Employment of expatriates in Chile

The law requires that at least 85% of a company's employees be Chilean citizens. However, expatriates with more than five years' residence in Chile, persons married to Chilean citizens and technicians who cannot be replaced by Chileans are not included in the limitation. This limitation does not apply when a company does not employ more than 25 workers.

Two-year work permits are easily obtained. It is possible to change a tourist visa or card into a work permit in Chile. The work permits can be renewed or converted to a permanent resident status.

Payment of salaries in a foreign currency

Individuals and entities resident in Chile can pay remunerations in a foreign currency to foreign specialized personnel, who are subject to an employment contract and are exempt from Chilean social security contributions.


Payment of a portion of an executive's remuneration outside Chile

There is no requirement for remunerations to be paid in Chile; they can be paid anywhere in the world, either by the employer or by any other company.

However, if the remuneration relates to services provided in Chile, it is subject to Chilean taxes regardless of the place where the remuneration is paid, as it is understood to be Chilean source income.


Chilean income taxes on expatriate’s remunerations

For a period of three years (which can be extended by the Chilean IRS), only Chilean-source income of a resident expatriate is subject to income taxes. After the third year, worldwide income is taxed. A resident is defined as a person who either is domiciled in Chile or is physically present in Chile for more than six consecutive months. Chilean domicile mainly reflects the intention of the expatriate to establish a principal place of business or residence in Chile over a period of time.

A nonresident expatriate is subject to a 20% withholding tax on remunerations earned in Chile due to scientific, cultural or sporting activities and to a 15% in the case of technical, professional and engineer services.


Chilean social security contributions

In general all employees are subject to Chilean social security contributions. However, foreign technical personnel who are paying social security in another country can elect to be exempt from Chilean social security, provided the foreign system provides substantially equivalent coverage at least for illness, disability, old age and death.

Chile has signed agreements concerning social security with, Argentina, Austria, Australia, Belgium, Brazil, Canada, Colombia, Denmark, France, Germany, Luxembourg, Norway, Portugal, Peru, Quebec, Spain, Sweden, Switzerland, the Netherlands, the United States of America, Uruguay, Finland, Ecuador and the Czech Republic. These agreements establish exemptions, amongst other benefits.


Tax on fringe benefits

In general, fringe benefits are either not allowed as a deduction for the employer or are taxed as income to the employee. In many cases, fringe benefits that are not allowed as a deduction to the employer are subject to a 35% penalty tax. Most fringe benefits are considered to be additional taxable remuneration for the employee and can be deducted as an expense by the employer. The tax treatment of some of the more usual fringe benefits is as follows:

•               Foreign service allowance or differential: this is treated as additional taxable remuneration.

•               Housing (or rent) allowance: this is treated as additional taxable remuneration.

•               Housing provided by the employer: the Chilean Internal Revenue Service will usually consider that this is additional taxable remuneration; however, the law is unclear on the subject and there is no definitive court ruling. The law does state that housing provided in the sole interest of the employer is not taxable.

•               Home leave for the employee and his or her family: this is treated as additional taxable remuneration; however, any portion of the executive's expenses that relate to business travel (such as visits to the head office) is a deductible expense for the employer and is not taxed as additional remuneration to the employee.

•               Tax equalization: if the tax equalization relates to income derived from services rendered in Chile, it is treated as additional taxable remuneration.

•               Bonuses and profit sharing: these are treated as additional remuneration; if the amount paid relates to a period of several months, it is allocated to the income of each month and the monthly taxes are recomputed.

•               Company car: in general, all expenses relating to company cars (including depreciation) are not allowed as a deductible expense for the employer, and they are not taxable income to the employee, unless he has been granted the exclusive use of the car. Expenses related to pick-up trucks and similar vehicles are deductible only if they are used for company purposes.

•               Reimbursement of entertainment expenses: if they are necessary for the business and are adequately documented, such expenses are deductible for the employer and the reimbursement is not taxable income for the employee; however, the Internal Revenue Service tends to routinely deem these expenses as not necessary for the business.

•               The severance payments established by law are essentially non-taxable, although there are limits. However, the severance indemnity voluntary paid or the one agreed to in a contract that is higher than the legal severance payment is considered income.