VAT, GST and Sales Tax in Chile

Summary

Name of the tax Value-added tax (VAT)
Local name Impuesto al Valor Agregado (IVA)
Date introduced 31-Dec-74
Trading bloc membership None
Administered by Internal Revenue Service (Servicio de Impuestos Internos, or SII: http://www.sii.cl)
VAT rates
Standard 19%
Other Exempt and additional taxes (ranging from 15% to 50%)
VAT number format Tax identification number (RUT), which is used for VAT and other tax purposes (for example, 12.345.678-0)
VAT return periods Monthly
Thresholds
Registration None
Recovery of VAT by non-established businesses  No

Scope of the tax

In general, VAT is imposed on the sale of tangible goods located in Chile, and on the provision of services rendered or utilized in Chile. The following are significant aspects of the VAT rules in Chile:

  • For VAT purposes, the law provides that sales are all transac­tions that result in the transfer of movable tangible goods. A seller is any person that habitually carries out this kind of operation. The sale of real estate can also be taxed under certain circumstances. (See Section K.)
  • Services are all actions that any person does for another for consideration (payment) if the service rendered arises from the exercise of one of the activities mentioned in Section 20 of the Income Tax Law, Subsections 3 and 4 (Subsection 3 provides rules regarding income that arises from commercial and indus­trial activities, and Subsection 4 governs income obtained by agents and commissioners in general).
  • VAT also applies to the importation of goods into Chile.
  • Other taxable transactions specified by law include, among oth­ers, withdrawals of inventory, contributions in kind and leasing of movable goods.

Who is liable

A VAT taxpayer is an individual, business or entity that performs VAT taxable transactions (that is, the habitual transfer of goods or the rendering of listed services) in the course of doing business in Chile. No VAT registration threshold applies. All business entities must file a business initiation application on commencement of operations and an application for a taxpayer identification num­ber (RUT). These measures also apply to permanent establish­ments of foreign entities in Chile.

Group registration. VAT grouping is not allowed under the Chilean VAT law. Legal entities that are closely connected must register for VAT purposes individually.

Non-established businesses. A “non-established business” is a business that has no fixed establishment in Chile. If a non-estab­lished business intends to carry out transactions in Chile that are subject to VAT (such as the transfer of goods or the provision of listed services), it is required to be registered for VAT purposes. Consequently, the non-established business must submit an application for an RUT number and a business initiation applica­tion, and must appoint a representative in Chile to act on its behalf. However, taking these actions may result in the conclu­sion that the non-established business has become a permanent establishment (PE) in Chile.

Tax representatives. A tax representative must be provided with the power to represent the business in its dealings with the tax authorities and must also register an address in Chile for this purpose. If a foreign individual is appointed as the tax represen­tative, in addition to the obligation to register an address in Chile, he or she must also be in possession of a valid visa that allows him or her to act in this capacity.

Registration procedures. Every legal entity or individual that performs activities subject to income tax must register and obtain a tax identification number (RUT). Form 4415 must be com­pleted, signed and filed before the IRS, electronically (www.sii. cl) or by hard copy.

In general terms, a legal entity must fulfill the following require­ments: prove it is legally incorporated by means of the public deed, and prove it has one or more legal representatives domi­ciled or resident in Chile. If the taxpayer is acting through an agent or representative, it must also show the power of attorney – authorized before a Notary Public – that grants him such powers.

For VAT purposes, the IRS will always have to check the domi­cile and activities described in Form 4415 before stamping of documents (invoices, etc.).

Late-registration penalties. Penalties and interest are assessed for late registration for VAT purposes. Penalties also apply for VAT fraud.

Reverse charge. The reverse-charge mechanism is not legally established. However, in certain circumstances (i.e., if the sup­plier is a foreign taxpayer and does not have any PE or estab­lished business in Chile), and the transaction is subject to VAT, then the VAT law states that the obligation to withhold such tax turns to the purchaser, issuing a “purchase invoice” and collect­ing the VAT on behalf of the foreign supplier. However, in these cases, the foreign supplier will not be able to recover input VAT, since it is not a VAT taxpayer for Chilean purposes.

Digital economy. There are no specific VAT rules relating to elec­tronically supplied services.

Deregistration. As the tax identification number (RUT) is for VAT and other tax purposes, there are no specific deregistration rules for VAT.

VAT rates

The terms “taxable transfer” and “taxable services” refer to the transfer of goods and the provision of services that are liable to VAT.

In Chile, the VAT rate is 19%. No reduced or higher rates apply. However, additional taxes ranging from 10% to 50% may be imposed under the VAT law on the provision of specific items. Under the amendments introduced by the tax reform in October 2014, some of the taxed items and applicable rates are jewelry (15%); alcoholic beverages (from 20.5% for fermented to 31.5% for distilled); soft drinks with high sugar content (18%); other natural or artificial soft drinks, including energy or hypertonic drinks (10%); and 50% over the first sale or import of pyrotech­nic items. In addition, transactions made by certain entities are exempt from VAT. In addition, transactions made by certain enti­ties are exempt from VAT.

Exempt supplies are those supplies of goods and services that are not liable to VAT. Exempt supplies do not give rise to a right of an input tax deduction.

Examples of exempt transfers of goods and supply of services

  • Used motorized vehicles
  • Importation of goods by the National Ministry of Defense
  • Certain real estate transactions
  • Admission to artistic, scientific or cultural events, sponsored by the Public Education Ministry
  • Premiums for or payments from life insurance contracts
  • Exports of goods
  • Entrance to sporting events
  • Importation of cultural or sporting awards and trophies
  • Services provided by independent workers
  • Freight from other countries to Chile and vice versa

Option to tax for exempt supplies. Not applicable.

Time of supply

The time when VAT becomes due is called the “time of supply” or “tax point.” The basic tax point for the transfer of goods is the earlier of the following:

  • The time when the goods are delivered
  • The time when the invoice is issued

The basic tax point for the provision of services is the earlier of the following:

  • The time when the related invoice is issued
  • The time when a full or partial payment of the consideration is received

Imported goods. For imports, VAT is due when the goods clear all customs procedures. In this case, the Customs Service is respon­sible for collecting the VAT triggered by the import.

Recovery of VAT by taxable persons

A VAT taxpayer may recover input tax (also known as VAT credit), which has been charged on the goods acquired by it and the ser­vices provided to it, if these acquisitions are directly related to the performance of activities that are taxable for VAT purposes. VAT taxpayers generally recover input tax by deducting it from output tax (also known as VAT debit), which is VAT charged on sales made and services provided.

Input tax includes VAT charged on the goods acquired and the services provided in Chile, and VAT charged on imports of goods. In general, for input tax to be recoverable, it must arise from the acquisition of current or fixed assets or from general expenses, if these acquisitions are directly related to the performance of activities that are taxable for VAT purposes. If the taxpayer per­forms activities that are taxable for VAT purposes, together with VAT-exempt activities or non-taxed activities, the common VAT credits can only be proportionally recovered, consistent with the proportion that the income from activities subject to VAT repre­sents in the taxpayer’s total income.

Exporters also may recover the VAT paid with respect to their export activities. However, because exports are exempt from VAT, VAT credits are recovered through cash reimbursements to exporters rather than under an input-output mechanism.

A valid tax invoice or customs document must always support a claim for input tax recovery.

Nondeductible input tax. Input tax may not be recovered on pur­chases of goods and services that are not directly related to the performance of activities taxable for VAT purposes. In such cases, VAT paid constitutes an additional cost of goods or a deductible expense if it satisfies all of the requirements to be a deductible expense for income tax purposes. If VAT is paid for the acquisition of goods or services not related to the taxable income of the taxpayer, VAT paid may not be deductible.

The following list provides some examples of items of expendi­ture for which input tax is not deductible.

Examples of items for which input tax is nondeductible

  • Business gifts
  • Private use of business

Examples of items for which input tax is deductible
(if related to a taxable business use)

  • Input tax is deductible on every item that complies with the requirements (subject to VAT and related to a taxable business use).

Partial exemption. Input tax is not deductible if it relates to exempt or nontaxable activities. VAT taxpayers that carry on both taxable and nontaxable or exempt activities may not recover input VAT in full. This situation is referred to as “partial exemption.” The percentage of input VAT that may be recovered is calculated based on the value of taxable operations carried out during the period, compared to total turnover.

Refunds. If the amount of input VAT (VAT credit) recoverable in a certain period (a month) exceeds the amount of output VAT (VAT debit) payable, the excess credit may be carried forward to offset output tax in the following tax periods.

If a VAT taxpayer pays excess VAT as the result of an error, it may request a refund of the overpaid amount from the tax authorities. Taxpayers may request a refund of the overpaid tax within three years after the end of the period for which the claim is made.

Preregistration costs. Not applicable.

Recovery of VAT by non-established businesses

Chile does not refund VAT incurred by businesses that are neither established nor registered for VAT purposes in Chile, unless the VAT was paid as a result of an error.

Invoicing

Tax invoices and credit notes. A taxpayer must generally provide a tax invoice for transactions subject to VAT, including exports. A tax invoice is necessary to support a claim for input tax deduction.

A VAT taxpayer may also issue credit notes for rebates, discounts or transactions voided with respect to the acquirer of the goods or beneficiary of the services. A credit note must contain the same information as a VAT invoice.

A VAT taxpayer may also issue debit notes for increases in the tax basis of VAT. A debit note must contain the same information as a VAT invoice.

Invoices must be issued in Chilean pesos (CLP).

Electronic invoicing. On 31 January 2014, Law No. 20.727 was passed with rules and requirements regarding electronic invoic­ing. In general terms, the law makes the use of electronic invoic­es mandatory – along with other tax documents such as debit notes, credit notes, purchase invoices, etc.

Implementation of electronic invoicing began for big companies (i.e., those with yearly income of 100,000 units of account (UF) or more) that had annual income from sales and services during the previous calendar year in excess of approximately USD4 million; these companies were required to adopt the sys­tem by November 2014. Companies with yearly income between UF100,000 and UF2,400 (USD4 million and USD96,000, con­sidered midsize and small companies) adopt by August 2016 or shall adopt by February 2017, depending on their location (urban, 2016; rural, 2017). Companies with yearly income under UF2,400 (USD96,000 considered microenterprise) shall adopt it by February 2017 or February 2018, also depending on their location (urban, 2017; rural, 2018).

VAT input tax credit arises in the period when the buyer or ser­vice recipient grants the “acknowledgment receipt” for the invoice.

Exports. Chilean VAT does not apply to the export of goods. How­ever, to qualify as VAT-free, exports must be properly supported by evidence confirming that the goods have left Chile. Invoices for export transactions must be issued in accordance with the regulations established by the National Customs Service, and must be stamped by the Chilean Internal Revenue Service.

Foreign-currency invoices. Not applicable.

VAT returns and payment

VAT returns. VAT returns are submitted for monthly periods on Form 29. VAT returns and payments in full are due by the 12th day of the month following the end of the return period. Return liabilities must be paid in Chilean pesos. For taxpayers autho­rized to issue electronic tax documents, VAT returns and pay­ments in full are due by the 20th day of the month following the end of the return period.

Special schemes. Not applicable.

Electronic filing and archiving. Not applicable. Annual returns. Not applicable.

Penalties

Penalties are assessed for a range of errors and omissions related to VAT accounting. In general, penalties for VAT errors are calcu­lated as a percentage of the tax underpaid; penalty measures may also include closure of the business. The amount of the penalty depends on the severity and frequency of the error. The following are the classes of offenses:

  • Serious: for example, failure to issue an invoice
  • Less serious: for example, omitting a required detail from an invoice
  • Light: for example, failure to issue a credit note

In addition, interest is assessed at a rate of 1.5% monthly on unpaid VAT.

Criminal tax evasion may be punished by a term of imprison­ment, a fine, or both, depending on the severity of the case.

Tax reform

On 29 September 2014, tax reforms were published as part of Law No. 20.780, which modified DL. 825, or the VAT law, among others.

The amendment establishes as a new taxable event the recurrent or habitual sale of real estate. Before the tax reform, VAT was triggered only when such sale was performed by construction companies. As of 1 January 2016, VAT applicability depends on whether the seller habitually participates in this type of transac­tion, regardless of whether the seller is a construction company, and regardless of whether it is a legal entity or individual.

The law establishes certain situations in which it presumes the transaction is habitual, such as when the time elapsed between purchase and sale of the real estate is less than one year, or when condos are sold by floors or units.

However, the sale of land is still exempt, so in calculating the taxable base, the value of the land must be subtracted.