Chile's tax authority has clarified that a local company distributing US software to Central America must pay VAT on its inbound purchase but may claim exemption on outbound sublicensing—provided customs officials certify the activity as an export service.
Chile’s tax authority (SII) has issued Letter Ruling No. 578 dated 6 March 2026, addressing the VAT treatment applicable to a Chilean purchaser acquiring software from an unrelated US supplier and subsequently sublicensing it to customers in Central America.
The ruling addressed two critical questions: whether buying the software triggers VAT, and whether reselling it abroad qualifies as a VAT-exempt export service.
For the acquisition from the American provider, the SII determined that VAT applies. Since the Chilean purchaser obtains only distribution rights—not reproduction or modification capabilities—the arrangement constitutes business profits under Article 7 of the Chile-US tax treaty rather than royalties under Article 12. This classification means no withholding tax is imposed (absent a permanent establishment in Chile). However, because the treaty exempts the payment from additional taxation, the standard VAT exemption for royalty-type payments does not apply, making the transaction subject to Chilean VAT.
Regarding sublicensing to foreign clients, the authority confirmed this represents a taxable event under domestic law. Nevertheless, the Chilean entity may obtain VAT exemption if the National Customs Service officially certifies the sublicensing activity as an exported service. The company’s final tax position, therefore, hinges on securing this regulatory designation for the outbound portion of its software distribution business.
In summary, while the purchase from the US is subject to VAT because it escapes Additional Tax through the international treaty, the subsequent sale to Central America may be exempt from VAT if it is officially recognised as an export service.
