US Expat Taxes for Americans Living in Chile – What You Need to Know
There are an estimated 12,000 Americans living in Chile.
There are plenty of reasons for Americans to love living in Chile, such as a latin lifestyle combined with first world infrastructure, the wines, and the incredible variety of natural landscapes to name but a few. As an American expatriate living in Chile though, what exactly do you need to know regarding filing US expat (and Chilean) taxes?
All US citizens and green card holders who earn a minimum of $10,000 (or just $400 for self-employed individuals) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or their income is generated.
The good news is if you are paying income tax in Chile, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earn over US$10,000 (or just $400 of self-employment income), wherever the income originates in the world you have to file IRS form 1040. While any US taxes due are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further on request until October 15th.
If you have overseas assets worth over US$200,000 per person, excluding your home if it is owned in your own name, you also have to file form 8938 to declare them.
If you had 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.
If you pay income tax in Chile, there are several exemptions that allow you to pay less or no US income tax on the same income to the IRS.
“In the case of non-Chilean nationals, they are taxable solely on Chilean source income for this first three years in Chile and would become taxable on worldwide income from the fourth year on.”
The main exemptions are the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax if you can prove that you are a Chilean resident, and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in Chile. These exemptions can be combined if necessary. Remember though that even if you don’t owe any tax to the IRS, if your income is over US$10,000 (or $400 if you’re self-employed) you still have to file a federal return.
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.
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, in case the IRS comes to you first.
Chilean taxes – what you need to know
Residents in Chile pay income tax just on income sourced in Chile for the first three years, and then from their fourth year of residence on, on their worldwide income.
A person is considered a resident if they spend at least 6 months of a tax year in Chile, or less if they intend to live in Chile permanently.
Chile’s income tax rates rise from 0% to 35.5%, depending on income level.
The Chilean tax year is the same as in the US. Chilean tax returns are due by April 30th. The Chilean tax authority is called SII (Servicio de Impuestos Internos).
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in Chile that you contact a US expat tax specialist.