As a rule, persons and entities domiciled or resident in Chile are subject to income taxes on their worldwide income. During the first three years counted as of their arrival to Chile, foreign nationals are subject to income taxes only on their Chilean source income. Income tax is assessed annually through a tax return filed in April of each year.
To mitigate double taxation Chilean law generally allows taxpayers to use amounts paid abroad due to foreign laws or regulations (including taxes) as tax deductions for local income tax purposes. In specific cases, foreign income taxes may be creditable against Chilean income taxes. As there is a convention to avoid double taxation in force between the UK and Chile, foreign tax credit provisions are more generous.
Income tax is levied on different types of income through different taxes:
• Income from capital (business income) is subject to First Category Tax
• Income from employment (remunerations) is subject to Second Category Tax
• Income obtained by a person domiciled or resident in Chile is subject to Global Complementary Tax
• Income obtained in Chile by a non-resident is subject to Withholding, or Additional, Tax.
Both Global Complementary Tax and Withholding Tax are considered final taxes. The payment of First Category Tax entitles the payer to a credit against these final taxes. In other words, to avoid double taxation within Chile, the tax paid on income from capital (First Category Tax) is recognised when calculating tax on the income to be distributed to the corresponding final taxpayers. The percentage of the tax paid that can be used as a credit depends on the tax regime chosen.
Value Added Tax on Sales of Goods and Services (VAT)
The Value Added Tax is set at a fixed rate of 19% and is levied on the amount of the transfers of goods and services. It is comparable to the sales tax applied in the UK.
Sales Tax Liability
As a company or individual selling goods/services you collect VAT on behalf of the Government each time you issue an invoice. Therefore, you must declare and pay VAT to the Treasury monthly. One is liable to collect and pay VAT when the following transactions take place:
● Sales of tangible personal property and/or certain specific services.
● Import of tangible personal property (e.g., when a company resident and domiciled in the UK sells tangible goods to a Chilean purchaser or distributor, VAT will be paid by the Chilean party on the import of such goods into Chile).
Certain operations are exempted from VAT. The most common exemptions are for: the exports of goods; exports of services (if qualified as such by the Chilean Customs Service); income obtained from an activity related to charity or non-profit organisation (e.g., Red Cross, Fire Brigade); public transport; the lease on unfurnished property; hotel industry for services rendered to foreign visitors; engineering, architecture, design, geology, legal services, and consulting services in general.
Specific individuals are exempted from VAT payment, these include non-residents, news agencies, educational establishments, state hospitals and hospitals pertaining to universities, the postal authority and the Mint, Private Health Institutions (ISAPRES), the National Health Fund (FONASA), and lottery games.
Description of VAT collection and payment mechanism
The net VAT amount payable to the Chilean Treasury is the difference between the VAT collected through sales less the VAT paid through purchases of goods and services which contributed directly to the operation of the company. Payment of VAT corresponding to the prior month must be made during the first 12 or 20 days of the following month using Form 29, which can be obtained from the tax authority. Filings and payments are made either through local banks or through the web.
Refund of paid VAT
Generally, excess VAT paid is non-refundable. Only exceptionally, the Chilean Treasury provides VAT refunds in the following cases:
● Purchases and imports of fixed assets associated with a business which generates VAT.
● Exports, in respect of the VAT paid in relation to the production of the goods and services exported (technically, a “zero-rated VAT mechanism” operates in this case).
Analysis of VAT Specific Situations
➔ Services rendered in Chile or abroad by a company that is neither domiciled nor resident in this country are exempt from VAT (see Article 12 (E) (7) of the VAT Law).
➔ Services rendered in Chile through a local partner or an office in Chile are generally subject to VAT. In such a case, the company rendering the service is the one responsible for collecting VAT.
➔ Sale of goods by a company without a domicile or residence in this country is not subject to Chilean VAT. The import of such goods made by the Chilean company will be subject to VAT.
➔ Sale of goods by a company domiciled or resident in Chile is generally subject to VAT. In other words, if a company sells its goods in Chile through a local partner, office or distributor, the local company will be subject to VAT on the import of such products (VAT input) and will invoice VAT on the local sale of such products (VAT output). The VAT payable by such a local entity will be the difference between the VAT inputs and outputs.
Capital Gains Tax
As a rule, capital gains are considered normal income and thus are taxed at the same rate as the corporate tax and final taxes.
Foreign Trade Import taxes are subject to an ad valorem duty that varies depending on the type of goods, averaging around 6%. It is calculated on their CIF (Cost, Insurance, and Freight) value. VAT (19%) is then levied on the CIF value plus the ad valorem duty, followed by any other special taxes. The entity responsible for controlling payment of taxes on foreign trade is the National Customs Service.
Chile adopts the Harmonised System for Tariff Classification. Virtually all imports are subject to a most-favoured-nation (MFN) duty of 6% ad valorem. The UK-Chile Free Trade Agreement (CCFTA) in force means that nearly all products of UK origin have zero import duties.
Bills of exchange, promissory notes, letters of credit and, in general, any kind of documentation referring to a loan or credit transaction for borrowed money are subject to stamp duty.
For documents that have a specific time limit, stamp duty is levied at 0.066% per month or fraction of a month. The maximum stamp tax rate is 0.8%. For documents payable on demand or without an expiration date, the tax rate is 0.332%.
The local councils, known in Chile as municipalities, levy a tax on commercial, industrial, and professional businesses which are located within their boundaries. Each municipality levies a tax – or licence – at a rate of between 0.025% and 0.05% per annum on the company’s equity value for commercial and industrial activities, whereas the fee for professional services is fixed.
Chile holds the world’s largest copper resources and is the world’s top copper producer. In addition to the corporate tax rate of 27%, mining companies pay an additional “special tax” of up to 14%, depending on their production rates. Smaller mines that produce less than 50,000t per year of copper must pay 9%.
Proposed new legislation, aimed at increasing the additional tax paid by the mining companies, is being taken through the approvals process. The mining industry in Chile is strongly opposed to the proposal, arguing that the level is already at its limit, but the new government is proposing to use the increased government revenues to bolster funds for social spending.
As part of the comprehensive tax reform in Chile in 2014, a “green tax” was introduced to put pressure on both mobile and fixed energy users to reduce emissions. The standard rate applied was US$5 per tCO2 produced on sources that emitted more than 25,000 tCO2 per year, or more than 100 tonnes of particulate matter. This tax is also under review as part of the new government’s proposals.