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How Chile Taxes Cryptocurrencies

Author: Tom Azzopardi, Journalis

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Although there is no specific legislation regulating cryptocurrencies in  Chile, the country’s financial and tax authorities have begun to discuss the  ramifications of this new asset class in a series of policy documents and  rulings. 

Chile’s financial regulator, the Financial Markets Commission, has ruled  that cryptocurrencies are not financial securities and consequently are not  subject to the rules regulating this type of asset. They also do not qualify as  legal tender or foreign currency, according to the Central Bank. Both  entities, as well as the Ministry of Finance’s Financial Stability Council,  have warned about the risks of buying and holding cryptocurrencies, given  their volatility and the indirect threat they could pose to financial  institutions if these lend to individuals or businesses which acquire cryptocurrencies or if cryptocurrency-based derivatives become  widespread. The Central Bank has recommended legislation to bring such  assets under regulation by the Financial Markets Commission like other  financial securities. 

Chile’s tax authority Servicio de Impuestos Internos (SII) has issued two  guidance documents covering the issue of cryptocurrencies in response to  inquiries from anonymous taxpayers. 

In the first (No 963/2018), issued in May 2018, SII said that cryptocurrency  represented a new form of digital or virtual asset. As such, taxpayers are  required to pay income tax on capital gains made through buying and  selling cryptocurrencies. The cost of buying the cryptocurrency can be  discounted as a cost from the income made from selling a cryptocurrency.

As an incorporeal (intangible) good, cryptocurrencies are not subject to  Chile’s Value-Added Tax. However, taxpayers buying and selling  cryptocurrencies are required to issue invoices and receipts. 

In a second ruling (No 1,474) on the matter issued in August 2020, SII  tackled the issue of individual taxpayers buying and selling  cryptocurrencies, noting that these accounted for the majority of taxpayers  active in this market. The document goes into greater detail about how  taxpayers should price transactions involving cryptocurrencies, given their  complex nature, whether commissions charged by cryptocurrency  exchanges or brokers can be discounted as costs, and whether losses  suffered from trading cryptocurrencies can be discounted from other  income. 

  1. How are cryptocurrencies taxed in Chile? 

In line with the findings of the Central Bank and the Financial Market  Commission, SII understands that bitcoin and other cryptocurrencies do  not qualify as legal tender or foreign currency under Chilean law. The SII  instead describes them as a digital or virtual asset. 

According to ruling No. 963/2018, income earned from the sale of  cryptocurrencies is classified by Article 20/5 of the Income Tax Law which  refers to all income, regardless of its origin, nature or denomination, whose  taxation is not covered by any other category and is not declared tax exempt. 

It is therefore subject to the taxes covered by this law, including First  Category Tax (which applies to businesses) and the Global Complementary  Tax (which applies to individuals) and Additional Tax (a withholding tax  paid on remittances). 

The SII is paying closer attention to transactions in cryptocurrencies. In  2018, SII issued a new form where exchanges and brokers are required to 

report on an annual basis, transactions realized by their clients, including  in cryptocurrencies. 

  1. Are cryptocurrencies subject to VAT? 

According to Ruling 963/2018, SII does not consider that the sale of  cryptocurrencies subject to Chile’s 19% Value Added Tax as they do not  fulfill the requirement of corporeality under Article 2 of the Law on the Tax  on Sales and Services. 

However, the SII states in the same ruling that taxpayers that do pay  Value-Added Tax should issue invoices and receipts when they buy and  sell cryptocurrencies. 

  1. When do you have to pay tax on cryptocurrencies? 

Income earned from selling cryptocurrencies will be considered for the  determination of the taxpayer’s taxable liquid income in the tax year when  the transaction was realized.  

One is also liable for income tax if one uses cryptocurrencies to acquire  goods and services, including other cryptocurrencies, or if one is paid in  cryptocurrencies. 

  1. What is the tax rate on capital gains earned from cryptocurrencies? 

Unlike other jurisdictions, Chile’s tax code applies the same rate of income  tax on income earned through capital gains and most of other forms of  income. The income tax rate applicable to capital gains earned from the  sale of cryptocurrencies therefore depends on the nature of the entity  realizing the sale. 

Following the 2020 Tax Modernization Law enacted in February 2020,  companies adhering to the general corporate regime pay a tax on profits at  the rate of 27%. However, many small and medium-sized enterprises (with  annual sales of up to Chilean Peso 200 billion or US$2.6 million) can accede  to the special SME regime with a tax rate of just 25%. Some companies may 

also choose to pay tax under a special transparent regime by which no tax  is paid at a corporate level but only at the level of the shareholders. 

Personal income tax is collected at a marginal rate of between 0.4% (for  those earning with an annual taxable income of more than Chilean Peso 8  million) and 35% (for those earning more than Chilean Peso 71 million). 

  1. Can I deduct costs from income earned from cryptocurrencies? 

The Chilean tax code allows taxpayers to discount the cost of purchasing  an asset from the income earned through its sale. This also applies to  cryptocurrencies. 

Article 30 of the Income Tax Law requires taxpayers to use the oldest direct  cost to determine the amount to be deducted from the income earned from  the sale of an asset. 

However, in consideration of the complex nature of some transactions  involving cryptocurrencies, in Ruling 1474/2020, the SII states that the  taxpayers can alternatively opt to use the “weighted average cost”, adding  the SII can require the taxpayer either one method or the other. 

Taxpayers can also deduct commissions paid to brokers and exchanges  when buying and selling cryptocurrencies. However, the commissions  constitute general expenses, rather than forming part of the tax cost for the  sale of assets. 

  1. Are there any requirements for claiming the cryptocurrency cost  deduction? 

In order to claim a cost deduction for cryptocurrency purchases, the  taxpayer must present either an invoice or receipt (which the seller is  obliged to provide – see below). Alternatively the taxpayer may present an  electronic transfer receipt. 

In order to calculate the taxable profit of each sales transaction, one must  subtract from the sales price the initial purchase price multiplied by the 

corresponding variation in the Consumer Price Index. The result must be  adjusted in line with the variation in the CPI between the last day of the  month prior to that in which the sale was realized and November 31st of the  respective tax year. 

In line with Article 41 of the Income Tax Law, the taxpayer must also  report which cryptocurrencies acquired during the year are being sold. 

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