Imports into Chile are subject to custom duties at a general flat rate of 6%, however, the Free Trade Agreements (FTA) that Chile has signed during the last 20 years lower this taxation. In most cases, and after a few years of implementation, the FTA´s often lower duty tax to zero.
To determine the exact amount of duty tax a product may be charged, the company must take into account the origin of the product and the FTA that may apply. In addition, considering that different products will be taxed differently, a careful look into each product must be done pursuant to the FTA´s that they may be subject to.
Below you will find all the FTA´s that Chile has signed:
- (1) Mercosur: Argentina, Paraguay, Venezuela, Brazil and Uruguay. Chile participates as an associated country.
- (2) European Union: Germany, Austria, Belgium, Bulgary, Cyprus, Croatia, Denmark, Slovakia, Slovenia, Spain, Estonia, Finland, France, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, United Kingdom, Czech Republic, Rumania, Sweden.
- (3) EFTA: Iceland, Liechtenstein, Norway y Switzerland.
- (4) P4: Chile, New Zeland, Singapore y Brunei Darussalam.
- (5) Transpacific Partnership: Australia, Brunei Darussalam, Canada, Chile, United States, Malasia, Mexico, New Zeland, Peru, Singapore, Vietnam and Japan.
- (6) Pacific Alliance: Chile, Colombia, Mexico y Peru.
To qualify for duty-free treatment under an FTA, an exporter has to certify that a certain percentage of the product to be exported was made in the exporting country. Rules of origin vary by FTA and by product.
With manufacturing supply chains getting increasingly spread out across countries, it gets harder and harder to figure out how much of a product was made in the exporting country and how much was made elsewhere.
There are two methods for determining domestic content – the build-up method and the build-down method, and they're both extremely complicated. It's easier to comply with rules of origin if your product is made entirely in your country using entirely domestic inputs. But those products are less common than they used to be, because supply chains have become increasingly international. Small companies might find it easier to comply with FTA rules of origin than big ones, because in some cases their inputs may be sourced entirely domestically.
Customs law is a complicated regulatory area in which companies are exposed to significant risk. Importers can often benefit from one or more legal opportunities to reduce their overall duty liability. Each of these opportunities, however, brings with it technical legal obligations involving reporting, record keeping, and due diligence in verifying asserted claims. Importers are, therefore, advised to work with internal and external compliance professionals.
Free Trade Zones
Using Chilean Free Trade Zones can be useful for foreign companies looking to export products into the Region. One of our suggestions is for companies to use the various free trade zones to hold stock for the Latin American Region. This allows the company to send product to a client at a much faster rate rather then sending from the home country.
There are several tax free areas with benefits and exemptions, on both custom duties and other internal taxes. Some of the regions that benefit from these incentives are Iquique, the provinces of Arica and Parinacota, the town of Tocopilla, the province of Palena and the Magallanes and the Antartica Region.
The main benefits of these free tax zones are as follow:
- Customs: Exemption of taxes and other duties that levy imports operations (custom duties, VAT). There is also a simplified custom procedure.
- Tax: The users under the tax free zone regime are exempt of VAT as long as the imported merchandise remains in the free trade zones (19% on VAT). The entities that set up in the area are also exempt of the 24% First Category Tax (corporate tax), however, there is no benefit for the final taxation, so the repatriation of profit must pay the 35% Additional Tax (withholding tax).
- Currency Exchange: There is complete freedom to exchange foreign currency. No foreign exchange controls are applicable. In other words, the entry of merchandise into the tax- free zones is not subject to the money exchange regulations applicable to imports.
- Duty elimination on waste, scrap, and yield loss. Since a manufacturer operating in an FTZ doesn't pay duties on imports until its goods leave the FTZ and enter the country, it essentially is paying for the duties on the raw materials after they have been processed. Thus, duties owed do not include manufacturing by products, such as waste, reducing the amount of goods taxed.
Private export warehouses allow exporters to use foreign raw materials and parts in their manufacturing processes without paying custom duties, provided the finished products are exported within certain time periods.
As exports are zero-rated for VAT, exporters obtain reimbursement of all input VAT borne on purchases of goods and services relating to their export activities. This reimbursement is also available for companies that transport freight and passengers to and from Chile, supply food and beverages to planes and ships in transit, or render services deemed to be exports by the customs service to non-resident entities.
As of January 1, 2003, the drawback has been reduced to 3% of the value of "non traditional exports" if the aggregate FOB value of exports for any calendar year does not exceed USD$18,000,000. The goods that are excluded from this benefit are detailed in a list published no later than March 30 of each year.
Exporters can obtain reimbursement of customs duties paid on imports of raw materials, semi-manufactured products, and parts when these are used in exported products or services. The customs law allows for the reimbursement of duties on products, which are re-exported after only minor processes, such as assembling, packaging, finishing, or ironing are completed.
Harris Gomez Group is a Common Law firm, with offices in Santiago, Bogotá, and Sydney. Over the last 15 years we have been supporting foreign companies with their growth in Latin America. Many of our clients are technology companies, service providers and engineering companies that focus on the mining, energy and infrastructure markets.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.