CHILE 2016
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Web Site: www.shermannigretti.it E-mail: info@shermannigretti.it Tel. +39 (0)2 7722951 Mob. +39 335 6030346 Twitter: @ShermanNigretti Linkedin: Gianmauro Sherman Nigretti
GEOGRAPHY AND POPULATION CAPITAL:
SANTIAGO
POPULATION:
17,3 MILLION
POLITICAL SYSTEM:
REPUBLIC
CURRENCY:
CHILEAN PESO (CLP)
FORMS OF BUSINESS ORGANIZATIONS The principal legal alternatives to constitute a local presence in Chile are the following:  Stock corporation A Stock Corporation is defined as a juridical entity formed by a common fund provided by shareholders who are responsible only for their respective capital contributions and managed by a Board of Directors whose members are essentially revocable. In order to form a corporation, two shareholders are needed, as Chilean legislation does not allow wholly owned corporations. The shareholders can be either individuals or legal entities, Chilean or foreign, whether or not domiciled in Chile, and there is no requirement of a maximum or minimum capital. The total capital must be issued and paid within three years. If not, the capital is reduced by law to the amount effectively issued and paid.  Limited liability companies (LLC) This type of companies is defined as a contract whereby two or more parties agree to make a contribution in common with the purpose of dividing the proceeds arising there from. Each partner’s liability is limited to the amount of his capital contribution or to a greater amount specified in the companies deed. Both the stock corporation and the LLC may be formed with exclusively foreign partners or shareholders. Likewise, directors or managers may also be foreigners, without any other limitation that there must be sufficient directors in Chile so that the Board can operate or, in the case of LLC, an attorney with sufficient powers to represent the companies. The referred persons are not legally obliged to live in Chile. If the corporation or the LLC are constituted through attorneys, they must be granted sufficient power for said purpose. When issued abroad, this power must be signed before a Notary Public and legalized at a Chilean consulate.
 Branch of a foreign corporation The Chilean commercial law considers a branch as the locally registered office of a foreign corporation. Its formation implies the acquisition in Chile of a fiscal, legal and commercial presence, and the assets of the branch remain subject to Chilean law, especially to cover its local liabilities. The branch is considered to be the same juridical entity as the head office. However, it is a permanent establishment, which has autonomy and legal capacity to become a partner or shareholder of local companies or corporations. No minimum capital is required to establish a branch, unless its capital is registered under a foreign investment regime. Branches must publish their yearly balance sheet in a local newspaper within the four months following the closing of the financial period. The formation of a branch is relatively simple and requires the registration, at a Notary Public in Chile. Unlike LLC and stock corporations, the branch may not be established jointly by two different legal entities since, as it is the local office of one foreign corporation and thus, by law, its capital pertains exclusively (100%) to the head office.
ACCOUNTING Except for some authorized exceptions, accounting records must be carried in Chilean pesos and there are several legal formalities that must be fulfilled. Authorization to use foreign currencies can be granted by the IRS and depends on a clear demonstration of that being the functional currency. The basic financial statements include the following: • • • •
Balance sheet Statement of income Statement of cash flows Notes to the financial statements.
Valuation of assets In accordance with the accounting bulletins issued by the Chilean Institute of Accountants, and with certain modifications to the Income Tax Law, non-monetary assets and liabilities, and shareholders equity must be restated in accordance with the local Consumer Price Index by charge or credit to income. Income statement accounts are restated to year end values. Books and records Companies are required by law to keep the following bound books, which must be stamped by the Internal Revenue Service (IRS).
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Journal General ledger Inventory and balances book Wages and salaries income tax-withholding ledger Purchases and sales ledgers (VAT register) Register of goods in stock Register of retained taxable profits
The IRS authorizes the use of computerized accounting systems.
CORPORATE TAXATION Chilean resident corporations and branches of foreign entities are subject to income tax on their worldwide income. A resident corporation is one that is incorporated in Chile. The corporate income tax is applied to accrued net income, with the exception of foreign-source income, which is computed on a cash basis. The corporate income tax rate is 24%. The corporate tax paid by the company is fully creditable against the tax applicable to the distribution of profits to nonresident partners or shareholders, or to resident individual partners or shareholders. Dividends. Dividends or profit distributions between resident entities are not subject to tax. Dividends received from foreign subsidiaries are taxed as ordinary income. A foreign tax credit is available with respect to such dividends. Mining tax
A special tax on mining activities is imposed on individuals or legal entities that extract minerals subject to concession and sell these minerals in any state of production. The tax is imposed at progressive rates ranging from 0% to 14%, depending on the amount of the sales and the operational margin of the taxpayer. The tax base is corporate income with certain adjustments. Sales made by related mining entities are attributed to the taxpayer for purposes of determining the tax rate. The mining tax is imposed in addition to the income tax. However, the mining tax may be deducted as an expense for income tax purposes for the year in which the tax is due.
INDIVIDUAL TAXATION All individuals domiciled or resident in Chile are subject to personal income tax on their worldwide income. However, during their first three years of residence, foreign nationals are subject to tax on Chilean-source income only. Nonresidents are taxed on Chilean-source income only. Income earned for services rendered in Chile or for activities performed in the country is considered to be Chileansource income, regardless of where it is paid. A person present in Chile for longer than six months in one calendar year or for longer than a total of six months within two consecutive tax years is considered a resident of Chile. Domicile is defined as residence in a particular place with the intention of staying there. The intention is proved through facts and circumstances, such as employment within the country or moving one’s family into the country. Employment income Personal income tax is levied on a progressive scale. The income brackets are adjusted monthly in accordance with the consumer price index variation expressed through a unit called a Monthly Taxable Unit (MTU). An MTU is equivalent to approximately USD68. The Annual Taxable Unit (ATU) is equal to one Monthly Taxable Unit multiplied by 12. The following table presents the personal income tax brackets and corresponding rates for 2016.
TAXABLE INCOME
EXEEDING
NOT EXCEEDING
RATE
MTU
MTU
%
0
13,5
0
13,5
30
4
30
50
8
50
70
13,5
70
90
23
90
120
30,4
120
150
35,5
150
---
40
In accordance to the tax reform approved in 2014, the highest marginal rate will be reduced to 35%, effective from 1 January 2017. Nonresidents
Individuals working in Chile for periods not exceeding six months in a year or for a total of six months within two consecutive tax years are considered nonresidents. However, a person may be treated as a resident from the first day of his or her stay in Chile if evidence of an intention to establish a domicile in Chile exists. Nonresidents are subject to an Additional Tax on their Chilean-source income, which is income earned for services rendered in Chile or activities performed in the country, at flat rates of 15%, 20% or 35%.
VAT In Chile, the VAT rate is 19%. No reduced or higher rates apply. However, additional taxes ranging from 10% to 50% may be imposed under the VAT law on the provision of specific items. Under the amendments introduced by the tax reform in October 2014, some of the taxed items and applicable rates are jewelry (15%); alcoholic beverages (from 20.5% for fermented to 31.5% for distilled); soft drinks with high sugar content (18%); other natural or artificial soft drinks, including energy or hypertonic drinks (10%); and 50% over the first sale or import of pyrotechnic items. In addition, transactions made by certain entities are exempt from VAT. In addition, transactions made by certain entities are exempt from VAT. Exempt supplies are those supplies of goods and services that are not liable to VAT. Exempt supplies do not give rise to a right of an input tax deduction.
DOUBLE TAX TREATIES Chile has signed double taxation agreement with 25 countries.
DISCLAIMER This publication must not be regarded as offering a complete explanation of the taxation and corporate matters that are contained within this publication. This publication has been prepared on the express terms and understanding that the publishers are not responsible for the results of any actions which are undertaken on the basis of the information which is contained within this publication. The publishers and the authors expressly disclaim all and any liability and responsability to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this publication. Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person, and ensuring that such edvice specifically relates to their particular needs.