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The Tax Environment In Chile

Author:Mr Cristian de la Cerda
Profession:TMF Group

Chile is well ahead of many of its Latin American neighbours, in digitising its financial reporting systems. But its tax framework needs a thorough understanding to avoid compliance penalties.

Although five countries in Latin America are among the top ten most complex globally for accounting and tax compliance, Chile scores reasonably well, thanks to its digital transformation of finance processes.

The country ranks 35th out of 94 countries as assessed by TMF Group in its annual Financial Complexity Index 2018, down one place on the 2017 rankings but still well ahead of many of its regional neighbours, who are in the early, complex stages of digitising their systems.

Chile's current tax framework is competitive and highly computerised, with well-established business procedures. However, a change of government leadership at the end of last year could prompt some changes to the tax regime administered by the Tax Administration "Servicio de Impuestos Internos (SII).

It is likely that any tax reform will simplify the system again and balance the tax burden among different economic agents by reintegrating various tax systems. Whatever the change, Chile will continue to remain transparent on global regulation such as CRS or FATCA, to comply with its OECD obligations and encourage greater openness in foreign trade.

International Financial Reporting Standards (IFRS) apply in Chile and financial statements of publicly traded companies must be filed quarterly.

If your business is registered in Chile, you must pay Chilean income tax on worldwide income. However, foreign individuals are subject to tax on Chilean source income for the first three years. If your company is registered elsewhere, but includes operations in Chile, you pay income tax on only your Chilean-sourced income. Remuneration paid from Chile to non-residents for services rendered abroad is also subject to Chilean income tax.

The key corporate tax is "Impuesto de Primera Categoría" - First Category Tax (FCT) - which is the basic tax on income of a legal entity (corporate level) domiciled or resident in Chile and engaged in commerce, mining, fishing, or industrial activities. This is currently a 25% rate for entities subject to the fully integrated regime, known as the attributed income system (AIS), and 27% for entities subject to the partially integrated system (PIS). Final taxation (i.e. at the Chilean final owner's level or at the foreign owner's level) will depend on which income...

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