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VAT NOTES: Certain services are set as special taxable events, among which it is
possible to find the case of the lease or sub-lease of brands,
RATE:
industrial formulas or similar (i.e. music, software, books, among
Chilean VAT is an indirect tax, which levies the habitual sale of goods others) .
and the provision of some services at a 19% flat rate.
REVERSE CHARGE MECHANISM:
CREDIT-DEBIT:
In case the service provider is not resident nor domicile in Chile then
Chilean VAT works on a Credit-Debit system basis. The tax borne by our VAT Law provides for a reverse charge mechanism, upon which
an entity or business (VAT taxpayer) in the acquisition of goods or use the beneficiary of the service will be considered as the subject of the
of services is deemed as “VAT Credit”. The VAT charged on the sale of tax, thus, being responsible of charging and paying to Chilean
goods and rendering of services to other entities or final customers is Treasure the relevant VAT.
deemed as “VAT Debit”. In order to utilize the VAT Credit/Debit
RELEVANT VAT EXEMPTION:
mechanism the taxpayer must be registered in the country and comply
with VAT obligations (i.e. obtain a TAX ID, perform the so-called In addition, Chilean VAT Law provides for some exemptions, among
Initiation of activities, keep registries, fill VAT monthly returns, which, are the payments of income of article 59 of Chilean ITL which
among others). Note that such registration is for general tax are subject to Additional Tax (“Chilean Withholding Tax), except in
purposes, as there is no VAT only registration in the country. cases where the services are rendered in Chile and are exempted of
Additional Tax by application of Domestic Law or a Double Tax
TAXABLE EVENT REGARDING SERVICES:
Treaty (hereinafter, “DTT”) .
Services will be subject to VAT, provided they are rendered or utilized
in Chile, and they fall within the scope of numbers 3 or 4 of article 20
of Chilean ITL. Activities included therein are mainly those where the
capital is predominant, for example, commercial activities, mining,
industrial activities, and telecommunications, among others.
Accordingly, not all services are subject to VAT, so it is always
necessary to analyze their nature, in order to be able to determine if
they are taxable or not.

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Tax Framework before Tax Modernization Law

ADDITIONAL TAX NOTES:

DOUBLE TAX TREATIES:
GENERAL TAXABLE EVENT AND RATE:
Notwithstanding, the above-mentioned taxation could be modified
Chilean Income Tax Law establishes the so-called Additional Tax
in case there is a DTT in force between Chile and the jurisdiction
(hereinafter “WHT”), which broadly speaking levies payments made
where the relevant beneficiary (i.e. foreign taxpayer) is domiciled or
by Chilean residents to individuals or entities without domicile nor
resident. Note that Chile and USA have a signed but not yet in force
residence in the country that derive Chilean source income (and
DTT.
certain foreign source income) at a general rate of 35% over the gross
amount remitted to abroad. ACCRUAL AND WITHHOLDING:
Payments for generic services rendered abroad are subject to Chilean ITL establishes that the Additional Tax is accrued at the
Additional Tax at a 35% rate. moment that the relevant amount is paid, remitted to abroad,
credited into an account, accounted as an expense or made available
REDUCED RATES:
by the Chilean Taxpayer.
Technical or engineering services, are levied at a 15% rate, whether
Such tax shall be withheld by the withholding agent (i.e. payer) at
they are provided in Chile or abroad.
the moment that the relevant amount is paid, remitted to abroad,
Other example of reduced rate is the payment for the use, enjoyment credited into an account, made available by the Chilean Taxpayer.
or commercial exploitation of patents, formulas, licenses and other
Considering the latter, the determination (accrual) and withholding
similar concepts (royalties), which are subject to Additional Tax at a
of the Additional tax shall occur at the same time, unless in the case
30% rate; or, for the use, enjoyment or exploitation of software which
of amounts accounted as an expense in a different moment.
are subject to Additional Tax at a 15% rate, unless they can be deemed
as standardized software, in which case they would be exempted of the
mentioned tax, following the provisions of Article 59 of the Chilean
ITL .
Note that, as per our domestic law, payments made by Small and
Medium entities (app. maximum profits of USD 3,510,370) for the
provision of marketing services abroad and the subscription to
internet based technological services platform, will be exempted of
VAT.

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Framework
VAT NOTES: VAT APPLIED ON DIGITAL SERVICES – TAXABLE
EVENT:
GENERAL STRUCTURE:
In order for the Tax Reform to tax Digital Services they have been
No modifications are introduced to the general structure of VAT,
included within the list of VAT special taxable events (new letter “n)”
although certain provisions are modified and new provisions are
of Article 8 of Chilean VAT Law). The so called Digital Services Tax
introduced which will directly impact The Client' operation.
(hereinafter, “DST”) is indeed VAT and will levy the following
REVERSE CHARGE MECHANISM: remunerated services provided by taxpayers without residency or
The reverse charge mechanism is modified. As per the new rules this domicile in Chile:
mechanism will only apply when the beneficiary of the service is a 1. The intermediation of services provided in Chile, whatever its
VAT Taxpayer (individual or entity). nature, or sales made in Chile or abroad, provided that they
SIMPLIFIED REGISTRATION AND PAYMENT: derive in an import.

Regarding services provided to individuals that are not VAT taxpayers 2. The supply or delivery of digital entertainment content, such as
(reverse charge mechanism not applicable), a new simplified videos, music, games or other similar, through downloads,
registration and payment method is introduced, which is explained in streaming or other technology, including for this purpose, texts,
detail in the following slide. magazines, newspapers and books;

NO REVERSE CHARGE NOR SIMPLIFIED REGISTRATION 3. The provision of software, storage, platforms or IT
IN CASE OF ENTITIES NON-VAT TAXPAYERS: infrastructure; and,

In connection to the latter, we have identified a difficulty regarding 4. Advertising, regardless of the means through which it is
services provided to Chilean entities that are not VAT taxpayers as the delivered, materialized or executed.
reverse charge mechanism will not apply nor they can benefit from the
simplified method. This problem is being reviewed by Chilean IRS
and the Ministry of Finance, and we expect that it will be addressed
when Chilean IRS issues its instructions.

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UTILIZATION IN CHILE:
Since Digital Services are levied with VAT, VAT general rules should
be considered. Accordingly, services needs to be rendered or utilized
in Chile to be levied with VAT.
In this regard, the new provisions provide for a rebuttable
presumption under which services will be understood as utilized in
Chile if at least two of the following situations are complied with:
1. That the IP address of the device utilized by the user or another
localization method indicates that it is located in Chile;
2. That the payment card, bank account or another payment method
utilized was issued or it is registered in Chile;
3. That the domicile indicated by the user for the billing or the
issuance of the payment voucher is located in Chile; and,
4. That the SIM card of the mobile phone through which the service
is received has a Chilean country code.
SIMPLIFIED REGISTRATION AND PAYMENT:
The new provisions establish a simplified registration and payment
method which will be mandatory for foreign taxpayers that provide
Digital Services to Chilean individuals which are not VAT taxpayers.
Foreign taxpayers that provide other kind of services to Chilean
individuals which are not VAT taxpayers can voluntarily register in
this method.
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The main consideration of the simplified registration are:
• Chilean IRS Director could release the foreign taxpayers from
obtaining a Chilean Tax-ID (RUT); and, performing the
“Initiation of Activities”; or, replacing such formalities by others.
• Foreign taxpayers will have no right to VAT Credit and will not be
obliged to issue tax documents.
• Foreign taxpayers will be obliged to charge VAT (19%) on the fee
received. The tax to be paid to Chilean Treasury will be the sum of
all the taxes charged on a tax period.
• Tax periods will be of one or three months, as the foreign taxpayer
chooses, and the tax must be paid until the 20th day of the month
following the tax period.
• The declaration and payment will be performed through a website
specially prepared for this purpose by Chilean IRS.
• Chilean IRS Director will set forth the procedures to determine
and pay the tax in a foreign currency. The payment in local
currency could also be authorized.
• The exchange rate will be the one determined by Chilean Central
Bank at the date of the payment of the tax.
• Foreign taxpayers will not be obliged to maintain ledgers or
records as per VAT provisions.
Please recall that administrative regulations from the Chilean IRS
covering this matter are still pending, and it is expected to be
published in the following months.
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Framework
RELEVANT VAT EXEMPTION: ADDITIONAL TAX NOTES:
The exemption of VAT for payments of income subject to Additional NEW EXEMPTION:
Tax under article 59 of Chilean ITL is modified. According to the new
A new exemption has been added to our Chilean Income Tax Law,
wording it will apply except in cases where the services are rendered
upon which foreign taxpayers will be exempted from Additional Tax
or utilized (utilized is being added) in Chile and are exempted of
in the provision of Digital Services to Chilean individuals which are
Additional Tax by application of domestic Law or a Double Tax Treaty
not VAT taxpayers.
(hereinafter, “DTT”).
This exemption was introduced in order to make applicable the
Therefore, since the modification of the exemption, in order to benefit
Digital Services Tax to the provision of services to Chilean
from the exemption services must not be rendered nor utilized in
Individuals which are not VAT taxpayers. If not, certain services
Chile.
would be subject to Additional Tax and exempted of VAT as per the
The aim of this modification, is that services –of article 59 of Chilean mentioned VAT exemption.
ITL- rendered or utilized in Chile that are in the scope of VAT will
Auditing thousands of individuals in the compliance of withholding
either be levied with VAT or Additional Tax and never be exempted of
of Additional Tax represents a great difficulty, additionally the
both.
compliance duties tend to be burdensome for individuals. Therefore,
Together with that, Additional Tax has a preference over VAT, as per in this case it has been given preference to the application of VAT,
the VAT exemption above-mentioned. together with the simplified registration, to ease control by the
authorities.
Therefore, if those services are levied with Additional Tax they will be
free of VAT, and if they are free of Additional Tax, VAT will be
applicable.
Finally, note that this is not the case of the digital services provided to
Chilean Individuals which are not VAT taxpayers, as they will be
subject to VAT being exempted of WHT as it will be explained.

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ENTRY INTO FORCE: ACCRUAL OF VAT IN CASE OF SERVICES:
The Tax Modernization Bill establishes special rules for entry into Following general VAT accrual rules, in case of services, if tax
force. invoices or bills are not issued, the VAT is accrued when the
• Modification of the VAT exemption for income levied with payment is performed.
Additional Tax (of article 59 Chilean ITL) entered into force in Therefore, in case of Digital Services contracted before the entry into
March 1st, 2020. force, but paid after; they should be levied with VAT.
• Digital Services Tax enters into force in June 1 st, 2020. This is in line with what has been established for the Simplified
• Simplified registration for compliance of VAT by non residents registration, under which the VAT should be recharged on payments
received.
enters into force in June 1 st, 2020.
• Reverse Charge Mechanism modification enters into force in June
1st, 2020.
• Exemption of Additional Tax for payments of Digital Services
performed by individuals non-VAT taxpayers enters into force in
June 1st, 2020.

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