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Research by Country/Region January 20, 2018  
Witholding Tax Information for Importing Software Into Chile

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After the Chile Free Trade Agreement (FTA) entered into force in December 2003, Chile's Servicio de Impuestos Internos SII (Internal Revenue Service) and Chilean Customs, changed the "characterization" of software transactions. Until December 2003, imported software was characterized as a product (sales) or a license (right to use under a royalty) based on the transaction. For example, a customs duty of 6 percent and a VAT of 19 percent would be applied for an invoice for a product (without a distinction between what is intellectual and what is physical). If the invoice quoted separately the value of the physical media from the intellectual contribution (license), the customs duty of 6 percent and the VAT of 19 percent were applied only upon the physical media (CDs or DVDs) value and the license was subject to a withholding tax of 30 percent.

In accordance to the FTA, "digital goods" were exempt from customs duties, but instead of applying such an exemption, Chilean Customs (under Chilean IRS instructions) instructed that software should always be characterized as a license and thus, subject to the 30 percent withholding tax. In cases that the invoice does not include a separate quote for the license, the importer must declare, under oath, the value of the license, although he or she might not have that information. It is often the case that only the software manufacturer has information on the value of software licenses. The result is an increased tax of 30 percent for software characterized as a product, instead of a reduction in customs duty from 6 percent to 0 percent in accordance with the FTA.

Although this new Chilean Customs rule is only applicable to software, it could be extended in the near future to music and movies (contained in CDs or DVDs), books, and to any product that includes intellectual property.

For more information please contact:
Patricia Jaramillo, Commercial Advisor
U.S. Embassy Santiago, Chile
Av. Andres Bello 2800, Las Condes
Santiago, Chile
Tel: 56/2/330-3402
Fax: 56/2/330-3172

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