INTERNATIONAL EXECUTIVE SERVICES

Thinking
Beyond Borders
Chile
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Chile

Introduction
As a general rule, any person domiciled or resident in Chile is
subject to income taxes on a worldwide basis. Individuals who
are neither resident nor domiciled in Chile pay taxes only on their
Chilean-sourced income.

Contact
Antonieta Rodriguez
KPMG in Chile
Director
T: +56 2 7981435
E: antonietarodriguez@kpmg.com
Catalina Droguett
KPMG in Chile
Senior
T: +56 2 7981415
E: cdroguett@kpmg.com
Cristin Posa
KPMG in Chile
Senior
T: +56 2 7981415
E: cristianposa@kpmg.com

Key messages

Foreigners with residence or domicile in Chile only pay taxes on their Chilean-sourced income for the first three years of
domicile after which taxes are levied on worldwide income.

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2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of
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Income tax for individuals

As a general rule, any person domiciled or resident in Chile
is subject to income taxes on a worldwide basis. Individuals
who are neither resident nor domiciled in Chile pay taxes only
on their Chilean-sourced income.
Foreigners with residence or domicile in Chile will pay taxes
only on their Chilean-sourced income for the first three
years after their arrival in Chile. After this period has elapsed,
foreigners will be subject to income taxes on their worldwide
income. Chilean legislation establishes that this period might
be extended in certain circumstances, but in practice, this
extension is unusual.
Further, according to Chilean income tax law, Chilean-sourced
income is defined as the income derived from activities
performed or goods located in Chile. Thus, compensation
received for employment activities carried out within the
country should be considered as Chilean-sourced income,
and therefore be subject to taxes in Chile, regardless of the
nationality or residence status of the individual, and the place
of payment.
For tax purposes, resident status is acquired once an
individual has been in Chile for more than six consecutive
months in one calendar year, or six months consecutive
or not within two consecutive fiscal years. According to
Article 49 of the Chilean Civil Code the accounting of a fact
(time spent in Chile) must be analyzed within a certain
period, it will be accomplished if it is met by midnight of
the day before.

Chilean income tax law does not provide for a domicile

definition, but according to Article 59 of the Chilean Civil
Code, domicile requires residency in a property and the
intention to remain there. In accordance, Chilean IRS has
understood that an individual may acquire tax domicile in
Chile, for example, when he/she has moved to Chile with
their family, the person has purchased or rented a house in
Chile; their children attend a school in Chile; and the person
came to the country under a Chilean employment contract.
Accordingly, a person will acquire Chilean domicile once the
aforementioned requirements (residency and intention to
remain in it) are met.
On the other hand, if domicile is not acquired as the person
enters the country, the residency test should be analyzed to
determine the tax treatment in Chile.
Applicable taxation
Business travelers that are considered nonresident and
not domiciled in Chile for tax purposes will be subject to
nonresidents income tax (Additional Tax), which is levied at a
flat rate of 15 percent on the gross employment income, if the
activities can be qualified as technical or engineering work or
professional services that an individual renders through a report,
advice or plan development, rendered in Chile or abroad.
After seven months in Chile, the individual will be taxable
according to resident Chilean income taxes, and subject to
Second Category Tax (employment income tax), which has
progressive rates ranging from 0 to 40 percent on the net
salary. Current tax rates are shown in the chart below and
amounts are listed in Chilean pesos (CLP). Please note that
the exact figures are updated on a monthly basis.

Second Category Tax (CLP) August 2012

Taxable base

Tax rate

Discount

CLP534,195.00

0%

CLP534,195.01

CLP1,187,100.00

5%

CLP26,709.75

CLP1,187,100.01

CLP1,978,500.00

10%

CLP86,064.75

CLP1,978,500.01

CLP2,769,900.00

15%

CLP184,989.75

CLP2,769,900.01

CLP3,561,300.00

25%

CLP461,979.75

CLP3,561,300.01

CLP4,748,400.00

32%

CLP711,270.75

CLP4,748,400.01

CLP5,935,500.00

37%

CLP948,690.75

CLP5,935,500.01

and more

40%

CLP1,126,755.75

From

To

CLP0

THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS

2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.

For these purposes, accommodation, cost-of living

allowance, and most other fringe benefits are generally also
considered as taxable income for employment tax purposes.
However, in the computation of the net salary, the foreign
individual can deduct social security contributions paid in
Chile or abroad, and all non-taxable items.
It should be mentioned that social security
contributions paid abroad are deductible in Chile with
a cap of 60 Development Units (hereinafter UF) equivalent
to CLP1.353.569 at August 2012.

Social security mandatory

in Chile
Foreign individuals exempt from contributing to the
Chilean social security system
Legislation (Law No. 18.156) in Chile allows foreign
individuals and the companies that bring them to Chile, to
be exempt from making social security contributions in Chile
and to keep their affiliation to a foreign social security system,
when certain requisites are met.
In order to be exempt from contributing to the Chilean social
security system under Law 18.156, it is necessary to meet
the following requirements:
The foreign individuals must be affiliated to a foreign
social security system which provides benefits at least
equal to those minimum benefits provided by the Chilean
social security system, which covers for illness, disability,
retirement and death.
The foreign individual must declare their intention to keep
their affiliation to the foreign social security system for the
duration of their Chilean employment contract.
The foreign individual must have a technical or professional
degree, and this fact must be backed up with the
corresponding documentation.
The documentation required to support such an exemption,
according to instructions issued by the Pension Fund
Administration Commission, is a certificate from the
corresponding social security institution duly legalized,
officially translated, and registered with a Chilean Notary,
where it states clearly the obligations of that institution to
grant insurance for the four contingences (illness, disability,
retirement and death).
Finally, it is important to bear in mind that if the individual
does not fulfill the requisites to be exempt, and does not
contribute to the Chilean social security system, a penalty
of 5 Annual Tax Units (approximately CLP2,374,200) can be
imposed, which can be doubled if the individual commits
more than one infraction in a period of two years.

Please note that this exemption does not apply to the

payments made towards insurance related to labor accidents
and professional illness, nor to the contributions to be made
to the unemployment insurance.
Foreign social security contributions paid abroad receive
a similar treatment as those paid towards the Chilean
social security contributions, and therefore, they may be
deducted from the gross salary in Chile with a cap of 60
UF (approximately CLP1,353,569) for the calculation of the
individuals Chilean resident employment tax.
Foreign individuals who should contribute to the Chilean
social security system
In the case that the individual does not meet the requisites
of Law 18.156, they will have to contribute to the Chilean
social security system. As a general rule, employees
working in Chile are subject to the payment of social security
contributions, which are deducted from their gross salary
with certain caps. These contributions must be withheld by
the employer and are paid as follows:
10 percent to the pension fund administrator
7 percent to the health institution
These figures are calculated over the gross salary with a cap
of 67.4 UF per month (approximately CLP1,520,509). This
cap is adjusted annually, with consideration placed on the
variation of the real wage rate, determined by the National
Institute of Statistics.
In certain circumstances, a foreign individual who decides to
leave the country may seek reimbursement of funds provided
to the pension fund administrator, except the commission,
which must be analyzed on a case-by-case basis.
It should also be noted that private pension funds (AFP)
may request the respective new or different backgrounds
(i.e. any kind of information that the Private Pension Fund
Administrator may require, such as contributions of social
security abroad) in order to comply with Law No. 18,156,
authorizing the waiver or refund of the funds provided.
Finally, it is important to consider that the return of the
compulsory contributions and agreed deposits is subject to
the Second Category Tax (under Article 42 No.1 and Article 43
No. 1 of the Income Tax Law), and the return of the Voluntary
Pension Funds Savings Account B is subject to taxation under
Article 42 of the Income Tax Law, meaning that the AFP must
withhold the corresponding withholding income taxes.
Unemployment insurance and occupational accidents
According to Law No. 19.728 on unemployment insurance,
employers and employees will be obliged to make
contributions for unemployment insurance, even when
qualifying for the exemption under the Act discussed
above (18.156).

THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS

2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.

The aforementioned unemployment insurance is calculated

as follows:
0.6 percent of taxable wages of the employee, paid by
the employee (with a cap of 101.1 UF, approximately
CLP2,280,763 as of August of the current year)
2.4 percent of taxable wages (with a cap of 101.1 UF) which
is a cost for the employer
contribution of the State, whose amount is determined
according to the rules established by law.
The funds corresponding to the contributions of employees
and employers should be paid to the management company
within the first 10 days of the following month in which
wages are paid.
When the contract is over, and to the extent that certain
requirements are met, the individual may be entitled
to withdraw contributions made to the unemployment
insurance.

Compliance obligations
Should the individual receive all or a portion of their
remuneration from a foreign country, the individual must
report and pay the corresponding taxes by completing Form
50 of Monthly Declaration and Simultaneous Payment, within
the first 15 days of the following month after the month
of payment, in the case of Second Category Tax, or within
the first 12 days in the case of Additional Tax (income tax
applicable to nonresidents or those domiciled in Chile).
If the individual receives compensation paid from a Chilean
employing entity, the employer will be responsible for
withholding, declaring and remitting the Chilean income tax
to the Chilean treasury.

Other issues
Below is a list of the countries with whom Chile has
conducted double taxation treaties.

It should be mentioned that a foreign individual who uses this

insurance while outside of the country will be charged in the
same way as a Chilean resident.
Finally, the employer must pay certain amounts for insurance
of occupational accidents and occupational diseases, which
corresponds to 0.95 percent calculated on the monthly
salary of the individual with a cap of 67.4 UF per month
(approximately CLP1,520,509). Additionally, the employer
must contribute 1.49 percent for insurance and disability to
the workers AFP, which is also calculated upon the same cap
of 67.4 UF.

Double Taxation Treaties with Chile: List of Countries

Argentina (only valid until

Ecuador

Paraguay

Belgium

Spain

Peru

Brazil

France

Poland

Canada

Ireland

Russia

Colombia

Malaysia

United Kingdom

Korea

Mexico

Sweden

Croatia

Norway

Thailand

Denmark

New Zealand

Switzerland

31 December 2012)

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2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.

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without appropriate professional advice after a thorough examination of the particular situation.
2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent
firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to
obligate or bind KPMG International or any other member firm vis--vis third parties, nor does KPMG International have any such
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Publication name: Thinking Beyond Borders Chile
Publication number: 121073
Publication date: November 2012