Chile – Revenue Authority: Issues Ruling on Income Tax and VAT treatment for Services Provided by Non-Resident Businesses

Chile’s Tax Authority issued a Letter Ruling that could serve as guidance for similar tax matters. The referral for an answer was carried out by the company whose place of business and residence is in Spain. The company’s employees provided on-site software installation services. The company doesn’t have any presence in Chile. 

The main questions referred to by the Spanish company concerned the applicability of VAT to the services provided and whether any additional tax (such as income tax) was levied as well. Can the company ask for a refund of the surcharged tax? 

The Revenue Authority Letter Ruling could be summarized in the following key referral points: 

• Law on Sales and Services Tax(LIVS) in a broad sense defines the provision of services as a taxable event, in any case when the service is provided in Chile to another person, and the provider receives any remuneration
• VAT is generally levied on all services offered or used in Chile
• LIVS is exempt from VAT services that are subject to the Additional Tax(according to the Income Tax Law), provided that these services don’t enjoy any Income tax exemption, under the bilateral or similar legislation to avoid double taxation 
• The purpose of this exemption is to block the possibility of levying both VAT and Income Tax simultaneously on the same services provided or used in Chile, instead of paying one of those two taxes 
• Based on the specifics of this case, bilateral agreements, and Chilean tax laws, the Revenue Authority concluded that VAT rules apply. Moving forward with the facts provided, that it’s a non-resident service provider, and that the recipient is a VAT-registered taxable person, the beneficiary of the service shall be considered accountable for VAT, under the reverse-charge mechanism. 
• The beneficiary is responsible for proper invoicing and reporting of the transaction. The domestic taxable person shall also have the right to claim input tax credits based on self-billing. 

Final Remarks 

The Revenue Authority concluded, in response to this query, that, under the legal concept of the taxable event “service”, services provided by a non-resident person (from abroad) and used in Chile are subject to VAT, unless the VAT exemption applies under the LIVS Act. Services are subject to Income Tax in accordance with the Income Tax Law. 

This Ruling could be used as a point of reference for similar cases and address any doubts non-resident taxpayers may have when providing services to domestic taxable persons.