One year has passed since the Chilean VAT on digital services (ISD) entered into force and a lot of developments in this particular area of Chilean tax law and practice have transpired since. The most recent of these developments is the publication issued by the Chilean IRS, listing entities that have not requested their registration in the non-resident digital services provider list. The publication of this list gives light on how assessments in Chilean ISD will follow in the near future, as will be explained below.
To put the discussion in context, with the 2020 tax reform, Chile introduced a modification to its VAT law in order to tax certain digital services that are rendered by non-resident or non-domiciled service providers. These services started to be subject to Chilean VAT at the general rate of 19%.
The core issue to determine Chilean ISD would be applicable to a given service, is to determine whether or not the beneficiary of the services is a VAT taxpayer, either in business-to-business (B2B) or in business-to-consumer (B2C) transactions. In this sense, the interaction of the VAT law and Chilean withholding tax (Impuesto Adicional) is very relevant.
For the cases where Chilean ISD is applicable and the recipient of the service is a non-VAT taxpayer (which is mostly the case for individuals, but it is also very common for companies), foreign taxpayers are allowed to register in a simplified registry. This simplified registry allows those foreign entities to charge the corresponding Chilean ISD to their customers and to pay the tax directly through a website that the Chilean IRS has setup. The registration in this simplified registry does not imply that the foreign taxpayer becomes a full-fledged taxpayer in Chile, and also it does not signify a presence in Chile for tax purposes.
A year has passed since the simplified Chilean ISD mechanism was introduced and to this date more than 200 foreign entities have duly registered and started charging Chilean ISD for the services rendered to Chilean beneficiaries. As was expected, the internet giants were some of the first in line to register.
Another line of action that the Chilean IRS has followed to get information on foreign digital service providers is making mandatory information obligations for the issuers of payment methods (banks and non-banking issuers). These issuers are obligated to report transactions of purchase of goods or services from sellers or service providers non-domiciled or non-resident with their respective payment solutions.
In this sense, the Chilean IRS has gathered information on foreign service providers that are registered in the simplified registry and has also gained access to other service providers which are not registered therein.
That is why, the Chilean IRS recently issued a list including 123 entities that have not registered in the simplified mechanism for Chilean ISD.
Among the service providers included in this list, which also contains betting sites, marketplaces and marketing services providers, some of the world’s largest cryptocurrencies exchanges were found.
The inclusion of these crypto-exchanges come as no surprise, since Chilean ISD includes within its taxable events the intermediation of services rendered in Chile, whatever its nature, or sales made in Chile or abroad, provided that they give rise to an import.
As noted in the beginning, the Chilean IRS has been very proactive in finding information regarding foreign service providers that may be subject to Chilean ISD and has also put in place other mechanisms to allow a constant flow of information on payments to detect entities that may be left out of the compliance with Chilean ISD.
That is why all service providers that are not domiciled or resident in Chile, but that may have Chilean customers or beneficiaries of their services, should look very carefully into their obligations to register in the non-resident digital services provider list and in general with Chilean ISD application, in order to avoid any unwanted assessment by the Chilean tax authorities.
Sandra Benedetto
Partner, PwC Chile
Jonatan Israel
Manager, PwC Chile
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