Taxation of foreign online services in Chile
The law 21,210 passed in 2020 modified the VAT (valued added tax) regulation, adding a new tax to online services (called “digital services” by the law) provided from abroad.
The aim of this new regulation is to provide a plain field for Chilean online services, which are subject to VAT payments. So now online services provided from abroad must also pay VAT, which is currently 19%.
1.- Which services are taxed?
a.- Mediation of services provided in Chile or sales that creates an import and the intermediation services should be paid in Chile.
b.- Entertainment providers, such as music, games and similar products through streaming, downloading or any other technology, including newspapers, books and magazines.
c.- Software, iClouds or platforms providers
d.- Advertising services (e.g. Google Ads)
2.- When are those online services taxed?
The tax will be levied if the service is rendered in Chile. It does not matter if the payment is paid or received in Chile or abroad.
To simplify how to establish if a service is used in Chile and therefore subject to VAT payment, the law determines some situations where the service is deemed to be rendered in Chile, which are as follows:
a.- The IP address of the user is located in Chile
b.- The credit card, bank account, or any payment method is located in Chile.
c.- The address provided by the user for issuing the invoice or any kind of receipt is located in Chile
d.- The sim card of the mobile phone corresponds to a Chilean number
To levy the tax at least two of the aforementioned cases should occur.
For the law, the user is the owner of the credit card, but not necessarily the one who uses the service, e.g. a restaurant will be the user and not the person who uses the app to get his / her meal delivered.
Even if the aforementioned case may apply, the Chilean user or the service provider can prove that the service was not rendered in Chile, e.g. a Chilean books in Europe a hotel through an app. In this case, no tax should be levied.
3.- How to pay the taxes for online services
The foreign company needs to register in a special record. The registration will not mean, that the company will have a permanent establishment in Chile. This record is only and solely for the payment of the taxes.
This is a pay-only system, and the company will not need to issue an invoice that complies with the Chilean regulation.
The foreign company can pay monthly or quarterly in a foreign currency (US-Dollars or Euro)
There are 2 cases where this tax is not applicable:
a) If the person that receives the services is a VAT taxpayer and informs this situation to the foreign company and the Chilean will pay the VAT directly.
b) If the services are not subject to VAT but to Additional Tax.
If the foreign company does not register and / or pay the taxes, then the Chilean IRS can ask the debit or credit cards providers to retain the amount equivalent to the VAT that must be paid.
Last modified: 14/01/2022