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Connect on LinkedInThere are plenty of reasons for Americans to love living in Chile– a latin lifestyle combined with first world infrastructure, great wine, outdoor adventures and incredible natural landscapes to name a few. It’s no surprise that there are an estimated 12,000 Americans living in Chile. As an American taxpayer living in Chile though, what exactly do you need to know regarding filing US and Chilean taxes?
All US citizens and green card holders who earn income anywhere in the world are subject to file a US federal tax return and pay taxes to the IRS. This is because the US has a Citizenship Based Tax system. US filing thresholds vary based on filing status, and the type of income you earn.
The good news is if you are paying income tax in Chile, there are various exclusions and exemptions available to prevent you paying double tax on the same income to the IRS. In this article we’ll cover what it means to be a Chilean tax resident, the income tax rates you’ll be subject to if you qualify, how to eliminate double tax and filing requirements beyond your income tax return.
Who is subject to Chilean taxes?
Residents in Chile pay income tax just on income sourced in Chile for the first three years of residency, and then from their fourth year of residence onwards, are taxed on their worldwide income.
A person is considered a resident if they spend at least 6 consecutive months (180 days) in a year in Chile, or 6 months at all in Chile in two consecutive years.
The Chilean tax authority, the Servicio de Impuestos Internos (SII), imposes and collects taxes from taxpayers, through an annual declaration due on April 30th of each year. Chile’s income tax rates range from 0% to 35.5%, depending on your total income level.
As a result of FATCA, the US and Chilean governments share taxpayer info, and Chilean banks pass on US account holders’ account info to the IRS, so it’s not worth not filing or omitting anything on your return. The penalties for incorrect or incomplete filing for expats are steep to say the least.
Avoiding double tax in Chile
As an American taxpayer living in Chile you are subject to reporting your worldwide income to the IRS each year, even if you’ve already paid taxes on it in Chile. Be sure to pay any taxes owed to the IRS by April 15th to avoid interest, and file your tax return by the automatic 2 month extension for expats by June 15th to avoid penalties.
Despite having to report your income to both the Chilean and US governments, there are various tools you can use when preparing your US tax return to avoid double taxation.
Foreign Earned Income Exclusion
The Foreign Earned Income Exclusion allows you to reduce your taxable income by up to $126,500 in 2024 ($130,000 in 2025) due to either your Physical Presence or Bona Fide residence abroad. This is particularly helpful for Americans who have earned income, such as wages or self-employment income.
The Foreign Earned Income Exclusion does not apply to passive income such as investments, rental income, retirement income or other non-active income types.
Foreign Tax Credit
The Foreign Tax Credit is a great way to lower your tax bill if you earn income in Chile, or have income sourced in Chile. Examples include Chilean investment income, rental income, and wages or self-employment income you earn while living in Chile. The Foreign Tax Credit which gives you a dollar for dollar credit, which directly reduces your US tax bill based on the income tax you’ve already paid on your income in Chile.
US-Chile Totalization Agreement
If you are a self-employed individual living in Chile, you can avoid paying double tax when it comes to your self-employment tax. The US has had a Totalization Agreement with Chile in force since February of 2020. The Totalization Agreement indicates that “self-employed U.S. citizens residing in Chile do not have to pay U.S. Social Security contributions on self-employment income. Self-employment coverage is voluntary under the Chilean system.”
If you are an American living in Chile you will need to attach a statement to your tax return claiming the exemption under the Totalization agreement. You should also request a Certificate of Coverage from the Chilean pension system and keep it in your records. Do so by writing to:
Superintendencia de Administradoras de Fondos de Pensiones
Huérfanos N° 1273
13° Piso
Santiago
CHILE
US-Chile Tax Treaty
While tax treaties are often the first tool that comes to mind when seeking to eliminate double taxation, unfortunately they rarely help US citizen taxpayers in reducing their US tax bill. The US-Chile tax treaty came into force on December 19, 2023. The treaty does not prevent US citizens from having to file a US tax return, and a tricky Saving Clause allows the US to tax its citizens as if the treaty was not in effect. In other words, the treaty is likely not the place to start when looking for ways to reduce your US tax bill as an American living in Chile.
Other reporting considerations in Chile
US tax reporting obligations extend beyond just filing a US tax return. If you have a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
Additionally, if you have overseas financial assets of more than US$200,000, you may also have to file Form 8938, which doesn’t drive tax, but has heavily penalties associated with it.
Do I need to report my APF on the FBAR?
The AFP also known as Asociaciones de Fondos de Pensiones, is the mandatory pension system in Chile. Despite its parallels with the US social security system, under the AFP system, taxpayers have a financial interest in an individual AFP account, which typically means they are the beneficial owner of the account—even if there are restrictions on when or how you can withdraw funds. Accordingly, the AFP account must be reported on the FBAR disclosure, if the aggregate value of all foreign accounts hits $10,000 or more at any point in the calendar year.
What if I’ve never filed my US taxes while living in Chile?
If you’re a US citizen, green card holder, or US/Chilean dual citizen, and you have been living in Chile but you didn’t know you had to file a US tax return, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any penalties. Don’t delay though, as this procedure is only effective as long as the IRS hasn’t come to you first.
Let Bright!Tax guide you through US tax in Chile
Navigating tax compliance as a US expat in Chile can be challenging, but with the right information and guidance, you can stay compliant and avoid penalties. At Bright!Tax, we specialize in helping Americans abroad understand and manage their tax obligations in both the US and Chile.
If you’re ready to be matched with one of our Bright!Tax experts, simply click the “Get Started” button below—we’re here to make the process smooth and stress-free.
