Practical Advice: VAT in Chile
In comparison to other countries, Chile has one of the highest Value-Added Tax (VAT) rates in the LATAM region, which currently sits at 19%.
In addition, the VAT is levied on the price of a broad range of transactions having a very comprehensive scope and with very few exemptions.
In general terms, the following transactions are subject to VAT:
- Sales and other contracts whereby the title to movable goods is transferred, provided that they are executed on a recurrent basis;
- Rental of movable goods, as well as the rental of real estate that is furnished or equipped to carry out industrial or commercial activities;
- Services corresponding to commercial, industrial, financial, mining, construction, insurance, advertising, data processing and other business activities;
- Imports, etc.
General rule: The seller of goods or services is responsible for the payment of the tax. The amount of VAT, however, is added to the price of the goods or services. Consequently, it is actually the buyer who bears the economic impact of the tax.
It is also important to have clarity in the application of VAT. VAT is a withholding tax that can be used by the buyer, since when buying a good or service he pays VAT. On the other hand, when the same taxpayer sells a product or service he generates a VAT debit. The VAT operation works by allowing the VAT payer to charge the VAT credit against his VAT debit.
Even if the taxpayer has a positive difference between the VAT credit and the VAT Debit, this difference is not returned in cash to the taxpayer and may only be carried forward to the next period, with no limits of time in this regard.
Practical Advice: When incorporating a company in Chile, the activities the company will be performing must be detailed in the bylaws of the company. The company then needs to register with the tax office based on the services listed in the bylaws.
When companies first incorporate a company in Chile, they often do not think in detail of all the services and products they will be selling which means there are many cases when the company will need to go back and update the bylaws and then re-register with the tax office. Ultimately, the oversight costs the company time and money.
Harris Gomez Group is a Common Law firm, with offices in Santiago, Bogotá, and Sydney. We also have legal teams in Mexico, Peru, Ecuador, Brazil, and Argentina. Over the last 19 years, our team of English speaking Lawyers and Attorneys have been supporting foreign companies with their growth in Latin America. Many of our clients are technology companies, service providers and engineering companies that focus on the mining, energy and infrastructure markets
To better understand how we can support your management team in the Region, please contact Cody Mcfarlane at cmm@hgomezgroup