Chile - Income Tax

Chile - Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

Annual income tax returns

The due date for filling the annual tax return will depend whether it results in a balance due or a refund of tax. If it results in a balance due the due date is April 30th, and if it result in a refund the due date is May 9th (these deadlines are subject to an annual review).  It is important to note that under both scenarios the due dates are in the year following the year the income was received.

Informative income tax returns

If the taxpayer is required to report and pay taxes on the income related to investments abroad, a Sworn Statement 1853 must be filed. The due date for the Sworn Statement 1853 is March 19th (this deadline is subject to an annual review).

Monthly income tax returns

Non-resident Tax

In cases, where non-resident taxpayers are subject to the Additional Tax for any Chilean sourced income earned. Depending on the nature of the income, they must self-report and pay the tax related through monthly tax returns. The due date for this is the 12sd day of the following month of payment of the income.  

Resident

When, taxpayers that are considered residents for Chilean tax purposes, in some cases they must declare and pay the corresponding taxes by the 15th day the following month of payment of the income. 

What is the tax year-end?

December 31st.

What are the compliance requirements for tax returns in Chile?

Resident taxpayers are required to pay income taxes and may have an annual income tax return obligation on their worldwide income.  In the case of non-Chilean nationals, they are taxable solely on Chilean source income for this first three years in Chile and would become taxable on worldwide income from the fourth year on.  As in the case of resident taxpayers, the annual income tax return obligation will need to be analyzed on a case by case basis.  For non-residents taxpayers they are taxable solely on their Chilean source income and the withholdings tax (made through payroll or monthly income tax returns) is a final tax with no further annual filing obligation.

If the individual is paid through foreign payroll, and there in no shadow payroll in place to report this income on Chilean payroll then a monthly income tax return obligation may arise. This typically occurs when the individual does not have a local Chilean contract in place or under a split payroll scenario. The monthly income tax return is a taxpayer obligation where the individual self-withholds and pays the corresponding taxes through monthly income tax returns for the income that is not reported through a Chilean payroll.

Lastly, foreign individuals assigned to Chile must obtain a Chilean National Tax ID (RUT) and a password for the Chilean IRS website (www.sii.cl) in order to be able to file their annual tax return. 

Tax rates

What are the current income tax rates for residents and non-residents in Chile?

Residents

Second Category Income Tax

A resident for Chilean tax purposes will be taxable with the residents Chilean income tax rates, and subject to Second Category Tax (employment income tax) on a monthly basis, which has progressive rates ranging from 0 to 40%. Current tax rates are showed in the chart below:Second Category Income Tax – November 2015*

Taxable income bracket   Tax Rate Tax rebate
From <CLP>

To <CLP> % <CLP>
0 604.476,00 0 0
604.476,01 1.343.280,00 4 24.179,04
1.343.280,01 2.238.800,00 8 77.910,24
2.238.800,01 3.134.320,00 13,5 201.044,24
3.134.320,01 4.029.840,00 23 498.804,64
4.029.840,01 5.373.120,00 30,4 797.012,80
5.373.120,01 6.716.400,00

35,5 1.071.041,92
6.716.400,01 Onwards 40 1.071.041,92

*Please note that the monthly tax tables are updated on a montly basis for inflation purposes.

Global Complementary Tax 

Foreign workers who have been considered residents or domiciled for Chilean income tax purposes, may be obligated to file an annual income tax return. Those taxpayers obliged to file an annual income tax return and whom have received additional income apart from their salary income, are subject to the Global Complementary Tax. This tax applies if the worker has earned other income apart from employment income, has been granted with a tax benefit, or is entitled to have a tax refund.

The same monthly table shown above applies for the annual tax calculation with the tax brackets being annualized and adjusted for the corresponding inflation factors.

Both the monthly and the annual tax table values are determined based on the “Unidad Tributaria Mensual”, a monthly value given by the tax authority that varies due to inflation.

Global Complementary Tax

Taxable income bracket   Tax Rate Tax rebate
From <CLP> To <CLP> % <CLP>
0 6.998.076,00 0 0
6.998.076,01 15.551.280,00 4 279.923,04
15.551.280,01 25.918.800,00 8 901.974,24
25.918.800,01 36.286.320,00 13,5 2.327.508,24
36.286.320,01 46.653.840,00 23 5.774.708,64
46.653.840,01 62.205.120,00 30,4 9.227.092,80
62.205.120,01 77.756.400,00 35,5 12.399.553,92
77.756.400,01  Onwards 40 15.898.591,92

Non-residents

If an executive is considered nonresident and not domiciled in Chile for tax purposes, he/she will be subject to nonresidents income tax (Additional Tax), which is levied at a flat rate of 15% on the gross employment income, if the activities can be qualified as technical or professional services that an individual renders through a report, advice or plan development, rendered in Chile or abroad. If the activity performed, does not qualify as technical or professional work, the tax rate aplicable is 35%.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Chile?

For tax purposes, the resident status is acquired once an individual has been in Chile more than six consecutive months in one calendar year, or six months - consecutive or not - within two consecutive fiscal years. 

Chilean income tax law does not provide for a domicile definition, but according the article 59 of the Chilean Civil Code, domicile requires residency in a place and the intention to remain in it. In accordance, the Chilean Internal Revenue Service (hereinafter “Chilean IRS”) has understood that an executive may acquire tax domicile in Chile, when he/she has moved to Chile with his/her family group, the individual has purchased or rented a house in Chile; his/her children attend a school in Chile and the person came to the country under a Chilean employment contract.

Accordingly, a person will acquire Chilean domicile if the aforementioned requirements are met. 

On the other hand, if domicile is not acquired as the person enters the country, residency test (ie. six month test) should be analyzed to determine the executive’s tax treatment in Chile. 

To summarize, an individual would be considered a tax resident in Chile should he/she meet the six month test or if they acquire Chilean domicile.

Is there a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

With regards to the six month test, any day (or part day) of physical presence in Chilean territory will have to be considered for this purpose.

What if the assignee enters the country before their assignment begins?

For the purpose of determining whether an assignee acquires tax residency or not, the six-month test mentioned above would start from the day the assignee arrives in Chile regardless of whether he/she is performing working activities in the country or not. On the other hand, the domicile test is not affected by the fact that the assignee arrives in Chile prior to the start of his international assignment in the country.

It is a common practice for assignees to start to work in Chile before they sign a local contract, and to receive their salary from abroad. According to the Chilean income tax law, this income is considered as Chilean source income, as it is a professional service performed on Chilean territory. In this case, as there is no a local employer to withhold the employment tax, it is the assignee who has the obligation to withhold the employment tax through a monthly tax return. 

Termination of residence

Are there any tax compliance requirements when leaving the country?

There are no formal tax compliance requirements to be fulfilled when leaving Chile.

What if the assignee comes back for a trip after residency has terminated?

Any day spent in Chile after the assignment has terminated will have to be taken into account to compute the six month test. If the absence is deemed temporary, the period stayed outside of Chile will be also computed as period of residence. Unless the loss of residence or domicile for Chilean tax purposes can be proven.

Communication between immigration and taxation authorities

Do the immigration authorities in Chile provide information to the local taxation authorities regarding when a person enters or leaves Chile?

There is no formal procedure in place however, the tax authorities could request information for the immigration authorities. This is commonly seen during tax audit requests by the Chilean IRS.

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

There could be a filing obligation in Chile after an assignee leaves the country. It will depend on the residence status and if the assignee maintains investments within the country (real estate, shares or interest could have generated income during the year of departure). However, there is no specific exit tax return requirement in Chile.

Futhermore, as some assignees will have the chance to obtain a refund of employment taxes paid during the year. As such, it is advisable to to maintain a Chilean bank account open until the year after departure or after all tax return obligations are met.

Economic employer approach

Do the taxation authorities in Chile adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Chile considering the adoption of this interpretation of economic employer in the future?

The Chilean Tax Authorities have not established a clear defined position in this regard. OECD criteria might however, have to be taken into consideration.

De minimus number of days

Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach?

If yes, what is the de minimus number of days?There is no de minimus number of days.

Types of taxable compensation

What categories are subject to income tax in general situations?

  • Base salary
  • Benefits-in-kind
    • Cola
    • Housing
    • Education
    • Home leave
    • Other expat allowances
  • The payment of local or personal income taxes by the employer on the employee’s behalf is considered taxables income.

Tax-exempt income

Are there any areas of income that are exempt from taxation in your country? If so, please provide a general definition of these areas.

  • Food Allowances
  • Transportation Allowances
  • Other allowances deemed necessary for the assignee to be able to perform his/her working activities (i.e. language training courses, immigration/visa expenses, trip to host country at the beginning of the assignment, etc.)

Expatriate concessions

Are there any concessions made for expatriates in your country?

As a general rule, any person domiciled or resident in Chile is subject to income taxes on a worldwide basis. Individuals who are neither resident nor domiciled in Chile pay taxes only on their Chilean source income. 

Foreigners with residence or domicile in Chile will pay taxes only on their Chilean source income during the first three years since their arrival to Chile. After this period has elapsed, foreigners will be subject to income taxes on their worldwide income. Chilean legislation establishes that this period might be extended in qualified circumstances, but in practice, this extension is unusual.

Salary earned from working abroad

Is salary earned from working abroad taxed in Chile? If so, how?

Salary earned from working abroad would be taxable in Chile depending on the residence status of the taxpayer. If a non Chilean national professional starts to work in Chile, and he/she has been in the country less than 3 years, he/she is only taxable on his/her Chilean source Income. Therefore, any salary earned by non Chilean national taxpayers working abroad is not taxable in Chile for the first three years of the assignment. After that time lapses, salary earned abroad is subject to taxes on a worldwide basis. 

Chilean nationals residing in Chile are taxed on their worldwide income from day one.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in your country? If so, how?

Dividends, interest, and rental income

Dividends, interest and other income from financial instruments is reported by the financial institutions to the Chilean IRS, therefore taxable.

Rental income from real estate must be selfreported by the taxpayer in the annual tax return. The expenses related to such income, such as interest paid on loans linked to the acquisition of the property, local taxes, depreciation, and so on, are deductible within certain limits.

As a general rule, investment income, such as dividends and interest arising from bank deposits, any gains on sales of shares, and so on, is subject to the Global Complementary Tax, and the tax rate applicable will depend on the total income earned during the calendar year. 

Gains from employee stock option exercises

Depending on the characteristics of the stock exercise and the resident status of the assignee, employee stock option exercises could trigger a tax liability. According to the Chilean income tax law, stock exercises are considered as employment income, therefore, subject to employment income tax, and must be included in the annual income tax return.

Foreign exchange gains and losses

Foreign exchange gains that are recurring in nature are subject to a withholding tax rate of 10%. Then this tax withheld can be used as a credit against the Global Complementary Tax in the annual income tax return.

Principal residence gains and losses

Gains are only taxable if the property was held less than one year. Losses can be used as deductions from the same type of income in the annual tax return (Global Complementary Tax).

Capital losses

Capital losses can be used as deductions from the same type of income in the annual tax return (Global Complementary Tax).

Gifts

Gifts are subject to inheritance tax.

Foreign property reporting

Non Chilean nationals would have to report income related to property they have abroad, only if they surpass three years of residence in the country. This incomehas to be declared through the Sworn Statement 1853 and then included in the annual income tax return.

General deductions from income

What are the general deductions from income allowed in your country?

There are a few deductions from income allowed by the Chilean income tax law, many of them are related to savings and voluntary contributions made to social security. Futhermore, the interests paid related to mortgage loans can be used as deductions if some conditions are met and if the income cap is not exceeded.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in your country? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

Tax withholdings are due on a monthly basis for both, resident and nonresident taxpayers.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in your country? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

Chile has Double Taxation Treaties with a number of different countries. Thus when a treaty is currently in force between Chile and another country, a foreign tax credit may be applicable.

In order to obtain a relief for taxes paid abroad, the taxpayer must report the income, and the taxes effectively paid abroad through the Sworn Statement 1853 and then include this in the annual tax return.

Lastly, other foreign source income such as dividends and interest, may be entitled for a relief for foreign taxes paid, as long as the foreign investment registry is completed within the Chilean IRS website.

General tax credits

What are the general tax credits that may be claimed in your country? Please list below.

There is a list of credits that may be claimed against the taxpayer’s tax liability, as follows:

  • Donations
  • Educational expenses
  • Foreign income tax credits

Sample tax calculation

This calculation assumes a foreign taxpayer resident in Chile whose three-year assignment begins 1 January 2015 and ends 31 December 2017. The taxpayer’s base salary is USD100,000.

 

  2015

USD
2016

USD
2017

USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 8,000 0 8,000
Home leave 5,000 5,000 5,000
Educational allowance 3,000 3,000 3,000

 

Exchange rate used for calculation: USD1.00 = CLP 684.21.  

Other assumptions

Non Chilean National

Calculation of taxable income

Year-ended 2015*

USD
2016*

USD
2017*

USD
Days in Chile during year 365 365 365
Earned income subject to income tax      
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,0006,000

 
Moving expense reimbursement 8,000 0 8,000
Home leave 5,000

5,000 5,000
Education allowance 3,000

3,000

3,000

Total earned income 6,000 6,000 6,000
Investment income 170,000   170,000
Total income 6,000

6,000

6,000

Deductions 0 0 0
Total taxable income 170,000 170,000 170,000

Calculation of tax liability

  2015 2016 2017
Taxable income as above 170,000 162,000 170,000
Income tax  68,000 64,800 68,000
Less: 23,236 23,236 23,236
Total income tax 44,764 41,564 44,764

*As the annual 2015, 2016, and 2017, tax rates are yet to be published we have calculated the tax liabilities based on the 2014 income tax table.

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