Chile Personal Income Tax

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 present in Chile for longer than six months in one cal­endar year or for longer than a total of six months within two consecutive tax years is considered a resident of Chile.

Domicile is defined as residence in a particular place with the intention of staying there. The intention is proved through facts and circumstances, 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, in cluding 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.

Self-employment income. Personal income tax, which is imposed at progressive rates ranging from 0% to 40% (the maximum rate will be reduced to 35%, effective from 1 January 2017), must be paid on income withdrawn from business enterprises. The busi­ness enterprises are subject to the First Category Tax. The rate of this tax is 24% for 2016. However, individuals who are subject to personal income tax at progressive rates ranging from 0% to 40% receive a credit equal to the amount of the First Category Tax paid on the income by the enterprise. Effective from 1 January 2017, this regime will be replaced by two alternative regimes. The first regime will be an attributed income regime under which a partner or individual entrepreneur will be taxable on the profits accrued by the company in the corresponding commercial year. Under this regime, the rule providing for tax deferral until income is withdrawn will be eliminated, and the taxation will be triggered on accrual. Under the attributed income regime, the individual will be subject to personal income tax with a credit against the First Category Tax paid by the enterprise. This regime will apply only to companies whose shares are directly owned by individuals. The other regime will be the semi-integrated regime, which will be the default regime. Under this regime, the taxable event will be deferred until the income is withdrawn or distrib­uted, but the First Category Tax credit against the final tax will be limited to a 65% of the corporate tax.

Income earned by professionals and independent workers, minus deductions for actual or deemed expenses, is also subject to per­sonal income tax, which is imposed annually at progressive rates ranging from 0% to 40% (the maximum rate will be reduced to 35%, effective from 1 January 2017).

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 speci­fied amount.

Investment income. Shareholders receiving dividends from Chilean corporations are entitled to a credit equal to 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. Chilean tax laws do not specifically address the taxation of employer-provided stock options. Employees are taxed on stock options at the time of exercise if the spread is financed in whole or in part by the employer, whether Chilean or foreign. The spread is taxed as compensation income. In addition, a gain derived from the sale of shares of a foreign corporation is subject to regular income tax, while a gain derived from the sale of shares of a Chilean corporation may be subject to the First Category Tax (24% for 2016) as a final tax. However, if the transaction occurs within one year after the acquisition date of the shares, the sales proceeds are subject to personal income tax, which is imposed annually at progressive rates ranging from 0% to 40% (the maximum rate will be reduced to 35%, effective from 1 January 2017), with a credit for the First Category Tax (24% for 2016) paid. The regime discussed in this paragraph will be abolished, effective from 1 January 2017.

Effective from 1 January 2017, the grant of stock options will be taxable for the beneficiary, regardless of the taxation that may be applied on the exercise of the option or the subsequent sale of the shares.

Capital gains. Capital gains derived from sales of personal prop­erty, including automobiles and household furniture, not used in connection with a trade or business, are exempt from tax. Gains derived from sales of real estate not used in connection with a trade or business are also exempt, unless the transactions are considered habitual or the property is held for less than one year before its transfer. Effective from 1 January 2017, this regime will be abolished and capital gains derived from sales of per­sonal property will be taxable income if the amount of the capital gain exceeds UF8,000. 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 prop­erty used in a trade or business are treated as ordinary income and are subject to tax at the regular rates (see Rates).

Capital gains derived from sales of shares and other investments are subject to the First Category Tax (24% for 2016) as a final tax if the transactions are not habitual and not between related par­ties. This regime will be abolished as of 1 January 2017, and capital gains arising from the sale of shares will be subject to the general tax regime. However, 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 taxable income 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 USD30,000) The maximum annual tax credit per child is equal to approxi­mately USD170.

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 progres­sive scale. The income brackets are adjusted monthly in accor­dance with the consumer price index variation expressed through a unit called a Monthly Taxable Unit (MTU). An MTU is equiva­lent to approximately USD68. The Annual Taxable Unit (ATU) is equal to one Monthly Taxable Unit multiplied by 12.

The following table presents the personal income tax brackets and corresponding rates for 2016.

Taxable income

Exceeding
MTU
Not exceeding MTU Rate

%

0 13.5 0
13.5 30 4
30 50 8
50 70 13.5
70 90 23
90 120 30.4
120 150 35.5
150 40

 

In accordance to the tax reform approved in 2014, the highest marginal rate will be reduced to 35%, effective from 1 January 2017.

Employment income taxpayers may voluntarily file an annual tax return to recalculate the monthly taxes paid on an annual basis.

Self-employment 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 or approxi­mately USD816.

For 2016, sole proprietors are subject to the First Category Tax at a rate of 24% on accrued income in the same manner as corpora­tions or partnerships. This amount is then credited against the personal income tax of the proprietor when profits are withdrawn from the enterprise if the profits are not reinvested in the same or another local enterprise. If they elect to be taxed as commercial entities, professional partnerships are subject to First Category Tax.

Certain self-employed taxpayers are subject to provisional tax at a rate of 10% 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 independent workers, professionals and indi­viduals in professional partnerships who are not subject to the 24% First Category Tax.

Nonresidents. Individuals working in Chile for periods not ex­ceeding six months in a year or for a total of six months within two consecutive tax years are considered nonresidents. However, a person may be treated as a resident from the first day of his or her stay in Chile if evidence of an intention to establish a domi­cile in Chile exists.

Nonresidents are subject to an Additional Tax on their Chilean-source 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 ren­dered 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.

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 are subject to estate and gift tax on assets located in Chile only. Estate tax paid abroad may be credited against Chilean tax.

A 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 ben­eficiaries. The following tax rates apply after deduction of the exempt amount.

Taxable amount

Exceeding
ATU
Not exceeding ATU Rate

%

0 80 1
80 160 2.5
160 320 5
320 480 7.5
480 640 10
640 800 15
800 1,200 20
1,200 25

 

Social security

Employers pay a basic contribution of 0.95% and an additional contribution ranging from 0% to 3.4% on payroll to cover work accident insurance for employment activities considered risky. In addition, employers must pay a 1.15% contribution for each employee to cover death and disability insurance. These contribu­tions are paid on salaries up to a maximum of 74.3 for 2016 (for details regarding the UF, see 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 basic rate of approxi­mately 18.4% (7% for health care institutions, 10% for pension funds and the Pension Funds Administrator commission of ap­proximately 1.4%) on salaries up to a maximum of UF74.3 for 2016. The applicable wage ceiling is adjusted annually. For 2016, the wage ceiling is fixed at UF74.3 (approximately USD3,000).

The contributions described above are withheld and remitted by employers on a monthly basis. In addition, employees may con­tribute 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 unem­ployment insurance, which is financed by employers, employees and the government. For employees hired indefinitely, the contri­bution rates are 2.4% for employers and 0.6% for employees, with a salary ceiling of UF111.4 for 2016 (approximately USD4,300) 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 contribu­tions 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 and work accident insurance.

Beginning with the 2018 tax year, independent workers will be required to contribute to the Chilean pension system. Up to the 2017 tax year, they may waive this obligation.

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 re – ceiv ed in the preceding calendar year. Tax withheld or paid monthly is credited against tax due. Any tax owed must be paid when fil­ing 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 10% from gross fees. The withholding is treated as a provisional payment by the taxpayer. Taxes withheld by payers of fees are credited against the provisional monthly payments.

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 countries.

Australia France Poland
Austria Ireland Portugal
Belgium Korea (South) Russian
Brazil Malaysia Federation
Canada Mexico Spain
Colombia New Zealand Sweden
Croatia Norway Switzerland
Denmark Paraguay Thailand
Ecuador Peru United Kingdom

Chile has also signed double tax treaties with Argentina, China, the Czech Republic, Italy, Japan, South Africa, the United States and Uruguay, which are not yet in effect.

Tourist visas

Most foreign nationals from countries with which Chile has con­sular relations do not need to obtain entry visas before entering Chile.

Tourist permits are generally issued on arrival to individuals who intend to visit Chile for business, family, 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.

Work visas and self-employment

Expatriates who wish 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 consulate abroad before his or her arrival, the provisional work permits 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.

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 addi­tional 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 follow­ing 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
  • A certificate proving that the applicant has no criminal record
  • A health certificate

However, the appropriate authorities have the discretion to request different or additional documents if these are deemed necessary for the approval of the visa.

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.