June 17, 2021
Chilean tax authorities are evaluating foreign service providers' compliance with recently enacted VAT on digital services
Foreign service providers that provide digital services to individuals in Chile must register for the simplified value-added tax (VAT) regime and withhold a 19% VAT on the payment for digital services. Noncompliance could trigger audits from the tax authority and withholdings through credit card issuers.
The Chilean tax authorities have recently emailed foreign service providers that may be providing digital services to Chilean users and are not in compliance with current legislation.
According to the Chilean VAT Law, the Chilean tax authorities are authorized to use any technological means of audit available to verify whether foreign service providers are in compliance with tax obligations related to digital services and the simplified VAT regime, regardless of where the information is located.
To determine the foreign service providers that may not be in compliance, the Chilean tax authorities established a portal through which foreign service providers that are not in compliance may be reported anonymously.
Additionally, the Chilean tax authorities issued two resolutions requesting Chilean banks and credit card issuers to report quarterly on the acquisition of services made by Chilean customers from foreign service providers and paid with their credit cards or other analogue payment systems (note that banks have been reporting this information since June 2020 and financial institutions that are not banks since October 2020).
Noncompliance with registration requirement
Based on the information the Chilean tax authorities have received, they have emailed several foreign service providers that may be providing digital services to Chilean users and are not registered in Chile for purposes of declaring and paying VAT, if applicable.
Not complying with the Chilean rules may result in intermediary entities (i.e., Chilean banks or credit cards issuers) being responsible for collecting the VAT if not declared by foreign service providers.
Foreign service providers that have not already registered for the simplified VAT regime, or have not analyzed whether their services fall within the scope of these new provisions, should register, as noncompliance could result in an audit or withholdings from third parties on the payment of digital products from Chilean customers.
For more information on the VAT on digital services, see Tax Alert 2020-1453.