Value-added tax (VAT)
VAT is payable on the transfer of goods and the provision of services at a 19% rate. In general terms, this tax is levied over the price of the following goods and services:
- Sales and other agreements used to transfer the ownership of tangible goods (movable and unmovable), provided that said operations are customary. The law assumes that all sales made within the ordinary course of business are customary.
- Services that are commercial, industrial, or financial, or that are connected to mining, construction, insurance, advertising, data processing, and other commercial operations.
- Imports, customary or not.
The sale of fixed assets is subject to VAT, provided that the taxpayer was entitled to VAT credit for its acquisition, importation, or construction.
VAT works on a credit-debit system. The tax borne by a company or business in the acquisition of goods or services is called the ‘VAT credit’. The VAT charged on the goods and services sold to customers is called the ‘VAT debit’. As a general rule, the seller or service provider is obligated to withhold and pay the VAT. The tax amount is added to the invoice; consequently, the final consumer economically bears the VAT.
Exceptionally, when a seller or service provider is not domiciled in Chile or when, for other reasons, the Chilean IRS has difficulties assessing the correct payment of VAT, the responsibility to withhold and pay the tax is transferred to the buyer or beneficiary of the service.
The tax is paid every month by deducting the VAT credit from the VAT debit. The balance due (when the debit is greater than the credit) must be paid within the first 12 days of the month following the month in which the transaction took place.
If, in a given month, the VAT credit is greater than the VAT debit, the balance may be kept and carried forward to the following months.
Law N° 20,727 gradually establishes the compulsory use of electronic invoices and other tax documents, such as credit and debit notes, purchase invoices, etc. As of 1 February 2017, all taxpayers should be subject to it.
There are qualified exceptions to this electronic regime, such as zones where there is no public electricity, zones declared as a disaster area, and other exceptions authorised by the Chilean IRS.
Law N° 20,727 also established the express acknowledgement of the invoice receipt as an enabling requirement in order to use the fiscal credit.
Additionally, leasing agreements by a habitual seller are a taxable event. Notwithstanding that the above are exempted when the acquisition of the real estate property subject of the relevant leasing was not taxed with VAT and the aforementioned acquisition was performed to enter into the leasing agreement.
As a general rule, the customs duty rate is 6%. However, as Chile has an extended network of free trade agreements (FTAs), reduced or zero-rate customs duties are available.
Duties on goods are imposed on the cost, insurance, and freight (CIF) price, without deducting special discounts.
In general, Chile has a very open economy, and there are no significant barriers to foreign trade.
Alcoholic beverages, certain non-alcoholic beverages (e.g. beverages high in sugar levels, hypertonic beverages), tobacco, and certain luxury items (e.g. jewels) are subject to an additional sales tax ranging from 10% to 50%.
A variable gasoline tax is also levied on the difference between a fixed amount and the sales price of gasoline and diesel oil.
The Tax Reform increased the taxes applicable to alcoholic and certain non-alcoholic beverages, as well as the specific tax applicable to tobacco (whilst reducing the excise tax, with an overall result of a tax increase).
Additionally, the Tax Reform gradually introduces 'green taxes', which are taxes that are levied on the issuance of certain pollutants by some non-eco-friendly assets, such as boilers or turbines that individually or jointly add a thermal power of 50MWt. It also establishes a corrective tax on the issuance of certain local pollutants connected to vehicles' performance.
Real Estate Tax
Real Estate Tax is levied over an official valuation of real estate at an annual rate of 1.4% in case of non-farming real estate and 1% for farming real estate. Some real estate is exempt from this tax.
Currently, Chilean law has not established any transfer taxes.
Stamp tax is levied mainly on documents that evidence money lending operations, and its rate varies depending on the executed document.
For documents subject to a specific date, stamp tax applies at 0.066% per month or fraction of a month. The maximum stamp tax rate is 0.8%. For documents payable on demand or without an expiration date, the tax rate is 0.332%.
The income that the employer pays to the employee that provides personal services in a subordinate and dependent relationship under an employment contract is subject to payroll tax.
Payroll tax is characterised as a single tax that is based on a progressive scale of rates, ranging from 0% to 35%, applicable to income brackets. Only the income or remuneration received is subject to this tax. Whoever pays the taxable income must deduct and withhold the tax on a monthly basis.
Social security contributions
Pursuant to Chilean legislation, affiliation to the Chilean social security system is mandatory from the moment that any individual starts rendering services due to an employment contract.
In order to contribute to the Chilean social security scheme, the assignee needs to be incorporated into the Chilean pension fund (AFP), the Chilean health insurance (private health insurance [ISAPRE] or public health insurance [FONASA]), death and disability insurance, work related accidents and professional illness insurance, and unemployment insurance.
An employer’s obligation for social security is low, as it only assumes part of the unemployment insurance (2.4% calculated over the worker’s gross salary). Whilst the employee assumes most of the social security contribution (approximately 20% of gross salary).