Resident foreigners are taxed on their salary, deducting social security contributions. Non-resident foreigners cannot deduct social security contributions before acquiring Chilean residence.
In general, all expenses incurred that are in the employer’s sole interest are duly deductible. Among these are travel and lodging expenses and documented entertainment. No blanket or standard deductions, such as representation allowances, are allowed for dependant employees.
Mortgage interest expenses
Individuals resident in Chile may deduct from their respective taxable base the amount of the interest paid for mortgage loans destined to the purchase or construction of one or more dwellings. The annual deduction may not exceed 8 annual tax units; this limit is proportionally reduced according to the taxpayer’s income. The deduction is reduced to zero for taxpayers who have an annual income greater than 150 annual taxable units. The deduction should be claimed on the annual tax return (form 22).
Voluntary pension contributions (APV)
A deduction can be taken for APV, up to a monthly limit of 50 UF or annual limit of 600 UF for resident employees. In the case of a dependent worker, such savings can be made monthly if the contribution is deducted by the employer or annually if the worker pays it directly to an authorised institution. In this situation, the worker should claim the deduction on the annual tax return (form 22). In practice, this contribution may only be made if the employee contributes to the ordinary Chilean Pension Scheme.
If the employee decides to withdraw one’s contribution, such amount will be provisionally taxed at a 15% rate, which will be used as a credit against the tax to be paid, which will be calculated considering the amount withdrawn and other incomes earned during the same year.
As of 1 January 2017, this tax benefit for individuals is eliminated due to the Tax Reform.