This tax newsletter is prepared by the Tax team and goes over the Chilean IRS interpretation of the concept of “furnished real estate”, the tax effects of the Act that prohibits the cutting-off basic supplies and the tax treatment for domiciled or resident in Chile with participation in foreign companies considered transparent for tax purposes.

The new concept of “furnished real estate”

Ruling No. 1,109/2021 Chilean IRS | READ

In order to provide certainty, the Tax Modernization (Act No. 21,210) modified the special taxable event subject to VAT consisting of the lease of a property furnished or with facilities. The modification consisted in establishing that such furniture or installations must be “sufficient” for the leased property to be used for the purpose of housing, office or for the development of the trade and/or industry for which it was leased. On the contrary, if the furniture or facilities were in fact insufficient, the VAT would be not applicable. Initially, the Chilean IRS interpreted the provision by giving examples of when a property has sufficient furniture or facilities to be used as a dwelling, office, for commercial or industrial purposes (Circular No. 37/2020).

However, the rulings issued by the Chilean IRS since the aforementioned circular to date generate doubts about the “sufficiency” criterion.  It was stated that in the lease of a store in a shopping center, a counter and shelves were “sufficient” (Ruling No. 2,289/2020). Later, the Chilean IRS indicated that the lease of a property with a refrigerator to be used as a minimarket was not subject to VAT because it was not furnished “sufficiently” (Ruling No. 2,497/2020). Recently, it considered that a property rented to be used as a store (same concept of the first ruling mentioned above) or bazaar, which only has panel modules that separate one store from another, a movable fence to close them and connection to electric power, does have “sufficient facilities” for the exercise of the activity of a store or bazaar (Ruling No. 1,109/2021).

It seems that the legal amendment in question did not achieve the purpose of providing certainty. On the contrary, it is generating uncertainty, since it left without validity the administrative jurisprudence that existed on the matter prior to Act No. 21,210, and there is still no clarity as to when the leasing of a property with furniture or facilities must be taxed with VAT.

Effects of Act No. 21,249 prohibiting the cut-off of the supply of basic services

Ruling No. 1,112/2021 Chilean IRS | READ

The prohibition to cut-off the supply of basic services is generating some tax problems which cannot be solved by the Chilean IRS as it has not entitled to do so.

A sanitary company dedicated to the management of the urban water cycle consulted the Chilean IRS on the possibility of: (i) not issuing monthly bills/invoices to clients in a notorious and persistent situation of failure to pay, replacing them with some alternative document that evidences the debt and relieves it of the financial burden of must pay the VAT surcharged on the unpaid bills/invoices; or (ii) recovering the VAT surcharged on such bills/invoices through the general procedure for requesting a VAT refund.

The Chilean IRS indicated that neither of these two possibilities was admissible, since the VAT Law does not allow interrupting the issuance of periodic invoices that will remain unpaid. Consequently, the company in question must continue to provide services to the failure customers, periodically issuing the bills or invoices and, in addition, financially bearing the VAT that is not paid.

Income of transparent entities

Ruling No. 1,279/2021 Chilean IRS | READ

The Chilean IRS was asked about the tax treatment for Chilean partners with an interest in a foreign company considered as “transparent” for tax purposes in their country of residence provided such entities are not be qualified in Chile as an “Investment Platform” or “CFC”. In this respect, the Chilean IRS pointed out that the income obtained by the “transparent” foreign company should only be taxed in Chile in the year in which it was received by its Chilean partners. In other words, they should not be taxed in Chile on an accrual basis.  Regarding the tax paid abroad the Chilean IRS says could be used as a credit against the taxes determined in Chile even if they had been paid in previous years.


Mario Gorziglia

Leonidas Prieto

Luz María Calvo
Senior Associate