Santiago

Taxation in Santiago, Chile

What are the tax rates in Santiago, Chile? How are corporations taxed? Here’s Teleports overview of personal, corporate and other taxation topics in Santiago, Chile.

Personal taxation in Santiago

Effective personal income tax rate

Annual income$25,000$40,000$80,000$125,000$200,000
Rate2%4%10%18%26%

Teleport city rankings for personal income tax

Personal taxation puts Santiago in position 1 of all Teleport Cities.
WORSTBEST

Basis

Resident individuals are taxed on their worldwide income; nonresidents are taxed only on their Chilean-source income. Individuals not resident/domiciled in Chile are subject to withholding income tax on services rendered abroad and paid from Chile.

Residence

An individual is resident if he/she remains in Chile for six consecutive months in a calendar year, or for more than six months in total over two consecutive tax years. Depending on the circumstances, domicile can be obtained from the first day in the country.

Filing status

Joint filing generally is not permitted; however, spouses married under a community property system must file a joint annual tax return.

Rates

The individual income tax is charged at progressive rates ranging from 0% to 40%. Tax on income from employment is withheld by the employer on a monthly basis. Other income must be declared on an annual income tax return, although tax paid on employment income may be credited against the final income tax liability.

Deductions and allowances

Individuals may deduct interest paid on a mortgage for the construction or acquisition of a dwelling and pension and social security contributions. Parents are granted tax relief in the form of a tax credit against their personal taxes to represent expenses associated with the education of their children (primary and high school studies).

Taxable income

Employment income is subject to second category income tax, while investment income and profits earned from a business are subject to the global complementary income tax. The first category income tax paid by the business on the profits out of which the dividends are paid is creditable against the global complementary tax.

Capital gains

Capital gains generally are taxed as ordinary income. Capital gains on the disposal of certain assets may be exempt from tax or subject to the first category tax as a single tax if certain requirements are met.

Other taxes on individuals

Real property tax

See under “Other taxes on corporations.”

Inheritance/estate tax

Inheritance tax is levied on the net value of assets transferred at death, at rates that vary depending on the proximity of the relationship between the deceased and the recipient.

Social security

See under “Other taxes on corporations.”

Compliance for individuals

Penalties

Penalties apply for late filing, failure to file, underpayment of tax and tax evasion.

Filing and payment

An annual income tax return must be filed in April of the year following the end of the tax year, and any tax due must be paid at that time.

Corporate taxation in Santiago

Teleport city rankings for corporate income tax

Corporate taxation puts Santiago in position 42 of all Teleport Cities.
WORSTBEST

Basis

Resident/domiciled companies pay Chilean income tax on their worldwide income. Taxpayers without a residence/domicile in Chile pay income tax on their Chilean-source income only. Remuneration paid from Chile to nonresidents/nondomiciled persons for services rendered abroad also is subject to Chilean income tax.

Taxation of dividends

Distributions of profits between Chilean entities that prepare full accounting records are not subject to income tax. Profits distributed to individuals resident in Chile are subject to a global complementary income tax at progressive rates that range from 0% to 40%. Profits distributed abroad to nonresident/ nondomiciled taxpayers are subject to an additional withholding income tax of 35%. In both cases, the corporate income tax paid on the profits distributed is creditable against the final taxes.

Residence

A corporation is resident/domiciled in Chile if it is incorporated in Chile.

Losses

Tax losses may be carried back until all retained taxable profits are absorbed, and may be carried forward indefinitely. Tax losses are nontransferable and may be used only by the taxpayer that incurred the losses.

Rate

First category income tax is imposed at a rate of 24% for 2016. The rate is to be incrementally increased until it reaches 25% or 27% by 2018.

Participation exemption

A special regime exists for Chilean publicly traded stock corporations and closely held stock corporations that voluntarily submit to the supervision of the Chilean SEC and that meet certain requirements. Such entities are deemed not to be Chilean domiciled/resident for income tax purposes and, therefore, are exempt from tax on foreign income received.

Surtax

In addition to the 24% first category income tax, either the global complementary income tax for individual residents or the additional withholding income tax for nonresident entities and individuals must be paid upon the distribution of profits, with the first category income tax available as a credit.

Foreign tax credit

Income taxes paid abroad on foreign profits derived from a branch, royalty payments, technical service fees and other income of a similar nature are creditable against Chilean income taxes. The foreign tax credit is capped at 35% on foreign income from countries that have concluded a tax treaty with Chile and 32% (dividends) or 24% (royalties and branch income) on foreign income from countries that have not concluded a treaty with Chile.

Taxable income

Taxable income is defined as gross income from worldwide sources and is calculated by deducting from total income the direct costs of goods and services and the necessary expenses incurred in earning that income.

Capital gains

Capital gains generally are taxed as ordinary income. Capital gains on the disposal of certain assets may be exempt from tax or subject to corporate income tax (known as first category income tax) at 24% as a single tax, if certain requirements are met.

Other taxes on corporations

Capital duty

While there is no taxable event upon the incorporation of a company, business entities must pay an annual municipal license fee. The fee ranges from 0.25% to 0.5% on tax equity, up to a maximum of approximately USD 500,000 (the cap varies in line with inflation and the exchange rate).

Real property tax

Real property tax is imposed at an annual rate of 1% on rural property and 1.2% on developed nonrural property. Nonrural residential property is subject to an annual rate of 0.98% on the cadastral value up to approximately USD 120,000, and 1.143% on the excess. Surcharges may apply.

Social security

The employer must make the following contributions for social security: (1) a monthly 0.95% premium on remuneration (capped at a floating amount calculated by reference to UF, an inflation-adjusted monetary unit) in respect of labor-related accident insurance; (2) additional contributions that vary according to the risk of the employment activity, at rates up to a maximum of 3.4%; (3) a 2.4% compulsory unemployment insurance on remuneration (subject to the floating cap); and (4) a 1.15% premium for life and disability insurance.

Payroll tax

Self-employed persons (professionals, directors of corporations, professional partnerships and others) and employees are subject to second category income tax charged at progressive rates that range from 0% to 40%. For employees, the tax is withheld by the employer. An employee whose entire income comprises employment income from one employer is not required to file a tax return, since the tax liability is satisfied by the second category income tax paid. Where an individual has other income and is required to submit a tax return, the second category income tax paid is credited against the final tax liability on the total income.

Stamp duty

Foreign loans are subject to stamp tax, whether or not they are documented. The rate is 0.066% for each month or fraction thereof between disbursement and maturity, capped at 0.8%. Loans payable on demand or without maturity are subject to a 0.332% tax.

Other taxation in Santiago

Value added tax

Rates

The standard VAT rate is 19%. Certain items are zero-rated or exempt.

Taxable transactions

VAT is charged on domestic supplies of goods and services, and on the import of goods.

Registration

Registration for VAT purposes is mandatory.

Anti-avoidance rules

Transfer pricing

Chile’s transfer pricing rules are in line with the OECD guidelines. The following methods may be used: comparable uncontrolled price, resale price, cost plus, profit split, comparable profit split and residual methods. The tax authorities may challenge and reassess transfer prices between related parties where the terms and conditions of transactions are not arm's length.

Penalties

Penalties apply for late filing, failure to file, the underpayment of tax and tax evasion.

Thin capitalization

Thin capitalization rules apply to related party loans, the interest on which is subject to the reduced 4% withholding tax rate for interest paid abroad (i.e. loans granted by foreign or international banks or financial institutions). However, if the debt-to- equity ratio exceeds a 3:1 threshold, the excess interest is subject to an additional 31% tax payable by the borrower (35% less the 4% withholding tax paid on interest).

Rulings

Guidance may be obtained from the tax authorities on the tax consequences of a planned transaction.

Filing requirements

Chile operates a self-assessment regime. Companies are required to make monthly advance payments of tax, with the annual tax return filed in April of the year following the tax year.

Controlled foreign companies

CFC rules are in effect as from 1 January 2016. The rules require Chilean resident taxpayers to include in their current taxable income certain types of passive income earned by nonresident foreign entities that are deemed to be CFCs. A foreign entity will be considered a CFC if a Chilean taxpayer holds, directly or indirectly, 50% or more of the capital, profits or voting rights; can elect the majority of the directors; or has unilateral powers to amend the foreign company's bylaws. A foreign entity generally will be deemed to be controlled (irrespective of the participation or rights involved) if it is established, headquartered or resident in a low or no- tax country or territory (although companies established in OECD member jurisdictions will be excluded from this presumption).

Withholding tax

Royalties

Royalty payments by the end user (no commercial exploitation) for the use of shrink-wrapped software are exempt from withholding tax. Payments for the use, enjoyment or exploitation of invention patents, computer programs, utility models, industrial designs and drawings, blueprints or topography of integrated circuits, and of new vegetable varieties, are subject to a 15% additional withholding income tax. The rate increases to 30% if the parties are related and/or if the income beneficiary is resident in a listed tax

Dividends

Profits repatriated to a parent company abroad are subject to a 35% additional withholding income tax, against which the corporate tax (first category income tax) paid is creditable.

Branch remittance tax

A 35% additional withholding income tax applies to the remittance of profits attributable to a branch, against which the 24% first category income tax paid at the branch level is creditable.

Other

Services rendered abroad, other than technical services, etc., are subject to a 35% withholding tax.

Interest

Interest is subject to a 35% additional withholding income tax on the gross amount. A 4% reduced tax rate applies, inter alia, to interest on loans granted by a foreign bank or foreign/international financial institution and by an insurance company or pension fund that complies with certain registration requirements, provided the lender and borrower are unrelated. If the parties are related, the thin capitalization rules must be observed.

Technical service fees

A 15% additional withholding income tax applies to payments made to nonresident/nondomiciled persons without a permanent establishment in Chile for technical and engineering works and professional or technical services that a nonresident/nondomiciled individual expert in a science or technique renders (in Chile or abroad) through advice, a report or a plan. The rate is increased to 20% if the parties are related and/or the beneficiary is resident in a listed tax haven or in a jurisdiction with a preferential tax regime.