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Chile: Living There - Tax Issues

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Living There

INDIVIDUAL TAXATION

Residents are taxed on their worldwide income. Married couples are taxed separately but the husband reports the income derived from marital community properties.

Foreigners considered as Chilean residents are liable to tax on their Chilean-sourced income only, for their first three years of stay. After that period, they are subject to tax on their worldwide income. However, the said provision may be extended after the initial three-year period.

INCOME TAX

Income taxes in Chile are divided into two categories: category taxes and global taxes.

Category taxes are payable on specific types of income.

First Category Tax, FCT (Impuesto de Primera Categoria)

This tax is levied on business income, investment income, and any unearned income by the residents. The FCT is imposed at a single rate of 17% as of 2004.

For business and professional income, income-generating expenses are deductible when computing for the taxable income. Alternatively, taxpayers may choose to deduct 30% of the gross income as standard deduction for income-generating expenses.

Second Category Tax, SCT (Impuesto Unico de Segunda Categoria)

This is a progressive tax on salaries, fees, wages, and other forms of remuneration paid for personal services. It is calculated on gross salary as an employee and work compensations less social security payments. The tax rates range from 0% to 45% and the tax is withheld by the employer.

Global taxes are payable on all income. This tax utilizes the place of residence to differentiate tax rates.

Complementary Global Tax, CGT (Impuesto Global Complementario or Surtax)

This is a progressive tax assessed on resident individuals with respect to their worldwide income.

Both the Second Category Tax and Surtax are calculated on the basis of a regulated Monthly Tax Unit (MTU). As of April 2009, the MTU was CLP36,716 (US$16). The rates range from 5 to 40%. Income up to 13.5 Monthly Tax Units is exempted from tax.

CAPITAL GAINS
Capital gains on the sale or transfer of real estate are not taxable if the seller is not habitually in the business of buying and selling properties.

Selling an apartment or flat owned for less than four years, and selling other immovable property within one year of acquisition, is considered as habitual transactions. The gains are taxed as any other profit at the standard FCT rate of 17%. The taxable capital gain is computed by deducting the acquisition costs from the selling price. The acquisition cost is adjusted for inflation based on the consumer price index.

VALUE ADDED TAX (Impuesto al Valor Agregado)

Chile imposes 19% VAT on most goods and services. As a general rule, the sale of real estate is exempt from VAT but, the leasing of real estate is subject to VAT.

PROPERTY TAX

Real Estate Tax (Impuesto teritorial)

Real estate tax is levied on Chilean property annually, payable by the property owners. The tax base is the cadastral value of the property, and an exemption is granted for properties whose cadastral value does not exceed a certain limit. The tax rate is 1.4% for urban properties and 1% for rural properties.

For residential properties, the tax rate is 1.2% on part of the cadastral value not exceeding a certain limit and 1.4% on the remaining part.

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