Author: TaxDAO
1. Introduction
With the development of crypto assets, the Chilean government has gradually recognized the importance of the crypto market to financial development It means innovation and opportunity, and the attitude towards crypto assets has changed from firm opposition to inclusive acceptance. At the same time, in order to deal with potential dangers and challenges in the crypto asset market, the government maintains a cautious attitude and continues to build and improve systems and mechanisms. In the field of taxation, the Chilean government has established a tax system to tax crypto assets based on the country’s basic tax system. This article will analyze the foundation, current situation and future of crypto-asset taxation in Chile, and explore the development trends and challenges of crypto-asset taxation in Chile.
2. Main tax types and rates in Chile
2.1 Overview of Chile’s general tax system
Chilean taxes are based on The central government is responsible for implementing a personal tax system. The Chilean tax system is different from most countries and is unique. Chile's tax-to-GDP ratio is the lowest in the OECD by a range of different measures, and its tax structure differs significantly from other countries. The difference stems from differences in the way value-added tax and personal income tax are levied. For example, in terms of personal income tax, the tax burden on individuals in Chile is much lower due to a narrow personal income tax base and lower personal income tax revenues (including capital income). The main taxes in Chile include value-added tax, first income tax (corporate income tax), second single tax (personal income tax), surcharges, supplementary taxes, and a new capital gains tax this year.
2.2 Value-Added Tax
Value-added Tax (VAT) is levied on the value added during the production and sale of goods and services. An indirect tax. In Chile, the VAT rate is generally 19%, and different products or services may enjoy special tax rates or tax exemptions. For example, imported services provided from abroad are exempt from VAT if the remuneration is subject to withholding income tax. VAT registration is mandatory for every Chilean company, and the declaration is done on a monthly basis.
2.3 Income Tax
Chile’s income tax (Income Tax) is a direct tax levied on personal income, including investment income, interest and dividend income, and various wages and salaries. wait. All individuals domiciled in Chile are subject to tax regardless of whether the source of their income is Chilean or foreign. Individuals without domicile in Chile should pay tax on their income derived in Chile. Therefore, foreigners living in Chile only need to pay income tax on their income earned in Chile during the first three years after entering Chile. Income in Chile includes assets or production activities located in Chile, as well as indirect transfers of Chilean companies and other assets located in Chile.
Chilean income tax is levied through different taxes according to different types of income. It consists of several major types of taxes, namely: the first type of tax (corporate income tax), the second type of tax (labor income tax), supplementary taxes, global surcharges.
Income from assets (corporate) is taxed under the first category of income tax, and employees’ income (salary) is taxed under the second category of single income tax. Generally speaking, income earned by natural persons domiciled or residing in Chile is taxed according to the global supplementary tax, and income earned in Chile by non-residents is taxed according to the additional tax.
The global supplementary tax and surcharge are both considered final taxes, while the first type of tax is considered an advance payment of the final tax. In Chile, the payment of Category 1 taxes is creditable against these final taxes, i.e., in order to avoid double national economic taxation, the system allows the deduction of Category 1 income taxes paid on capital income when calculating the corresponding final income tax payable by the taxpayer. The percentage of income tax deducted above will depend on the tax system chosen.
2.3.1 The first type of income tax (corporate income tax)
The scope of this tax includes capital, commercial, industrial, mining and other income. Based on income accrued or received minus expenses, and reporting all earnings for the previous calendar year each year in April. The first category of tax rates depends on the type of tax system chosen by the taxpayer. Chile's 2014 tax reform established a dual tax system, which was implemented on January 1, 2017. It includes two payment methods: the comprehensive income tax payment method (also known as the distributed income system) or the partial credit income tax payment method.
Under the Comprehensive Income Tax Payment Act, final tax (i.e. global supplementary tax and surcharge) is payable when capital gains are generated, regardless of whether dividend distribution or profit withdrawal actually occurs. In this case, the tax rate at which the enterprise pays the first category of income tax that can be used to deduct the final tax is 100%, so that there are no other taxable items when dividends are distributed or profits are withdrawn. The tax rate for the first category of income tax in the Comprehensive Income Tax Payment Law is 25%, which applies to individual limited liability companies, individuals and communities composed entirely of natural persons domiciled or resident in Chile or taxpayers who have no domicile in Chile and do not have a place of residence in Chile. Group or Simplified Joint Stock Company (SPA).
Under the partial credit income tax payment method, final taxes (i.e. global supplementary taxes and surcharges) are payable when dividends are distributed or profits are withdrawn. In this case, the first type of tax paid on capital income can be deducted from the additional tax, but only 65% of the first type of income tax paid (corporate income tax) can be deducted. The tax rate for the first category of income tax under the Partial Credit Income Tax Payment Law is 27% starting from 2018, and is applicable to joint stock companies, joint stock companies, where at least one owner, co-owner, partner or shareholder is a foreign investor (not required) companies that pay final tax).
2.3.2 The second type of single tax (labor income tax)
The second type of single tax is a progressive tax levied on work-related income. Such as work, pensions issued by the Chilean government and supplementary income or supplementary income. It is levied according to a series of tax rates. The first level is exempt when the income is less than 1,300,000 Chilean Pesos (CLP) and the tax rate is 0%; when the income is between 1,300,001 and 2,200,000 CLP, the tax rate is 7%; when the income is between 2,201,001 and 2,200,001 CLP The tax rate is 14% when the income is 3,500,000 CLP; the tax rate is 27% when the income is greater than 3,500,000 CLP, and the tax rate at the last level is 35%. Based on labor wages or salaries, social insurance and health insurance are deducted first, and are withheld and paid by the relevant employer or income payer every month.
2.3.3 Global Supplementary Tax
Global Supplementary Tax is a final tax levied on natural persons domiciled or residing in Chile. Taxable income is determined according to the first and second category income tax rules and is levied annually on the basis of calculation. The tax is levied according to a series of tax rates, which are progressive according to income, from the exemption in the first level to the tax rate of 35% in the last level. Declaration and payment are required in April of the following year after the income is earned (the tax rate and level are the same as the second type of income tax, but calculated on an annual basis). If the company pays corporate income tax, it can deduct the corresponding global supplementary tax.
2.3.4 Additional tax
Additional tax is levied on the income earned in Chile by natural persons or legal persons who do not have a domicile in Chile or do not reside in Chile. of taxes. Annual withholding or annual filing is possible, depending on the type of income involved.
The surcharge has a general rate of 35% and is levied on dividend distributions, profit withdrawals and/or profit remittances from a joint stock company, partnership or permanent establishment of a foreign company, and is taxed on certain types of income The tax rate is relatively low, for example, the surcharge rate for trademark use is 30%, and the tax rate for invention patents is 15%.
At the same time, the surtax is the final tax and can be deducted in two payment methods after the enterprise pays the first type of tax.
2.4 Capital Gains Tax
Capital Gains Tax refers to taxpayers who are not specialized in the sale and purchase of real estate and securities. A tax on realized capital gains that is a temporary tax. Capital gains on securities listed on the Chilean stock market were previously exempt from tax, but starting from September 1, 2022, Chile has imposed a new capital gains tax on securities at a rate of 10%.
3. Chilean Cryptocurrency Tax System
3.1 The Chilean government’s definition and attitude towards cryptocurrency
Chile’s financial regulator, the Financial Market Commission, has ruled that cryptocurrencies are not financial securities and therefore are not subject to rules governing such assets. According to the central bank, cryptocurrencies do not qualify as legal tender or foreign currencies. The two entities, along with the Treasury Department's Financial Stability Board, said buying and holding cryptocurrencies is risky because of their volatility and the indirect threat they could pose to financial institutions if derivatives of cryptocurrencies became common. The central bank has proposed legislation that would place such assets under the supervision of the Financial Markets Commission, along with other financial securities.
3.2 How crypto-assets are taxed
In Chile, crypto-assets are taxed according to the cost method. There are the following ways to obtain crypto-assets: 1. Purchase by paying cash or its equivalent; 2. Obtain by providing goods or services; 3. Obtain by exchanging with other cryptocurrencies. The first and third types use the cash paid or the monetary value of the exchange as the cost basis for taxation. The second method requires considering the requirements of the revenue recognition standards related to the provision of goods or services. The price less the cost basis when the cryptocurrency is liquidated is the tax basis.
Situations that require payment of crypto taxes usually include: converting cryptocurrencies into Chilean national currency and making a profit from it, using cryptocurrencies to pay for goods and services with a value higher than the debtor’s acquisition cost, wages in cryptocurrencies form of payment. However, there is no tax on transferring cryptocurrency between wallets if the holder holds the cryptocurrency.
Unlike other jurisdictions, Chilean tax law applies the same income tax regime to income earned through cryptocurrencies and most other forms of income. The Chilean government therefore imposes taxes on gains from cryptoassets, depending on the identity of the taxpayer (natural or legal person), the applicable tax regime, the nature of the transaction (creation, sale, payment, etc.) and whether there is a higher value or profit . It is mainly collected through the first category of income tax (corporate income tax), surcharges and global supplementary taxes.
4. The history of crypto taxes
Before 2018, Chile’s Supreme Court supported banks’ closure of accounts of cryptocurrency exchanges, arguing that cryptocurrencies are not legal Currency also does not have the basic characteristics of being a legal tender. In 2018, the IRS issued Notice No. 963, stating that cryptocurrencies represent a new form of digital or virtual asset, excluding the possibility of imposing VAT on crypto assets. Proceeds fromtrading cryptocurrencies are therefore subject to the taxes covered by the law, including Category 1 tax (applicable to businesses) and global supplementary tax (applicable to individuals) and additional tax (withholding tax paid when remittances are made) ), the cost of purchasing cryptocurrencies can be discounted as the cost of proceeds from selling cryptocurrencies. As an intangible good, cryptocurrencies are not subject to Chilean VAT. However, taxpayers who buy or sell cryptocurrencies must issue invoices and receipts.
In 2019, the IRS issued Announcements No. 36 and 1371, clarifying the collection and calculation methods of income tax and capital gains tax on crypto assets. Starting in April 2019, Chilean residents will be required to pay taxes related to cryptocurrencies, and the Chilean government has included crypto assets in the tax list. According to documents from the Chilean Internal Revenue Service, Chilean residents must report income related to cryptocurrency transactions as “other personal income/third party income.” Taxpayers are understood to be everyone who owns cryptocurrencies, including cryptocurrency traders and miners.
In September 2021, the Chilean government submitted a bill to Congress aimed at regulating the fintech industry. The bill is envisioned as a framework aimed at establishing regulatory principles and developing new financial products and services with greater impact. The bill establishes a regulatory framework for alternative trading systems for securities and financial instruments (including invoices, derivatives, virtual financial assets or crypto-assets, etc.). Virtual financial assets are understood as digital representations of units of value, goods or services other than currency, whether in local or foreign currency, that can be transferred, stored or exchanged digitally.
On January 4, 2023, the Fintech-related Bill No. 21.521 submitted by the Chilean government in 2021, the "Fintech Law", was promulgated. It is currently in the process of coming into force and the necessary regulations to implement the law are being drafted. Crypto-assets are regulated, and the law promotes financial competition and inclusion through innovation and technology in the provision of financial services, specifying a limited number of “fintech services.” Five of these services are particularly relevant to crypto-assets, regulating activities related to crypto-assets as financial instruments and means of payment. The promulgation of this bill gives the central bank more powers and responsibilities, which will have a good guiding role in the future development of financial assets such as cryptocurrency. In addition, the Chilean government has also participated in international cooperation with the OECD and the European Union to improve tax transparency and information exchange on crypto assets and combat tax avoidance and evasion.
5. Future: Looking forward to the development of crypto taxation in Chile
In Chile, cryptocurrencies do not have legal tender status, but cryptocurrencies are still widely used in Chile. The government is actively working to develop a regulatory and supervisory framework that aims to provide consumer protection and promote innovation in the financial sector and promote economic development.
Due to the widespread use of cryptocurrencies, the Central Bank of Chile has considered cryptoassets as a mechanism for the exchange of goods and services. In early November 2021, Congressman Karim Bianchi introduced a proposal to recognize and regulate the use of Bitcoin and other cryptocurrencies as legal means of payment in the country. If passed, the law could provide a legal basis for further regulatory developments, such as banks offering crypto custody services. A week later, Congress approved Bianchi's initiative for discussion by the Economic and Development Committee. The legislation states very succinctly that it essentially aims to regulate Bitcoin as a means of payment “valid in any transaction and in any capacity that a private natural or legal person is required to carry out”. In addition to recognizing Bitcoin as a valid means of payment, the proposed law also stipulates that Bitcoin's exchange rate will be determined by free market mechanisms and that prices can be expressed in Bitcoin in the country, although they must also be expressed in Chilean pesos. This speaks volumes as Chilean lawmakers are currently working on legislation to legalize the use of Bitcoin as a means of payment. Meanwhile, the Chilean government is already preparing for the idea of developing its own central bank digital currency (CBDC), which would essentially be a digital version of the Chilean peso. In late September, Chile’s central bank formed a team to study its digital currency starting in 2022 as a way to innovate and revitalize the economy. Unlike traditional cryptocurrencies, CBDC is the digital equivalent of traditional fiat currency. In a CBDC, the digital currency is issued and controlled by the central bank, and users typically sacrifice privacy in exchange for convenience, so it is a more efficient payment method.
In addition, the FinTech Law recognizes that stablecoins can be considered part of the payment method and subject to prudential supervision by the central bank because they are part of the national payment chain, which fully demonstrates the importance of cryptocurrencies. important position in Chilean financial markets. However, Chile’s current tax policy and regulatory bill regarding cryptocurrencies is incomplete, which poses challenges when using them as a means of widespread and low-value payments.
In general, the Chilean government’s attitude towards crypto-assets is cautious. It neither completely bans nor fully accepts crypto-assets. Instead, it attempts to regulate and control the development of crypto-assets through legal and tax means. and risks. Therefore, it can be predicted that the Chilean government will continue in this direction in the future. While gradually improving the legal and tax system for crypto assets, it will also pay attention to international developments and cooperation to adapt to the rapid changes and innovations of crypto assets and provide a basis for the development of crypto currencies. Use it to create a stable and good trading environment and promote the steady development of the national economy.
References
[1] Foresight News.(2023). Cryptocurrency tax collection regulations.21.Dec,2023.
[2] NSS.Taxation of Cryptocurrencies in Chile . Abogados.Dec.2023.
[3] OECD Tax Policy Reviews: Chile (2022).OECDilibrary.
[4] Tom Azzopardi, Journalis.How Chile Taxes Cryptocurrencies.
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