New Digital Service Tax in Chile – What has been the Result?

It has been 18 months since the digital service tax was implemented in Chile. The Chilean tax office has recently released an update on the amount of taxes that has been collected since it started. The new digital service tax has already raised a considerable amount with US$306 million in tax revenue generated since the implementation.

Background

The digital service tax imposes 19% VAT on all digital services that are provided from companies that do not have operations in Chile.  Companies are expected to register and make payment either on a monthly or quarterly basis.

Digital services are considered anything related to –

1. The supply or delivery through digital means anything related to videos, music, games, books, texts, magazines, newspapers, etc.
2. Software, cloud computing storage, platforms, applications, and/or technological infrastructure; and,
3. Any type of advertising, regardless of the support or media through which it is materialized, delivered, or performed.

The tax office requires banks to provide information on goods or services purchased by national taxpayers from sellers who reside outside the country. The tax authorities use the information received to cross-reference whether the companies have registered and to verify that the tax is paid. For companies that do not comply, the tax office has the power to require that banks hold payments and deduct the taxes due. For more information, you can see our previous post here.

The Results

• Companies were given options to file monthly or quarterly. According to the SII, most companies chose the quarterly option and so five payment periods have passed since the new tax was introduced
• 252 digital service providers with no Chilean domicile or residency have registered so that they can file and pay the tax in the country. 
• The United States has the highest number of entities subject to the tax in Chile, with a total of 112 companies.
• The measure has generated US$306 million in tax revenue since its implementation.
• Google, Netflix and Apple have paid the most, followed by the Sony, Spotify and Facebook platforms.

Strategy to Implement the New Tax

The initial implementation strategy focused on education and prevention. The agency contacted foreign companies identified in its analysis to explain the new tax, address their questions, and explain how to comply. A list was published earlier in the year of companies that were not complying with the new law and steps are being taken to bring them into compliance.

The focus to date has been on the largest digital companies but will evolve over time to include smaller companies that are identified in their analysis.

Conclusion – Digital Services to Industry

The largest payers of the new tax to date have been the standard digital service providers such as Netflix, Google, and Facebook. They tend to get the most attention when speaking of the new tax but there are plenty of smaller digital service providers that will need to ensure they are compliant.

From an industrial technology perspective, there are many companies providing digital products to the Chilean mining, energy, infrastructure, agriculture, and construction sectors. Often these are SAS software subscriptions that cover different types of software used in their respective industries.

Previously, even companies with operations in Chile would charge their software licenses from abroad as a way to repatriate funds directly to the holding company. These companies will also need to ensure they are compliant with the new tax law.

For companies who do not have operations in Chile, they will need to register, charge their clients, and start making payments of the corresponding taxes.

The digital service tax is not just important in Chile. Many countries in Latin America, such as Mexico, Argentina, Chile, Colombia, Costa Rica, Uruguay, Paraguay, and Ecuador, have taken full advantage of the digital economy’s growth by taxing digital services in recent years.

Ax Legal is an advisory firm that works with foreign companies in Latin America. Our team of legal and commercial advisors have a distinguished track record of helping foreign technology and services companies to grow and operate in Latin America. Over the years, we have worked with starts up, mid-size businesses, and publicly listed companies. The one common factor that connects are clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.

To better understand how we can support you in the Region, please contact Cody Mcfarlane at cmm@ax.legal