u.s. expat tax guide – chile

Do US citizens living in Chile need to file US taxes?

Yes, US citizens residing in Chile must file a US tax return.

The United States taxes its citizens on their worldwide income, even if they live abroad. Whether your income comes from employment, investments, or a business in Chile, you’re required to report it to the IRS.

Chile’s tax authority, the Servicio de Impuestos Internos (SII), requires you to pay taxes on Chilean-sourced income. While you’re paying taxes locally in Chile, you must also fulfill your US tax obligations.

Fortunately, tools like the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC) help reduce or eliminate double taxation.

Do I still need to file a return if I owe no US taxes?

Yes, filing is mandatory if your income meets the filing thresholds, even if you’re eligible for credits or exclusions that reduce your tax liability to zero.

What are the 2024 income thresholds for filing US taxes from abroad?

For 2024, the income thresholds are:

Single (under 65): US$14,600.
Married filing jointly: US$29,200 (combined income).
Married filing separately: More than US$5.

Why is the threshold for married individuals filing separately so low?

The IRS uses this rule to prevent spouses from improperly splitting income to reduce their overall tax liability. Even minor income requires a return in this category.

How do self-employed Americans in Chile handle their taxes?

If you’re self-employed and earn more than US$400 in net income, you’re required to file a US tax return. This includes income from freelancing, consulting, or running a business. You’ll need to:

Report your income and expenses on Schedule C to determine your net earnings.
File Form 8858 if your self-employment involves a foreign business entity.

Good news for self-employed individuals: Under the totalization agreement between the US and Chile, you’re exempt from paying US self-employment tax if you contribute to Chile’s social security system.

Do I still need to report my self-employment income if I owe no US taxes?

Yes, all self-employment income must be reported, even if you’re exempt from self-employment tax.

Do US citizens have to pay taxes on income earned in Chile?

Not necessarily. The US has several tools in place to prevent double taxation:

Foreign Earned Income Exclusion (FEIE): This allows you to exclude up to $126,500 (2024 limit) of foreign-earned income if you meet one of these requirements:
- You’re a bona fide resident of Chile for the entire tax year.
- You’re physically present in Chile for at least 330 days in any 12-month period.
Foreign Tax Credit (FTC): If you pay income taxes to Chile, you can use the FTC to offset your US taxes on the same income, reducing your US tax liability dollar-for-dollar.

Can I use both the FEIE and FTC at the same time?

Yes, but not on the same income.

For example, you can exclude your wages with the FEIE and use the FTC for taxes paid on investment income.

Which tax forms do US expats in Chile need to file?

In general, US citizens living in Chile often need to file additional forms beyond the standard Form 1040. These include:

Form 1116 (Foreign Tax Credit): Claim a credit for income taxes paid to Chile.
Form 2555 (FEIE): Exclude up to US$126,500 of foreign-earned income if eligible.
FBAR (FinCEN Form 114): Report foreign bank accounts if their combined value exceeds US$10,000 at any point in the year.
Form 8938 (FATCA): Report foreign financial assets if they exceed US$200,000 for those living abroad.
Form 8854: Required if you’re renouncing US citizenship to confirm you’ve met all tax responsibilities.

What happens if I fail to file these forms?

Penalties for non-compliance can be severe. For example, failing to file the FBAR can result in fines of up to US$10,000 or 50% of the account balance.

What does the US-Chile totalization agreement cover?

The totalization agreement between the US and Chile helps US expats avoid double taxation on social security contributions.

If you pay into Chile’s social security system, you’re exempt from paying US Social Security and Medicare taxes.
This exemption applies to employees and self-employed individuals alike.

Does this agreement affect US Social Security benefits?

No, contributing to Chile’s system does not impact your eligibility for US Social Security benefits if you’ve earned enough US credits.

What are the consequences of not filing US taxes from Chile?

Failing to file US taxes can lead to serious penalties, such as:

Late filing penalties: Up to 5% of unpaid taxes for each month your return is late, up to a maximum of 25%.
Late payment penalties: 0.5% of unpaid taxes for each month the balance remains unpaid.
FBAR penalties: Failing to report foreign accounts can result in fines of US$10,000 or more.

If you’re behind on your filings, the Streamlined Filing Compliance Procedures can allow you to catch up without heavy penalties, provided your non-compliance was unintentional.

How does the Chilean tax system affect US citizens?

US citizens living in Chile must follow local tax rules, including income tax, social security payments, and value-added tax (VAT).

What are Chile’s income tax rates?

Chile uses a progressive tax system, meaning higher income is taxed at higher rates, from 0% to 40%. Nonresidents pay taxes only on income earned in Chile. Foreigners living in Chile for less than three years are also taxed only on local income.

Do US expats contribute to Chile’s social security system?

Yes. Employees and self-employed individuals must make social security contributions. However, the US-Chile Totalization Agreement prevents double taxation on these payments.

What other taxes apply in Chile?

Corporate tax: Businesses pay 27% on profits.
VAT: A 19% tax applies to most purchases.
Inheritance tax: This tax applies to assets passed on after death.
Nonresident taxes: Withholding tax rates include 35% on professional services and 15%-35% on dividends.

How can US expats avoid double taxation while living in Chile?

US citizens in Chile can reduce or eliminate double taxation by taking advantage of the following:

Foreign Earned Income Exclusion: Exclude eligible foreign income from US taxation.
Foreign Tax Credit: Claim a credit for Chilean income taxes paid.
Totalization agreement: Avoid paying US Social Security taxes if you’re already contributing to Chile’s system.