Expatriate tax - Chile

In Chile, individuals with domicile or residence in Chile are taxed over their worldwide income. Residence in Chile is obtained when the person remains in Chile, uninterruptedly or not, for a period or periods that in total exceed 183 days, within any twelve – month period. In that case, if such requirement is met, it will be understood that the individual, whether Chilean or foreigner, will be subject to Chilean Income Tax. 

In case of a foreigner that obtains Chilean residence, for the first three years of his / her stay in Chile, counted from the date of arrival, he / she will only pay taxes in Chile for their Chilean source income. After that term, he / she will be taxed over his / her worldwide income. 

Annual Tax Returns are filed in April of each year, considering the income obtained during the 1st of January until 31st of December of the prior year. 

Individuals in Chile who works independent must present Form No.22 in April of each year, which refers to the income tax return. Employees are subject to a monthly tax that is withheld and paid by the employer within the first 20 days of each month, through Form No.29.

The income tax return for individuals can be filed during the whole month of April. There is no difference between Chilean and foreigners. 

Taxpayers will be subject to the payment of interest and penalties if the tax is not declared and paid according to the deadline set by the Chilean Tax Law and the instructions issued by the Chilean Internal Revenue Service (IRS or SII in Chile). 

In Chile, residents obliged to file and pay taxes are subject to the Global Complementary Tax, which rates range from 0% (exempt bracket) up to 40%. Employers must withhold and pay a monthly tax for their employees (Second Category Tax or Employment Tax), with the same rates as stated above.

Example of a worker and his monthly income in Chilean Pesos (Second Category Tax, paid monthly):

In principle, foreigners who obtain domicile or residence in Chile will be taxed according to the same rules that apply to Chilean citizens, this is in relation to the rates indicated in the Income Tax Law regarding the Global Complementary Tax/Employment Tax. 

The big difference, however, is that foreigners, that acquires tax residence, during their first three years in Chile will be taxed only for their Chilean source income, after that, they will be taxed over their worldwide source income (known as 'Tax Holiday').

The residence in Chile as mentioned in one of the previous sections, for a foreign person, is obtained when he / she stays in Chile, uninterruptedly or not, for a period or periods that in total exceed 183 days, within a period of any twelve months. In that case, if such requirements are met, it will be understood that the individual, whether Chilean or foreigner, will be subject to Chilean Income Tax.

Taxpayers are entitled to acquire Chilean domicile from their first day of entry to Chile if they want to.

In general, in Chile, all income derived from labor source, occasional or regular, is taxed as labor source income, provided that it is not considered business or capital income. That vast majority of the income that an employer pays to its employee is reportable and taxable. 

Exceptionally, payments such as mobilization, meals allowance, and a few other allowances, are not taxable.

Regarding the option to acquire shares of the company (stock option) as a compensation plan, it is important to point out that in Chile, if the employee is offered such option in an employment agreement, the exercise of the option itself will be a non-taxable income for the employee, if any. 

On the contrary, if the stock option is not given by virtue of an employment contract, the exercise of the option will be taxable for the employee. 

The source of employment depends on the place where the services are performed. 

In Chile, in the salary liquidation, benefits such as mobilization, meals, internet are not subject to taxation. As a general rule, any other benefit (in kind) will be deemed as taxable.

Depending on the duration and conditions of the worker in Chile, there may be certain tax concessions under the provisions of a Tax Treaty in force between Chile and the country of origin. 

As for foreigners, as mentioned above, acquired the residence in Chile after being 183 days in Chile, they will be only taxed in Chile for Chilean source income during their first three years.

Another benefit is that foreigners can keep both their health and pension contributions in their country of origin where they usually made such contributions.

Chile currently has 36 treaties to avoid double taxation.

Foreign taxes paid by individuals over income obtained abroad, will qualify as a credit against their Chilean income tax. 

Regarding the deductions that can be made from taxable income, a distinction must be made:

As regard the Second Category single Tax, they are the following:

• From the base salary, the contributions destined to social security funds and health funds are deducted.
• The amount of the voluntary social security savings may also be deducted, up to a maximum of 50 UF per month, with the possibility of reliquidating it.
• The amount paid for mobilization, meals allowance and other few allowances may also be deducted from the taxable base.
  
  

In the case of the Global Complementary Tax, the following may be deducted from the taxable base:

• Exempt or partially exempt income will be part of the taxable base, but credit will be given against the tax resulting from applying.
• The territorial tax paid in the calendar year may be deducted.
  Interest paid and accrued on mortgage guarantee credits may also be deducted.
  In addition, the amount of 4.4 UF for each child, for payments to elementary and high school institutions may be imputed annually as a credit against this tax.

Generally speaking, capital gains obtained by a resident are taxable in Chile. With respect to gains obtained from capital income, it is important to point out that the portion obtained up to the concurrence of the tax cost of the contribution or acquisition will not constitute income and extends to the higher value generated with a limit of 10 UTM per year. 

All that exceeds such amount those higher values will be affected with Global Complementary Tax.   

The sale from an individual of property will not constitute income on the amount of the capital gain that does not exceed 8.000 UF. In the part that exceeds such amount, the excess will be taxed with Global Complementary Tax or Withholding Tax, depending on whether the person is a resident or not in Chile. Chilean residents have the possibility to apply over such capital gain a single tax of 10%. 

The income tax rules vary with respect to the Chilean inheritance and gift tax rules, which apply equally to both Chileans and foreigners. It is a tax that is paid by the successors when they receive an inheritance, that is say, when they are assigned a set of goods that represent an asset, that will be subject to the payment of tax. The law referrers mainly to inheritances, but the rules, rates and others also apply to donations. 

The law provides for the following rates:

-     Not exceeding 80 UTA - 1%.
-     More than 80 and less than 160 UTA - 2.5%.
-     More than 160 and less than 320 UTA - 5%.
-     More than 320 and less than 480 UTA - 7.5%.
-     Greater than 480 and less than 640 UTA - 10%.
-     More than 640 and less than 800 UTA - 15%.
-     Greater than 800 and less than 1,200 UTA - 20%.
-     More than 1,200 UTA - 25%.

Income generated from the investment is taxed as normal income.

Chile does not have local taxes by geographic sector. 

In Chile real estate is taxed over the value of the properties determined by the IRS (SII), according to the rules of the Land Tax Law. In that sense, in order to determine the amount of this tax to be paid for the real estate property in question, its appraisal must be evaluated and any possible legal exemption that may benefit it must also be considered. 

Regarding the rate of this tax, it is necessary to distinguish between non- housing properties, in which chase the maximum rate that can be applied is 1.4%, and for housing properties, there are two rates that are applied progressively, the highest is 1.4% and the lowest is 1.2%. It should be noted that this tax has a surcharge of 0.025% in some cases.

Finally, this is a tax that is filed and paid every 3 months, with 4 payments through the calendar year. 

In Chile there is no tax related to health and social security contributions. However, in Chile, 10% of the employees’ salaries are deducted for social security contributions and 7% for health care purposes. 

There is no Wealth Tax in Chile.

For individuals, in Chile there are no other specific taxes according to their income. 

The forms to be filed by foreign taxpayers in Chile are the following:

• Form N° 4415: Registration in the single Taxpayer Registry and / or declaration of commencement of activities. 
• Form N° 3239: Modification and updating of information.
• Form N° 2117: Obtaining ID (RUT) and beginning of activities.
• Form N° 3238: Declaration of loss of documents or unusable accounting books.
• Form N° 29: Monthly VAT return.
• Form N° 22: Annual income tax return.
• Form N° 2667: Request for remission of interest and fines.
• Form N° 2121: Notice and declaration for termination of business.