Chile: Issues new regulation on residence, domicile and loss of domicile

In Chile, a tax resident or domiciled is subject to Chilean taxation on a worldwide income basis which means both local and foreign sourced. Pursuant to Law No. 21.210/2020, residence and domicile definitions were substantially changed and some other clarifications on acquisition and loss of residence were made by means of circular letter No. 63/2021 and exempt resolution No. 133/2021 both issued by Chilean IRS.

Prior to 2020, the Chilean Tax Code defined resident as any individual who remains in Chile for a period of six months within a calendar year, or more than six months in total within two consecutive years. 

From 2020 onwards, the law provides that residency will be acquired by any individual who remains in Chile, either permanently or not for a period not exceeding from 183 days within a 12-month period. This is an objective test.

Please note that domicile concept is not included in a tax law but instead in the Chilean Civil Code which defines domicile as the residence attached with the animus to remain within the country. This is a subjective test.

Please note that the Chilean Civil Code mentions that the domicile is not lost if two joint requirements are met: (i) the individual preserves its family; and (ii) the main source of income in Chile. Prior to 2020, the Chilean IRS interpreted that the domicile was not lost only if the individual preserved its main source of income in Chile without referring to the family part of the test which, in our opinion, was arguable. 

Due to the above, from 2020 the tax law was amended stating that a Chilean individual will not lose domicile if its main source of income remains in Chile without mentioning the family part of the test. In our opinion this change was made in order to provide a more robust legal support to the argument of the main source of income in Chile without considering the family part of the test.

Article 103 of the Chilean Income Tax Law provides that the Chilean resident or domiciled losing such status is obliged to file a tax return before leaving the country on the proportion of income earned within the year.

The compliance of this provision was in fact impossible since the Chilean IRS did not have a procedure to file a tax return before the normal tax period (April). Thus, in practice, taxpayers used to file the tax return after leaving the country in April of the subsequent year considering only the proportion of the income earned while they were residents or domiciled.

Exempt resolution No. 133/2021 provides that taxpayers losing domicile should make a filing to the Chilean IRS, prior to leaving the country, explaining the arguments to support this tax condition and filing a tax return with the proportion of the taxes to be paid in Chile. It is important to bear in mind that this filing does not exempt taxpayers to review their tax situation and file an annual tax return in April of the next year and subsequent periods depending on the tax residency test. 

In our opinion, these changes to residence and domicile concepts will help Chile to comply with OECD standards and help to provide more certainty on the loss of domicile from a taxpayer and tax authority standpoint.  

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