This country-specific Q&A provides an overview of Private Client laws and regulations applicable in Chile.
Which factors bring an individual within the scope of tax on income and capital gains?
Tax on income and capital gains are required from people resident in Chile for incomes received worldwide. Foreign people are only required to tax on income and capital gains if the source of the income is in Chile. An income will be considered to have local source if the asset is located or the activity is developed in Chilean territory. Specifically, this includes royalties for intellectual properties exploited in Chile. Additionally, in some cases, securities that directly or indirectly represent a capital share of a Company incorporated in Chile are also considered to have its source in Chile, even if that security was issued or incorporated in a foreign country.
What are the taxes and rates of tax to which an individual is subject in respect of income and capital gains and, in relation to those taxes, when does the tax year start and end, and when must tax returns be submitted and tax paid?
An individual with residence in Chile is subject to the Complementary Global Tax (“Impuesto Global Complementario”). This tax applies to all the incomes and gains an individual received within a tax year. The tax rate is progressive. To calculate the tax rate, it is required to divide the income in sections. There is a different tax rate for each section. The rate for the first section is 0%, therefore it is tax exempt. The higher section currently is 40%. There are seven different fixed sections, each covers different fixed amounts of income. If the total income is higher it might cover more sections or even all; if the total income is lower it might only cover the first section. For example, an annual income of $50.000 US dollars would only cover 4 sections, thus, applying in each of the four sections a different tax rate. This tax is subject to a cash method, this means the income and gains considered to determine the tax burden are only those effectively received by the individual.
An individual with no residence in Chile is subject to the Additional Tax (“Impuesto Adicional”). This tax applies to the incomes an individual received in a tax year and whose source is in Chile. This tax has a general flat rate of 35% but in some cases the tax rate is lower. This tax is also subject to a cash method to determine the tax burden.
Labour income is subject to the Second Category Tax (“Impuesto de Segunda Categoría”), which applies to any labour income. It has the same tax rate as the Complementary Global Tax. Labour income includes the obligation to make social security payments, which can be deducted from the income.
The tax year is considered to start on January 1st and end on December 31st. No choice is possible regarding this matter. A taxpayer can make an application to the Regional Director of a Regional Office of the Internal Revenue Service (“IRS”) to end the tax year on June 30. Nonetheless, the annual tax form in which a taxpayer declares his incomes and pays the applicable taxes, must be done before the Chilean IRS during the month of April of each year. Then, if there are any residual taxes in favour of the taxpayer, these returns are made every May.
Are withholding taxes relevant to individuals and, if so, how, in what circumstances and at what rates do they apply?
They are relevant. The Second Category Tax applicable to employees’ salaries is a withholding tax because it is deducted by the employer from each employee’s salary. The Additional Tax, in less common cases, works as a withholding tax having to be deducted before the payment of the income. The Stamp Tax (“Impuesto de Timbres y Estampilas”) is also in some cases a withholding tax.
Is there a wealth tax and, if so, which factors bring an individual within the scope of that tax, at what rate or rates is it charged, and when must tax returns be submitted and tax paid?
There is no wealth tax. The only tax that resembles it is the Property Tax (“Impuesto Territorial”), that affects all properties in the Chilean territory.
Is tax charged on death or on gifts by individuals and, if so, which factors cause the tax to apply, when must a tax return be submitted, and at what rate, by whom and when must the tax be paid?
Yes, there is a tax charged on death and gifts. This tax is the Inheritances and Donations Tax (“Impuesto a las Herencias, Asignaciones y Donaciones”). This tax applies to all assets the deceased had at the moment of death. It is also applicable to the money or assets the donor gave away as gifts. This tax is calculated according the valuation of the assets received.
The Inheritances and Donations Tax applies to people who receive local and foreign assets. The only assets excluded from the application of this tax are those previously owned by a foreign person, located abroad and acquired with foreign resources. If instead the foreign assets were acquired with resources of Chilean source, then they are considered in the tax return.
A tax return must be submitted, and the tax should be paid before 2 years after the death of the person or the date the gift was executed. The tax rate is progressive. It is also divided into sections. The lower section has a 1% tax rate. The higher rate could reach 65% in cases where the total assets transmitted have a value that exceeds 1 million US dollars, and beneficiaries of the assets are very distantly related or do not have any relation at all to the deceased or donor. Moreover, regarding assets transmitted between a mother and a son, the tax rate for the higher section (all that exceeds 1 million US dollars) is only 25%.
Are tax reliefs available on gifts (either during the donor’s lifetime or on death) to a spouse, civil partner, or to any other relation, or of particular kinds of assets (eg business or agricultural assets), and how do any such reliefs apply?
The spouse or civil partner, the father or adopter, the children or adopted children of a deceased person will be tax-exempt for $42,000 US dollars of the total assets received. A person who receives a gift from a spouse or civil partner, of a son or daughter, or adopted son or from a parent or adopter will be tax exempt for only $4,248 US dollars. The alimony forced by law is also tax-exempt.
Do the tax laws encourage gifts (either during the donor’s lifetime or on death) to a charity, public foundation or similar entity, and how do the relevant tax rules apply?
The tax law encourages gifts to certain institutions and institutions with certain goals. For example, gifts to the Chilean Public Charity, to Municipalities, to foundations supported by the Government, gifts for the construction or reparation of temples meant for a cult, or to support a cult are tax-exempt. This exemption is for gifts made during the donor’s lifetime or on his will. Gifts that are only meant to benefit, promote, or for the research of sciences are also tax-exempt. There are also few other types of gifts that give a tax credit the donor can use against the income tax.
How is real property situated in the jurisdiction taxed, in particular where it is owned by an individual who has no connection with the jurisdiction other than ownership of property there?
Real property located in Chile is taxed with the Property Tax (“Impuesto Territorial”). This tax is based on a valuation the Chilean Internal Revenue Service (“Servicio de Impuestos Internos”) makes on each property every four years. This valuation in most cases is lower than a commercial valuation. The Property Tax makes no distinction between a local owner or a foreign one.
Are taxes other than those described above imposed on individuals and, if so, how do they apply?
An important tax imposed on individuals is the Value Added Tax (“Impuesto al Valor Agregado”). This tax affects most sales and services and has a tax rate of 19%. This tax is withheld by the seller and paid by him in his monthly tax return.
Another tax imposed on individuals is the Stamps Tax which applies to documents that represent a credit operation. Among those affected are all kinds of loans, bills of exchange, promissory notes, discount operations of bills of exchange, bonds, and debentures of any kind, letters of credit, debt titles and invoices. This tax also affects documents needed to import goods if there is any credit note involved at the moment of accepting the custom destination document. This rate is variable among the different operations, but the range is between 0,066% and 0,8% over the credit amount.
Is there an advantageous tax regime for individuals who have recently arrived in or are only partially connected with the jurisdiction?
Yes. A person who recently became a Chilean resident will only be taxed for incomes of a Chilean source for the first three years. After that time, the resident will have to include all kinds of incomes, local and global, in the tax return.
What steps might an individual be advised to consider before establishing residence in (or becoming otherwise connected for tax purposes with) the jurisdiction?
Always consider the tax jurisdiction of any foreign income the individual expects to receive after obtaining residency in Chile. It is important to figure out if there is a double taxation treaty with Chile, or if there is a tax credit rule that can apply to those incomes.
What are the main rules of succession, and what are the scope and effect of any rules of forced heirship?
The general rule is that every pecuniary rights and obligations are transmissible to the successors of the deceased, except for the rights of personality (derechos personalísimos), such as usufruct, alimony, mandates, and rights of use and habitation, among others. There are two ways to inheritance; (1) by succession (sucesión abintestato), which determine who inherits property when someone dies without a valid will, and (2) by will, where the will maker specifies who is to receive his or her property at death and names an executor. Independently, if the inheritance is by succession or will, it may be universal (where the successors inherit all the property of the deceased, called Inheritance. In this case, the heirs represent the deceased and answer for his/her debts), or singular (when the successors inherit a specific property of the deceased, called Legacy. In this case, the legatees do not represent the deceased and, generally, don´t answer for his/her debts, except when they need to answer in subsidy of the heirs and to the extent of its legacy benefit).
When there is no will, the law establishes the following order of precedence:
Surviving spouse, sons, and daughters. If there is only one son or daughter and a surviving spouse, they receive the property in equal parts. If there are two or more sons and daughters and a surviving spouse, the surviving spouse receives the double of the property than their sons and daughters. In any case, the surviving spouse will always receive no less than a quarter of the property.
If there are no sons and daughters but a surviving spouse and parents, the surviving spouse will receive 2/3 of the property and the remaining will be distributed equally between the parents.
If there are no parents nor surviving spouse, the property will be distributed equally among the siblings.
If there are no siblings, the property will be distributed among the remaining blood relatives.
If there are no blood relatives, the property will benefit the Chilean State.
In the case of wills, the inheritance has the following restrictions:
Half of the property will be distributed among the successors mentioned in the order of precedence mentioned above, and in the same manner (legítima rigurosa).
A quarter of the property may be assigned among the successors mentioned in number 1 above, but it may benefit one, part or all. In this case, the deceased has the liberty to distribute it as he/her wishes among them (cuarta de mejoras, and together with legitima rigurosa, it is called legítima efectiva).
A quarter of the property may be freely disposed by the deceased to whoever he or she wants, even if they are not listed in the order of precedence mentioned above.
Is there a special regime for matrimonial property or the property of a civil partnership, and how does that regime affect succession?
The succession is personal to the deceased, there is no matrimonial or civil partnership property. The successors inherit the portion they are entitled to according to the rules mentioned in answer 12 above.
What factors cause the succession law of the jurisdiction to apply on the death of an individual?
In Chile, we have only one succession law, but what may be different is whether the court or Civil Registry Office have competent jurisdiction. If there is no will, the property is granted by the competent Civil Registry Office of the last domicile of the deceased; if there is a will, the property is granted by the competent civil court of the last domicile of the deceased.
Notwithstanding the foregoing, there are three situations to mention: (1) if the deceased is a Chilean domiciled abroad, the law that applies is the one applicable in that foreign country if that deceased didn’t have Chilean heirs; otherwise, that foreign law should respect the rights granted by Chilean law; and (2) if the deceased is a foreign domiciled abroad but had Chilean heirs, the applicable succession law will be the one from the foreign country, but the Chilean heirs will have the same rights granted by Chilean law concerning the property located in Chile.
How does the jurisdiction deal with conflict between its succession laws and those of another jurisdiction with which the deceased was connected or in which the deceased owned property?
According to Chilean legislation, the succession law that will prevail is the one applicable in the last domicile of the deceased. Also, at the Sixth International Conference of American States, held at Habana in 1928, Chile ratified in 1934 the Code of International Private Law (“Bustamante Code”), which states, among other matters, the “domicile law”, under which the applicable law regarding civil matters. Regarding succession the standing legislation is of the last domicile of the deceased. Therefore, the rule of domicile will apply among the countries that are a party to that code. Nevertheless, although Chile recognizes the unity of successions (“in universum ius”), it limits the “lex rei sitae” in matters of real estate, stating that the real properties located in Chile are subject to Chilean law, even if their owners are foreigners and do not reside in Chile.
In any case, when the succession is granted by foreign competent jurisdiction, the heirs will have to solicit in Chile, the possession of the property located in the country, in order to pay the respective taxes.
In any case, the provisions of Chilean law, whether actual or future, shall prevail over Bustamente Code, in case of disagreement.
In what circumstances should an individual make a Will, what are the consequences of dying without having made a Will, and what are the formal requirements for making a Will?
There are no situations where it’s legally required having a will, unless the deceased wanted to inherit part of this property to a specific person. In that case, depending on whether the successor is an individual listed in the precedence order, mentioned in answer 12, or it’s a different person from those, the deceased may dispose a specific portion of this property to them, through a will complying with the limitations imposed by the law, under which, he/she cannot dispose more than a quarter of this property to a third party different to their legal successors, or half of his property to his/her legal successors in the aforementioned order of precedence.
The requirements in respect of the will-maker are: (1) being capable, and (2) having the intention to make a will (animus testandi). Additionally, the will-maker can dispose of his/her actual property and the one that is expected to exist by the time of his/her death.
The will may be solemn or privileged. In the first case, the will may be: (1) Open/Public (will-maker makes the will before a public notary and 3 witnesses, or before 5 witnesses); or (2) Close/Secret (will-maker makes the will in private and sends it in a closed envelope to the public notary, telling him and 3 witnesses that it contains a will. The second case refers to wills that do not comply with the requirements mentioned above but are made before one witness where the life of the will-maker is in imminent danger.
If a deceased has no other relationship with Chile but a real property in Chilean territory, it is not a requirement to have a will, because the successors may request local authorities the possession of that property, sustained on the foreign will or other documents that authorize such disposal.
How is the estate of a deceased individual administered and who is responsible for collecting in assets, paying debts, and distributing to beneficiaries?
In case there is no will, all the legal successors must act jointly to dispose of the property. The property is going to be distributed once all the assets are listed and the debts are paid. The remaining assets will be distributed accordingly.
If the deceased had a will, that document will generally include the designation of an executor (albacea), who will execute the mandate of the deceased. If there is more than one executor, they must act in conjunction, unless the will makers established another form to perform their duties. Before distributing any property, the executor must pay all debts that the deceased was obligated to.
If there is no such designation, the successors will have to cooperate, as in the firstmentioned above.
Do the laws of your jurisdiction allow individuals to create trusts, private foundations, family companies, family partnerships or similar structures to hold, administer and regulate succession to private family wealth and, if so, which structures are most commonly or advantageously used?
The deceased may designate in his/her will the person that is going to execute it, administrate the property, and pay any debts. That person is called executor (albacea). In case there is no such designation, the heirs -jointly- will take this role. The same happens when there is no will. This is the most common structure in Chile.
The will-maker can establish in the will that part of his property may be invested in secret, confidential and licit objects. For this purpose, the will-maker will designate a “trust executor” (albacea fiduciario), indicating the good, property, or amount of money that is going to be destined for that purpose. The limitation is that the will-maker cannot assign more than 12,5% of his property for these secret and confidential purposes.
Chilean law allows the creation of trusts, private foundations, family companies, family partnerships, or similar structures to hold, administer and regulate succession to private family wealth, but this must be established in a will. Additionally, the will-maker can allocate freely up to 25% of his/her property to create these kinds of structures. Nonetheless, if the purpose of these structures is to benefit his/her heirs, he/she can dispose an extra 25% of the property, to the extent that that portion benefits one or all of the exclusive heirs, according to the succession order mentioned in question 12. This situation is administered by a designated executor or jointly by the heirs.
The will-maker can also establish in the will that a particular person, commonly an exclusive heir, will have the right to use an individualized property (for example, a house) for a determined period of time (right of usufruct), or for an undetermined period as long as particular conditions are met (trust).
How is any such structure constituted, what are the main rules that govern it, and what requirements are there for registration with or disclosure to any authority or regulator?
The will must be explicit in the legal structure under which that portion of the property is intended to be part. If the intention of the deceased is to grant a right over the property, or part of it, the will is enough to establish a right of usufruct, of use, or a trust, but if the intention was the creation of a legal structure, such entity must comply with the requirements of incorporation for each structure. These requirements are mainly the public registry and publication of the articles of incorporation. The executor, or the heirs in case there is no executor, must follow the desires of the deceased contained in the will to create such structure and administrate it accordingly to what was disposed of by the will-maker; provided that, in any case, before executing any will, that document must be approved by the competent court.
What information is required to be made available to the public regarding such structures and the ultimate beneficial ownership or control of such structures or of private assets generally?
The articles of incorporation of such entities are required to be in a public deed. These are registered in public entities (such as real estate offices, or city halls/municipalities) and in some cases published in a newspaper. Although, these articles of incorporation don’t need to mention that the structure was created by a will, It will contain, among other provisions, the name of the entity, its purpose, its shareholders or partners, and administrators, its equity, and the persons entitled to receive the gains, if any.
How are such structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
Assets acquired because of the death of a person are subject to the Inheritances and Donations Tax. There are tax exemptions if beneficiaries are institutions mentioned in number 7. After the institution is incorporated, the organization and its founders, directors, or beneficiaries will be treated with no special distinction. Those institutions will be taxed normally for their incomes, if any.
Are foreign trusts, private foundations, etc recognised?
Although the Hague Convention of 1985 recognized the law applicable to trusts, Chile did not endorse it. Therefore, under Chilean regulation, it is not yet recognized as a legal instrument, so succession law cannot apply purely over these forms, except to the extent the trust contains instructions of how to dispose of the property of a person after he/she dies. In that case, the trust must comply with the limitations imposed by Chilean law with respect to the portion of the property that must be granted to the respective heirs. Nevertheless, there are some similarities between a trust and the Chilean concept of “fideicomiso”, which is expressly recognized under local rules. The trust has a settlor, who transfers his property to a third party called the trustee, who manages the assets of the trust in favour of specific beneficiaries, to whom the trustee must transfer the assets sometime in the future.
An important aspect to consider regarding foreign trusts, private foundations or other similar legal forms is that Chilean law requires that every non-profit legal entity must be registered before the Civil Registry Office. Therefore, foreign trusts and private foundations must comply with this requirement in order to be valid in Chile.
How are such foreign structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
They are treated just as the locals, please refer to answer number 21.
To what extent can trusts, private foundations, etc be used to shelter assets from the creditors of a settlor or beneficiary of the structure?
They could be used to shelter assets from creditors of a beneficiary of the structure. This is because the creditors of the settlor will be able to claim its credits from the inheritors up to the value of all the assets of the settlor.
What provision can be made to hold and manage assets for minor children and grandchildren?
Generally, whoever has the exercise of parental authority (patria potestad) will administrate the assets of minor children. Nonetheless, the will-maker may designate a different executor to administrate the property while the heirs are minors or establish that minor children may benefit from the property once they have been emancipated.
Are individuals advised to create documents or take other steps in view of their possible mental incapacity and, if so, what are the main features of the advisable arrangements?
The will-maker must be legally capable to create a will. At the moment of granting the will, the will maker cannot be:
Younger than 14 years old, if the will maker is a male, or 12 years old if the will maker is a female.
Interdicted due to dementia.
Incapable due to a lack of mental abilities to manage one’s own personal care, property or finance
Unable of expressing himself clearly
If the will-maker is not in any of the situations mentioned above, he/she is capable, even though an incapacity may overcome after the will is granted. On the contrary, if it is proved that the will maker was under one of those situations when he granted the will, the document will be declared void.
In consideration of what was mentioned above, it may be advisable to grant a will before any incapacity may occur, but if the deceased does not want to dispose of his property in a particular way, by the application of the law, and in the absence of a will, the inheritance will be distributed among his exclusive heirs accordingly to what was mentioned in question 12.
What forms of charitable trust, charitable company, or philanthropic foundation are commonly established by individuals, and how is this done?
Every person has the right to establish any form of organization with a licit purpose, including associations, foundations, charitable companies, trust, etc. Every form of nonprofit association must have its articles of incorporation duly authorized by a public notary and then registered in the competent Civil Registry Office or City Hall Office.
What important legislative changes do you anticipate so far as they affect your advice to private clients?
In Chile we have been having several modifications to our tax regulation, so we are following up every discussion about this matter. The government is already discussing new changes to the actual Tax Law, but it is too soon to take any action because this is only an idea to legislate and there is no document available yet to discuss. Also, due to covid-19, the government and the Congress have issued several laws to protect employment and delay the payment of taxes (for example the Tax Stamp is suspended during the pandemic). Finally, during this year, it has been approved in two different opportunities the withdrawal of the 10% of the cumulative pension funds (the first time tax-free and the second exempt of tax for lower incomes), so most of the Chileans did so and the capital markets have needed to adapt to this situation.
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