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A Review of Taxable Salary in Chile

A question that was raised by one of our clients involved the taxable salary in Chile. In our experience, the taxability of salary components is often raised by many other clients in different countries. Obviously, this is an important issue, since it affects both the employee’s take home pay, as well as the expense of the assignment to the employer if they have to offset any unusual tax bills.

Since most countries require that expats on assignment be paid through a local payroll (either 100% in the host country or split with the home country), this means that host country tax laws will be applied to any locally sourced compensation.  This is one area that Shield GEO handles for its clients to ensure accurate withholding and payment of taxes.

For example, the issue of taxable benefits in Chile is something that came up recently with one of our clients, so here is a quick review of how compensation and benefits are taxed there.

Taxable Salary in Chile

The following items will be subject to Chilean income tax:

Base Salary

Salary, bonuses, commissions and other payments for employment

Benefits in Kind in Chile 

Many expats have a compensation package that includes BIK, but many of those are taxed in Chile, including,

  • Cola: cost of living allowance to offset unusual cost of goods and services
  • Housing: employer provided housing (or allowance) is taxable
  • Education: cost of private schooling for children is taxable
  • Home leave: annual trips home are taxable benefits
  • Expat allowances
  • Medical allowances: allowances to purchase medical insurance are taxable
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Payment of personal income tax by employer

If the employer pays the assignees personal tax bill as part of the assignment, those amounts are also taxable.

Tax-Exempt Compensation and Benefits in Chile

In Chile, certain types of benefits or allowances will be exempt from taxation, including:

  • Food allowance: if the employer gives meal allowances
  • Transportation allowance: leasing a car, public transportation, fuel, etc
  • Allowances necessary for the assignment: any expenses that are necessary to carry out assignment duties, such as:
    • Language training
    • Immigration and visas
    • Travel for the assignment
  • Miscellaneous allowances

Tax Rates for Expats in Chile

One interesting aspect of Chilean tax law, is that an executive on assignment who is a non-resident (less than six months consecutive stay, or six months cumulative in two years) will pay a flat 15% non-resident income tax on compensation.

Shield GEO: Employment Made Simple in Chile

One of the challenges of sending employees on assignment to Chile is making sure that all employment and payroll requirements are met in that country.  A DIY approach requires local incorporation, registration and setting up a compliant and accurate payroll.  A better solution is using our GEO local employer of record to run payroll for your employees, withhold all taxes and comply with labor and immigration laws.

Our local partners are experts in Chile’s tax laws, exemptions and withholding requirements, meaning that you can focus on managing the work activity of your employee without the risk of non-compliance or unexpected expense.

Get in touch to find out more about how an Employer of Record Solution can help with your employment needs in Chile

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