he Income Tax Law (LIR) sets down the principle that all natural
or legal persons domiciled or resident in Chile are obligated to
pay taxes on all their worldwide income, whether that income is earned
in or outside of the nation. On the contrary, non-residents of Chile
must pay taxes only on their income sourced from within the country.
The Chilean tax system has established the following general income
First Category Tax, assessable on income from the productive and
financial sectors (industrial, agricultural, real estate, construction
or commercial activities, capital gains, rent, etc.);
Second Category Tax, assessed on income from employment, both
under a contract and on a free-lance basis (such as wages and
Aggregate Complementary Tax, assessed on the total income of
natural persons domiciled or resident in Chile (be it from wages,
fees, compensation or income from another source); and
Additional Tax, which is similar to Aggregate Complementary Tax,
but payable by persons neither resident nor domiciled in Chile,
whether they are natural or legal persons. It is assessed on their
The First Category tax rate is currently 22.5% and it will be 24% in
2016. Effective 2017, the rate will vary depending on the tax regime
that taxpayers choose. In accordance with the changes made by Law
20,780, under the attributed income system the rate will be 25% while
under the partially integrated system, the rate will be 25.5% in 2017
and 27% in 2018 and onward.
The attributed income regime means that all profits from a company
in the fiscal year assessable by First Category Tax are attributed to the
direct and indirect owners of that company, whether natural persons
resident and domiciled in Chile or abroad or foreign legal persons.
The attribution will be proportional to their equity interest. Said direct
and indirect owners must pay end taxes (Aggregate Complementary
Tax or Additional Tax) even if they have not withdrawn or received
profits from the company.
Under the partially integrated regime, the actual tax regime will remain
partially in place, so the direct owners of the company will pay tax on
an income-received basis, meaning only once they have withdrawn or
received a dividend from the company. Hence, the profits earned by
the company will be assessable only by First Category Tax as long as
they are not distributed to the owners.
Natural persons domiciled and resident in Chile must pay income
tax annually at a progressive rate that ranges from 0% to 42% (this
maximum rate will fall to 35% starting in 2017). 100% of the First
Category Tax paid by the company generating the profits can be used
as a credit against the profits withdrawn by, or distributed to, the
Taxpayers neither resident nor domiciled in Chile must pay a 35%
Additional Tax on income effectively withdrawn or distributed. They
have the right to credit the First Category Tax effectively paid by the
relevant company against the additional tax so that the total tax
burden does not exceed 35% per peso of profit earned.
Starting in 2017, the First Category Tax credit to which the payers
of Aggregate Complementary or Additional Tax are entitled will vary
depending on the taxation regime chosen by the company generating
the income. The credit against end taxes can be used in its entirety in
the case of profits under the presumed income regime and in part in
the case of profits under the partially integrated regime.
In this latter case, the right of taxpayers to the credit, whether or not
they are domiciled and resident in Chile, will be just 65% (100% of the
credit for First Category Tax paid by the company is imputed, but then
the taxpayer returns 35% of the imputed credit to the Government).
The exception to this rule will be triggered when the payer of Additional
Tax lives in a country with which Chile has an existing double taxation
treaty. In that case, said taxpayer will always have the right to impute
all of the First Category Tax credit.
The LIR also sets reduced Additional Tax rates for different types of
income, such as royalties, interest paid to financial institutions or
banks, payments for insurance and services. It also establishes an
exemption for residents and non-residents regarding the profits earned
on the sale of shares in open stock corporations, investments funds and
mutual funds that are actively traded on the Chilean Stock Exchange.