EY
Presidente Riesco #5435
7th Floor
Las Condes
Santiago Chile
Executive and immigration contacts
Juan Andres Perry
+56 (2) 2676-1427
Email: juan.andres.perry@cl.ey.com
Bárbara Veloso +56 (2) 2676-1392 Email: barbara.veloso@cl.ey.com
Romina Aguilera +56 (2) 2676-1235
Email: romina.aguilera@cl.ey.com
Claudia Arévalo +56 (2) 2676-1493 Email: claudia.arevalo@cl.ey.com
Maryli Russo +56 (2) 2676-1488 Email: maryli.russo@cl.ey.com
Juan Pablo Castillo +56 (2) 2676-1153 Email: juan.pablo.castillo@cl.ey.com
Carlos Herrera +56 (2) 2676-1099 Email: carlos.herrera@cl.ey.com
A. Income tax
Who is liable. 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 Chilean-source income, regardless of where it is paid.
A person with presence in Chile for a period or periods that in total exceed 183 days within any 12-month period is considered a resident of Chile.
Domicile is defined as residence in a place with the intention of staying there. The intention is proved through facts and circum stances, such as employment within the country or moving one’s family into the country.
Income subject to tax. The taxation of various types of income is described below.
Employment income. Taxable employment income includes any kind of remuneration received under an employment contract, including entertainment expenses. However, board and lodging provided to workers for the employer’s convenience are exempt from tax. Family allowance payments and social security benefits established by law, as well as severance payments within certain limitations, are not included in taxable income.
Scholarships provided by employers to their employees or their employees’ children are not taxable, but the latter has a tax deduction cap for the employer.
Self-employment income. Personal income tax, which is imposed at progressive rates ranging from 0% to 40%, must be paid on income withdrawn from business enterprises. The business enterprises are subject to the First Category Tax. The corporate income tax rate is 27%. Small to medium-size entities are subject to corporate income tax at a rate of 25% (certain requirements need to be met). Corporate tax paid by a company is creditable against the withholding tax applicable to the distribution of profits to the company’s partners or shareholders.
Income earned by professionals and independent workers, minus deductions for actual or deemed expenses, is also subject to per sonal income tax, which is imposed annually at progressive rates ranging from 0% to 40%.
Income and expenses are subject to a monetary correction based on the change in the Consumer Price Index (inflation index) between the month prior to the collection or disbursement and the month preceding the financial year-end.
Individuals and small partnerships engaged in agriculture, mining, land transportation and certain other activities are entitled to special tax benefits for small taxpayers, which includes paying tax on deemed income if gross income does not exceed a speci fied amount.
Investment income Shareholders receiving dividends from Chilean corporations are entitled to a total or partial credit of the First Category Tax paid by the corporation. The dividends are then aggregated with other non-compensation income and taxed as personal income, along with interest derived from the following sources:
• Demand deposits or time deposits in cash
• Bonds, debentures or other debt instruments, unless otherwise provided by international agreement
Income derived from rentals and royalties is included in taxable income and is subject to personal income tax.
Directors’ fees Directors’ fees are taxed in the same manner as professional income, without deduction of actual or deemed expenses.
Taxation of employer-provided stock options. Since February 2020, neither the grant nor the exercise of a stock option is tax able for the beneficiary if a stock option plan is included in an individual or collective employment agreement; if not, it is tax able at exercise. The above applies regardless of the taxation that may be imposed on the subsequent sale of the shares.
Capital gains. Capital gains derived from sales of personal prop erty, including automobiles and household furniture, not used in connection with a trade or business, are exempt from tax. Since 1 January 2017, capital gains derived from sales of personal property are taxable income if the amount of the capital gain exceeds UF8,000 (approximately USD300,000). The UF is an inflation-indexed unit expressed in Chilean pesos that varies according to the consumer price index.
Gains derived from transfers of personal property and real prop erty used in a trade or business are treated as ordinary income and are subject to tax at the regular rates (see Rates).
Capital gains arising from the sale of shares are subject to the general tax regime. However, for residents complying with cer tain requirements, the tax paid can be allocated to the number of years during which the shares were held by the owner, up to a maximum of 10 years. Alternatively, the taxpayer may choose to pay a 10% flat rate on the amount of the capital gains.
Deductions
Personal deductions and allowances Individuals may deduct from their taxable income their social security contributions paid, up to certain limits. Subject to certain limitations, amounts invested in pension or insurance funds may be fully deductible from taxable income. Mortgage interest paid may be deducted from the tax base, subject to certain limitations.
In addition, child education expenses incurred during the year are eligible for a tax credit against personal taxes if the parents’ total yearly income does not exceed UF792 (approximately USD29,700). The maximum annual tax credit per child is UF4.4 (approximately USD165).
Business deductions. Deductible expenses consist of expenses necessary to produce taxable income.
Instead of accounting for actual expenses, individual professionals and independent workers may take a standard deduction equivalent to 30% of gross income, limited to 15 Annual Tax Units (ATUs, see Rates).
Rates
Employment income. Personal income tax is levied on a progres sive scale. The income brackets are adjusted monthly in accor dance with the consumer price index variation expressed through a unit called a Monthly Taxable Unit (MTU). An MTU is equiva lent to approximately USD66. The Annual Taxable Unit (ATU) is equal to one Monthly Taxable Unit multiplied by 12.
income tax brackets and
Taxable income
Employment income taxpayers may voluntarily file an annual tax return to recalculate
monthly taxes paid on an annual basis.
and business income. Tax is calculated on an annual basis rather than the monthly basis used by dependent employees. The brackets and rates are the same as those indicated
above, except that the MTU is replaced by the ATU, which is equivalent to 12 MTUs for the month of December.
For 2021, sole proprietors are subject to the First Category Tax at a rate of 25% or 27%, depending on the corporate tax regime assumed by them.
Certain self-employed taxpayers are subject to provisional tax at a rate of 11.5% (applicable tax rate during 2021) of gross fees or receipts. In certain cases, the provisional tax is withheld by the payer and credited against the final tax. This applies to indepen dent workers, professionals and individuals in professional part nerships who are not subject to the First Category Tax.
Nonresidents. Individuals working in Chile for periods not exceeding 183 days within any 12-month period are considered nonresidents. However, a person may be treated as domiciled in the country from the first day of his or her stay in Chile if evi dence of an intention to establish a domicile in Chile exists.
Nonresidents are subject to an Additional Tax on their Chileansource income, which is income earned for services rendered in Chile or activities performed in the country, at flat rates of 15%, 20% or 35%.
The rate is generally 15% for remuneration paid for technical or engineering work or for professional or technical services ren dered under certain conditions in Chile or abroad. However, the 15% rate is increased to 20% if the payments are made to a related entity or to a resident in a country listed as a tax haven.
The rate is 20% for fees or salaries for scientific, cultural or sports activities. The tax rate for other types of services is 35%.
The Additional Tax may also be imposed on nonresidents receiving payment of remuneration from Chile for services rendered abroad. The general tax rate is 35%, with special rates of 15% or 20% imposed under the conditions described above.
Dividend income of nonresidents generally is subject to tax at a rate of 35%, with a credit for corporate tax paid. Profits from Foreign Capital Investment Funds, however, are subject only to a 10% withholding tax when repatriated, with no credit.
Interest and remuneration for certain services are generally subject to a 35% withholding tax. The tax rate for directors’ fees is also 35%. Royalties are subject to withholding tax at a rate of 30%.
Relief for losses. Business losses of a self-employed person must first be carried back. To the extent the loss exceeds profits from prior years, the unused portion of the loss may be carried forward indefinitely.
Individuals who are not self-employed or engaged in their own business may offset investment losses against investment profits in the same year.
B. Estate and gift tax
Estate and gift tax is a unified tax, assessed in accordance with rates and brackets expressed in ATUs (see Section A). Residents are subject to estate and gift tax on worldwide assets. Nonresidents
subject to estate and gift tax on assets located in Chile only. Estate tax paid abroad
be credited against Chilean tax.
zero rate applies to the first 50 ATUs transferred from an estate to close relatives, including a spouse or children. Only five ATUs are subject to the zero rate if assets are transferred to other ben eficiaries. The following tax rates apply after deduction of the exempt amount.
Taxable
C. Social security
Employers pay a basic contribution of 0.9% and an additional contribution ranging from 0% to 3.4% on payroll to cover work accident insurance for employment activities considered risky. As a result of the application of a new coverage for permits in case of child illness, the employer should add a 0.03% contribution to the 0.9% contribution indicated above.
addition, employers must pay a 2.21% contribution for each employee to cover death and disability insurance. These contributions are paid on salaries up to a maximum of UF81.6 for 2021 (approximately USD3,060) (for details regarding the UF, see Capital gains in Section A). This amount is adjusted on a yearly basis.
Social security contributions covering health care institutions and pension funds are paid by employees at a maximum basic rate of approximately 18.4% (7% for health care institutions, 10% for pension funds and the Pension Funds Administrator commission of approximately 0.77% to 1.44%) on salaries up to a maximum of UF81.6 for 2021 (approximately USD3,060). The applicable wage ceiling is adjusted annually.
The contributions described above are withheld and remitted by employers on a monthly basis. In addition, employees may con tribute voluntarily in excess of the ceiling to individual pension funds or health insurance. Voluntary contributions are entitled to the same tax benefits as required contributions, within certain limits.
Another mandatory social security contribution relates to unem ployment insurance, which is financed by employers, employees and the government. For employees hired indefinitely, the contri bution rates are 2.4% for employers and 0.6% for employees, with a salary ceiling of UF122.6 for 2021 (approximately USD4,600) per month. This amount is also adjusted on an annual basis. For fixed-term employees, the contribution is 3%, which is borne entirely by the employer.
To provide relief from paying double social security contribu tions and to assure benefit coverage, Chile exempts foreign nationals from paying social security contributions in Chile if they are technical or professional employees covered under a similar social security system in their home country. However, this exemption does not apply to unemployment insurance, work accident insurance and coverage for permits in case of child ill ness (“Sanna” fund).
Independent workers are also required to contribute to the Chilean pension system, on an annual basis. It is mandatory for independent workers whose annual income exceeds four monthly minimum incomes, with a cap equal to 12 times the social secu rity cap of UF81.6.
It also applies to independent workers who receive dependent income simultaneously during a year, within the above caps, and to individuals who are currently receiving a partial disability pen sion while continuing to work as independent workers.
Independent workers must contribute for the following coverag
Pension
Health insurance
Disability insurance
Work accident insurance
“Sanna” fund
In 2021, mandatory COVID-19 insurance is payable by the employer for private employees who need to render services in their place of work, either all the time or partially (not required when the work is performed online). The annual value of this insurance is currently CLP9,500 per employee (approximately USD12). This insurance will remain mandatory while the health alert is in place in Chile.
D. Tax filing and payment procedures
Taxes withheld by employers must be paid by the 12th day of each month for the preceding month’s payroll.
Spouses are taxed separately on their personal income.
Annual income tax returns must be filed in April for income received in the preceding calendar year. Tax withheld or paid monthly is credited against tax due. Any tax owed must be paid when fil ing the tax return. Balances in the taxpayers’ favor are refunded in May.
Certain self-employed taxpayers, including independent workers, professionals and professional partnerships, must pay provisional monthly tax at a rate of 10% of gross monthly fees or receipts. The provisional tax is credited against final tax. Enterprises that pay fees to professionals or independent workers must withhold 11.55% (applicable rate for 2021) from gross fees. The withhold ing is treated as a provisional payment by the taxpayer. Taxes withheld by payers of fees are credited against the provisional monthly payments.
E. Double tax relief and tax treaties
Chile has entered into double tax treaties based on the Organisation for Economic Co-operation and Development (OECD) model convention with the following jurisdictions.
Argentina France Poland
Australia Ireland Portugal
Austria Italy Russian Belgium Japan Federation
Brazil Korea (South) South Africa
Canada Malaysia Spain
China Mainland Mexico Sweden
Colombia New Zealand Switzerland
Croatia Norway Thailand
Czech Republic Paraguay United Kingdom Denmark Peru Uruguay Ecuador
Chile has also signed double tax treaties with India, the Netherlands, the United Arab Emirates and the United States, which are not yet in effect.
It is important to consider that the COVID-19 pandemic has significantly affected the immigration processes in Chile, altering timing and procedures due to government measures. These mea sures may imply border closures and the impossibility of applying for visa/permits.
A new Immigration Law has been published, but it is not yet in force. For details, see Section J.
F. Tourist visas
Most foreign nationals from countries with which Chile has con sular relations do not need to obtain entry visas before entering Chile. However, citizens of certain countries need to obtain a tourist visa in advance through the Chilean consulate in their home country to be able to enter Chile. A list of these citizens is provided by the Foreign Affairs Chilean Office.
Tourist permits are generally issued on arrival by the International Police to individuals who intend to visit Chile for business, fam ily, health, recreational or sporting activities and who have no intention of immigrating or conducting remunerated activities. Tourist permits are valid for 90 days and are renewable for an additional 90 days.
G. Work visas and self-employment
An expatriate who wishes to engage in remunerated activities in Chile must apply for a visa or residence permit that entitles him or her to work. The most common of these are the provisional work permits for tourists, subject-to-employment-contract visas and temporary visas. Although the visas may be obtained after the expatriate has entered the country or through a Chilean con sulate abroad before his or her arrival, the provisional work per mits for tourists can only be obtained after the expatriate has entered Chile.
Subject-to-employment-contract visas are valid for up to two years and are renewable indefinitely for additional two-year periods. After two years in Chile under this visa, the employee may apply for a permanent residence status. Temporary visas are granted for up to one year, and may be renewed one time for an additional year. After the expiration of the renewal period, the expatriate must apply for permanent residence status or leave the country.
Foreign nationals may start businesses in Chile if they comply with all legal requirements. Companies may be headed by foreign nationals if such nationals are residents or domiciled in Chile for tax purposes.
The above visas imply residency and permission to work.
H. Residence visas
The following types of residence visas are issued:
• Officials: members of the consular and diplomatic corps
• Temporary: gives the expatriate the right to work or perform other legal remunerated activities in Chile, and may be granted to individuals who have relatives in Chile or who intend to make investments that are considered advantageous for Chile
• Subject-to-employment-contract: valid for up to two years, and may be renewed for an additional two-year period
• Student: valid for up to one year and may be renewed for addi tional one-year periods, as many times as necessary
• Political refugee: issued to foreign nationals who intend to establish permanent residence in Chile
• Permanent residence: an indefinite visa that gives the expatriate the same rights as an ordinary Chilean national, except for the rights to vote and seek public office
In general, foreign nationals must file all or some of the follow ing documents when applying for visas and permits:
• An application form
• Passport and documents proving current visa status
• Documents that prove professional status
• Documents that prove marital status
• Birth certificates
• Documents that support the activities an applicant will develop in the country, such as a labor contract or documents that prove that the applicant has been accepted in a college or educational institution
• Health certificate
• Police record (required to apply for consular visas and perma nent residence)
However, the appropriate authorities have the discretion to request different or additional documents if these are deemed necessary for the approval of the visa.
The following are special types of temporary visas, which must be applied for only through a Chilean consulate:
• Humanitarian visa for family reunion for citizens of Haiti
• Democratic responsibility visa for citizens of Venezuela
I. Family and personal considerations
Family members. Family members of a working foreign national do not need separate visas to reside in Chile, and children of a
foreign national do not need student visas to attend schools in Chile. However, they have to apply for a dependent visa. A separate work visa must be obtained by any family member of a working foreign national who intends to work legally in Chile.
Driver’s permits. Foreign nationals may not drive legally in Chile using their home country driver’s licenses. However, they may legally drive in Chile with an international license while the license is in force. Chile has driver’s license reciprocity with a few countries. To obtain a Chilean driver’s license, a foreign national must take a basic written exam, a technical exam, a basic practical driving test and a basic medical exam.
J. New Chilean Immigration Law (entry into force is pending)
In April 2021, a new Immigration Law was published in the Chilean Official Daily, establishing new rules with respect to institutions, procedures and types of visas that can be requested.
The effects of the new law are suspended until the corresponding regulation is published for which a period of one year has been granted; notwithstanding the above, a longer period could be pos sible. Until the regulation is published, the current law and regu lations will continue in force.
The following are relevant aspects of the new law:
• The National Immigration Service is created, which replaces the current Immigration Department. This authority would have the mission of granting, extending or revoking the work, resi dency and permanent residency permits submitted for its con sideration, including applications filed through the Chilean consulates around the world.
• As a general rule, the National Immigration Service does not have the faculty to receive files related with residency or work permits requested for the first time in Chile, except those cases related with family reunion. The filing of these kinds of appli cations can only be made through the Chilean consulates world wide.
• The regulation will define a new catalog of residency and work permits and establish its requirements. However, the immigra tion benefits acquired before the entry into force of the new law will not be affected and maintain their validity until the expira tion date.