There is a lot of misunderstanding about the areas called “Zona Franca” and the ideas (and wishful thinking) of “tax-free zones”. There are no “tax-free zones” in Chile, other than in the minds of guide-book writers and the chronically misinformed.
In addition to the basic Zona Franca programme, there are other economic incentive programmes, such as the “Ley Austral” which we do not discuss in this article. The information below is believed to be current at the time of writing in September 2011, but is subject to change, as well as the application of the provisions of the laws and regulations governing the use of Zonas Francas. The following is necessarily a high-level summary and is not intented to be a complete or comprehensive study.
You should not rely upon this article as legal advice.
The Zona Franca concept was introduced in Chile in 1975 (under Decreto Ley N° 1055) as a way of increasing the desirability - and thus population and geopolitical legitimacy - of the “most extreme regions” of Chile. Tax-reduction and other benefits of the Zona Franca are primarily intended for permanent residents of the extreme regions.
Zona Franca program components
Zona Franca (ZF)
There are two “Zona Franca” (ZF) locations in Chile: In Iquique and in Punta Arenas. Each Zona Franca is an “extraterritorial” compound of a few hundred hectares (240 hectares in the case of Iquique) adjacent to a seaport. For tax purposes, these extraterritorial compounds are “not a part of Chile” and in effect, a product that goes into a ZF compound is “exported” from the country. In Chilean, a ZF is described as “El área o porción unitaria de territorio perfectamente deslindada y próxima a un puerto o aeropuerto amparada por presunción de extraterritorialidad aduanera.”
Since a ZF is "not a part of Chile,” in a limited sense, most national products sold there are considered to be for export and thus not subject to customs fees such as IVA. And similar exemptions apply to certain foreign products in the ZFs, though some fees do apply so the deal is not entirely "duty free." Most merchandise in the ZFs is foreign-sourced. For small-ticket items, there aren't many big bargains in the shopping found in the ZFs. For all practical purposes, people do not live in a Zona Franca.
Depósitos Francos (DF)
The same law that created the ZFs also established the concept of the Depósito Franco. Right now there are Depósitos Francos (DFs) in Arica, Antofagasta, Coquimbo, Santiago, Valparaíso, Talcahuano, Valdivia, Puerto Montt, Castro and Coyhaique. These are smaller facilities that are similar to the Zonas Francas under the concept of being "not a part of Chile" for certain customs/tax purposes. But without the shopping centres! They tend to be rather small compounds, often not more than several large warehouses. Very few expats will ever have reason to visit a DF, except perhaps to pick up an imported item sent by air into the country.
Zonas Francas de Extensión (ZFE)
A complicated series of Chilean laws have created regions and portions of regions whose residents receive certain priviledges under the overall ZF program. These territories are correctly known as Zonas Francas de Extensión or ZFEs. There are currently two ZFEs:
- One extends from Antarctica, northward to include the X Region province of Palena.
- The second includes the two northernmost regions of the country (Arica y Parinacota, and Tarapacá).
There are Aduana controls between these “extreme regions” and the “mainland” of the country, similar to what might be encountered when entering Chile from a foreign country.
Benefits of casual shopping in a Zona Franca compound
Tourists, residents, and non-residents can go shopping for many categories of items in the ZFs and avoid paying IVA. However, anyone planning to take merchandise out of the ZFE (region) to enter the “mainland” of Chile is subject to a limit of about US$1200 presently. That amount is periodically adjusted. Taking merchandise with a value above the limit is subject to payment of IVA when entering the “mainland”. Motor vehicles are also sold in the ZFs, but only permanent residents of the ZFE regions can take advantage of the exemption from IVA. It is possible for someone from the “mainland” to import a new vehicle through a zona franca but they have to pay the full fees and more: 19 percent IVA, 6 percent CIF, internation, customs agent, as well as transportation costs. So this rarely makes any sense.
In most of Chile, outside the ZFE regions, current law forbids the permanent importation of used motor vehicles (with some exceptions, such as ambulances). Chilean citizens who have lived outside of Chile for a determined period of time may be permitted to bring their used vehicles when they return to Chile as permanent residents, and this has nothing to do with the ZF system. Likewise, permanent residents who have lived in the ZFE regions for at least five years can normally take their IVA-free vehicles when making a permanent move to the “mainland” - subject to some conditions and restrictions. The original IVA and related fees are still owed by the resident moving to the “mainland” but for each continuous year of residency in a ZFE region, a reduction of 10 percent of those fees and taxes are allowed. Factors such as residents’ age may also be taken into account. A vehicle that is removed from the ZFE and taken to the “mainland” is further restricted for two more years: it can’t be sold, rented, or similarly transferred to anyone but the registered owner.
Permanent residents (emphasis: permanent residents ONLY) of ZFE regions are permitted by statute to import certain used motor vehicles, including motorcycles. Such importation is subject to restrictions on use within and for short periods outside of the ZFE regions. Note that the “importation” can be done with a vehicle that has been ridden or driven into Chile – for example if someone has ridden a motorcycle down from Canada, it can be subjected to an importation at a ZF, for purchase by a ZFE region permanent resident. Importation of used vehicles is exempt from IVA but there are many other fees and a great deal of other paperwork, which is rarely done right the first time. Such importation can involve several weeks of internment of a vehicle, along with the associated costs. The process requires the use of an agent registered in the ZF, and that agent’s fees can be considerable. Despite the costs, there is a thriving business in the ZFE regions for persons who wish to import high-end vehicles from North America and other locations. For expats who are not permanent residents of a ZFE region, and who will not remain permanent residents for at least five years, this is a subject that is usually best left alone.
It should be noted that any dealings with motor vehicles and particularly transactions involving the Zonas Francas, can be subject to periodic adjustments in the laws, and several layers of local administrative and bureaucratic red-tape.
This article was initially written by forum member Patagoniax.