Foreigners who reside in Chile or who have business interests here are required to pay taxes. Filing returns is voluntary in Chile, but failure to pay taxes owed is illegal, and will be penalized.
At LegalFácil, we want your experience of living and doing business in Chile to be as successful as possible, and we believe that fully complying with the law is fundamental to ensuring that success. In line with that philosophy, we highly recommend that you and/or your business pay taxes in Chile.
This book will show you how to do so, giving you the basic information you need to manage your tax burden and prepare your returns. The following chapters will explain:
- Taxes on businesses: What taxes must you pay if you run or invest in a Chilean company or a foreign company with business interests in Chile?
- Taxes on individuals: What taxes must you pay if you are a short- or long-term resident in Chile?
- Invoicing: What types of government-issued invoices must your business use for its transactions within Chile, and how do you obtain them?
- Tax breaks and incentives: What sectors and geographic areas offer the best tax advantages for businesses in Chile?
- Enforcement and litigation: What happens to those who fail to pay their taxes?
The remainder of this introduction will focus on some basic facts and important advice to bear in mind when tax planning and preparing your returns.
Do You Need an Accountant?
The short is answer is: yes, it would be a good idea!
LegalFácil’s aim is to help you answer legal questions and handle administrative procedures by yourself to the greatest extent possible, but taxes are a complicated animal, and hiring an accountant is highly recommended, particularly for businesses.
The Chilean federal tax agency, SII (see below), is extremely sharp when it comes to calculating taxes owed, tracking tax evaders, and calculating whether tax returns are accurate and tax payments sufficient; it also levies stiff fines (multas) for mistakes, regardless of whether they were made in good faith. Thus the costs saved by not hiring an accountant may return as even higher costs should you make a mistake.
That said, the SII also makes it extremely easy to file returns online, and it is possible for individuals, freelancers, and small companies to file their taxes on their own, as long as they are organized and punctual.
Accountants can be hired for between $100 and $800 a month, depending on the job; those prices tend to rise around April, when tax returns are due.
Nation Tax Agency
Chile’s national tax agency is the Servicio de Impuestos Internos (SII). Tax returns are filed and taxes paid to the SII, either via mail or the SII website. You can also do the following at the SII website or offices:
- Get your tax identification code,
- Register to pay added value tax,
- Stamp your business’s IVA invoices.
There is a wealth of helpful information on the SII website, most of it translated into English, including an entire section of information for foreign investors:
In spite of the website’s helpfulness and that fact that you can complete most important procedures online, we recommend going to the SII offices for certain procedures, particularly to get your RUT (See below). The main SII offices are in Santiago, at Santa Rosa 108, near the Santa Lucía metro stop. They are open Monday to Friday, 9am to 2pm.
The most important tax-related laws to be aware of are:
- Ley de la Renta D. L. 824 de 1974 (Income Tax Act) which regulates the various kinds income taxes
- Ley sobre Impuesto a las Ventas y Servicios D. L. 825 de 1974., which regulates value-added tax, or impuesto al valor agregado (IVA)
- Código Tributario, which regulates (among other things) the Regimen Penal Tributario, which dictates how tax violators are punished.
Tax Identification Number (RUT)
The RUT (rol único tributario) is the tax identification number required for all financial activities in Chile. Residents and citizens of Chile are also assigned an identity number called the RUN (rol único nacional), which is identical to their RUT but has broader uses for civil purposes (more or less equivalent to the social security number in the U.S.)
You can obtain your RUT via the SII website or in person at the SII offices. We recommend going in person: it is more reliable and usually takes about a half-hour.
The following entities must obtain a RUT from the SII:
- Any company that incorporates in Chile
- Branches of foreign companies
- Individuals and partnerships that carry out any kind of business activity in Chile
- Anyone purchasing real estate in Chile
- Foreigners investing in Chile, regardless of the investment, including purchasing shares of Chilean companies
Individuals must present a passport to the SII in order to obtain a RUT. If a representative applies on your behalf, you must grant a power of attorney, and the representative must present the power of attorney to the SII.
Companies must present additional documentation to the SII to obtain their RUT.
If your company is incorporated in Chile, you must present
- company statutes and proof of inscription in the commercial registry,
- document showing your company’s legal address (such as a utility bill or notarized rent contract),
- notarized power of attorney (poder) for the person representing the company during the application for the RUT.
If your company is incorporated abroad, you must present the following to the SII:
- Legalized and (if not originally in Spanish) translated documents proving the existence of your company,
- Legalized power of attorney for the person representing your company before the SII.
Any official document that did not originate from Chile must be legalized by a notary in the Chilean consulate of the country where the document originated. Legalizing documents is tedious but utterly necessary.
Though there is currently some movement toward legislative change, Chile currently does not accept or provide Apostille certifications.
Added-Value Tax Registration
Businesses that must pay IVA (the Spanish acronym for VAT, or added-value tax) must be registered in the Registro de Contribuyentes de IVA. You can register either in person or online via the Registro de Contribuyente webpage of the SII website. (You’ll see a tab for the Registro webpage on the top left of the SII site, home.sii.cl.) In most cases, you will register to pay IVA while obtaining your RUT. Again, we recommend obtaining your RUT in person.
Income Tax Base
The following individuals must file tax returns to the SII:
- Chilean citizens, both native and naturalized, who are currently residing in Chile, i.e., who have not been residing in another country for more than 12 months
- Foreign citizens with permanent residency status or who have had temporary residency status for at least 12 months
- Foreigners who have lived at least 6 consecutive months in Chile during the last year or 6 total months in each of the last 2 years
- Foreigners who receive income from a Chilean source
Chilean citizens as well as Chilean residents who have resided in Chile for more than 5 years must pay taxes on their global income, with a tax credit granted for foreign income that has already been taxed by another country. Other tax-liable individuals must pay tax only on income generated in Chile.
Businesses that must pay taxes in Chile include:
- Corporations and limited liability companies that have incorporated in Chile, including subsidiaries of foreign companies
- Branches of foreign companies
- Partnerships and sole proprietorships (i.e., non-incorporated businesses that are active in Chile)
Companies that are based in Chile must pay taxes on all income, foreign and domestic (with a tax credit granted for foreign income that has already been taxed by another country).
Foreign companies that operate in and/or derive income from products or events from or within Chile must pay taxes only on that Chile-source income.
The tax year for individuals and for companies is normally the calendar year. Individuals’ tax returns are filed in April after the end of the tax year.
Businesses must file their returns for income tax in monthly installments, paying what is called the PPM (pago provisorio mensual, or monthly provisional payment).
During your first year of business, your PPM will be equal to 1% of your monthly income. In subsequent years, the monthly payment will be of 20% of your previous year’s monthly income. At the end of the tax year, depending on how your PPM payments correspond to your actual income over the year, you will either have to pay the difference to the SII or receive it as a refund. The fiscal year ends on December 31.
Value added tax (VAT), called impuesto al valor agregado (IVA) in Spanish, is paid for on a monthly basis. However, regular IVA payers maintain a balance of IVA paid and received, and will only have to make payment if they have received more than they have paid. If they’ve paid more IVA than they’ve received, the surplus can be used as a credit the following month.
It is highly recommended that you do your monthly reports and file your end-of-the-year returns, and that you do so on time. Even if your business has had no movement, it’s essential that you report anyway and declare that there was no movement. Failure to report will be met with a fine (multa).
Types of Income Tax
Chile Income Tax Act designates four categories of tax, according to the nature and position of the entity receiving the income:
- First category tax (impuesto de primera categoria): tax on business revenue
- Second category tax (impuesto único de segunda categoria): tax on personal income deriving from salary and other kinds of remuneration
- Global complementary tax (impuesto global complementario): tax on other personal income for Chilean residents during the tax year.
- Additional tax (impuesto adicional): income tax for non-residents
Further explanations of these types of income taxes, as well as rates, are given in the chapters “Taxes on Businesses” and “Taxes on Individuals.”
Other Types of Taxes
In addition to income tax, businesses and individuals may be liable for the following taxes, all of which will be elaborated on in the following chapters:
- IVA (impuesto al valor agregado, the Spanish-language acronym for value-added tax)
- Municipal duty (patente municipal)
- Stamp tax (impuesto de sellos)
- Inheritance and gift tax
- Real estate tax (impuesto territorial)
- Sales tax on select goods
- Special taxes on activity in select industries, including mining, agriculture, and transport
The UTM and UTA
One important idiosyncrasy of the Chilean tax system is that the basic monetary unit for payment is not the national currency (pesos), but two units of account called the unidad tributario mensual (UTM) and the unidad tributario anual (UTA). The former is for monthly payments, the latter for annual. Both taxes and fines are paid in UTMs or UTAs.
It is beyond the scope of this book to explain the UTM and UTA in detail but suffice it to say that they are standardized units of account that are continually adjusted to inflation.
You can check the current rates, as well as historical rates, at www.sii.cl/pagina/valores/utm/utm2011.htm and www.sii.cl/pagina/valores/uta.htm