New VAT Legislation for Digital Services

As of 1 June 2020, foreign companies providing digital services have to apply 19% VAT in Chile. The measure mainly affects foreign digital platforms that provide digital services located in Chile.

This tax obligation only applies to foreign taxpayers, without domicile or residence in Chile, who provide remote services to be used in the national territory by individuals or legal entities who are not VAT taxpayers.

1. The intermediation of services rendered in Chile or sales made in Chile or abroad, provided that the latter results in an import (of goods);
2. The supply of digital entertainment content, such as videos, music, games or other analogous content, by means of downloading, streaming or other technology, including texts, magazines, newspapers and books.
3. The supply of software, storage, computing platforms or infrastructure.
4. Those who carry out advertising, regardless of the medium through which it is delivered, materialised or executed.

Certain digital services as B2B transactions subject to withholding tax or commission charged by a non-Chilean resident platform to foreign service or sales providers are out of the scope of VAT.

The service will be considered to be used in Chile if at least two of the following conditions are met:

1. the IP address of the device used or other geolocation mechanism indicate that the user is in Chile;
2. the payment method used is issued or registered in Chile;
3. the address indicated for billing or issuance of the payment receipt is in Chile;
4. the SIM card of the mobile phone through which the service is received has Chile as its country code.

Regarding the penalties, the non-payment or late payment of VAT can trigger an interest of 1.5% for each month the VAT is not reported and paid. Also, fines of between 10% and 60% may fall due.

On the other hand, in order to register and comply with the declaration and payment of this tax, the Internal Revenue Service has enabled a special website. On the website, companies affected by VAT on digital services, but which are neither domiciled nor residing in Chile, must register.

Regarding this registration, the Internal Revenue Service has indicated that it does not constitute a Permanent Establishment. On said website, taxpayers can choose whether they will report VAT on a monthly or a quarterly basis, as well as the currency (euro, dollar or pesos) in which the tax will be paid.