General information on the chilean company accounting
In Chile, the department responsible to control taxes is the Internal Revenue Service (SII, by its words in spanish), this department is also responsible to give tax identification to both people and companies.
Natural persons are considered to be domiciled in Chile if it can be assumed that they intend to remain there permanently or if, in a calendar year or two consecutive calendar years, they are there for more than six consecutive months. A legal entity is considered to be domiciled in Chile if it was constituted there.
The fiscal year begins on 1 January and ends on 31 December of the same calendar year. Companies have to produce their annual financial statement to the shareholders of the company. The account books must be published in Spanish and use the Chilean currency as reference.
The accounting system in Chile is totally electronical, thus the electronically issued and received documents remain directly registered in the accounting system, and other transactions that do not have tax associated documents are input directly into the system.
Administrative formalities that must be met before company operations in Chile begin
All individuals or entities that start a business activity in Chile must comply with certain administrative requirements. The principal requirements are:
· Tax id number (RUT): No business can operate without registering a RUT number in Internal Revenue Service, this must be obtained after company has been registered.
· Declaration of initiation of activities: this declaration must be made after getting company RUT number to the Internal Revenue Service, this way avoiding delays in the process; the declaration must contain the company's declared capital and also company legal address.
· Municipal license: a license must be obtained from the corresponding municipality based on the company's legal address for each of the company's establishments, offices, warehouses, etc.; legally no activity can be started without the mentioned license.
Types of accounting obligations for companies in Chile
Persons resident or domiciled in Chile are subject to income tax on their world-wide income.
However an individual taking up domicile or residency in Chile is taxed only on Chilean source income for the first 3 years, this may be extended by applying to the corresponding process in the Tax Department (SII).
Persons without domicile nor residency in Chile are taxed on their Chilean source income.
A person is deemed to be domiciled or resident in Chile if:
It may be assumed from the activities that he/she wishes to stay in the country on a permanent basis (domicile).
If a person spends more than six months in the country in a given calendar year or over a period of two years (resident).
Chilean source income is defined as income arising out of:
Goods or assets located within Chilean territory
Activities performed in Chilean territory
Income taxes are paid annually at the time of submitting the tax return. In some cases estimated partial payments must be paid monthly. The excess payments, if any, over the final tax liability is reimbursed normally within the month subsequent to the filing of income tax returns.
A company must keep their accounting records in Chilean currency, but if all or most of the capital contributed or the business is performed in a foreign currency, it may be authorised by the "SII" to maintain accounting records in the foreign currency.
Value added tax
VAT is a tax over the value of transactions inside the country corresponding to 19% of its value, that is, the final consumer pays 119% of the value of the good or service. This tax exists in each of the phases of the production or commercialization process.
In each of these steps, the buying party accumulates a VAT credit (tax credit) and the sales party accumulates a VAT debit (tax debit). Therefore, the final amount to pay in VAT per period corresponds to the subtraction between the VAT debit and VAT credit.
Exports of goods and services have absolute VAT exemptions. In addition, of the exports themselves, there are also situations in which the transaction qualifies as an exporter and merits an exemption from this tax, such as: international carriers, sale of tourism abroad, some companies and scientific organizations with respect to travel through Antarctica, non-resident companies that operate fish boats or industrial barges, etc.
It is mandatory for both companies and people to declare and pay their accumulated VAT tax monthly. This must be done up to the twelfth (12th) day of the next month to be declared. This process is totally online on the tax department website.
Bookkeeping Requirements for companies in Chile
In general any business or taxpayer is required to maintain complete accounting records: a cashbook, a journal, a ledger and a balance sheet register, or their equivalents. In addition, the following records must be kept for tax purposes:
· Sales and purchases journals.
· Payroll register (required only when there are five or more employees).
· Tax withholding register.
· Inventory register.
· Taxable profits ledger (FUT).
All the accounting and tax books must be stamped by the Internal Revenue Service. The records can be loose leaf, prepared either manually or by data processing equipment, if they have been previously authorized by the Internal Revenue Service.
Recently hanges to the Tax Code have made it simpler to keep accounting records in foreign currency when certain requirements are met. Rules for paying taxes in foreign currency have also been relaxed.
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