Since June 1, 2020, foreign digital service suppliers with sales in Chile have to apply, collect and remit 19% VAT on certain digital services. In an unusual move, the Chilean Internal Revenue Service (Servicio de Impuestos Internos, or SII) recently released a list of 123 foreign digital service suppliers that have not registered for VAT in Chile since June 2020.
Affected foreign digital service companies have had VAT registration and collection obligations for their sales to Chile-based customers since the introduction of the rules. In publishing the list, Chile’s SII are letting these non-registered businesses know that it is aware of who they are. Releasing this list, therefore, is seen as a means to encourage those businesses listed to fulfil their VAT obligations. The other option available to the listed businesses is to require their financial intermediaries (e.g. payment card companies) to withhold the VAT on their sales to customers in Chile.
The Chilean tax authorities have also released a list of registered foreign digital service suppliers. As of August 9, 2021, it numbered 223 businesses. That list is available here.
Chile VAT registration and affected digital services
There is a simplified registration system for foreign digital service suppliers to use to fulfil their Chile VAT obligations. Here is the link to the Chile registration portal.
There is no sales threshold to registration meaning that Chile VAT obligations kick in from the foreign suppliers’ first sale to a Chile-based customer.
Affected digital services include (please note, this list is not exhaustive):
- The supply or delivery of digital entertainment content, such as videos, music, games or similar, through downloads, streaming or other technology, including books, texts, magazines and newspapers;
- Making available software, storage, platforms or technological infrastructure; and,
- Advertising, regardless of the support or media through which it is materialized, delivered or performed.
- Intermediation of services rendered in Chile, of any nature, or sales performed in Chile or abroad (if the latter results in an import);
The end customer’s location in Chile is determined if two of the following four pieces of evidence match:
- The Internet Protocol (IP) address of the device used is in Chile
- Customer’s payment card is issued or registered in Chile
- Customer’s billing address is in Chile
- Customer’s mobile phone subscriber identity module (SIM) code used in the transaction is Chilean.
Background to Chile’s VAT rule change
Chile had been reviewing its legislation relating to cross-border digital sales for some time. Back in June 2018, Chile’s then Finance Minister Felipe Larraín Bascuñán revealed his government's plans. “We are looking at other ways to apply tax, perhaps charge a transaction fee,” Larraín Bascuñán was quoted by Reuters. “Initial estimates suggest that collecting taxes from the digital economy and digital commerce could bring in several hundred million dollars.”
In August 2019, Chile's lower house of Congress (the Chamber of Deputies) set in train a major reform of the country's tax system. Included was a tax (of 19% VAT) on digital services rendered in Chile by non-residents.
A previous estimate from the Economic Commission for Latin America and the Caribbean (ECLAC) stated that such a rule change could raise USD$40 million annually for the Chilean government.
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