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Practical Advice: Value Added Tax (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 his 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. Ultametly, the over sight costs the company time and money.

For example, a company may enter into contracts where both a product and a service is being provided jointly for one fixed price. From a tax perspective, the product would be sold with VAT and depending on the service, it may not have VAT. For this reason, the application of VAT to the sale of goods and services should be analyzed on a case by case basis to determine the applicability of the VAT tax and hopefully, it will be done in the beginning stages of structuring the company.

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 18 years, we 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.com

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