In comparison to other countries, Chile has one of the highest Value-Added Tax (VAT) rates in the LATAM region, which currently sits at 19%.
In addition, the VAT is levied on the price of a broad range of transactions having a very comprehensive scope and with very few exemptions.
In general, all the following transactions are burdened with VAT:
Sales and other contracts, by which the ownership of tangible goods is transferred to another party; Services, whether or not recurring, which may be considered commercial, industrial, financial or related to mining, construction, insurance, advertising, computer development or in general, any other type of commercial activity; and Imports. On the other hand, unlike other jurisdictions, VAT is only rarely paid in cash and it may only be carried forward to the next tax period, which is counted from month to month.
This norm of control means that even if the taxpayer has a positive difference between the VAT credit and the VAT Debit, this difference is not returned in cash to the taxpayer and may only be carried forward to the next period, with no limits of time in this regard.
Article 27 Bis.
Despite the general norm, the VAT Law does contain an exemption that provides the possibility of a VAT refund in cash even if the taxpayer has made very little sales and has no VAT Debit to offset the VAT credit.
In effect, if there remains a VAT credit because of the purchase of goods accounted as part of the fix assets of a company and the remaining VAT credit has been carried forward at least six consecutive tax periods (6 months), the taxpayer is given the option to either offset the tax credit against any other type of fiscal tax, including withholding taxes and customs duties; or it may request a reimbursement in cash.
Most taxpayers choose this second alternative requesting directly a cash refund from the National Treasury, however, both mentioned requisites must be met and the interpretation of this norm has been rigorous by the Chilean Internal Revenue Service (IRS). In this regard, what is part of the fix assets of a company and when does this occur, have been the most controverted issues. The Chilean IRS has clarified that the concept of fixed assets requires a permanent use in the company's line of business, with no purposes of trading or reselling them.
In addition, the benefit may not always be what the company may expect as the recovery will probably not be for the total amount of the VAT...