Every day there are more services of increasing importance provided through digital technology in the Chilean market; in fact, Chile leads the e-commerce market in Latin America, with an annual growth of 20%.
One of the main difficulties in understanding the intricate and at times seemingly contradictive tax system, is the concept of “service”. Established in Article 2 n ° 2 of DL 825 of 1974 (Tax on Sales and Services Law), where service is defined as “the action or benefit that a person performs for another, wherein that person receives an interest, commission or any other form of remuneration, as defined by the exercise of activities included in N° s. 3 and 4, of article 20, of the Law on Income Tax “. To further complicate the matter, when determining which exporters of services can benefit from exemptions, it should be noted that these exemptions depend on the classification made by the National Customs Service. Naturally, this makes it more complex to determine the tax obligation with respect to this consumption tax.
To begin to analyze VAT taxation in the e-commerce market, it is necessary to understand that for a e-service to be considered taxable, the cumulative requites of action or benefit, payment of remuneration, jurisdiction, and any of the activities defined in numbers 3 and 4 of article 20 of DL 824 DE 1974 must be met. The latter can be consulted by referring to Article 1 of The Law on Income Tax. Regarding jurisdiction in digital services, it is necessary to refer to the concept included in the Exemption of article 12 letter E n ° 7 of the Sales and Services Tax Law.
Jurisdiction of digital service
The concept of jurisdiction defined in Article 5 is broad. It states that the requirements are alternative, that is, it is sufficient for the service be provided within national borders, used abroad (e.g. lease of patents or trademarks registered in Chile whose use or exploitation by the lessee will take place abroad), or borrowed abroad and used in national borders to be considered taxable. leases of movable tangible property agreed with companies domiciled abroad, when such assets are interned or used in Chile). It should be noted that if the service is provided and used abroad, it is considered an export of services which will be exempt from VAT, unless the service is qualified as an export by the National Customs Service of Chile.
Tax on Sales and Services
In this case the focus will be placed on the assumption that the service is provided from abroad and used in Chile. According to article 12 letter E N° 7 of the Law on Sales and Service Taxes, services will be exempt from the tax established on sales and services when, according to article 17 of the Income Tax Law and article 59 of the same law, considering certain forms of taxable gains, except in cases with respect to capital gains made on services provided in Chile, can benefit from a double taxation agreement.
Article 59 on the additional tax defines the exemption on the amounts paid or credited for the use of “standard computer programs”. This exemption benefits people who have no domicile or residence in the country (natural or legal persons) and affects the amounts paid for the use of standard computer programs (including digital books) as long as they meet the following requirements:
- Correspond to the concept of “computer programs” established by the Income Tax Law according to the definitions and technical specifications of Law 17,336 on intellectual property.
- They have a standard character and are not used for commercial exploitation, reproduction or modification with any other purpose that is not authorized for use.
In this section it is important to mention that the payment for licenses of use of computer programs is taxed with VAT when these are used in Chile (if purchased from abroad) when they are protected by law 17.336.
Therefore, the VAT exemption will be applied when services are understood to be rendered and paid for abroad. In other words, if the services are provided in Chile, these amounts are taxed with VAT, on the contrary, if the services are provided abroad and only used in Chile, the remittances paid abroad are exempt from VAT. However, when the service consists of the assignment of the use of standard computer programs to be used in Chile, such assignments can only be made by the owner of the copyright, according to the provisions of article 17 of Law No. 17,336. For this purpose, it is considered that the author was born by the creation of the work according to the provisions of article 1 of the aforementioned law, as well as that the activity that generates the service and therefore the provision, takes place in the place where The owner of the right is domiciled, who will be the only one who has the power to assign the use of his work. This will be carried out through right-of-use licenses over computer programs.
For this reason, the service provided in the case of standard computer programs whose licenses for use are granted abroad (because the owner of those licenses resides there) it is understood to be borrowed abroad and therefore exempt from the additional tax, -, as it is considered services rendered outside of Chile.
In conclusion, the situations outlined in this article, as well as those related to VAT in digital businesses always need to be analyzed separately and in detail to identify what situation is being faced and to be completely in compliance with the tax laws in Chile, a task in which our team of in country specialists are very well versed.