With complex legislation surrounding tax matters for companies in Chile, it is imperative to understand the laws so your business remains compliant. It is the second year in which the major tax reform changes are being applied to the tax collection process, adding new challenges for businesses.
If your business is registered in Chile, you must pay Chilean income tax on the worldwide income to the Chilean IRS (Servicio de Impuestos Internos - SII). If your company is registered elsewhere, but includes operations in Chile, you pay income tax on only your Chilean-sourced income. The corporate income tax rate is 25% or 27%, depending on the tax regime chosen by the company. The corporate tax paid by the company is creditable against the withholding tax applicable to the distribution of profits to the company's partners or shareholders.
Businesses are usually categorized into two tax regimes, although there are other designations. Depending on the regime, the tax rate will be different and so will the sworn statements that must be submitted to the Servicio de Impuestos Internos (Chile's IRS). This year there are 57 types of sworn statements. The tax regimes are:
- Attributed Income Regime
- income received or accrued by a company is annually attributed to its shareholders or partners, regardless of the effective dividend distributions. Companies are subject to a 25% corporate income tax.
- this regime is available only to companies entirely held by Chilean individuals or non-residents (individuals or entities). Corporations (sociedades anónimas, or SAs) are excluded from this regime.
- Distributed Income Regime
- shareholders or partners are taxed only on the actual distribution of dividends or profits by the company. Companies are subject to a 27% corporate income tax.
- shareholders or partners are able to use 65% of the corporate income tax paid by the company as a credit against the withholding tax. The obligation to return 35%, will not be applicable to 'additional tax' taxpayers which are residents in countries with which Chile has signed an agreement to avoid double taxation, and to beneficiaries with remitted or distributed income as long as the 'first category tax' is deductible from the tax.
In addition to the two main regimes, there are two other types of taxes that apply to companies that are not domiciled in Chile:
- Complementary global
- this tax is paid by individuals domiciled and who are residents in Chile based on their income. This does not apply to people who are not domiciled in Chile.
- Additional tax
- individuals and / or companies not domiciled in Chile must pay this additional tax for their income from Chilean sources. The tax rate will depend on the tax regime of the company (it could be attributed or semi-integrated regime). In addition, the investors' nationality will define the tax's credit percentage of the first category tax that has been paid by the company. The 'additional tax' rate generally is 35%, with a few exceptions.
With 57 different types of sworn statements, it is important to find the correct one for the taxpayer or business' status. The most common is called an affidavit, which is a document or form where taxpayers declare the income or benefits of their economic activities. They must present proof of the goods and services provided, as well as their equity at the end of the fiscal year. This is used as a basis for comparison by the SII, against the information declared by third parties.
Income tax returns filings are due in April each year. But the date for filing taxes for businesses in Chile depends on if you pay income tax and also the method of payment. There are three methods:
- using the website and owes taxes: due date is April 30;
- using an app called e-Renta (e-Income in ENG), used by individuals who have a proposal from Chilean IRS and will be receiving a refund: due date is May 9;
- filling out paperwork and owes taxes: due date is April 30.
After the filing, the SII may either accept the tax return filing or start an audit process. During the administrative audit process, the tax authority may issue the following administrative acts:notification, summons and tax.
There are steep penalties for late fillings, non-payment and non-compliance with the tax laws in Chile. Some of these include:
- a readjustment of the amount based on the consumer price index (inflation);
- a 10% fine applied to the adjusted taxes if the delay is less than 5 months;
- if the delay surpasses 5 months, the fine will increase by 2% for each month or fraction of a month of delay with a 30% cap on the taxes owed;
- in addition to the taxes owed, 1.5% will be applied for each month or fraction of the elapsed month.
The fines for returns with a refund are range from a Monthly Tax Unit (UTM, in Spanish) or an Annual Tax Unit (UTA, in Spanish), which is between CLP 48,305 and 579,660. For income statements without payment, the fines are also between UTM and UTA.
TMF Chile can assist companies with the entire income declaration process. Our experts can help with the preparation of local accounts, determination of tax values, preparation of sworn statements to be submitted to the Internal Revenue Service, preparation of business records, filling out form N ° 22 and monitoring the results of the declaration. Our specialized professionals provide tax and accounting services for businesses already in Chile or that are thinking of starting operations in the country. Talk to us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.