Tax for Expats Explained: Filing Taxes as an American Living in Chile

This article was first published on August 28, 2013. It was updated on June 19, 2014, with information relevant to the 2013 and 2014 tax years.

If South America is being considered as a relocation destination, Chile is a country that may draw the attention of the expectant expat.  Among its offerings are low tax rates and preferential tax treatment to foreigners who relocate to Chile. But it’s important to understand how the tax laws in both countries will impact the tax for expats living in Chile.

How Working in Chile Impacts Tax for Expats

A move to Chile, or to any other country, does not eliminate your requirement to file a US tax return.  You must continue to file and include all worldwide income on your US tax return, including the income you earn in Chile.

US Expat Taxes in Chile

You might reduce your expat taxes by taking advantage of US tax credits and deductions related to your Chilean income.  The following exclusions and credits help to relieve some of the double taxation you may incur by having to pay tax to 2 countries:

If you meet certain requirements you can exclude up to $97,600 of your 2013 foreign earnings on your expat taxes.  In addition to the FEIE you may also be able to deduct some of your housing expenses.  Both of these exclusions reduce your US taxable income dollar for dollar.

Like most US tax credits the Foreign Tax Credit reduces your US tax.  One dollar of credit reduces US tax by one dollar.  Your foreign tax credit will be limited to only those Chilean taxes that are allocated to the Chilean earnings which are subject to US tax.  That means that any Chilean tax on your excluded Chilean earnings (excluded by the FEIE and the Foreign Housing Exclusion) will not be included in the calculation of your US foreign tax credit.

Who is a Resident of Chile?

Chile wants to attract people from other countries so they offer tax benefits to foreigners for the first six years they live in Chile.

When you live in Chile for more than six months in two consecutive years you are considered a resident.  Different tax rules apply to these three different groups of people:

  • residents and those with domiciles in Chile,
  • non-residents and those who are not domiciled in Chile, and
  • foreigners who are residents of Chile or domiciled in Chile for less than 3 years.

After your first 3 years in Chile you can request to continue to be taxed as a Chilean foreign resident for an additional 3 years.

Is Foreign Income Taxed Within Chile?

Residents of Chile are taxed on all income, domestic (from a Chilean source) and foreign (from a source outside of Chile).

Non-residents and foreigners who have lived in Chile for less than 3 years pay Chilean tax only on income received from Chilean sources.  This is a tax benefit of being an expat in Chile, and it is why you may want to request an extension of this tax treatment for the 2nd three years of your Chilean residency.  After the 3 year period (of after 6 years if you request the extension) you will be taxed on your worldwide income, just as Chilean residents are taxed.

Foreign pension and social security income you receive while residing in Chile is not subject to Chilean tax, no matter what your residency status is.

Non-residents of Chile are subject to Chilean tax on services rendered outside of Chile that are paid from a Chilean source. (Deloitte International Tax Chile Highlights, 2012 Deloittte Global Services Limited)

Income Tax Rates in Chile

The tax rate in Chile is a progressive rate ranging from 0% to 40%.  Tax rates are based on the Chilean currency unit CLP, which are revalued each month.  This chart shows tax rates in Chile:

 

Tax Rate in Chile
Tax Unit (CLP)Tax Rate (%)
0 – 13,357,8005
13,357,800 – 22,563,00010
22,563,000 – 31,588,20015
31,588,200 – 40,613,40025
40,613,400 – 54,151,20032
54,151,200 – 67689,00037
67,689,000 and up37

US – Chile Tax Treaty

In 2010 the US and Chile signed a tax treaty that as of February 2014 had not yet been ratified by the US Senate.

Chilean Tax Due Date

Chilean taxpayers report income on a calendar year.  Tax returns are filed in April following the end of the year.

Social Security in Chile

The current social security system in Chile is a private pension system that is funded by required contributions of 20% of earnings up to a cap.  You can estimate that your mandatory contribution would be about 10% of your monthly wages.  If you are self-employed you can make voluntary contributions to Chile’s social security system but you have no mandatory contributions.

The US and Chile entered into a social security agreement in 2001.  This agreement helps to make sure that as a US expat living in Chile, you will be eligible to be covered by one of the country’s social security systems.

Other Taxes in Chile

Chile charges a VAT tax of 19% on all recurring sales and on some services.

Monthly earnings are subject to an unemployment tax of .6%.

Additional Questions About Taxes for Expats?

If you would like more information about expat taxes in Chile or would like Greenback Expat Tax Services to prepare your expat tax return, please contact us.

Free Guide: The 25 Things Every Expat Needs to Know About Taxes

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