Thinking beyond borders
The responsibility to pay taxes is generated by performing remunerated activities in Chile. Tax liability is generated from the first day of travel to Chile unless a Double Tax Agreement can be applied.
As a general rule, any person domiciled or resident in Chile is subject to income tax 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 domiciled in Chile will pay taxes only on their Chilean source income during the first 3 years from their arrival in Chile. After this period has elapsed, foreigners will be subject to income tax on their worldwide income. Additionally, Chilean legislation also provides the possibility of an extension of this period in specific cases, nevertheless it is imperative that an extension request is filed with ample time to be approved before the expiration of the time period. In order to obtain an extension, strong supporting documentation must be provided that clearly establishes that the person does not have the intention to permanently remain in Chile.
According to the Chilean Income Tax Law, Chilean source income is defined as income derived from activities performed or goods located in Chile. Thus, compensation received for employment activities carried out within the country/jurisdiction should be considered as Chilean source income, and therefore subject to taxes in Chile, regardless of the nationality or residence status of the individual, and the place of payment.
For tax purposes, the resident status is acquired once an individual has been in Chile more than 183 days within any 12-month period. According to article 49 of Chilean Civil Code the accounting of a fact that must be analyzed “within” a certain period, will be accomplished if it is met by midnight of the day before Chilean income tax law does not provide for a domicile definition, but according to 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 (IRS) has understood that an executive may acquire tax domicile in Chile in the following circumstances:
Accordingly, a person will acquire Chilean domicile once the aforementioned requirements (residency and intention to remain in it) are met.
While an executive is considered non-resident and not domiciled in Chile for tax purposes, they will be subject to non-residents income tax (Additional Tax). The tax is levied at a flat rate of 15 percent on the gross employment income, if the activities can be qualified as technical or engineering work or professional services that an individual renders through a report, advice or plan development, rendered in Chile or abroad.
From the 184th day onwards or as from the acquisition of tax domicile, whichever occurs first, the executive will generally be taxable with the residents’ Chilean income taxes, and subject to employment income tax (Second Category Tax), which has progressive rates ranging from 0 to 35 percent on the net salary.
In the case that the executive does not meet the requisites of Law 18.156, the executive will have to contribute to the Chilean social security system. As a general rule, employees working in Chile are subject to the payment of social security contributions, which are deducted from their gross salary with certain caps. These contributions must be withheld by the employer and are paid as follows:
1. pension fund administrator: 10 percent plus a management fee of approximately 2 percent
2. health Institution: 7 percent.
All of these percentages are calculated over the gross salary with a cap of 80.2 Development Units (UF) per month (approximately 2,300,000 Chilean pesos (CLP)). Such mentioned cap of 80.2 UF is adjusted annually considering the variation of the real wage rate determined by the National Institute of Statistics.
Legislation in Chile allows foreign individuals and the companies that bring them to Chile, to be exempt from making social security contributions in Chile and to keep their affiliation to a foreign social security system, when certain requisites are met. This special regime is established in Law 18.156.
According to this law, in order to be exempt from contributing to the Chilean social security system under the Law 18.156 clauses, it is necessary to meet the following requirements:
Annual tax return in Chile must be filed by 30 April each year.
The deadline to file monthly Income Tax Return for taxpayers considered resident in Chile expires on the 15th of each month.
The deadline to file monthly Income Tax Return for non-residents expires on the 12th of each month.
Tourists cannot develop remunerated activities; however the Ministry of the Interior may, in specific cases, authorize an individual to carry out such activities for a period not exceeding 30 days, renewable for equal periods until the end of tourist permit.
To work in Chile a residence visa is required, providing access to Chilean ID (RUT).
Visa subject to employment contract:
For foreigners who have been hired by a company resident in Chile. It has a maximum duration period of 2 years.
There is also the Resident Visa Subject to Dependent Contract, which is awarded to the family of the owner of the Visa, similar duration, but does not allow for employment. The cost of the procedure is based on reciprocity parameters.
Temporary resident visa:
Traveling abroad for the purpose of settling in Chile, having family ties, interest in the country/jurisdiction or whose residence is useful for advantageous for Chile. Allows working, studying and / or doing business.1
It has a maximum term of 1 year, but it can be renewed for 1 additional year.
1. Chilean Immigration Law (DL 1.094-1975, art. 29°).
All information contained in this publication is summarized by KPMG Auditores Consultores SpA, the Chilean member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on Chilean income tax law Decree law n° 824 and Chilean Immigration Law (DL 1.094-1975, art. 29°).