Instructions on residence and domicile for tax purposes

29 November, 2021
Instructions on residence and domicile for tax purposes

The SII (Servicio de Impuestos Internos – Internal Revenue Service (SII) has issued instructions on the new definition of resident and its interaction with the concept of domicile for tax purposes through Circular No. 063-2021.

1. Residence

The concept of “resident” was modified through Law No. 21.210, establishing that any person who remains in Chile, uninterruptedly or not, for a period(s) exceeding 183 days in total, within any 12 months, shall be considered a resident.

Residence Acquisition

According to the above, the acquisition of the residence will not depend on the intention to establish it but on the number of days (184 days in 12 consecutive months) in the country (physical presence). 

It is important to consider the following when counting these days:

  • The days to be totaled include inbound and outbound days and all other days in the country.
  • Days spent in transit in the country in a trip between two points outside the country are excluded. 
  • Physical presence need not be uninterrupted within 12 months. 
  • To count the 184 days, all days in 12 consecutive months must be considered. 

Loss of residence

The natural person will lose his/her residence if he/she is absent from the country for at least 184 days, whether uninterrupted or not, within 12 consecutive months.

It should be specified that the loss of the residence does not mean the loss of the domicile since both requirements have their own.

2. Domicile

Definition and criteria of acquisition

The tax legislation has not established its own concept to understand what domicile is; therefore, it is possible to refer to other legislation, such as the Civil Code, which in Article 59 defines “domicile” as the residence, accompanied, real, or presumably by the intention to remain in it.

On the other hand, the SII has established an important criterion on the acquisition of domicile, “for purposes of qualifying the acquisition of domicile, the family element should not be used as a necessary element, given the eminently economic nature of the tax provisions. Without prejudice that it may be considered as a background or additional means of proof, in those cases in which the economic element is not decisive“.

The economic element is understood as the place where the person carries out the activity from which he/she obtains most of his/her income, and where his/her main interests are located, or where the main seat of his/her business is located.

Finally, when the individual expressly states through an affidavit his intention to remain in the country, it will be understood that the will of such individual is to be domiciled in Chile for tax purposes from his first day of entry, not being required to submit any other proof or background for such purpose.

Loss of domicile

The intention to lose the tax domicile must be accredited with evidence that allows considering that it no longer has its principal place of business. 

3. Taxation of Income and Agreements to Avoid International Double Taxation

A foreign individual who establishes domicile or residence in the country will be taxed, only for his Chilean source income, for the first three years counted from his entry to Chile, with IGC (Impuesto Global Complementario – Global Complementary Tax) or IUSC (Impuesto Único de Segunda Categoría – Single Second Category Tax), as applicable, concerning the income obtained from his entry. After those three years, he/she will be taxed on his/her worldwide source income.

Finally, when the person is a resident in Chile or domiciled, and at the same time, a resident in another country, with which Chile has a DTT, the tie-breaker rules contained in the latter normative instrument must be used to define the tax residence.

Source: Servicio de Impuestos Internos 29/11/21