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Learn about the 3 main tax regimes for entities in Chile
Quick Read: 3 regimes of 27% and 25% tax rate, with eligibility depending on sales income limits.
As of January 1, 2020, the Income Tax Law introduced 2 new regimes: the partially integrated regime, which is the general taxation regime for large enterprises, and the integrated regime for small and medium-sized enterprises with sales under UF 75,000 (approximately USD 2.8 million).
There is also a tax transparency regime for companies with sales under UF 50,000 (approximately USD 2.0 million) and individual owners.
In Chile, the Final Tax system is used to determine the amount of tax owed by individuals and businesses on their income. The Final Tax system means that the tax due on income is calculated once, and there is no further tax liability on that income.
There are two types of final taxes in Chile: the Global Complementary Tax and the Additional Tax.
The Global Complementary Tax is a tax levied on an individual's total taxable income, including both their employment income and any other sources of income. This tax is calculated on a progressive scale, with higher rates for higher levels of income.
The Additional Tax is a tax levied on businesses and individuals without Tax Residence within the Chilean territory. It is a flat tax rate of 35% on the distributed profits. This tax is in addition to the Corporate Tax that businesses must pay on their profits.
It's worth noting that in Chile, the Final Tax system applies to most income sources, but there are some exceptions, such as income earned from property rentals or capital gains from the sale of assets. In these cases, taxpayers may still have to pay additional taxes beyond the Final Tax.
Learn about the First and Second Category income taxes
Category taxes apply to the income from specific activities, such as
manufacturing, trade, mining, and real estate (First Category Tax with a variable rate), and;
income from employment contracts (Second Category Tax with progressive rates).
For years 2020, 2021, 2022 and subsequent, a 10% rate for SME is applicable
Without prejudice to the above, the current tax reform bill ("Tax Reform") proposes the application of a reduced rate of 13% for First Category Tax on the income earned by small and medium-sized enterprises (SMEs) during the 2023 calendar year. This proposal should be closely monitored due to its potential impact on SME taxation.
Global Complementary Tax | Chilean Resident Individuals |
---|---|
Additional Tax | Nonresident individuals and Nonresident legal entities |
---|---|
Additional Tax | Specific Service Tax Rate |
---|---|
First Category Tax | SME Regime (Full integration) | General Regime (Partial integration) |
---|---|---|
Second Category | Self Employed | Employees |
---|---|---|
0 - 40%
(more than 285,751 USD In earnings per year per individual are taxed at a 40% rate).
35% Flat Rate
Software
15%
Royalties
30%
Professional Services
15%
Engineering or techincal work
15%
Interest on Loans (related Parties)
35%
Interest on loans to bank and financial institutions
4%
25%
27%
Small and Medium Enterprises are those with an invoicing as a group of less than 3M USD per year.
In this regime, you can only use 65% of the corporate tax as a credit for final taxes.
0 - 40%
0 - 40%
Under the partially integrated regime, the First Category Tax rate for a company is 27%.
Partners or shareholders are taxed only upon distributions or remittances from the company.
Only 65% of the First Category Tax paid by the company can be used as a credit towards the taxes owed by the partner or shareholder.
If the partner or shareholder resides in a country with a double taxation avoidance treaty with Chile, they may be able to use 100% of the First Category Tax as a credit towards the Additional Tax, although this treatment may only apply temporarily until December 31, 2026, for treaties signed before January 1, 2019.
Partners or shareholders are taxed only upon distributions or remittances from the company and may use 100% of the First Category Tax paid by the company as a credit towards their final taxes.
General aspects and rates of the income tax law in Chile
The taxation of income in Chile is determined by two factors: the taxpayer's residency and the source of the income.
Residents, including both individuals and entities, are taxed on their worldwide income with the exception of foreign individuals who only pay taxes on Chilean-source income for the first three years, which can be extended.
Nonresidents are taxed only on Chilean-source income, such as income from assets or activities within Chile, except for services provided to Chilean residents.
A Chilean-based company is taxed on its global income.
Foreign-source income is included in the taxable income, but may be subject to different computation rules depending on the circumstances, such as the application of control rules or being a branch or permanent establishment abroad.
Capital gains from the sale of shares, bonds, or securities in Chilean companies are also considered Chilean-source income, regardless of the residency of the seller, with certain requirements for indirect disposals.
Nonresident taxpayers may face a 35% profit tax on capital gains, which may be subject to variation due to double taxation treaties or exemptions, allowing discounts on this rate.
The final taxes apply to the total income of both categories and include the Global Complementary Tax for individuals resident in Chile and the Additional Tax for nonresident companies or individuals. Profits from companies owned by nonresident shareholders or partners are subject to this tax when withdrawn, distributed as dividends, or sent abroad.
Category Taxes
Learn about First and Second Category taxes
Final Taxes
Under the tax transparency regime for small and medium-sized enterprises with sales under UF 50,000 (approximately USD 2.0 million) and individual owners, the company can choose to be taxed based on distributed profits at the partner level, resulting in a 0% income tax rate for the company.
This is also known as a disregarded entity (DRE).
In the integrated regime for small and medium-sized enterprises, the First Category Tax rate for the company was 10% for the years 2020, 2021, and 2022 as part of COVID-19 pandemic measures.
The rate will increase to 25% starting in 2023.
There is a bill being voted in congress that will extend the 10% tax rate for the coming years 2023 and 2024.
Without prejudice to the above, the current tax reform bill ("Tax Reform") proposes the application of a reduced rate of 13% for First Category Tax on the income earned by small and medium-sized enterprises (SMEs) during the 2023 calendar year. This proposal should be closely monitored due to its potential impact on SME taxation.
A 19% VAT is imposed on transactions where personal property is transferred for consideration, as well as on regular transactions of personal and real property.
This is assumed for sales within a company's business. VAT is also applied to services, including recurring and non-recurring services, that generate charges for interest, premiums, commissions, or similar forms of compensation and are deemed to be of a commercial, industrial, financial, mining, construction, advertising, computational, or other nature. Imports are subject to VAT, regardless of frequency. Professional services provided by employees or freelancers are exempt from VAT.
The VAT paid on imports, purchases, and received services (tax credit) can be used to offset the VAT owed on sales and provided services (tax debit).
The taxpayer who sells or provides services must submit a monthly tax return (F29) and pay the net tax debit within the first 20 days of the following month.
If there is a net tax credit, it can be applied in future months after being adjusted for inflation.
Exports are not taxed with VAT. The VAT paid on purchases of goods and services used in producing the exported goods can be deducted from the VAT owed on other sales or reimbursed by the SII.
For the VAT paid on exported services to be reimbursed, the National Customs Service must classify the services as exports, and the exemption applies to services provided entirely or partially in Chile for use abroad.
Capital goods imports are exempt from VAT if certain criteria are met. Since June 1, 2020, digital services provided by taxpayers residing abroad are subject to a 19% VAT. Digital services include digital intermediation, digital entertainment content such as movies and music through downloading or streaming, external advertising, and data storage, among others. The provision of software, storage, platforms, or IT infrastructure is also subject to VAT.
According to the latest regulations from the Chilean government, starting January 1, 2023, based on law 21.420, Value Added Tax (VAT) will be also applied to professional services.
Before the amendment of law 21.420, the VAT law classified service provisions into different groups, leaving some of them subject to VAT and the majority exempt from this tax; the amendment to the law eliminates this classification and establishes that all services will be subject to VAT starting in January 2023.
Services subject to Additional Tax are usually exempt from VAT. However, in the case of services taxed under Article 59 of the Income Tax Law but exempt from Additional Tax due to tax treaties or national laws, they may still be subject to VAT if provided or used in Chile and correspond to services generally taxed with VAT.
Luxury goods and certain beverages are subject to VAT and also to additional taxes on tobacco and fuel consumption, with rates that vary based on various factors.
The Municipal License tax is a yearly tax collected by municipalities that applies to any activity carried out by a taxpayer within their territory.
The tax amount is calculated based on the taxpayer's equity and the rate set by each municipality, with a minimum of 0.25% and a maximum of 0.5%. The total annual fee cannot exceed 8,000 UTM (approximately USD601,005).
If the taxpayer has offices, factories, warehouses, or other establishments in multiple municipalities, the fee will be distributed among them.
According to Law No. 20,280 published on July 4, 2008 in the Official Gazette, the Internal Revenue Service has the responsibility of informing the municipalities of the declared equity of taxpayers to facilitate the collection of the Municipal License tax.
In Chile, almost all imported goods and products are subject to a 6% ad valorem customs duty. However, there are certain exceptions under bilateral and regional reductions as part of free trade agreements or similar agreements.
Chile has entered into free trade agreements with Australia, Canada, Mexico, the United States, the European Free Trade Association (EFTA), Peru, Colombia, Central America, South Korea, Malaysia, Panama, China, Turkey, Thailand, Vietnam, and Hong Kong.
These agreements generally aim to eliminate customs duties between participating countries according to the terms outlined in each treaty.
Chile has also signed economic association agreements with the European Union, Japan, New Zealand, Singapore, and Brunei. Additionally, it has economic complementation agreements with Bolivia, Cuba, Ecuador, Mercosur, Venezuela, and a partial scope agreement with India
The issuance of credit obligation documents is subject to a monthly stamp tax of 0.006% or a fraction thereof, with a maximum of 0.8%, between the disbursement and maturity.
For documented credit operations, the rate will be 0.332%.
Foreign loans, regardless of whether they are documented, will also be subject to the stamp tax.
Call loans without a maturity term will also be subject to a rate of 0.332%.
This tax may be paid on the Web Page of the SII, through Form 24.
Chile has double taxation treaties in place with the following countries: Argentina, Australia, Austria, Belgium, Brazil, Canada, China, Colombia, Korea, Croatia, Denmark, Ecuador, Spain, France, Ireland, Italy, Japan, Malaysia, Mexico, Norway, New Zealand, Paraguay, Peru, Poland, Portugal, United Kingdom and Northern Ireland, Czech Republic, Russia, South Africa, Sweden, Switzerland, Thailand, and Uruguay, amongst others. You can check the updated list in the following link: https://www.sii.cl/normativa_legislacion/convenios_internacionales.html
These treaties are based on the OECD model, with certain clauses from the United Nations model included.
Chile has also signed but not yet implemented double taxation agreements with the United States, the United Arab Emirates, and India.
It is worth mentioning that the treaties all include the so-called "Chile Clause", which stipulates that as long as the First Category Tax is creditable against the Additional Tax, the reduced tax rate will not be applied to dividend distributions.
Chile has also signed bilateral agreements with several countries to prevent double taxation on international transport services for cargo and passengers by sea or air.
Overview of the Chilean Internal Revenue Service
The Chilean Internal Revenue Service (SII in Spanish) is responsible for overseeing and regulating tax collection in Chile.
It also provides guidance, decisions, and interpretations of tax laws. The SII has a dedicated unit for scrutinizing large corporations listed on a special roster.
In case of disputes between taxpayers and the SII, the dispute resolution process starts with the Regional Director of the SII serving as a tax judge in the first instance. There is the option to appeal to higher courts, including the Supreme Court.
The time limit for the SII to take legal action regarding taxes is 3 years from the due date of payment, which may be extended to 6 years in specific circumstances.
Taxpayers who reside or are domiciled in Chile and receive income that has been taxed abroad with an income tax may use the foreign taxes as a credit towards the income taxes owed in Chile.
To take advantage of the credit, the taxpayer must register their foreign investment with the SII's Foreign Investment Register during the year the investment was made.
Mandatory income taxes that are paid or withheld abroad can also qualify for a credit, as long as they are equivalent or similar to Chilean income tax.
The taxpayer must provide evidence of the taxes paid abroad through receipts or certificates from the foreign country's competent authority, or other means of proof. In some cases, the corporate tax paid by the entity remitting the income may also be used as credit.
The credit amount is determined by the lesser of the tax actually paid abroad or 35% of the gross income from each separate type of income taxed abroad, considering separately the income from countries with and without double taxation agreements.
There is also a global cap on the credit, which is 35% of the sum of the available credits and the net foreign source income for each year.
Under the Tax Modernization Law No. 20,210, foreign investments of Chilean resident companies in foreign companies with investments in Chile can also take advantage of this credit.
The withholding tax applied in Chile can also be used as credit, as long as the income being recognized in Chile originates from Chilean source income received by taxpayers without residency or domicile in the country.
Overview of Taxes in Chile applicable for Corporate Business Structures
In Chile, all forms of taxation are levied exclusively at the national level.
With the exception of the Municipal License, there are no substantial taxes levied at the local, provincial or regional level.
Additionally, the Chilean tax regime features a property tax, inheritance and gift tax, and a number other taxes not important for this guide's purposes
Learn more about the entity category of taxation
19% applicable to sales and owership transfers
6% ad valorem tax for imported goods
For documents containing credit operations (i.e. loans)
Use foreign taxes paid as a credit in Chile
Learn about the different countries which Chile has a treaty in force
Anual tax collected at the Municipal level
Learn about the tax control entity in Chile