Les impôts sur les salaires 2021

Chile

Abstract

This chapter includes data on the income taxes paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as the social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for eight different family types.

Methodological information is available for personal income tax systems, compulsory social security contributions to schemes operated within the government sector, universal cash transfers as well as recent changes in the tax/benefit system. The methodology also includes the parameter values and tax equations underlying the data.

 

 

Chile’s national currency is the peso (CLP). For 2020, the average exchange rate was CLP 792.94 to USD 1. That same year, the average worker in Chile earned 10 279 535 CLP (country estimate1).

Taxes allowances and tax thresholds for the personal income tax system and upper earnings limits for social security contributions are determined using and expressed in CPI-indexed units. As of June 30, 2020, the following currency values applied to these units:

 

Major revenue items	Unit	CLP	USD
Social security contributions	Unidad de Fomento1 (UF)	28 708.08	36.20
Monthly tax thresholds	Unidad Tributaria Mensual (UTM)	51 029	64.35
Annual tax thresholds	Unidad Tributaria Anual (UTA)	612 348	772.25

1. This amount is subject to daily adjustment in line with the CPI and is compared with monthly earnings in the assessment of social security contributions

1. Personal income tax system

1.1. Central/federal government income taxes

1.1.1. Tax unit

Each family member declares and pays taxes separately.

1.1.2. Tax allowances and credits

1.1.2.1. Standard tax reliefs

• Education tax credit: Parents with children attending preschool, primary, special or secondary education, with a total annual taxable income (both parents) of up to CLP 23 023 701 (UF 792), are entitled to a tax credit of CLP 127 909 (UF 4.4) per child, for expenses related to education. Children shall have a minimal school attendance of 85% and the school must be recognized by the State. This tax credit can be claimed by both parents, or only by one of them.

• Relief for social security contributions: Employee’s compulsory social insurance contributions are deductible for income tax purposes regardless of whether they are paid to government or private health insurers. (See section 2.1 below).

1.1.2.2. Main non-standard tax reliefs

• Voluntary contributions and APV (Voluntary Pension Fund Savings): Voluntary contributions to pension funds and voluntary pension savings fund (APV) may be deducted from taxable income, with an annual upper limit of CLP 17 224 848 (UF 600.)

• Mortgage Interest: Taxpayers whose annual income falls below CLP 55 111 320 (UTA 90) may deduct from their taxable income 100% of interest paid within a year for mortgage loans. This percentage is reduced in the case of taxpayers with higher incomes up to CLP 91 852 200 (UTA 150). This relief cannot be granted along-side the DFL2 Housing Mortgage Loan Payments benefit, and cannot exceed CLP 4 898 784 (UTA 8) per annum.

1.1.3. Tax schedule

Tax rates are applied on monthly income and these taxes are retained and paid by employers. In order to estimate taxes, tax rates are applied on an annual basis, on the annual average income (starting of 1 January 2017, the maximum marginal tax rate was diminished from 40% to 35%, and the number of tax brackets was reduced from eight to seven):

 

Taxable income (UTA)	Taxable income (CLP thousands)	Tax rates
0–13.5	0 – 8 267	exempt
13.5–30	8 267 – 18 370	4%
30–50	18 370 – 30 617	8%
50–70	30 617 – 42 864	13.5%
70–90	42 864 – 55 111	23%
90–120	55 111 – 73 482	30.4%
120 and over	73 482 – and over	35%

As of 1 January 2017, the President of the Republic, Ministers, Undersecretaries, Senators and Deputies have tax thresholds and rates applicable specifically to their income, if it is higher than 150 UTA:

 

Taxable income (UTA)	Taxable income (CLP thousands)	Tax rates
0–13.5	0 – 8 267	exempt
13.5–30	8 267 – 18 370	4%
30–50	18 370 – 30 617	8%
50–70	30 617 – 42 864	13.5%
70–90	42 864 – 55 111	23%
90–120	55 111 – 73 482	30.4%
120 – 150	73 482 – 91 852	35%
150 and over	91 852 – and over	40%

1.2. State and local income taxes

No taxes apply to income at state or local government level.

2. Compulsory social security contributions to schemes operated within the government sector

2.1. Employees’ contributions

Employees have mandatorily to contribute 7% of their income to a health insurance plan subject to an upper earnings limit of CLP 27 628 656 (UF 962.4). They are free to choose whether to pay into a government-managed plan or alternatively to a private insurer2 (Isapres). The public insurance is based on a joint system that, in general, operates on an equal basis for all its beneficiaries, irrespective of the risk and the amount of the individual contribution. Its financing is partly covered by the contributions and partly by way of a government subsidy. Premiums paid to the plans offered by Isapres are based on the contributors’ individual risk and these plans are exclusively financed with the employees’ contributions. Public insurance contributions are included in the modelling as the majority of employees pay into plans managed by the government sector.

Employee social security contributions in respect of pensions and unemployment are not classified as taxes in this report; though they are included in modelling as deductions for income tax.

• The mandatory contributions to pension funds and unemployment insurance plans are not classified as taxes, since the payments are made to private institutions. In 1980, the public social security system was replaced with a privately managed individual capitalisation system. This system is obligatory to all employees who have joined the labour force since 1983 and free-lance workers since 2012, and of a voluntary nature to all contributing to the former system. The contributions to the old government operated pension fund system are not included in the modelling because they relate to a minority of employees and the system will eventually disappear once the contributions and related benefit payments to those individuals remaining in it have ceased.

  • The modelling allows that the contributions to pension funds and unemployment insurance managed by private institutions are deducted from gross income. In the case of their pension funds, these payments amount to 10% of their gross income, with an upper earnings limit of CLP 27 628 656 (UF 962.4). Added to that is an amount that varies depending on the managing company that covers the management of each pension fund account.3 The monthly unemployment insurance premium is 0.6% of the employee’s gross income, with an upper earnings limit of CLP 41 477 434 (UF 1 444.8). Employees do not pay the monthly unemployment insurance premium when they have a fixed-term contract or after 11 years of labour relationship.

• There are also mandatory contributions to managed funds by members of the police force and the army which are classified as taxes but are not included in the modelling as they relate to a minority of the overall workforce.

• If the employee has a high risk job, that person has to make an additional contribution of 2% (heavy work) or 1% (less heavy work) of the gross income with an upper earnings limit of CLP 27 628 656 (UF 962.4), to the pension fund account.

The pension and unemployment contributions are not included in the Taxing Wages calculations, as they are not considered as taxes in the report. However, information on “non-tax compulsory payments” as well as “compulsory payment indicators” is included in the OECD Tax Database, which is accessible at www.oecd.org/ctp/tax-database.htm.

2.2. Employers’ contributions

There are five categories of employer social security contribution, none of which are classified as tax revenues in this report.

• Employers make mandatory payments of 0.90% of their employees’ gross income for an occupational accident and disease insurance policy subject to an upper earnings limit. For the majority of employees the payments are made to employers’ associations of labour security which are private non-profit institutions. Those remaining are made to the Social Security Regularisation Unit (ISL). Although this latter organisation is controlled by the government, the funds are invested on the private institutions market. The employers also pay an additional contribution which depends on the activity and risk associated to the enterprise (it cannot exceed 3.4% of the employees’ gross earnings). This additional contribution could be reduced, down to 0%, depending on the safety measures the employer implements in the enterprise. If health and safety conditions at work are not satisfactory, this additional contribution could be applied with a surcharge of up to 100%.

• As of April 1st, 2017, employers shall make a mandatory contribution based on employees’ gross income to a fund which will finance insurance coverage for working parents of children aged 1 to 15, or ages 1-18, whichever applies, that have a serious health condition, so that the parents can take a leave of absence from their work in order to accompany and take care of them; therefore, during this period the parents shall have the right to assistance financed by said fund (in Spanish, “Fondo SANNA”) that will replace, in total or partially, their monthly earnings. During 2019 the rate is 0.02%, and will reach a final value of 0.03% in force as of January 1, 2020. The collection of this contribution is initially delegated to the ISL and to the employers’ association of labour security.

• Employers make payments of 2.4% of each employee’s income (0.8% after 11 years of labour relationship and 3% for fixed-term contracts) with an upper earnings limit of CLP 41 477 434 (UF 120.4 monthly) to finance unemployment insurance. These funds are managed privately.

• Employers are required to pay a disability insurance of 1.53% of the employees’ gross income, with an upper earnings limit of CLP 27 628 656 (UF 962.4), collected by the pension fund manager, and managed by an insurance company.

• If the employee has a high risk job, the employer has to pay 2% (heavy work) or 1% (less heavy work) of the employee’s gross income, with an upper earnings limit of CLP 27 628 656 (UF 962.4) to the pension fund account.

3. Universal cash transfers

3.1. Marital status-related transfers

No such transfers are paid.

3.2. Transfers related to dependent children

The “Family Allowance” is paid on a monthly basis to any employee making social security contributions who has dependent children. The definition of dependants4 includes:

• Adopted children as well as those born to the parents;

• Children up to the age of 18 or 24 years provided they are single and are regular students in an elementary, secondary, technical, specialised or higher education establishment

• The amount of the payment depends on the number of dependent children and the beneficiary’s level of income according to the table below. The modelling assumes that the benefit is assessed on the spouse with the lower earning level where both spouses are working.

 

2020 Transfer by Dependant
Annual Income Range (CLP)	Annual Payment (CLP)
0–3 992 232	156 278
3 992 232– 5 771 080	95 904
5 771 080– 9 094 504	30 306
9 094 504 and over	0

4. Recent changes in the tax/benefit system

4.1. Changes to labour taxation due to the covid-19 pandemic

None of the measures Chilean government has taken because of COVID-19 to the date has a direct impact on taxing wages model’s parameters. However, it is important to mention a mechanism: Employment protection law5, in which the employer, under certain circumstances, puts the contract on hold, keeps paying the SSC, and employees can get part of their wages through the unemployment insurance fund.

5. Memorandum items

5.1. Identification of an average worker

• The source of information is a survey conducted by the National Statistics Institute (INE) to determine the Salary and Labour Cost Index. This nationwide survey is carried out on a monthly sample and gathers information on salaries and labour costs. It applies to companies with at least 5-worker payrolls grouped in accordance with ISIC4.CL 20126, covering workers in industry sectors B to R7.

• The average gross earning was obtained by multiplying the average hourly wage by the average number of hours worked. It covers both full and part-time workers.

5.2. Employers’ contribution to private health and pension schemes

• In Chile very few employers make any contributions towards health schemes for their employees, and the relevant information is not available. 

2020 Parameter values

 

Average earnings/yr	Ave_earn	10 279 535	Country estimate
Allowances	Basic_al	0
Income tax	Tax_sch	0,0%	8.266.698
		4,0%	18.370.440
		8,0%	30.617.400
		13,5%	42.864.360
		23,0%	55.111.320
		30,4%	73.481.760
		35,0%
Education tax credit	edu_tax_cre	127 909
	edu_tax_cre_lim	23 023 701
Employees SSC
Upper threshold	SSC_sch	7%	27.628.656
		0
Family allowance	CTR_child	-	156 278
Child element		3 992 232	95 904
		5 771 080	30 306
		9 094 504	-

2020 Tax equations

The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note about tax equations. Variable names are defined in the table of parameters above, within the equations table, or are the standard variables “married” and “children”. A reference to a variable with the affix “_total” indicates the sum of the relevant variable values for the principal and spouse. And the affixes “_princ” and “_spouse” indicate the value for the principal and spouse, respectively. Equations for a single person are as shown for the principal, with “_spouse” values taken as 0.

 

	Line in country table and intermediate steps	Variable name	Range	Equation
1.	Earnings	earn
2.	Allowances:	Tax_al	B	Min(Basic_al,earn)
3.	Credits in taxable income	taxbl_cr	B	0
4.	CG taxable income	tax_inc	B	Positive(earn-tax_al)
5.	CG tax before credits	CG_tax_excl	B	Tax(tax_inc, tax_sch)
6.	Tax credits :	tax_cr	P	IF(taxinc_princ+taxinc_spouse<='edu_tax_cre_lim,IF(taxinc_spouse' =0,edu_tax_cre*Children,edu_tax_cre*Children*0.5),0)
			S	IF(AND(taxinc_princ+taxinc_spouse<=edu_tax_cre_lim,taxinc_spouse>0),edu_tax_cre*Children*0.5,0)
7.	CG tax	CG_tax	B	Positive(CG_tax_excl-tax_cr)
8.	State and local taxes	local_tax	B	0
9.	Employees' soc security	SSC	B	Tax(earn, SSC_sch)
11.	Family allowance	cash_trans	P/S	IF( Children='0,0,' IF( earn_spouse>0, VLOOKUP ( earn_spouse, CTR_child ) , VLOOKUP ( earn_princ, CTR_child)) * children )
13.	Employer's soc security	SSC_empr		0

Key to range of equation B calculated separately for both principal earner and spouse P calculated for principal only (value taken as 0 for spouse calculation) J calculated once only on a joint basis.

Notes

← 1.  Information for earnings is available until November 2020. Information for December 2020 will be published February 5th and ratified March 5th

← 2.  Enrolment in the private health system during 2019 amounted to 19.41% of all beneficiaries.

← 3.  Average cost in 2020 was 1.17% of gross income.

← 4.  If the dependant’s income is equal or higher than half the minimum wage, for more than three months in the calendar year, the dependant is not eligible to receive the family allowance.

← 5.  https://www.chileatiende.gob.cl/fichas/77784-ley-de-proteccion-al-empleo

← 6.  ISIC4.CL 2012 is a Chilean classifier of economic activities, based on ISIC Rev.4.

← 7.  O (8422) “Defense Activities” and O (8423) “Public order and safety activities” are not included.