TAXES

All things related to Moving to Chile, tips, tricks, FAQS. Here is where to exchange information between those that have already moved and those planning to move to Chile so you do not need to learn the hard way. Please also check Living in Chile forum for related information.
Robert Harkins
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TAXES

Post by Robert Harkins » Tue May 17, 2011 11:04 pm

My wife and I are retired and contemplating a move to Chile. I am concerned about taxes. My research thus far suggests that capital gains are taxed as ordinary income, (after the first three years of residence). Presently, capital gains are taxable at 15% in the U.S. So this could be a substantial difference; I don't know. Is the Chilean capital gains tax graduated or does it apply to any and all capital gains income. Thank you.

This is my first entry unto this website.

Robert

dfjordan
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Re: TAXES

Post by dfjordan » Wed May 18, 2011 10:07 pm

the taxing of capital gains will depend on the assets on which the gains are made. For example, if you own shares in a company quoted on the Chilean stock market, then the gains are not taxable ( great eh! I don´t know of another country that offers that kind of incentive to invest locally). Also if the gains come from you trading on a regular basis, ie it´s a business , then they will be taxed at a different rate from those made on casual purchases / sales. Capital gains on a home for example, are not taxable if the home has been owned by you for more than 12 months, and so on. One thing to bear in mind with tax rules in Chile is that they aren´t so clear cut or clearly explained as they are in other countries, so you need to be careful. You are correct in that if your capital gains are casual, they will be taxed as normal income.
Please also remember that the 3 year tax holiday is only on income generated from outside Chile. Chile also taxes you on unrealised gains on exchange- a potentially nasty one!

thisisreallycomplicated
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Re: TAXES

Post by thisisreallycomplicated » Sat Aug 18, 2018 12:37 am

I'm trying to get a better understanding of tax reporting here, and came across this old thread on capital gains. It's old, so it might not be accurate anymore (or ever). But does anyone here know what the definition of "casual" is?
dfjordan wrote:
Wed May 18, 2011 10:07 pm
You are correct in that if your capital gains are casual, they will be taxed as normal income.
Or what he meant by this?
dfjordan wrote:
Wed May 18, 2011 10:07 pm
Chile also taxes you on unrealised gains on exchange- a potentially nasty one!
“Now it’s conspiracy – they’ve made that something that should not even be entertained for a minute, that powerful people might get together and have a plan. Doesn’t happen, you’re a kook, you’re a conspiracy buff!” – George Carlin

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Re: TAXES

Post by admin » Sat Aug 18, 2018 10:00 am

You need to run your personal situation past a tax expert. Way too many variables that are dependent on your own situation.

There is no tax, even after the three year tax holiday, on foreign pensions (ss, 401k, etc).

There is a capital gains tax on real estate, but there is a lifetime deducation (it is around 180 million pesos right now as i recall) before it kicks. So most people investing in real estate have a bit of wigle room before the capital gans tax kicks in. Even at that the tax is not that much.

One word of warning. Never put real estate in a company, unless you have a really really good reason, and have the situation checked by a tax expert first.

So the big question is capital gains on what?

Even personal income tax has a rather big exemption before tax even becomes an issue. A decent tax expert, with some foreign investment experience, should be able to generate a road map to get your tax down to little or nothing.
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thisisreallycomplicated
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Re: TAXES

Post by thisisreallycomplicated » Sat Aug 18, 2018 11:05 pm

admin wrote:
Sat Aug 18, 2018 10:00 am
A decent tax expert, with some foreign investment experience, should be able to generate a road map to get your tax down to little or nothing.
That's ultimately what I'm trying to do:) But right now, I'm just trying to get a basic understanding of how capital gains taxes work here. And one specific thing I'm wondering about is, what was the "potentially nasty" thing dfjordan was warning about?

This is one possibility:
1. Bob owns a house in the US, that he paid say $200,000 USD for. And the exchange rate was hypothetically 400 CLP/USD.
2. Bob moves to Chile. Gets his permanent residency, and has been here for more than 3 years.
3. Bob sells his house in the US for $500,000 USD, so there is a $300,000 USD capital gain. Bob puts the cash in his US bank account, and doesn't convert it to CLP right way. So the exchange is currently unrealized. And the exchange rate happens to be 650 CLP/USD.

Was dfjordan warning that Chile would be expecting him to pay capital gains on (500,000 * 650) - (200,000 * 400) or 245,000,000 CLP ($376,923 USD), when the US would only be expecting him to pay on $300,000 USD? This would suck if it's true, but at least Bob had control over when to sell his house.

This is another possibility:
1. Bob has a US brokerage account, with 100 shares of some stock he bought at $30/share. So his cost basis is $3,000 USD. And the exchange rate was hypothetically 400 CLP/USD.
2. Bob moves to Chile. Gets his permanent residency, and has been here for more than 3 years.
3. Bob still has the 100 shares, but now they're selling for $90/share. So he now has a $6,000 USD unrealized gain. The US would not expect him to pay capital gains tax, because he hasn't sold yet. So it's just $6,000 in unrealized gains. Was dfjordan warning that Chile would expect him to pay capital gains on the unrealized $6,000 USD (which gets worse with the exchange rate)? This would really suck if it's true, and it's not what I would expect.

I'm guessing he was warning about the first possibility. But the 2nd isn't unheard of, since there's a similar thing in New Zealand:
https://www.bellinghamwallace.co.nz/blo ... -headaches
IRD Focus - Paper gains causes tax headaches
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paladin
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Re: TAXES

Post by paladin » Sun Aug 19, 2018 9:17 pm

There have been a number of changes to tax laws since our friend Bachelet took over. If it’s of any help, I had a situation where I invested US$ in a US$ money market fund here in Chile, and then liquidated it and sent the US$ out of Chile. To me, I made no profit but the SII looked upon it differently. I had to pay tax on the difference between the US exchange rate when I sent it out, less the rate when the $ came in , and it had moved a lot so in Peso terms I had made a good profit, even though I had no profit in US$. If it had resulted in a loss, this would not be deductible from other income.
When talking about capital gains on the sale of publicly quoted shares, if the shares are on the local stock market, any gains are tax free.

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Re: TAXES

Post by thisisreallycomplicated » Sun Aug 19, 2018 11:42 pm

paladin wrote:
Sun Aug 19, 2018 9:17 pm
There have been a number of changes to tax laws since our friend Bachelet took over. If it’s of any help, I had a situation where I invested US$ in a US$ money market fund here in Chile, and then liquidated it and sent the US$ out of Chile. To me, I made no profit but the SII looked upon it differently. I had to pay tax on the difference between the US exchange rate when I sent it out, less the rate when the $ came in , and it had moved a lot so in Peso terms I had made a good profit, even though I had no profit in US$. If it had resulted in a loss, this would not be deductible from other income.
Thanks, that seems consistent with what I thought (the house example). Do you know if there would have been capital gains tax in Chile, if you just kept your money in USD (cash)? Or was it only taxed because you bought and sold something with it?
paladin wrote:
Sun Aug 19, 2018 9:17 pm
When talking about capital gains on the sale of publicly quoted shares, if the shares are on the local stock market, any gains are tax free.
Do you know where to find the tax rules for trading in non-Chilean markets, or what forms you need to fill out (similar to US schedule-D)? I've been reading over the stuff on SII.cl, but haven't found it yet.
“Now it’s conspiracy – they’ve made that something that should not even be entertained for a minute, that powerful people might get together and have a plan. Doesn’t happen, you’re a kook, you’re a conspiracy buff!” – George Carlin

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Re: TAXES

Post by paladin » Mon Aug 20, 2018 8:19 pm

I was advised that say Us$ held in a checking account are not subject to capital gains. As far as reporting requirements go, I’ve yet to understand them as they are by no means clear. I’ve read through various questions and answers on the subject on the SII website, which I found to be vague. What I’ve learned over tne years, is to let sleeping dogs lie. If you really want to, you can always go along to your SII office and ask them directly.

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Re: TAXES

Post by eeuunikkeiexpat » Mon Aug 20, 2018 8:52 pm

Remember, it was certain extranjeros dickheads (with personal interest in a "business" in Chile) that intentionally FORCED a ruling on "gold" (Aduanas and SII) when for the real low profile "libertarians" would have done just fine.

Sometimes best to let sleeping dogs lie or not wake if no need.
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thisisreallycomplicated
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Re: TAXES

Post by thisisreallycomplicated » Mon Aug 20, 2018 10:59 pm

paladin wrote:
Mon Aug 20, 2018 8:19 pm
I was advised that say Us$ held in a checking account are not subject to capital gains.
That would make sense, since any exchange rate gains are unrealized if they're just sitting in a bank account (assuming you originally got it as USD). And according to this SII summary in English (last updated July 2000), capital gains are generally only taxed when realised:
http://www.sii.cl/aprenda_sobre_impuest ... ingles.htm
VII. CAPITAL GAINS

As a general rule, capital gains are considered normal income and the gain is subject to FCT and CGT or AT as the case may be, but only when it has been realised, i.e. a sale or disposition of an asset. Some exceptions to this rule apply, most important of which are commented below:
Although there are exceptions, and I have no idea what they all are (admin mentioned some). But they said they listed the most import ones, and unrealized gains on foreign currency in a bank account wasn't one of them.
paladin wrote:
Mon Aug 20, 2018 8:19 pm
As far as reporting requirements go, I’ve yet to understand them as they are by no means clear. I’ve read through various questions and answers on the subject on the SII website, which I found to be vague. What I’ve learned over tne years, is to let sleeping dogs lie. If you really want to, you can always go along to your SII office and ask them directly.
You're probably right. I mainly want to avoid any unexpected tax bills, for something I didn't even know I was supposed to pay. And the more I understand the rules, the better I can plan ahead. So far the taxes here don't seem that bad, compared to the US empire. I just don't want any nasty surprises, when I thought everything was ok.
“Now it’s conspiracy – they’ve made that something that should not even be entertained for a minute, that powerful people might get together and have a plan. Doesn’t happen, you’re a kook, you’re a conspiracy buff!” – George Carlin

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Re: TAXES

Post by paladin » Tue Aug 21, 2018 10:46 am

thisisreallycomplicated .. I feel the same as you do and have been to two tax advisers, one of which is one of the top two, and they both said that in general you dont declare things that are not crystal clear. If by some slim chance you are asked for example, if you have any investments outside, then you just say you do, and you’ll no doubt avoid any penalties.
In case it’s of interest to you in planning, for inheritance tax purposes a foreigner’s estate is not taxed on assets that he had outside that were aquired with funds he had outside at the time of becoming a resident.

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Re: TAXES

Post by thisisreallycomplicated » Wed Aug 22, 2018 3:51 am

paladin wrote:
Tue Aug 21, 2018 10:46 am
thisisreallycomplicated .. I feel the same as you do and have been to two tax advisers, one of which is one of the top two, and they both said that in general you dont declare things that are not crystal clear. If by some slim chance you are asked for example, if you have any investments outside, then you just say you do, and you’ll no doubt avoid any penalties.
That sounds like good advice. If I read the rules correctly, the statute of limitations for an audit is 6 years for income you didn't include on a filed return. And 3 years for income you did include. So if you filed, but missed something small, the interest shouldn't be too much. I think I overpaid my first year, so if I get audited now I might get some money back:)
paladin wrote:
Tue Aug 21, 2018 10:46 am
In case it’s of interest to you in planning, for inheritance tax purposes a foreigner’s estate is not taxed on assets that he had outside that were aquired with funds he had outside at the time of becoming a resident.
That could be important, thanks.
“Now it’s conspiracy – they’ve made that something that should not even be entertained for a minute, that powerful people might get together and have a plan. Doesn’t happen, you’re a kook, you’re a conspiracy buff!” – George Carlin

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