Chile’s tax authority (SII) issued Letter Ruling No. 2627 on 18 December 2025, clarifying the VAT and income tax treatment of services provided in Chile by foreign companies.
Chile’s tax authority (SII) has issued Letter Ruling No. 2627 of 18 December 2025, clarifying the VAT and income tax treatment of services supplied by a foreign entity in Chile.
SII has clarified the Value Added Tax (VAT) treatment for services supplied in Chile by foreign companies, using the example of a Spanish company providing software installation services for wind farms.
Under Chilean law, services supplied for consideration in the country are generally subject to VAT. However, an exemption applies where the services are subject to Additional Tax (withholding tax), provided that no exemption applies under an applicable income tax treaty. This ensures that a service is subject to either VAT or Additional Tax, but not both, preventing double taxation.
For services provided by a Spanish company, the Chile-Spain tax treaty applies. Articles 5 (Permanent Establishment) and 7 (Business Profits) of the treaty stipulate that the Spanish company’s income from the services is taxable only in Spain unless the activities are conducted through a permanent establishment in Chile. If no permanent establishment exists, the services are subject to Chilean VAT. In such cases, the Chilean recipient of the services is responsible for paying the VAT, while retaining the right to claim an input VAT credit under the general rules.
This ruling highlights the broader tax obligations for international companies operating in Chile. It emphasises the importance of understanding both domestic VAT rules and international tax treaties to ensure compliance and avoid double taxation. Companies must assess whether their activities constitute a permanent establishment and whether VAT or Additional Tax applies. At the same time, local service recipients may be required to act as the taxpayer for VAT purposes.
By providing clear guidance on the intersection of domestic VAT and treaty provisions, Chile aims to facilitate cross-border business while maintaining fair and consistent taxation for foreign service providers.
