Independent Professionals Income Tax
- Chile
- 07/26/2010
Liberal professionals with domicile in Chile must pay Income Tax for their incomes in the exercise of a liberal profession or any lucrative occupation.
The requirement is that the liberal professional must not been taxed by the First Category Tax (Impuesto de Primera Categoría). Lucrative occupation, has been defined as the activity where the personal work based on a special knowledge of a science, art, craft or technique, predominate over the use of capital resources.
To calculate the tax basis, tax payers can choose to do it through their “effective income” or their “gross income”. In the first case, the
independent professional can use simplified accounting system, where they will register only its income and annual expenses, where revenues are recorded only when they are received, that is, once
they have physically entered to the patrimony of a person. As a consequence, the expenses can be reduced based on paid and not due expenses, reducing also its social security expenses. In the second case, the taxpayer must declare gross income, without any chance to reduce the “effective expenses” incurred in obtaining of such income.
Professionals who choose this alternative are only
allowed to reduce a “presumed expenses” equal to 30% of the annual gross income, which cannot be higher than15 UTA (Ch$ 6,635.340 for the 2010 tax year).
However, in any of these two formulas chosen by the taxpayers to calculate the tax basis, they may reduce what has been paid for mortgage loan interest and the amounts allocated annually in voluntary pension savings.
Finally, participations as a board member are considered independent professionals incomes, where will not be able to reduce any expenses, despite any necessary expense incurred by him in the diligent fulfillment of his duties.
*Partner, Guerrero, Olivos, Novoa y Errázuriz
Published in El Mercurio, Especial Mes Tributario 4/9/10
