Chile Tax Update – VAT to be charged by Professional Service Firms starting January 1st

For professional service firms, as of January 1, 2023, all services rendered will be subject to VAT. Previously, companies such as engineering, consulting, architects, legal, and accounting, did not charge VAT when invoicing clients. 

Law No. 21,420 introduced several changes in tax matters, one of the main changes is VAT, expanding the scope of the services affected by said tax. With this rule coming into force on January 1, 2023, all invoices will be issued with VAT. As a result of this modification, all types of remunerated activity/service will be taxed with VAT, as long as it is provided or used within the national territory. 

The definition of “service” contained in the VAT Law is modified, stating the following: “service is the action or provision that one person performs for another and for which they receive an interest, premium, commission or any other form of remuneration.” With this new definition, it will suffice that there be a benefit or action and a remuneration received in return.

The exemptions are specifically indicated in articles 12 and 13 of the VAT Law, therefore, any service that is not expressly included in these articles will be subject to said tax.

The exemption with respect to services provided by natural persons is maintained, whether they are provided independently, or by virtue of an employment contract. The following exemptions are incorporated:

• Income earned by professional societies (a professional society but it cannot be an SA, SpA or EIRL company)
• Ambulatory Health Services, benefit that does not reach laboratory services.
• The services included in State tenders or public purchases that have been awarded or contracted prior to January 1, 2023.

Therefore, the general rule will be that all services are taxed with VAT, and therefore, as of January 1, 2023, all services rendered will be subject to VAT, except those services specifically excluded by law.

What does this mean for you? 

• For companies that did not charge VAT previously, they will need to speak with their accountants and ensure that all invoices after January 1, 2023, are not VAT exempted. 
• In terms of accounting, VAT works as a debit and credit system. That means companies are credited for VAT they pay. Professional service firms in the past were not too concerned about VAT since they had no way to offset it, but this has now changed. Companies should ensure they are receiving invoices and that the VAT they are paying for products or services is being registered since it will offset what they owe from services they charge to clients. 
• From a practical perspective, companies will need to ensure proposals that their staff send also take into account that VAT will need to be charged to the client. 

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 our 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