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Destination Chile: Sending Assignees to South American Frontiers

CompassGUIDES - July 2006

By Diana Matwichuk, Assignment Planning Specialist

South American countries are increasingly becoming common international assignment destinations. Chile, for example, offers many business opportunities in the export trade, particularly in mining, forestry, agriculture and fishing. Numerous related trade shows were scheduled in Santiago during 2006.

Foreign investors are being wooed to Chile with government-provided incentives and liberal foreign investment rules, and Chile is motivated to diversify its industries in order to reduce its reliance on the copper mining sector.

Business Presence in Chile

Multi-national corporations wishing to establish a branch in Chile do not require formal government approval to do so, however notification must be made in the form of notarized documents translated into Spanish, and the Chilean branch is required to publish its annual financial statements in a local newspaper within 4 months of the fiscal year-end.

Considerable planning should be afforded, however, to strategic use of corporate structure, in order to minimize assignment tax and corporate tax. Corporate business planning of this sort is dependent on existing international corporate structure, and as such, is highly individualized. At CompassGUIDES, we assist multi-nationals in international business planning to determine an optimal corporate structure and business presence in foreign countries.

Cultural Preparation

Of the assignment planning aspects which are distinctly-Chilean, cultural preparation is quite possibly the most personally valuable for assignees. Conducting business in Chile is very different than in North America, and assignees should be made aware of the differences so that they can act accordingly and start off on the right foot with their Chilean counterparts.

Don Rutherford, of Culture Connect in Calgary, advises multi-national employers of the fact that maintaining cordial relations with the group may be considered as important as professional competence and experience. Don works with assignees to prepare them for Chilean conversations which take place in closer proximity than in Canada, the definite hierarchical orders that exist, and the formality which presents itself in business situations.

Nature of Chilean Taxation of Assignees

Chile is not a low-tax jurisdiction, with a progressive tax rate scale that tops out at 40%. Residents of Chile are subject to personal income tax on their worldwide income, and non-residents on their Chilean-sourced income only. In keeping with the theme of encouraging investment in Chile, it is interesting to note that foreigners who assume residency in Chile are exempt from tax on their foreign-sourced income for the first 3 years of residence.

Administration of Assignee Taxes

Employers are required to withhold Chilean tax, and remit this to the government on or before the 12 th day of each month, for the preceding month’s payroll. Assignees must file Chilean personal income tax returns in April, with accompanying payment of any taxes owed. Refunds for any excess taxes paid are issued in May.

A number of methods of equalizing the payment of assignee tax, both in Canada and abroad, are available to multi-national employers. At CompassGUIDES, we provide guidance on these options for the purposes of assignment tax policy-setting.

Interaction with Home Country Tax

Canadian assignees who maintain their Canadian tax residency status and travel to Chile on a rotational basis are taxable in Canada on their worldwide income, as well as in Chile on income earned there, but foreign tax credits are available, and they may be eligible for the Overseas Employment Tax Credit. At CompassTAX, we prepare the Canadian personal income tax returns of rotational assignees to Chile as part of corporations’ Assignment Tax Programs. Notarized tax certificates or income tax returns reporting Chilean income tax paid must be included in the assignees’ Canadian personal income tax returns.

Assignees to Chile who plan to live there, or in a neighbouring country for easier commute, may require assistance in handling Canadian tax residency issues, and this type of guidance should be included in the corporation’s Assignment Tax Program.

Assignment Tax Program

Multi-national employers considering the establishment of business in Chile, or any foreign country for that matter, are advised to develop and document an Assignment Tax Program to delineate and clarify tax responsibilities. Doing so ensures that there are no surprises for either the employer or the assignee, optimizes the use of available tax credits in Canadian returns, and provides the assignee with a seamless and organized approach to international assignment taxation.

Summary

At CompassGUIDES ™ , we develop cost-effective assignment tax programs for Canadian companies sending employees around the world and bringing international consultant expertise to their Canadian projects. These Assignment Tax Programs provide detailed advanced tax planning, including policies, procedures and employment contracts, which serve to minimize costs and mitigate any risk of litigation.

In concert with this strategic assignment tax planning, we assist multi-national employers with their preparation and provision of assignment documentation, including the possibility of offering these guides online to employees anywhere in the world with internet access. Visit our International Assignment Planning Help Desk for more information about international assignment planning.

The author wishes to thank Renate Clements , CA of CompassTAX, and Don Rutherford of Culture Connect, for their contributions to this article. Don can be reached at 403-444-0882 or don@culture-connect.com, and Renate can be reached at 403-531-2200 .

 


Tel: (403) 531-2200 
Fax: (403) 263-1826


Web: www.compasstax.ca
Suite 600, 1333 8th Street SW
Calgary, Alberta Canada  T2R 1M6


Tel: (403) 531-2200 
Fax: (403) 263-1826


Web: www.compassguides.ca
Suite 600, 1333 8th Street SW
Calgary, Alberta Canada  T2R 1M6