IRS announces new VAT withholding obligations for intermediaries
Chile’s Internal Revenue Service (IRS) issued a resolution on 13 May 2022 that contains new rules that will require a financial intermediary to undertake VAT compliance obligations with respect to the provision of digital services by a nonresident. The rules apply to payments charged as from 1 August.
Chile extended its VAT regime to apply to the provision of digital services by nonresidents on 1 June 2020. As from that date, nonresident providers are required to register for VAT purposes in Chile under a simplified regime and apply and withhold 19% VAT on specific transactions (i.e., digital intermediation services; the supply of digital entertainment (videos, gaming, etc.); the provision of software, storage, computing platforms or IT infrastructure; and advertising). The VAT must be withheld and paid to the IRS as follows:
- Where the recipient of the services is a VAT taxpayer, the reverse charge applies so the recipient withholds the VAT due; and
- Where the recipient of the services is not a VAT taxpayer, the supplier withholds VAT.
In the latter case, if the foreign supplier has not registered for VAT purposes in Chile, the Sales and Services Tax Law authorizes the IRS to appoint local financial intermediaries as the party responsible for withholding VAT on supplies to Chilean customers and paying it to the IRS. This is the focus of the new resolution. Intermediaries such as banks, financial services companies, credit unions and non-bank issuers will be subject to the VAT withholding and compliance obligations where the payment is made via credit or debit cards, payment cards or similar methods. The financial intermediary will have to charge the VAT and pay it on a monthly basis using Form 29.
To encourage digital service providers that are not domiciled or resident in Chile to register under the simplified VAT regime so they can apply and collect VAT, the IRS posts an annual public list of noncompliant providers. Suppliers will remain on the IRS list unless one of the following takes place:
- The provider registers under the simplified tax regime and pays the VAT due;
- The provider pays the entire amount of VAT due, including any adjustments, interest and penalties; or
- The foreign provider demonstrates that all supplies it made were to VAT taxpayers.
The list of foreign digital services suppliers will be included in a resolution issued by the IRS and published annually on its website on 15 December. However, for this year, the list was published on 1 June and will apply until 31 December 2022.