Tax Management Portfolio, Business Operations in Chile, No. 7060, discusses the significant features of Chilean tax law applying to foreign investors conducting business in Chile, either directly or through some form of presence in Chile. In addition to a detailed discussion of the taxation of domestic and foreign legal entities and individuals, the Portfolio includes an analysis of the legal and regulatory provisions governing the conduct of business operations within the country. To view this Portfolio, visit Bloomberg Tax for
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Tax Management Portfolio, Business Operations in Chile, No. 7060, discusses the significant features of Chilean tax law applying to foreign investors conducting business in Chile, either directly or through some form of presence in Chile. In addition to a detailed discussion of the taxation of domestic and foreign legal entities and individuals, the Portfolio includes an analysis of the legal and regulatory provisions governing the conduct of business operations within the country.
The Detailed Analysis addresses the principal business entities, as well as the significant areas of investment and commercial regulations. It also discusses the most important immigration and labor issues. Finally, the Detailed Analysis contains an in-depth analysis of the Chilean tax system. A guide to the Detailed Analysis is provided by a Table of Contents. A Table of Abbreviations is also included.
The Worksheets supplement the information contained in the Detailed Analysis with English translations of laws affecting foreign investment in Chile, important economic and tax information, and the text of the Chile-United States tax treaty.
This Portfolio may be cited as Campos and Mullerat, 7060 T.M., Business Operations in Chile.*
Germán Campos, Universidad de Santiago de Chile (Certified Public Accountant, 1989, and Commercial Engineer, 1992); Professor, Universidad de Chile, Pontificia, Universidad Católica de Chile, and Universidad de Santiago de Chile; Member, Instituto de Derecho Tributario and International Fiscal Association.
Ramón Mullerat, University of London (LL.B., 1988); College of Europe, Bruges (European Law Certificate, 1988); University of Notre Dame School of Law (LL.M., 1989); Harvard Law School (International Tax Program, 1992); Professor, Instituto de Empresa, Madrid; Professor, Instituto Superior de Derecho y Economía, Madrid; former member, Board of Directors of the U.S.-Spain Chamber of Commerce (1993 – 2000); co-author, 993-3rd T.M., Business Operations in Venezuela.
Table of Contents
Detailed Analysis I. Chile — The Country, Its People and Economy A. The Country B. The Language C. Population D. Living Standards E. Political Organization 1. Legislative Power 2. Executive Power 3. Judicial Power F. The Legal System G. The Economy 1. In General 2. Currency and Inflation 3. Foreign Trade 4. Monetary Reserves II. Operating a Business in Chile A. Foreign Investment Regulations 1. In General 2. Incentives a. Corporate Tax Incentives b. Regional Incentives c. Industry Incentives d. Export Incentives e. Books in Foreign Currency 3. Principal Foreign Investment Instruments a. Foreign Investments Made Under the Foreign Investment Statute b. Foreign Investments Made Under Law 20.848 c. Chapter XIV of the Summary of Foreign Exchange Regulations 4. Restrictions on Foreign Investment a. Fully Restricted Investments b. Partially Restricted Investments c. Other Restrictions 5. Registration of Foreign Investment B. Exchange Controls C. Trade and Commerce Regulations 1. Imports a. In General b. Import Duties c. Other Taxes d. Free Trade Zones e. Documentation 2. Exports 3. General Business Regulations a. In General b. Price Controls c. Monopolies and Antitrust d. Securities Regulations e. The Banking and Insurance Sectors (1) The Banking System (a) The Central Bank (b) The Banking Market (2) The Insurance Sector f. Pollution Control 4. Licensing a. Patents b. Trademarks c. Industrial Models d. Industrial Designs e. Copyrights D. Labor Relations 1. In General 2. Employment Contracts 3. Employment Conditions 4. Holidays and Vacation 5. Changes in Labor Conditions 6. Termination of Employment 7. Unions 8. Foreign Personnel a. Work Permits b. Special Arrangements and Concessions c. Restrictions on Employment 9. Profit Sharing 10. Social Security a. In General b. Coverage c. Contributions d. Benefits (1) Family Allowances (2) Unemployment Compensation (3) Pensions e. Totalization Agreements 11. Health and Safety 12. Outsourcing 13. Labor Courts III. Forms of Doing Business in Chile A. Principal Business Entities B. Sociedad Anónima 1. In General 2. Formation 3. Corporate Capital a. Capitalization b. Shares and Share Transfers 4. Corporate Management 5. Shareholders' Meetings a. In General b. General Meetings c. Special Meetings 6. Corporate Reorganizations 7. Dissolution and Liquidation 8. Books and Records C. Sociedad de Responsabilidad Limitada 1. In General 2. Formation 3. Corporate Capital and Transfer of Interests 4. Management 5. Dissolution and Liquidation D. Sociedad por Acciones 1. In General 2. Formation 3. Corporate Capital a. In General b. Shares and Share Transfers 4. Corporate Reorganizations and Transformations 5. Corporate Disputes E. Empresa Individual de Responsabilidad Limitada F. Sociedad Colectiva G. Sociedad en Comandita 1. In General 2. Sociedad en Comandita Simple 3. Sociedad en Comandita por Acciones H. Asociación o Cuenta en Participación I. Branch of a Foreign Corporation 1. Formation 2. Capital 3. Business Activities of the Branch J. Joint Venture K. Sole Proprietorship IV. General Principles and Principal Taxes A. Legal Framework 1. Statute 2. Case Law 3. Tax Rulings 4. Anti-avoidance a. Domestic Measures b. International Measures B. Administration and Procedure 1. The Tax Unit and the Development Unit 2. Tax Registration a. In General b. Resident Taxpayers c. Nonresident Taxpayers 3. The Taxable Year 4. Statute of Limitations 5. Tax Payments 6. Taxpayer's Rights 7. Tax Amnesty C. Accounting 1. In General 2. Simplified Accounting 3. Financial Statements 4. Audited Financial Statements 5. Accounting Principles and Practices a. Chilean Generally Accepted Accounting Principles b. Differences Between Chilean GAAP, U.S. GAAP and IFRS c. Accounting and Tax Differences d. Accounting Periods D. Principal Taxes 1. Income Tax 2. Value Added Tax 3. Stamp Tax 4. Real Estate Tax 5. Excise Taxes 6. Net Wealth Tax V. Income Taxation of Domestic Corporations A. Classes of Taxpayers 1. Residence 2. Taxable Legal Entities 3. Look-Through Entities 4. Entities Exempt from Income Tax B. Basis of Taxation 1. Taxation of Worldwide Income 2. Taxable Periods 3. Tax Consolidation 4. Calculation of Gross Revenues a. Inclusions in Gross Revenues (1) In General (2) Taxable Activities (a) Commercial and Industrial Activities (b) Investment Activities (c) Service Activities (d) Real Estate Activities (e) Lottery Prizes (3) Securitization Receipts b. Exclusions from Gross Receipts 5. Calculation of Gross Income a. Cost of Goods b. Inventory Valuation c. Foreign Source Income (1) In General (2) Controlled Foreign Corporation Regime d. Dividends (1) In General (2) Electing for the Profit Allocation or Partial Integration Tax System (3) Profit Attribution System (4) Partial Integration System (5) Switching Systems e. Capital Gains (1) In General (2) Corporate Reorganizations (a) In General (b) Capital Contributions (c) Reductions of Capital (d) Mergers and Transfers of All Assets and Liabilities (e) Corporate Splits (f) Acquisitions (g) Liquidations and Corporate Transformations f. International Business Platforms (1) Chilean Holding Companies (a) In General (b) Tax Regime (c) Requirements (2) Regional Headquarters 6. Calculation of Net Income: Deductions a. Business Expenses (1) In General (2) Interest (3) Royalties (4) Taxes (5) Casualty Losses (6) Bad Debts (7) Depreciation (a) In General (b) Useful Lives (8) Depletion (9) Salaries (10) Service Fees (11) Foreign Currency Exchange Losses (12) Organizational and Pre-Operating Expenses (13) Charitable Contributions (14) Promotional and Marketing Expenses (15) Research and Development Expenses (16) Rents (17) Insurance Premiums (18) Intercompany Charges (19) Company Vehicle (20) Deduction for Reinvestment of Profits b. Nondeductible Expenses c. Adjustments to Net Income d. Presumed Net Taxable Income (1) In General (2) Agricultural Activities (3) Mining Activities (4) Land Transportation Activities (5) Import-Export Activities (6) Other Circumstances e. Simplified Tax Regime for Small Enterprises (1) In General (2) Tax Adjustments When Opting for the Regime (3) Requirements 7. Inflation Adjustments a. In General b. Impact on Shareholders' Equity c. Impact on Fixed Assets d. Impact on Inventory e. Impact on Finished Goods and Work-in-Process f. Impact on Foreign Currency Denominated Assets and Liabilities g. Impact on Shares h. Example of Operation of Inflation Adjustment Rules 8. Net Operating Losses 9. Tax Rates and Calculation of the Tax Liability a. General Tax Rate b. Higher Tax Rate c. Capital Gains (1) Shares (2) Quotas in Investment and Mutual Funds (3) Sale of Publicly Traded Debt Instruments (4) Sale of Other Property d. Lottery Prizes 10. Tax Credits a. Foreign Tax Credit (1) In General (2) Permanent Establishments (3) Dividends (4) Capital Gains (5) Royalties and Fees b. Investment Tax Credit c. Real Estate Tax Credit d. Employee Training Tax Credit e. Research and Development Tax Credit 11. Assessment and Filing a. Advance Corporate Income Tax Returns (1) In General (2) The Variable Rate (3) The Fixed Rate (4) Payment of the Advance Tax b. Annual Income Tax Return c. Withholding Tax Obligations (1) In General (2) Withholding the Additional Tax d. Information Requirements (1) Investments Abroad (2) Investments in Foreign Trusts (3) Passive Income from Chilean Investments (4) Global Tax Characterization Affidavit e. Interest Charges and Penalties C. Other Taxes 1. Value Added Tax 2. Stamp Duty a. In General b. Transactions Subject to Stamp Duty c. Taxpayers d. Payment of Stamp Duty 3. Real Estate Tax 4. Excise Taxes 5. Mining Activity Tax a. In General b. Taxpayers c. Tax Computation d. Payment of Tax 6. Tax on Emissions 7. Tax Control VI. Taxation of Foreign Corporations A. Sourcing Rules B. Determination of Taxable Income and Taxation 1. In General 2. Dividends 3. Interest a. Withholding Tax b. Tax on Chilean Debtor for Excess Indebtedness 4. Royalties 5. Capital Gains a. Taxable Transactions (1) Direct Sales (2) Indirect Sales b. Exempt Transactions 6. Service and Management Fees 7. Rents 8. Insurance 9. Shipping Activities 10. Other Payments C. Assessment and Filing VII. Taxation of a Branch Introductory Material A. In General B. Branch of a Shipping Company C. Taxation of a Branch D. Assessment and Filing VIII. Taxation of Other Business Entities A. Sociedad de Responsabilidad Limitada B. Sociedad por Acciones C. Empresa Individual de Responsabilidad Limitada D. Sociedad Colectiva and Sociedad en Comandita E. Asociación o Cuentas en Participación F. Unincorporated Joint Venture G. De Facto Corporation H. Inheritance I. Community of Property J. Trust IX. Taxation of Resident Individuals A. Scope of Taxation B. Residence C. Taxable Income 1. In General 2. Exclusions from Taxable Income and Exemptions from Tax 3. Determination of Net Taxable Income by Category of Income a. Salaries b. Service Fees c. Business Income (1) Dividends (a) In General (b) Withdrawals (2) Capital Gains and Losses (a) In General (b) Exemptions (c) Sale of Real Property (d) Sale of Other Property (3) Other Business Income (4) Tax Deferral (5) Small Enterprises d. Deductions D. Tax Rates 1. Sole Second Category Tax 2. Surtax a. Tax Rates b. Tax Credits (1) Withholding Taxes (2) First Category Tax Credit (3) Advance Monthly Tax Payments (4) Foreign Tax Credit (5) Investment Tax Credit (6) Other Tax Credits E. Assessment and Filing 1. Assessment 2. Filing X. Taxation of Nonresident Individuals A. In General B. Taxation of Chilean Source Income 1. In General 2. Dividends 3. Interest 4. Rents 5. Royalties 6. Service Fees 7. Salaries 8. Capital Gains C. Assessment and Filing XI. Inheritance and Gift Tax A. In General B. Taxable Persons C. Territorial Scope 1. Property Subject to Tax 2. Property Exempt from Tax D. Taxable Base E. Tax Rates and Payment XII. Value Added Tax Introductory Material A. General B. Taxable Transactions 1. Sale of Goods and Real Property 2. Supply of Services 3. Imports C. Exempt Transactions 1. Property 2. Imports 3. Services 4. Exports 5. Exempt Entities D. Value Added Tax Taxpayers E. Rate F. Recovery of Value Added Tax G. Additional Sales Tax 1. Luxury Items 2. Beverages 3. Sale of Vehicles 4. Importation of Vehicles and Parts 5. Tobacco H. Registration, Filing and Payment 1. Value Added Tax Registration 2. Invoices 3. Value Added Tax Books 4. Payment of Value Added Tax XIII. Intercompany Pricing Introductory Material A. In General B. Related Parties C. Transfer Pricing Methods D. Transfer Pricing Adjustments E. Filing Requirements 1. Transfer Pricing Information Return 2. Country-by-Country Reporting F. Advance Pricing Agreements XIV. Avoidance of Double Taxation A. Foreign Tax Credit B. Income Tax Treaties 1. In General 2. Taxes Covered 3. Taxation of Business Income a. Permanent Establishment b. Taxation of Business Profits 4. Taxation of Investment Income a. Dividends and Branch Profits Tax b. Interest c. Royalties d. Capital Gains e. Income from Real Property 5. Other Income 6. Relief from Double Taxation
Table of Worksheets Worksheet 1 Foreign Investment Application Worksheet 2 Foreign Investment Statute, Decree-Law N° 600 Worksheet 3 Summary of Procedure and Forms Under Chapter XIV of the Foreign Exchange Regulations of the Central Bank of Chile Worksheet 4 Model of Deed of Incorporation and By-laws of a Chilean Limited Liability Company Worksheet 5 Form 22: Annual Income Tax Return for Resident Individuals and Legal Entities (Official Spanish Version) Worksheet 6 Form 22: Annual Income Tax Return for Resident Individuals and Legal Entities (Unofficial English Version) Worksheet 7 Form 1850 and Instructions: Tax Return for the Additional Tax Withheld on Payments to Nonresident Individuals and Legal Entities Worksheet 8 Form 1851 and Instructions: Tax Return on Permanent Investments Made by Chilean Residents in Nonresident Entities Worksheet 9 Form 1852 and Instructions: Tax Return on Agencies and Permanent Establishments Abroad Worksheet 10 Form 1853 and Instructions: Tax Return on Foreign Source Income and Foreign Tax Credits Worksheet 11 Form 1854 and Instructions: Tax Return on Exemption from the Additional Tax Worksheet 12 Form 29: Monthly VAT Return Worksheet 13 Form 50 and Instructions: Monthly Additional Sales Tax Return Worksheet 14 Form 4415 and Instructions: Tax Registration (RUT) and Notice of Commencement of Activities Worksheet 15 Form 4416: Changes to Original Tax Registration Worksheet 16 Form 2125: Notice of Temporary Suspension of Business Worksheet 17 Form 2121: Notice and Declaration of Termination of Business Worksheet 18 Form 4414: Registration of Chilean Holding Company under ITL, Art. 41-D Worksheet 19 Form 24: Stamp Tax Return Worksheet 20 Form 1879 and Instructions: Withholding Tax Return on Service Fees and Directors' Fees Worksheet 21 Form 1884 and Instructions: Tax Return on Dividend Distributions and Tax Credits Worksheet 22 Form 1885 and Instructions: Annual Tax Return on Dividend Distributions and Tax Credit on Shares in Custody Worksheet 23 Form 1887 and Instructions: Annual Tax Return on Salaries Paid and Withholding Taxes on Salaries Worksheet 24 List of Countries with Which Chile Has in Force Income Tax Treaties and Other Tax-Related Agreements as of March, 2018 Worksheet 25 Chile-United States Double Tax Treaty and Protocol on Income and Capital Signed February 4, 2010 Worksheet 26 Form 3463: Certificate of Residence for Purposes of Applying a Tax Convention Worksheet 27 Form 3464: Certificate of Tax Status for Purposes of Applying a Tax Convention Worksheet 28 Form 3465: Certificate of Residence for Tax Purposes Worksheet 29 [Reserved.] Worksheet 30 Chile's Annual Inflation Rates Worksheet 31 Chile's Monetary Value of Annual Tax Unit Worksheet 32 Chile's Monetary Value of Development Unit Worksheet 33 List of Countries or Territories Considered Tax Havens or with Harmful Preferential Tax Regimes Worksheet 34 Tax Reform (Law 20,630 of September 24, 2012)
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