Individual Entrepreneur (2025 Guide)

What is an Individual Entrepreneur?

An Individual Entrepreneur (EI) is a natural person who carries out business activities under his own name or under a fantasy name, but without constituting a legal entity. This means that there is no legal separation between the entrepreneur's personal assets and those of his business.

On the other hand, a Individual Limited Liability Company (EIRL) if it constitutes an independent legal entity, which implies that the businessman's assets are separated from the company's assets, protecting his personal assets against business debts. However, the EIRL is more complex to set up and operate compared to an Individual Entrepreneur.

On the contrary, a legal entity (such as a Joint Stock Company or a Limited Liability Company) creates an independent entity with its own legal personality, separate from its owners.

Analogy of the Individual Entrepreneur's Trousers

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Imagine that you have pants with two well-defined pockets. Each pocket represents how income is managed and taxed depending on whether you are an Individual Entrepreneur or Natural Person.

Individual Entrepreneur's Pocket: The Asset Pocket

In this pocket you keep the income you obtain from the assets you assign to your individual entrepreneur, such as leases of your properties, profits from the sale of cryptocurrency, dividends from the companies in which you participate, among others. This income has a great advantage:

• They pay tribute with a fixed rate of 12.5% under the SME First Category Tax (IDPC) regime, or 27% in the general regime.
• In addition, you can discount all necessary expenses to generate this income, such as services, leases or supplies, which further reduces the tax base.

• You can also purchase fixed assets and Deduct them from income, depending on instant or accelerated depreciation.
• In addition, if you get dividends from other companies that have already paid IDPC, you don't have to pay it again, and you can reinvest 100% of those dividends, without going through Complementary Global Tax. A great advantage!

In short, this pocket is ideal for growing your assets, avoiding the toll of complementary global taxes.

Pocket of the Natural Person: The pocket of personal salaries and income

The other pocket is the one we all use as natural persons. This includes personal income, such as salaries, fees, pensions, and any income that is not associated with a business.

• These revenues are affected by the Global Complementary Tax (IGC), which has a Progressive rate: the more you earn, the higher the rate, reaching up to 40% in the upper reaches.
• In addition, You can't discount personal expenses to reduce the tax base. What you earn is what gets taxed.

In short, this pocket is not as tax-efficient and is designed for your personal income, not for that of a business.

Individual Entrepreneur vs Natural Person

• Main Tax:
  • The Individual Entrepreneur pays taxes under the IDPC with a preferential rate of 12.5% in the SME regime,
  • while the Natural Person is affected by the Global Complementary Tax (IGC) with progressive rates that reach up to 40%.
• Expense Discount:
  • The Individual Entrepreneur can deduct the expenses necessary to generate income.
  • The Natural Person cannot deduct necessary expenses from their income.
• Reinvestment of Profits:
  • The Individual Entrepreneur can reinvest their profits, discount the depreciation of fixed assets and take advantage of tax benefits,
  • The Natural Person does not have this option.
• Separation of Assets: Neither of the two figures offers separation of assets; both respond unlimitedly.

‍Advantages of the Individual Entrepreneur

1. Perfect for investing in Assets:
   • The fact that the individual entrepreneur taxes as a company allows you to access the benefits that the rich access, that is, to postpone the payment of final taxes to the future, with respect to the profit obtained on any asset, such as real estate, shares, etc.
2. Tax Optimization:
   • The Individual Entrepreneur pays taxes through the First Category Tax (IDPC) fixed rate (12.5% for SMEs) that unlike the Global Complementary Tax, which is progressive and tranche (from 0 to 40%), which can be advantageous if the profits you generate in certain investments
   • You can discount the expenses necessary to generate income, such as leases, supplies, or services.
3. Reinvestment Benefit:
   • The Individual Entrepreneur can reinvest profits in their business and reduce the IDPC by 50%, being eligible for a 6.25% tax, and take advantage of the tax benefits of the SME regime, such as the instant depreciation of fixed assets.
4. Establishment Facility:
   • Creating an Individual Entrepreneur is fast and economical compared to legal entities, since no public writing or registration in the Commercial Registry is required.
5. Total Control:
   • As an Individual Entrepreneur, you make all the decisions. You don't have to be accountable to partners or divide profits.
6. No Minimum Capital Obligation:
   • There is no need to provide initial capital to start, making it easier to start operations.

Disadvantages of the Individual Entrepreneur

1. Lack of Limitation of Liability:
   • This is the biggest risk. As an Individual Entrepreneur, you respond unlimitedly with your personal assets in the face of the debts and obligations of your business, so we do not recommend it to hire staff, for example, but only to maintain investments.
2. Inability to Have Partners:
   • This figure does not allow new partners to be integrated, which limits the possibility of obtaining external investments or sharing responsibilities.
3. Commercial Patent Obligation:
   • Although the incorporation process is simple, you must obtain a commercial patent in the commune where you will operate your business.

Steps to Establish an Individual Entrepreneur

Setting up as an Individual Entrepreneur in Chile is a relatively simple process, which includes the following steps:

1. Start of Activities on the SII Website:

• Go to the Internal Revenue Service (SII) page with your RUT and SII password. Here you will need to do the Start of Activities.
• Then you must allocate the initial assets (money, goods or equipment) that you will assign to the business.
• You will also need to report a tax address, which will be the official address of the business and will serve for all legal and tax communications.

2. Accredit Address:

• This step is essential to demonstrate that the place where your business will be developed complies with regulations. You can use a rental agreement, utility bills, or an affidavit.
• This process ensures that your tax address is valid and correctly registered with the SII.

3. Verification of Activities before the SII:

• The SII can make a visit or request documentation to verify that the declared activities match the actual operations of the business.
• This step ensures that everything is in order and prevents future tax problems.
• Individual investment entrepreneurs should not carry out this activity verification

4. Get Invoices and/or Ballots:

• After completing the above steps, you'll need to request authorization to issue tax documents, such as invoices or electronic ballots.

5. Get a Commercial Patent:

• You must apply for a commercial patent at the municipality corresponding to the reported tax address. The amount of the commercial patent corresponds to 0.5% of the capital contributed to the Individual Entrepreneur.
• This step is mandatory to operate legally in most communes.

6. Opening a Separate Bank Account:

• It's important to open a business-only bank account, separate from your personal account. This facilitates financial management and ensures adequate management of the income and expenses associated with the Individual Entrepreneur.

When to Choose an Individual Entrepreneur?

The Individual Entrepreneur is ideal if:

• You are an entrepreneur and you are looking to diversify your dividends from operating companies without going through the Global Complementary Tax.
• If you have assets that have generated a lot of profits from their sale and you are looking to take advantage of the SME regime with a rate of 12.5% and the discount of tax expenses, as in the case of cryptocurrencies.
• You don't need partners or outside investments.
• You prefer a simple structure with lower administrative costs.