Chile Tax & Business Guide - Deloitte

Basic facts
Population 15.4m Inflation 3.1% (2005)
Main languages Spanish GDP per head US$7,100
Currency Chilean peso (CLP) GDP growth 6.1% (2005)*
Economic communities Asia Pacific Economic Co-operation, Latin America Integration Association, Mercosur, WTO
GDP sources 6.2% agriculture, 39.3% industry, 54.5% services
*Economist Intelligence Unit.
Political environment

ChileÌs political system is presidential, with a bicameral legislature. The centre-left Concertaci€n de Partidos por la Democracia (Concertaci€n) coalition has held power since democracy was restored in 1989.

New elections are due in December 2005. Concertaci€n has selected a new presidential candidate, Michelle Bachelet, as the incumbent, Ricardo Lagos, is constitutionally barred from running for re-election.
Foreign trade and investment
Exports US$38bn (2005)* Imports US$30.1bn (2005)*
*Economist Intelligence Unit.

Major exports: Copper, fresh fruit, and cellulose, paper and printing.

Major export markets: the US, Japan, China and Korea.

Chile ranks 20th of 60 countries in the Economist Intelligence UnitÌs business environment rankings, and 1st among countries in Latin America.

The country has a liberal foreign investment law and a favourable tax regime. Foreign firms operate on the same basis as local companies, and enjoy guaranteed access to foreign exchange for repatriation of capital and profits.

Authorities can prohibit horizontal mergers, but action is only taken when they believe market entry by competitors would be impeded.
Business and financing
Business forms Open or closed corporations, Limited-liability partnership

Foreign firms operating in Chile tend to obtain their medium- and long-term financing requirements from abroad, but they rely on local commercial banks for short-term financing.
Labour environment
Unemployment rate 7.4% (2005)* Minimum wage CLP 127,500 (monthly)
*Economist Intelligence Unit.

The minimum wage rose in July 2005, to reach CLP 127,500. The minimum is CLP 95,927 for workers under the age of 18 and over 65, and CLP 82,889 for honorary payments.

By statute, workers must cover the full cost of their social security benefits (pension, disability and domestic health insurance) through direct deductions accounting for about 20% of salary.

In firms with more than 25 employees, at least 85% of the workforce must be Chilean, with an exemption for technicians whose positions cannot be filled locally.
Taxation
Corporate tax
Standard rate 17%

Resident companies pay tax on worldwide income; non-resident companies pay tax on Chilean-source income only. Corporate income tax is imposed at 17% on profits. The portion of profits that is distributed to individuals who are resident or domiciled in Chile is then subject to a global complementary tax of 0Ò40%. Profits repatriated to a parent company abroad are subject to a 35% ÏadditionalÓ tax.
Individual tax
Progressive rates rising to 40%

Domiciled individuals are taxed on worldwide income; non-residents are taxed on Chilean-source income only. An individual is resident if remaining in Chile for six consecutive months in a calendar year or more than six months in two consecutive tax years. Foreigners are taxed on Chilean-source income only for their first three years in Chile. An extension of the three-year period is possible. Chilean-source income is that derived from activities undertaken in Chile or assets located in the country. The individual income tax is charged at progressive rates of up to 40%.
Capital gains
Generally taxed as income

Capital gains are generally taxed as income.

Capital gains on the disposal of certain assets may be exempt or subject to reduced rates if requirements are met.
Indirect tax
Standard rate 19%

Value-added tax (VAT) applies to most sales and to certain services and other transactions. Registration is compulsory for businesses. Exemptions from VAT include certain financial services, insurance, news services, technical services, consultancy and transport. Exports are exempt, and exporters may either claim a credit for input tax paid or apply for a special refund.
Tax administration and compliance
Tax year Corporations: calendar year; Individuals: calendar year

Businesses are required to make monthly prepayments of tax based on a percentage of gross income in the month, the rate being determined so as to approximate the final tax liability. Any balance of tax due is payable with the tax return. Employment income is taxed at source, at the individual tax rate.
Additional tax information
Withholding taxes Dividends 21.69%, Interest 35%, Royalties 30%.
Tax treaties Chile has 13 double-tax treaties in force.
Dividends Dividends are exempt for residents.
Revenue protection There is transfer-pricing legislation.
Groups There is no provision for group taxation.
Incentives Export promotion; construction; assembly; property tax; sales tax on luxury goods; stamp duty.
Other taxes Import duties, Inheritance/gift tax, Mining tax, Property tax, Sales tax on luxury goods, Stamp duty.