Requirement for Foreign Employees to Work
The law states that regarding companies with 25 or more employees hired, at least 85% of them must be Chilean citizens. To determine this ratio, the law excludes technicians. For these purposes the law deems the following persons as Chileans: (i) foreigners whose spouse or civil partner or whose children are Chilean, including widows or widowers of a Chilean spouse; and (ii) foreigners who have resided in the country for more than five years, not considering accidental absences.
- National Employees
Remunerations of employees are subject to a monthly Second Category Income tax, under a progressive tax scale to be deducted at source by the employer. This tax is payable by the company to the Treasury within the first 12 days of the month following that of the deduction. Currently, the tax brackets range from exemption to a 40% tax rate.
- Foreign Employees
Foreign employees rendering services in Chile and also domiciled or residing in Chile are likewise subject to the Second Category tax as explained above.
As a general rule, foreigners neither domiciled nor residing in Chile and working in Chile are subject to a flat 35% Additional Income tax to be deducted by the company that employs them in Chile upon payment of the salary or fee, and the tax is payable to the Treasury within the first 12 days of the month following that in which the tax was deducted. However, the rate for said additional tax shall be 20% in case the foreign employee with no residence or domicile in Chile receives remunerations from a Chilean source, originating in the provision of scientific, cultural or sports services. Likewise, the tax rate shall be 15% if such employee is remunerated by a Chilean source, originating from the provision of services deemed to be professional or technical.
The tax law does not contain a definition of domicile, and in the absence of such definition the general provisions of the Civil Code apply. Under these provisions, domicile is acquired whenever sufficient evidence exists that the foreigner is coming to live in Chile for a reasonable period of time, i.e. if he is hired under a labour contract for one year or more, assumes an executive position in the company, brings his family, etc.
In the case of residence, the Tax Code does provide a definition, indicating that residence is acquired when the foreigner stays in Chile for more than 183 days, continuously or not, in any period of 12 months. In the case of foreigners, during their first three years of residence in Chile they must pay taxes as indicated above only on their Chilean source income and this three-year term may be extended by the tax authorities. After the three-year term or its extension is over, the foreigner must pay taxes on worldwide income.