What You Need to Know About Personal Taxes in Chile Before Registering a Company

Chile is known for its relatively straightforward tax system, making it an attractive destination for entrepreneurs and business owners. However, before registering a company in Chile, it is crucial to understand the country’s personal tax regulations, as they will impact both the business owner’s income and the company’s operations. Whether you are planning to work as an individual entrepreneur, start a small business, or launch a larger corporate venture, understanding the Chilean personal tax system is key to making informed decisions and avoiding potential legal or financial issues down the line.

In this article, we will provide an overview of personal taxes in Chile, including the types of taxes you may face as a business owner, how personal income tax works, and what you need to know about Chile’s social security contributions. This will help you better prepare for your business formation in Chile and ensure you are aware of all the requirements related to personal taxation.

Understanding the Chilean Personal Tax System

Chile operates a progressive personal income tax system, which means that individuals are taxed based on the amount of income they earn. The more you earn, the higher your tax rate. It is important to note that Chile’s tax system is divided into two main categories: resident and non-resident taxation.

Resident vs. Non-Resident Taxation

Residents: For tax purposes, a resident is someone who spends at least 183 days in Chile within a 12-month period. Residents are taxed on their worldwide income, meaning all income earned both in Chile and abroad is subject to taxation.
Non-Residents: Non-residents are taxed only on the income they generate within Chile. This means that if you are a non-resident entrepreneur and plan to establish a business in Chile, only the income earned through that business in Chile will be taxed by the Chilean government.

If you plan to register a company in Chile and become a tax resident, your global income will be subject to personal income tax. As such, it is important to plan ahead and understand the potential tax liabilities before taking the leap into business formation.

Personal Income Tax in Chile

Chile uses a progressive tax rate for personal income, meaning that your tax rate will increase as your income increases. Here’s an overview of how personal income taxes are structured:

Tax Rates for Personal Income (2023)

The personal income tax rates for individuals in Chile range from 0% to 40%. These tax brackets are adjusted periodically, so it is important to stay up to date on the latest rates:

Up to CLP 8,665,000: 0% (no tax)
From CLP 8,665,000 to CLP 19,255,000: 4%
From CLP 19,255,000 to CLP 38,510,000: 8%
From CLP 38,510,000 to CLP 57,765,000: 13.5%
From CLP 57,765,000 to CLP 77,020,000: 23%
From CLP 77,020,000 to CLP 96,275,000: 30%
Over CLP 96,275,000: 40%

Note: The tax brackets may change each year, and adjustments are made based on inflation and other economic factors. For the most accurate rates, it’s advisable to consult with a tax professional or business consultant when planning your move.

Taxation on Salaries vs. Dividends

Salaries: If you are employed in your business or receiving a salary, your income is subject to personal income tax according to the tax brackets mentioned above.
Dividends: If you are the owner of a company and receive dividends from your business, these are also subject to taxation. In Chile, dividends are taxed at a flat rate of 35%, but this rate can vary depending on the structure of your business and your residency status. Dividends received from a company are also subject to withholding taxes, which may be higher for non-residents.

If you intend to take a salary from your company, the personal income tax rates will apply. However, if you opt to distribute profits as dividends, you will face different tax rates, which may have both domestic and international implications if you are a non-resident business owner.

Social Security and Health Contributions

Chile has a social security system that includes contributions to pensions, healthcare, and unemployment insurance. These contributions are mandatory for both employees and self-employed individuals.

1. Pension Contributions (AFP)

Chile’s pension system is based on the Administradoras de Fondos de Pensiones (AFP), which are private pension fund administrators. Both employees and business owners must contribute a portion of their monthly income to the pension system.

Employee Contributions: The contribution rate is typically around 10% of your salary.
Employer Contributions: Employers are also required to contribute approximately 10% of an employee’s salary to the pension fund.

If you are self-employed, you will be responsible for making both the employee and employer contributions.

2. Health Insurance Contributions

In Chile, individuals are required to participate in the country’s health insurance system, known as the Fondo de Salud (FONASA) or choose a private health insurer. Both options have their pros and cons.

FONASA (Public Health Insurance): As a resident, you can opt for public health insurance, contributing a percentage of your income (around 7%) to FONASA.
Private Health Insurance (Isapre): Alternatively, you can choose a private health insurer, but you’ll be required to pay a monthly premium, which can vary significantly based on your chosen plan.

3. Unemployment Insurance

Chile has a mandatory unemployment insurance system for employees, which is managed through the Unemployment Insurance Fund. This system provides temporary financial assistance to workers who lose their jobs.

Employer and Employee Contributions: Employers must contribute 2.4% of an employee’s salary, and employees must contribute 0.6%.

If you are a self-employed individual, you may not be eligible for unemployment insurance, but this can vary depending on your business structure and the applicable laws.

Taxation for Business Owners in Chile

As a business owner in Chile, your personal income tax obligations will depend on how you structure your company. Chile offers several options, such as:

Individual Limited Liability Company (EIRL): If you operate as a sole proprietor, you will be taxed on the profits generated by your business.
Corporations (Sociedad Anónima or SA): Corporate taxes are applied at a flat rate of 27% on profits, but dividends are taxed separately.

It is important to consult with tax experts to determine the best structure for your company, as this will directly affect both your corporate and personal tax obligations.

Considerations for Non-Residents

If you are not a resident in Chile and plan to form a company, you will generally only be taxed on income derived from Chile. However, if you decide to become a Chilean tax resident, you will be subject to worldwide taxation, including earnings from abroad.

Non-residents may also be eligible for double taxation agreements that Chile has signed with several countries. These agreements are designed to prevent businesses and individuals from being taxed twice on the same income, potentially reducing your overall tax burden.

How B2B Hub Can Help with Your Business Formation in Chile

Navigating the tax system is only one aspect of starting a business in Chile. The process of company formation in Chile involves several legal, financial, and administrative steps that can be challenging without local expertise. This is where B2B Hub can help.

B2B Hub offers comprehensive services for business owners looking to start a company in Chile. Whether you are dealing with personal taxes, setting up a corporate structure, or managing compliance, B2B Hub provides tailored solutions for your business needs.

Why Choose B2B Hub?

Expert Guidance on Taxation: B2B Hub’s team of professionals is well-versed in Chilean tax regulations, offering advice on how to minimize your tax liabilities and navigate both personal and corporate tax requirements.
Streamlined Company Formation: From securing your RUT number to registering your business, B2B Hub simplifies the company formation process in Chile, saving you time and effort.
Tailored Solutions: We understand that each business has unique needs. B2B Hub offers customized solutions that help you meet your specific goals, ensuring a smooth setup for your company in Chile.
Global Expertise: With experience in multiple jurisdictions, B2B Hub supports international entrepreneurs looking to expand into Chile and other Latin American markets.

Contact B2B Hub Today

For more information on company formation in Chile and how personal taxes will affect your business, get in touch with B2B Hub. Let us guide you through the complexities of setting up and operating a business in Chile.