586 per month, and 12 UTM to approximately $847,056. The 15% on a remuneration at the lower end of the bracket is around $82,000 per month in credit per worker.
The exact calculation mechanism—whether the credit is monthly or annual, and how it decreases between 7.8 and 12 UTM—will be specified in the final text and its regulations. The figures above are for reference only.
Illustrative example. A company with five workers at the lower end of the bracket (7.8 UTM) could accumulate around $400,000 in monthly credit, approximately $4.9 million annually, which is directly deducted from the IDPC. For a company that pays, for instance, $23 million in tax, this is a significant reduction and, moreover, formalizes employment.
Especially labor-intensive companies with salaries in that range: retail, services, gastronomy, small production operations. For them, the credit reduces the effective cost of formal hiring and directly addresses informality, which is one of the major problems in the Chilean labor market.
It's also worth considering this alongside the corporate tax reduction: a company that will already see its IDPC rate decrease and also hires within these brackets can combine both effects on the same tax. Workforce planning for the coming years, then, ceases to be solely a labor decision and takes on a concrete tax dimension.
It is currently in the Senate, undergoing its second reading. Deadlines run from its publication in the Official Gazette, not from today.
Its effect is felt when determining the company's annual tax, not as a monthly payment. It should be incorporated into the year's tax projection, not treated as a cash subsidy.
This content is for informational purposes only and does not replace advice for your specific case.
Against the company's Corporate Income Tax (IDPC).
For workers with monthly salaries up to 12 UTM; the benefit is higher in the lower brackets (up to 7.8 UTM) and decreases to 0% at 12 UTM.
15% of the gross salary for salaries up to 7.8 UTM, decreasing to 0% at 12 UTM. The exact calculation will be defined in the final text and its regulations.
Labor-intensive businesses with salaries in that range, such as retail, services, and hospitality.