Employment of expats
According to the law in Chile, at least 85% of a company’s workforce must be Chilean citizens. However, this limitation does not include expatriates with more than five years’ residence in Chile, those married to Chilean citizens, and technicians who cannot be replaced by Chileans. Furthermore, the limitation is not relevant when a company employs less 25 workers.
It is easy to obtain a two-year work permit, and a tourist visa or card can be converted into a work permit in Chile. Work permits can be renewed or converted to a permanent resident status.
Paying salaries in a foreign currency
Individuals and entities resident in Chile can pay remunerations in a foreign currency to foreign contracted specialised personnel who are exempt from Chilean social security contributions.
Payment of a portion of an executive’s remuneration outside of Chile
There is no specification that remunerations are paid in Chile; payments can be made anywhere in the world, either by the employer or any other company.
However, if the relevant services were provided in Chile, the remuneration is subject to Chilean taxes regardless of where it is paid, as it is classed as Chilean-source income.
Chilean income taxes on expatriates’ remunerations
For a period of three years (which can be extended by the Chilean IRS), a resident expat must only pay income tax on their Chilean-source income. After the third year, worldwide income is taxed. A person is a Chilean resident if he/she is either resident or physically present in Chile for more than six consecutive months. A non-resident expatriate is subject to a 20% withholding tax on remuneration earned in Chile for specific cultural, scientific or sporting activities, and to 15% for technical, professional or engineering services.
Social security contributions
In general, all employees in Chile should pay social security contributions. However, foreign technical personnel subject to social security in another country can choose to be exempt from Chilean social security, as long as the foreign system provides substantially equivalent coverage at least for illness, disability, old age and death.
Chile has signed contracts regarding social security with Argentina, Australia, Austria, Belgium, Brazil, Canada, Denmark, France, Germany, Luxembourg, Norway, Portugal, Peru, Quebec, Spain, Sweden, Switzerland, the Netherlands, the USA, Uruguay, Finland, Ecuador and the Czech Republic. These agreements set exemptions, amongst other benefits.
Tax on fringe benefits
Generally speaking, fringe benefits are either not allowed as a deduction for the employer (subject to a 35% penalty tax) or are taxed as income to the employee. Most fringe benefits are considered to be additional taxable remuneration for the employee and can be deducted as an expense by the employer. The following are some of the more usual fringe benefits:
- Foreign service allowance or differential
- Housing (or rent) allowance
- Housing provided by the employer
- Home leave for the employee and his/her family
- Tax equalization
- Bonuses and profit sharing
- Company car
- Reimbursement of entertainment expenses