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Taxes in Chile: All you need to know about taxes
Do you know what taxes companies or individuals have to pay in Chile? Keep on reading to find out!
Of all the South American countries, Chile is one of the best known for its economic stability. It’s also a beautiful country, with an infinite number of places to discover, be it national parks, the driest desert in the world, mountains, lakes and large cities immersed in Andean landscapes. All this makes it a particularly attractive destination to live in. Now, whether you reside there or plan to set up a business, you’ll have to comply with the tax regime. Here we tell you what are the taxes in Chile for individuals and companies, so that you have an overview of the Chilean tax landscape. Will you join us?
Are taxes high in Chile?
While Chile’s tax system can be complex, tax rates are moderate compared to other South American countries. The country’s tax burden is made up of direct taxes, such as income tax, and indirect taxes, such as VAT, which is among the highest in the region. However, there are factors that make the tax burden for individuals and companies relatively balanced compared to its South American neighbours.
Thus, while taxes in Chile are high in some respects, the country maintains a competitive tax system compared to other South American countries. The absence of wealth taxes and a moderate corporate regime make it attractive to investors and foreigners seeking fiscal stability.
Overall, Chile doesn’t have the lowest tax burden in the region, but its system is perceived as fair and efficient, contributing to the country’s attractiveness for long-term residency and investment.
Taxes in Chile for individuals or natural persons
The Chilean tax system includes both direct and indirect taxes that affect individuals living in the country. They tax income, goods and the consumption of products and services, and are structured in a progressive manner so that people with higher incomes contribute more.
Below, we detail the main taxes affecting individuals in Chile, with their respective rates and some examples to help you understand them.
Income Tax
Income tax for individuals is a progressive tax payable by all persons resident in the country and foreigners with domicile or residence in Chile on their annual income from both Chilean and foreign sources. It applies to income from wages, salaries, pensions and other employment benefits and is deducted each month from workers’ salaries on a sliding scale ranging from 0% to 40%, depending on the level of income.
Thus, a person who has a monthly salary in one of the lower brackets will have a tax rate of 0% or very low. On the other hand, if you have a high salary, you’ll pay a higher percentage.
Value Added Tax (VAT)
VAT is an indirect tax levied on most goods and services in Chile. Imagine you buy a household appliance for $1,000,000 CL ($1,050 US). In this case, the added VAT is $190,000 CL ($199.50 US).
How does VAT in Chile compare with other South American countries? VAT in Chile is high compared to countries such as Peru and Colombia, where the rate is 18 and 19% respectively. However, countries such as Uruguay and Argentina have VAT rates of between 21% and 22%, which places Chile in an intermediate range. Unlike other countries, Chile applies VAT uniformly on most goods and services, which contributes to higher revenue collection but also impacts consumers more.
Property tax (Contributions)
People who own real estate in Chile must pay contributions, a tax that is mainly financed by the municipalities. The rate varies from state to state, but generally ranges between 0.98% and 1.2%. For example, a house with a tax value of $50,000,000 CL ($52,500 US) will have an annual tax of approximately $500,000 CL ($525 US).
Specific Tax on Fuels
This tax affects the consumption of fuels such as petrol and diesel, with rates varying according to the type of fuel. For gasoline, for example, the rate is approximately 6 UTM (Monthly Tax Unit) per cubic metre. Its main objective is to raise funds for the state and, in part, to discourage the use of fossil fuels due to their environmental impacts.
The tax is levied on the first sale or import of fuels. The distribution companies pass this cost on to the final consumer, increasing the selling price of fuels. Hence, it’s been the subject of debate, especially in contexts of significant fuel price increases. Some sectors propose their reduction or elimination to alleviate the cost to the consumer, while others advocate their retention for fiscal and environmental reasons.
Inheritance, Allocation and Donation Taxes
This tax is levied on the transfer of property by inheritance or gift. The rate varies between 1% and 25%, depending on the value of the inherited or donated assets and the relationship between the donor and the beneficiary.
Suppose you inherit assets valued at $200,000,000 CL ($210,000 US). In this case, the tax may amount to $40,000,000 CL ($42,000 US) applying the corresponding rate.
Taxation in Chile for legal and natural persons
In Chile, companies are subject to a series of taxes that aim to contribute to the financing of public services and the economic development of the country. These taxes range from Corporate Income Tax, which is levied on profits generated, to Value Added Tax (VAT), which applies to most sales of goods and services. In addition, there are additional contributions, such as the Tax on Bank Debits and Credits and municipal contributions in some localities. For many companies, tax compliance can be complex due to the variety of rates and regulations, although tax benefits and incentives exist to encourage investment in strategic sectors or in specific geographic areas of the country.
Here we present the main taxes for legal entities in Chile, their rates and some examples.
First Category Tax (Corporate Income Tax)
Corporate Income Tax is a direct tax levied on profits generated by companies.
Its rate of 27% is moderate compared to other countries in the region, such as Brazil (34%) and Argentina (up to 35%). However, countries such as Paraguay have a lower rate of 10%. In terms of competitiveness, Chile is in a middle ground that seeks to balance investment attraction and tax collection.
Companies must declare and pay this tax annually, based on their net profits. For example, a company with annual profits of $200,000,000 CL ($210,000 US) would pay a tax of $54,000,000 CL ($56,700 US).
Dividend Tax
Companies that distribute profits to foreign partners or shareholders must withhold an additional 35% tax on dividends. This tax is levied on profits distributed to investors outside Chile.
For example, if a company distributes $50,000,000 CL ($52,500 US) in dividends to a foreign investor, it must withhold $17,500,000 CL ($18,375 US).
Value Added Tax (VAT)
As in the case of individuals, the 19% VAT applies to sales and services provided by companies, which act as collection agents that must declare this tax on a monthly basis. In other words, if a company invoices $1,000,000 CL ($1,050 US) for its services, it must include VAT of $190,000 CL ($199.50 US), which it will then declare to the tax authorities.
Do all businesses have to pay VAT? No, not all of them. Educational institutions and health services, for example, are exempt. The same is true for companies exporting goods and services abroad, as well as for the sale of real estate.
Stamp Duty
This tax affects credit transactions, such as loans and trade credits, and is calculated on the amount of the loan. The overall rate is 0.066% per month, accumulating a maximum of 0.8% of the total.
Taxes in Chile: Social Security Contributions
Companies in Chile are required to make social security contributions for their employees, including pension and health contributions. The average contribution is 10% of employees’ salaries, plus 7% for health insurance.
Imagine you’re an employee of a company and you have a salary of $1,000,000 CL ($1,050 US). In that case, social security contributions may be an additional $100,000 CL ($105 US).
Tax benefits in Chile
Chile offers certain tax benefits aimed at encouraging investment and economic development. These incentives are designed to attract foreigners wishing to settle in the country or start businesses. Some of these benefits are highlighted here.
- Exemptions for Start-ups: Chile has the Start-up Chile programme, which offers support and tax exemptions to technology companies wishing to set up in the country, allowing for a lower tax environment during the first years.
- Iquique Free Trade Zone: Companies operating in this zone are exempt from VAT and can import products duty free, which is attractive for foreign trade companies.
- Incentives for Research and Development (R&D): As in many countries, companies that carry out innovation and development projects can access tax benefits, such as tax deductions and credits.
- Incentives for foreigners: All persons who emigrate to Chile and set up companies can benefit from a lower tax burden in their first years, according to international agreements and temporary tax residency rules. Therefore, if you plan to move to the country and start your own business, you may be eligible for certain tax benefits.
Taxes in Chile: Frequently Asked Questions
If you don’t pay your taxes on time in Chile, the Internal Revenue Service will apply fines and interest on the balance due. Fines can range from 1% to 10% of the unpaid tax, accruing monthly interest until payment is made.
Yes, foreigners with residence in Chile must pay taxes on their overall income. However, in its first three years, only income generated in Chile is taxed, with the option of extensions.
Self-employed or freelancers must declare income tax on their income and issue fee slips, where 10% is withheld as an advance payment of the annual tax.
Basic necessities, such as medicines, some basic foodstuffs and educational services, are exempt from the 19% VAT.
