u.s. expat tax guide – chile
What tax obligations do US citizens in Chile have?
US citizens and Green Card holders living in Chile must report their worldwide income to the IRS, regardless of where they earn it. This includes wages, self-employment earnings, rental income, interest, dividends, and any other forms of income.
If you work for an employer, your wages must be reported on Form 1040, and all amounts should be converted into US dollars using the IRS-approved exchange rate for the tax year.
Self-employed individuals must report their income and expenses using Schedule C and may also need to file Form 8858 if they have a foreign business entity.
What types of income need to be reported?
- Employment income: Wages from Chilean or US employers.
- Self-employment earnings: Freelancing, consulting, or running a business.
- Investment income: Interest, dividends, and capital gains from US and foreign investments.
- Rental income: Earnings from properties in Chile or other countries.
How does Chile’s tax system impact US expats?
Chile operates under a territorial tax system, meaning taxes apply only to income earned within the country. Foreign income is usually not taxed.
- Global Complementary Tax: A progressive tax on Chilean-source income, with rates from 0% to 40%.
- Nonresident taxation: Fixed rates of 15% or 35%, depending on the income type.
- Corporate tax: Standard rate of 27%, though some businesses may qualify for lower rates.
- Property tax: Applies to real estate owners in Chile.
The Servicio de Impuestos Internos (SII) manages tax collection in Chile. Certain foreign pensions may be exempt under Resolution N° 124 of 2017.
Will I owe taxes in both Chile and the US?
You may need to file in both countries, but you can claim the Foreign Tax Credit (FTC) or use the Foreign Earned Income Exclusion (FEIE) to reduce double taxation.
What if my business has a net loss?
If your expenses exceed your income, you won’t owe US self-employment taxes. However, if your net earnings exceed US$400, you still need to file a tax return. Losses can often be carried forward to offset future taxable income.
Do self-employed Americans in Chile pay US self-employment tax?
Self-employed US citizens typically owe self-employment tax, which covers Social Security and Medicare contributions.
However, under the US-Chile Totalization Agreement, you are exempt from US self-employment tax if you contribute to Chile’s social security system.
Which US tax forms do expats in Chile need to file?
US citizens in Chile may need to file several forms, depending on their financial situation:
- Form 1040: The standard US tax return.
- Schedule C: For reporting self-employment income and business expenses.
- Form 2555: To claim the Foreign Earned Income Exclusion (FEIE) (up to US$126,500 in 2024).
- Form 1116: To claim the Foreign Tax Credit (FTC) for Chilean taxes paid.
- Form 8858: If you own a foreign business entity.
- FBAR (FinCEN Form 114): Required if your total foreign bank account balances exceed US$10,000 at any time during the year.
- Form 8938: Needed if foreign financial assets exceed US$200,000 for single filers abroad.
What are the consequences of failing to file these forms?
Not filing required forms, such as the FBAR, can result in significant penalties, including fines of US$10,000 or more per violation or up to 50% of the account balance.
When are tax deadlines for US citizens in Chile?
US citizens living in Chile must adhere to US tax deadlines while considering potential extensions. The standard filing deadline is April 15, but expats receive an automatic extension until June 15.
If more time is needed, filing Form 4868 grants an extension until October 15, and in special cases, a discretionary extension until December 15 may be available.
Even if you file later, interest starts accruing on unpaid taxes after April 15; the interest is compounded daily from the due date of the return until t he tax is paid in full.
However, if the date lies on a holiday, then the deadline will be moved to the nearest working holiday forward.
If you’re behind on filings, the Streamlined Filing Compliance Procedures allow you to catch up without facing major penalties if your non-compliance was not willful.
Key considerations include:
- Foreign Tax Credit (Form 1116): To offset US taxes with Chilean taxes paid.
- Tax Treaties (Form 8833): Required if claiming treaty benefits.
- Foreign Bank Account Reporting (FBAR): Required for foreign accounts exceeding US$10,000.
- Streamlined Filing Procedure: Helps expats catch up on late filings without major penalties.
The requirement to file a tax return depends on income level and filing status:
- Single filers: Must file if worldwide income exceeds US$14,600 (2024).
- Married filing jointly: Must file if income exceeds US$29,200.
- Married filing separately: Required to file if income is over US$5.
Self-employed individuals: Must file if net earnings exceed US$400.
Is there a US-Chile tax treaty?
Yes. The US-Chile Tax Treaty aims to prevent double taxation but has not yet been fully ratified. However, the following agreements exist:
- Totalization Agreement: Prevents dual social security taxation.
- FATCA Agreement: Requires Chilean banks to report US account holders to the IRS.
How does the Foreign Earned Income Exclusion (FEIE) work?
The FEIE allows eligible expats to exclude up to US$126,500 of foreign-earned income from US taxes in 2024. To qualify, you must meet one of the following criteria:
- Bona Fide Residence Test: Be a Chilean resident for an entire tax year.
- Physical Presence Test: Spend at least 330 days in Chile within a 12-month period.
This exclusion does not apply to passive income, such as rental earnings or investment dividends.
How does the Foreign Tax Credit (FTC) reduce double taxation?
The FTC provides a dollar-for-dollar reduction in US taxes for income taxes paid to Chile. For instance, if you paid US$6,000 in Chilean taxes, you can reduce your US tax bill by the same amount.
Can I use both the FEIE and FTC?
Yes, but not on the same income. You can use the FEIE for wages and the FTC for other types of foreign income, like dividends or rental income.
What if I’m married to a Chilean citizen?
If your spouse is a non-US citizen, their income is not included on your US return unless they choose to be treated as a US tax resident.
Do I need to report shared foreign accounts?
Yes, joint foreign accounts may require FBAR and Form 8938 filings, depending on the balance.
What are the risks of not filing US taxes?
Failing to file or pay taxes can lead to:
- Failure-to-file penalty: Up to 5% per month, max 25% of unpaid taxes.
- Failure-to-pay penalty: 0.5% per month until taxes are settled.
- FBAR penalties: Fines starting at US$10,000 for non-disclosure of foreign accounts.
How can US citizens in Chile reduce their tax burden?
To minimize double taxation:
- Claim the FEIE to exclude earned income.
- Use the FTC to offset US taxes with Chilean tax payments.
- Leverage the Totalization Agreement to avoid paying social security taxes in both countries.
