Withholding tax on services invoiced into Chile

A European supplier quotes a commissioning and engineering fee to a Chilean mining company, invoices it, and receives materially less than the invoice. The gap is the impuesto adicional, Chile's withholding tax on payments abroad, and it should have been in the price.

The basic mechanism

Article 59 of the Ley sobre Impuesto a la Renta applies an additional tax to various payments made to non-residents, including royalties, interest and payments for services. The Chilean payer withholds and remits it. Different categories attract different rates, and engineering and technical work is treated differently from other services, so the rate that applies to your contract depends on how the work is characterised rather than on what your invoice is called.

Get the applicable rate confirmed against the current text with a Chilean adviser before you quote. We are deliberately not publishing a rate table here, because the categories are the difficult part and a wrong category with the right rate is still a wrong answer.

Chile has treaties, and Colombia does not

This is the useful contrast for a Nordic supplier. Chile has built a broad double taxation treaty network, and a treaty can reduce the rate or, for business profits absent a permanent establishment, remove the charge entirely.

Colombia has not, at least not with the Nordics: see Colombia has no tax treaty with Denmark, Sweden, Norway or Finland. Guatemala has none with anybody: see Guatemala has no double taxation treaty with any country.

Check your own country against the Servicio de Impuestos Internos treaty list rather than assuming, and check whether the treaty is in force rather than merely signed. Those are different states and only one of them helps you.

The 2023 change that undoes the relief

Here is the part almost nobody has priced in.

Chile reformed its VAT treatment of services with effect from 1 January 2023. The general position now is that services are subject to VAT unless specifically exempt, and among the exemptions is one for services rendered by a non-resident that are subject to the impuesto adicional.

Read that the other way round and the trap is obvious. If a treaty exempts your service from the impuesto adicional, the VAT exemption that depended on the impuesto adicional being charged may no longer apply. Chilean VAT is 19 per cent.

So a European supplier who successfully argues treaty relief can find the saving replaced by a VAT charge. Whether it lands on you or your customer, and whether your customer can recover it, depends on the arrangement, but it has to be modelled. Treating treaty relief as a straightforward reduction in cost is how a quote goes wrong by a fifth.

What to do at quotation stage

Characterise the work honestly and early. Engineering, technical assistance, professional services and licence fees are treated differently. The characterisation drives the rate, and it is much easier to get right at drafting than to argue afterwards.

Model both taxes together. Run the impuesto adicional position and the VAT position as one calculation, not two. The question is what you net after both, and the answer is not the sum of the best case in each.

Decide who bears it, in the contract. A gross-up clause is normal and Chilean counterparties are used to them. What is not normal is silence, which resolves in favour of whoever is holding the money.

Split goods from services where that reflects reality. Payment for goods is not a payment for services and is not caught by article 59. A supply and installation contract genuinely has two components, and pricing them separately is accurate rather than aggressive. Doing it artificially is a different matter and the Servicio de Impuestos Internos looks at substance.

Watch the on-site days. A long commissioning campaign can create a permanent establishment, which changes the analysis entirely because a permanent establishment is taxed on net profit under the ordinary regime rather than through gross withholding. That can be better or worse depending on your margin, and it is never better as a surprise. It also interacts with the site accreditation obligations described in getting your technicians onto a Chilean mine site.

Common questions

What is the impuesto adicional in Chile?

Chile's additional tax on payments to non-residents under article 59 of the Ley sobre Impuesto a la Renta, withheld by the Chilean payer. It applies to royalties, interest and payments for services, at rates that vary by category.

Does a tax treaty remove Chilean withholding on services?

It can reduce or eliminate the impuesto adicional, typically by treating the payment as business profits taxable only where the supplier is resident absent a permanent establishment. Check that a treaty with your country is actually in force, not merely signed.

Why would treaty relief create a Chilean VAT charge?

Because since 1 January 2023 Chilean VAT applies to services unless exempt, and one exemption covers non-resident services subject to the impuesto adicional. Where a treaty removes the impuesto adicional, that exemption may no longer be available, and 19 per cent VAT can apply instead.

Should I gross up a Chilean services contract?

If your economics depend on the net amount, yes, and address it in the contract rather than leaving it silent. Chilean counterparties expect gross-up clauses, and the failure mode is agreeing a number that turns out to be gross when you assumed it was net.