The Internal Revenue Service, in its Circular No. 50, provides instructions on the modifications introduced with respect to the basic fact of service contained in Article 2° N°2 of the LIVS, being “the action or service that a person performs for another and for which he/she receives an interest, premium, commission or any other form of remuneration”. Its new scope implies that all services rendered or used within the national territory will be subject to VAT, regardless of whether the beneficiary of such services is not domiciled or resident in Chile, who will be registered as a VAT taxpayer and must document such services by issuing a purchase invoice, without prejudice to the foregoing, nothing prevents that these services may be favored with any exemption or agreement to avoid double taxation.
This Circular presents two exemption rules, the first of which deals with professional partnerships, who by virtue of Article 12 N°8 letter E of the LIVS, their income is exempt from VAT under the Income Tax Law regardless of the taxation regime they opt for (first category tax or final tax as applicable), when it is a partnership whose sole purpose is the personal provision of professional services or advice by its partners or dependent collaborators. In this respect, it is required that the partnership is integrated by individuals or other professional partnerships, the latter must comply with the same requirements mentioned above, that is to say, that the services rendered are provided through all the partners that compose it, whose rendering is qualified as identical, related or complementary to that of the main partnership.
Regarding the taxation item, an option exercise is made regarding the regime to which it can be ascribed, stating that within the first three months of the business year in which it intends to begin to file under this modality, the corresponding request to declare its income under the rules of the first category must be made through the Internal Revenue Service website, or within the two months following the one in which it begins its activities, by means of an express mention in the affidavit of initiation of activities. The exercise of the option to be taxed in the first category by this type of company is irreversible.
A second exemption deals with outpatient medical services, regardless of whether they are provided electronically or in person, since Article 12 N°20 letter E states that “outpatient health services, benefits and procedures, which are provided without accommodation, food or medical treatment to recover the health of health care providers, such as hospitals, clinics or maternity hospitals” will be exempt from VAT, excluding, for example, those services related to laboratories. In this sense, a contrario sensu, all health services are subject to VAT, except for those mentioned as outpatient services.
On the other hand, Circular No. 50 presents the general rule regarding the entry into force of this new regulation and an exception rule regarding government tenders or public procurement. With regard to the former, all services whose tax is due as of January 1, 2023 will be taxed or subject to VAT, while those invoices or bills issued in an earlier tax period, i.e. up to December 31, 2022, will be taxed in accordance with the provisions of Article 2 N°2 and Article 12 letter E of the Law on Sales and Services Taxes.
Regarding to the exception rule, services included in public bids and purchases that have been awarded or contracted prior to January 1, 2023 with government agencies will not be taxed. Likewise, subcontracted services will not be subject to VAT to the extent that they are strictly necessary for the execution of the bidding or public purchase awarded or contracted prior to the indicated date.