Tax
8 min read

How to Pay Less Taxes in Chile [En 5 Pasos] - January 2021

Publicado el
30/1/2024
Autores
Clemente Hernández Gemigniani
Corporativo | Tributario | Internacional
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Win-Win, right?

Clemente Hernández Gemigniani : NSS Corporate and Tax Lawyer

Do you want to know about the new Tax Regimes 2020? Click here!

Choose the most convenient tax regime for your company.

PRO TIP: EXTENDED DEADLINE OF 31 JULY 2020 to Opt for the new regimes.

Now let’s see the strategy we want to show you:

How to Pay Less Taxes in Chile as a Company:

On this occasion we will see the strategy using the Transparent Pro SME Regime:

  1. Incorporate a Company (We recommend a joint-stock company)
  2. Choose the Transparent Pro SME Scheme
  3. Check your Annual Global Complementary Tax Income level
  4. Apply the Income Tax Exemption for your SpA and pay only Global Complementary Tax through the Shareholders (Company does not pay 25%)
  5. Advance Monthly Social Security Payments to Increase Benefit

Probably many times we have asked ourselves how to pay less taxes in Chile, how to pay less taxes without evading or how to pay less income, so today we will see how to create a company to pay less taxes.

We’ll even see how to pay 0% income tax. All of the above through a smart strategy.

Disclaimer : the following blog does not constitute legal advice and is for illustrative purposes only. In order to apply the following strategy, we always recommend that you seek the advice of tax lawyers and/or accountants who are experts in the field.

to contact our experts apply these strategies by clicking here or call>.

Also, you can check our tax services page here.

We want to meet you!

Ready? Here we go.

I. Constitute Your Society

To pay less tax in Chile, we first need to operate through a Corporation or other business figures that we will see below:

What kind of society?

To enter the Simplified Accounting Regime, we must operate through

  1. Being an Individual Entrepreneur (tax figure for individuals)
  2. E.I.R.L.
  3. Limited Liability Company
  4. Communities
  5. Societies by Actions (Recommended)

We will focus, in this blog, on the Stock Corporations.

Who can be the Shareholders of the Company?

It is a requirement that the partners or shareholders of your Company are Natural Persons final tax payers (not other companies) domiciled in Chile.

They can also be Companies or People not domiciled in Chile .

It is no longer a requirement that shareholders may be oother Chilean companies under the Income Tax Regime (Art. 14 letter A) of the Income Tax Law).

Why not as a Natural Person?

Societies have 2 main advantages over natural persons:

  1. You can deduct Costs and Expenses to lower your taxes y;
  2. You can take advantage of several tax benefits.

In Chile, individuals are affected by other types of taxes, either on their jobs or other earnings. These taxes are the “Second Category Single Tax” and the “Global Matching Tax“.

Unlike individuals, companies are affected by the “First Category Tax“.

The above distinction is important, as the %’s of tax rates are different for companies and individuals.

Another of the main differences is that societies can deduct from their income the COSTS and EXPENSES necessary to produce their wealth. Individuals, on the other hand, only receive income, without the legal ability to deduct the costs and expenses incurred in their jobs, jobs and professions.

What does all this mean? We can pay less tax if we know how to spend efficiently and take advantage of the benefits that the law offers us.

With the tax strategy that we will reveal below, we can make the most of each tax system:

  1. On the one hand we take advantage of the lower rates of the Global Complementary Tax.
  2. On the other hand we take advantage of the capacity to deduct expenses of the Companies.

This will result in efficient accounting management, which translates into lower tax payments.

II. Choose Simplified Accounting for SMEs

Once you have created your Company, you must make its Tax Regularization.

This means that you must perform the Start of Activities, Accredit your Tax Address, among other legal obligations.

At this time it is important to choose the simplified regime established by Article 14 Ter Letter A) of the Income Tax Law.

This system was created for Micro- and SME’s. Its great characteristic is that they are not obliged to keep complete accounting and they can benefit from the First Category Tax Exemption.

III. Global Complementary Tax: Check your Annual Income Level

As we already mentioned, as a natural person we must pay a tax called “Global Complementary Tax” (GCT).

To understand how to pay less tax in Chile as a company, it is necessary that we understand how the GCR works:

This tax, is no more than a percentage that is calculated on all our profits, wherever they come from.

The more money we make per year, the higher the tax rate.

how to pay less taxes in chile
Table of Global Complementary Tax 2019
Source: Internal Revenue Service

In general, to apply this strategy, your income must be less than 52 million pesos a year.

IV. First Category Tax Exemption applies

This is where the “how to pay less tax in Chile without evading? takes action.

People tend to think that companies are taxed on 25% of their income. This is not true.

Through the application of this legal benefit, we can minimize the payment of taxes when creating a company in its initial stage.

Clemente Hernández G – NSS Lawyer

Let’s take an example to understand how profit works.

Suppose we have a partnership between two shareholders, Juan and Diego. Both have 50% of the Company’s shares and the right to 50% of the Company’s profits.

Suppose that in 2019 the Society had a net profit of $10,000,000.

The benefit allows the Company not to pay 25%, and only the Shareholders to pay taxes in proportion to their share of the profits.

Article 14 Ter, Letter A) Number 3, Letter d) of the Income Tax Law.

Then, of the $10,000,000, $5,000,000 will go to Juan’s taxes, and the other $5,000,000 to Diego.

then has not paid in taxes of million>

Remember that tablet we saw?

If Juan and Diego are in the first bracket, that is, they do not earn more than $7,833,166 per year, the $5 million they earned from the Society, they will not pay taxes.

Yes, you read correctly, are EXEMPT.

So, from 25% we go to 0%. Even if they earn more, they still pay less than the 25% that the Society was supposed to pay.

How do I apply this benefit?

This benefit is an OPTION that must be elected, not automatically applied.

It is done annually through affidavits (F22) received by the Internal Revenue Service.

It is important that in order to implement it, we must already have a solid strategy in place. For it to work, we must prevent and order our Society intelligently.

V. Use the Monthly Social Security Payment (PPM) to Boost Your Profit

As we know, as a Society we must fill out Form 29 (F29) monthly.

On this form we are required to advance our annual income tax. It can also be paid voluntarily.

If we are strategic and orderly, we recommend to pay monthly a sum that allows in April of the next year to receive a tax refund.

That’s right, we can not only reduce taxes as much as possible, but we can also pay in advance and “Don’t feel the next year’s income”.

  1. Repeat until your annual income justifies another First Category scheme.

BONUS: How to Create a Business to Pay Less Taxes Today

Our team is expert in building and creating intelligent, meaningful and legally sound companies.

We have helped more than 70 entrepreneurs to achieve their dreams through a complete consultancy, with a real tax strategy.

Take advantage of our Packs Promotionals of Entrepreneurship , which includes the creation of a company with shareholders’ agreements, tax regularization, trademark registration and more.

All for $299,990, payable in up to 5 monthly installments of $59,998.

Your success is our success.

If you have any questions, do not hesitate to call us at +569 9884 63 48.

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