Chile Tax Refund

Chile Tax Refund: All You Need To Know

Navigating the labyrinth of tax refunds in Chile can feel like embarking on an expedition without a map. Fear not, intrepid expat! We’ve got you covered!

We’re here to guide you through the peaks and valleys of Chilean tax laws, ensuring you claim what’s rightfully yours without losing your way. It’s time to transform what seems like a daunting task into a victorious end-of-fiscal-year celebration.

Let’s dive in!

What Are The Different Types Of Taxes In Chile?

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Countries raise tax revenue through individual income taxes, corporate income taxes, social insurance taxes, taxes on goods and services, and property taxes. 

The mix of tax policies can influence how distortionary or neutral a tax system is. Taxes on income can create more economic harm than taxes on consumption and property. 

However, the extent to which an individual country relies on these taxes can differ substantially.

Corporate Taxation In Chile

The corporate income tax is a tax on the profits of corporations

All OECD countries levy a tax on corporate profits, but the rates and bases vary widely from country to country. 

Corporate income taxes are the most harmful tax for economic growth, but countries can mitigate those harms with lower corporate tax rates and generous capital allowances.

Capital allowances directly impact business incentives for new investments. In most countries, businesses are generally not allowed to deduct the cost of capital investments immediately. 

Instead, they must deduct these costs over several years, increasing the tax burden on new investments. 

This can be measured by calculating the percent of the present value cost that a business can deduct over the life of an asset. 

Countries with more generous capital allowances have tax systems that support business investment, which underpins economic growth.

Individual Taxation In Chile

Individual taxes are one of the most prevalent means of raising revenue to fund governments across the OECD. 

Individual income taxes are levied on an individual’s or household’s income to fund general government operations. 

These taxes are typically progressive, meaning that the rate at which an individual’s income is taxed increases as the individual earns more income.

In addition, countries have payroll taxes. These typically flat-rate taxes are levied on wage income in addition to a country’s general individual income tax. 

However, revenue from these taxes is typically allocated specifically toward social insurance programs such as unemployment insurance, government pension programs, and health insurance.

High marginal income tax rates impact decisions to work and reduce the efficiency with which governments can raise revenue from their tax systems.

If not included in the individual income tax, capital gains and dividend income are typically taxed at a flat rate.

Consumption Taxes In Chile

Consumption taxes are charged on goods and services and can take various forms. In the OECD and most of the world, the value-added tax (VAT) is the most common consumption tax. 

Most consumption taxes do not tax intermediate business inputs or provide a credit for taxes already paid on inputs.

This avoids the problem of tax pyramiding, whereby the same final good or service is taxed multiple times in the production process. 

The exclusion of business inputs makes a consumption tax one of the most economically efficient means of raising tax revenue.

However, many countries need to define their tax base correctly. All final consumption should be taxed at the same standard rate to minimize distortions. 

However, countries often exempt too many goods and services from taxation or tax them at reduced rates, which requires them to levy higher standard rates to raise sufficient revenue. 

Some countries also need to properly exempt business inputs. For example, states in the United States often levy sales taxes on machinery and equipment.

Property Taxes In Chile

Property taxes apply to the assets of an individual or a business. 

Estate and inheritance taxes, for example, are due upon the death of an individual and the passing of their estate to an heir, respectively. 

On the other hand, taxes on real property are paid at set intervals—often annually—on the value of taxable property such as land and houses.

Many property taxes are highly distortive and add significant complexity to the life of a taxpayer or business. 

Estate and inheritance taxes create disincentives against additional work and savings, which damages productivity and output. 

Financial transaction taxes increase the cost of capital, which limits the flow of investment capital to its most efficient allocations. 

Taxes on wealth limit the capital available in the economy, which damages long-term economic growth and innovation.

Sound tax policy minimizes economic distortions. Except for taxes on land, most property taxes increase economic distortions and have long-term adverse effects on an economy and its productivity.

International Taxes In Chile

In an increasingly globalized economy, businesses often expand beyond the borders of their home countries to reach customers around the world. 

As a result, countries need to define rules determining how or if corporate income earned in foreign countries is taxed. 

International tax rules deal with the systems and regulations that countries apply to those business activities.

Tax treaties align many tax laws between two countries and attempt to reduce double taxation, mainly by reducing or eliminating withholding taxes between the countries. 

Countries with more partners in their tax treaty network have more attractive tax regimes for foreign investment and are more competitive than countries with fewer treaties.

Who Has To File Taxes In Chile?

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Chile taxes foreigners under different rules depending on whether they qualify as residents or nonresidents.

  • Residents are taxed on their worldwide income.
  • Nonresidents are taxed on only Chile-source income.

However, even after becoming a resident, Chile will continue to tax you as a nonresident for the first three years of residency. 

Once those three years have passed, you can request an additional three years of nonresident taxation. 

All expats can reside in Chile for up to six years before being required to pay taxes on their non-Chilean income.

Who Qualifies As A Tax Resident In Chile?

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To become a resident of Chile, you must meet one of the two following standards:

  • Live in Chile for 180 consecutive days in one year
  • Live in Chile for 180 nonconsecutive days per year for two years

Once you pass either milestone, you will be considered a resident for tax purposes. 

Otherwise, you will remain a nonresident. (As noted above, even after qualifying for residency, you will be taxed as a nonresident for up to six more years.)

What Is Chile’s Value-Added Tax?

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The tax rate is 19%, assessed on the price of the transaction. When the price is below the average level, the IRS is empowered to assess it.

In general terms, the following transactions are subject to VAT:

  • Sales and other contracts whereby the title to movable goods is transferred, provided they are executed on a recurrent basis
  • Services corresponding to commercial, industrial, financial, mining, construction, insurance, advertising, data processing and other business activities;
  • Rental of movable goods, as well as rental of real estate furnished or equipped to carry out industrial or commercial activities; 

Leasing said goods; Insurance premiums with some exceptions; and, in some instances, construction activities.

If you’re selling digital services and products to customers, you might be liable for Chile’s Value-added Tax (VAT). 

How To Register For VAT In Chile?

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Chile has a ‘Simplified Tax Regime‘ for foreign businesses selling digital services.

This comes with the Digital Services VAT Portal, which allows you to register online. 

The system is available in English and Spanish, so that’s helpful, too. (This portal is also where you’ll file and pay your tax returns.)

  1. Fill out and submit the VAT registration form found here. It’s just 5 simple steps. Before you get started, make sure you have this info handy:
    • Tax ID number from your home country
    • All business details like phone, email, address, URL, etc.
    • The contact information for two other people who work in your business, in case you can’t be reached. Also, you’ll need to decide two essential things at the outset:
    • The currency you want to file in: Your options are Chilean pesos (CLP), US dollars, or euros.
    • The frequency you want to file: Your options are monthly or quarterly.
    • Note: Once you submit these preferences, you can only change them on January 1 of the following year!
  2. You’ll receive an email with a verification code to validate your address.
  3. Once validated, you’ll receive a User Number and can set a password for your account. 

This User Number will identify your business from here on out. Now, you’re all set to access the Digital Services VAT Portal in the future.

Describe what they should expect after, such as response time and receiving a tax number: e.g., “After your application is reviewed and approved, you should receive a [Tax Acronym] registration number. This is a unique identifier they’ll use to identify you in the system, which you’ll need to put on invoices, etc.

The website doesn’t state how long you should expect to wait, but if you have any questions, you can email them to IVASD.Chile@sii.cl.

How To File VAT Refunds In Chile?

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You can file in CLP, USD, or euros. If you’re conducting business in any other foreign currency, convert it to one of these three!

When To File And Pay

You must file a VAT return at regular intervals throughout the year. As we mentioned above, you can choose between monthly or quarterly declarations.

Whichever interval you choose, the due date for filing and paying is always the 20th day of the month following the end of the reporting period.

Note: It is not mandatory if you have yet to make income from Chilean customers during a specific tax profiling. No “Nil declaration” here!

How To File

Before you get started, you should collect all the information about your taxable sales in Chile during the previous quarter. The tax website suggests having these pieces ready:

  • total sales and income
  • total purchases and expenses

Then, you can file an online application using the Digital Services VAT portal. You can access it by clicking ‘Send Declaration’ on this SII page.

Fill out Form 129. You can take a sneak peek at the form below, and you’ll find in-depth guidance in English here.

Once submitted, the system automatically displays a filing certificate. If you need a copy of this for your records, go to your portal account’s “Check Status” menu.

How To Pay

Regarding payment, you can transfer the amount you owe in three different currencies: Chilean pesos, US dollars, or the Euro.

For declarations in foreign currency, the corresponding tax must be paid via SWIFT transfer, which is identified by a SWIFT code or BIC code (Bank Identifier Code). 

This code identifies the receiving bank when making an international transfer.

Further payment instructions will automatically appear on the screen after you file.

What To Do In Between Registering And Filing?

Well, you must comply with all the Chilean VAT rules! That means charging 19% VAT on all B2C sales in the country, among other things.

Conclusion

And there you have it—the treasure map to conquering the Chilean tax refund process. Armed with this knowledge, you’re not just surviving the fiscal jungle; you’re thriving, making sure every peso that should come back to you does.

Remember, the world of taxes is always evolving, so keep this guide handy as your compass for next year’s journey.

Refund Triumph!

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