How to Pay Zero or Low Taxes in Chile (Five-Year Exemption)

Chile is a country that offers a lot. Apart from stunning geography, fantastic art, and famous wines, it’s a relatively tax-friendly country. 

For seven-and eight figure entrepreneurs and investors who have wealth and want to protect and grow it, Chile is of enormous interest because of the quality of its passport.

Some of our Nomad Capitalist clients who have taken the plunge have praised Chile’s Canada-like lifestyle, and that’s not the only reason it may appeal to North Americans. But more of that later. 

Establishing residence and eventual citizenship in Chile will be a good option for some. There are a few caveats, however. 

Here, we discuss the benefits of Chile as a country, the tax advantages, and how to become a resident. 

Benefits of Chile as a Country

There’s no doubt Chile is a beautiful country. Visitors to Torres del Paine National Park in Patagonia will attest to that, along with the sights available in natural beauty spots too numerous to mention. The capital, Santiago, is a modern, developed city with a Western-style atmosphere that some say resembles Vancouver. 

Remotely located along the western edge of South America, it feels removed from the rest of the world, and has a reputation as a place to escape and find peace and quiet. On the other hand, around 7 million people live in and around Santiago, which feels like a major capital in terms of its markets, architecture, restaurants, nightlife, and cultural centers. So, with that in mind, it may also suit those looking for a bit of pizazz. 

As a rule, the summers, which run from December to February, are hot and dry, but it has cold winters with occasional snowfall in some parts, and you can head south to ski resorts. It’s a hospitable place where we are told friends are easy to make. 

However, Chile could not certainly be described as cheap. One of the most developed countries in South America, it’s also one of the most expensive. Using the great leveler, the Big Mac index, the burger costs 3,900 pesos in Chile, around US$4.33, and US$5.58 in the United States. Wines are cheaper, with some mid-range ones at around $5.00, but like anywhere, you get what you pay for. Good hotels and restaurants, certainly in the capital, are on par with those in many other developed countries for price.   

We have heard from expats living there that living costs can be high, particularly for families who need reasonable accommodation. Of course, the situation can be worse if the peso is devalued against the dollar, a feature of South American currencies in the past. 

That said, you’re probably not looking at Chile to pinch pennies, but it helps to know what to expect. 

How to Get Residence In Chile

Cutting to the chase, there are three groups of people for whom Chilean citizenship is recommended. It’s appealing for those looking for a high-quality second passport, those who want the lifestyle, or someone from the region looking for a more developed country in the Americas.

The good news for those who want to relocate there is that it’s relatively easy. You begin by getting temporary residence, valid for two years, with a few conditions attached. 

However, to be eligible for permanent residence, you must spend at least 22 out of the 24 months in Chile. 

There are three options: 

• Rentista – You must have a regular monthly income of $1,500 from pension, dividends, interest, rental income, etc., valued plus 500$-750$ for each dependent. The income can’t be from a job.
• Retirement – You must have a lump sum of liquid assets of at least $125,000 for a single applicant plus $25,000 for each dependent. They can also be held anywhere in the world. This option is available for individuals over 55 years old.
• Start a business – You can invest $60,000, but within three months of getting a temporary residence, you must start your company to be on track for permanent residency. 

Chile’s tax exemption 

As a tax resident, a foreigner in Chile only pays taxes only on their Chilean source income for the first three years after their arrival. So, all foreign source income, capital gains, dividends, and rental income is completely tax-free. Technically, foreign operating companies will not be taxed in Chile under this exemption. Not bad.

It’s worth noting that once the tax exemptions are over, Chile’s worldwide system of means you will then pay standard income tax rates on all your income. There is a strong possibility it will be extended for another three years once permission is sought from the government. 

Foreigners working in Chile are subject to taxation only on their Chilean-source income for the first three years, up to 35.5%. Capital gains are subject to standard corporate tax but may be exempt based on certain criteria. 

The Income Tax Law allows a tax credit for taxes paid abroad by individuals domiciled or resident in Chile, provided a tax treaty is in force with the foreign country. Chile has tax treaties with the UK, Canada, Australia, and New Zealand. 

Foreigners with residence or domicile in Chile will pay taxes only on their Chilean source income during the first three years after arrival in Chile, up to 35.5%.

After this period has elapsed, foreigners will be subject to income taxes on their worldwide income. There is no defined process to apply for income tax release on foreign income. Just by arriving in Chile, it applies. 

Citizenship and How it Works

If you have been a resident of Chile for more than five years, you can apply for citizenship. The five years start from the moment you get the first stamp of your temporary residence in your passport. You can apply for permanent residence if you have fulfilled the physical presence requirement. Once you have got permanent residence, you can spend two consecutive years outside of Chile without it being revoked. 

Any more than that, and you will have to spend at least a few days in Chile to leave the country for two further years. Citizenship can also be achieved through naturalization (three years of residence and an interview in Spanish), marriage (two years of residence), and through an exemption for “outstanding services” to the country.

The Swiss Army Knife of Passports 

At Nomad Capitalist, we often say having multiple citizenships is the best way to protect your wealth and freedom in these uncertain times. However, for those looking for just one second passport, you can make a case for what could be called the Swiss Army Knife of passports. 

The Chilean passport achieves all the benefits you could want from a second passport, but there are some caveats. The reasons are as follows:

While settling in there, you can benefit from a generous tax exemption for the first couple of years. While getting established there, you don’t have to worry about the taxes that often come with moving to a new country. 

Let’s be clear: Chile is not a citizenship-by-investment country. You are not getting their passport in six months, but you can benefit from the tax exemption while you are putting in your time. 

Fast forward five years to when you have your passport, you have drama-free travel document, you have a unique ID card advantage in pretty much all of South America except Venezuela, you’ve got great coverage all over Latin America, and you’ve got access to every single country in Europe, Asia, and Russia. 

You have access to all the Southeast Asian countries, for the most part, ones that some citizenship programs by investment wouldn’t offer. You’ve got access to emerging African economies. 

You also achieve access to Canada, The United States, and New Zealand with Chile’s passport. In terms of still needing a visa, the only country that stands out is Australia.

By and large, you can go to almost every country on earth that you want to go to. As a travel document, you have low drama and excellent access around the world, but you also have a remote country with great geography and protection from wars and conflict. Most of the world’s problems are in the Northern Hemisphere – and you are blissfully isolated from them in Chile, and you have a passport that allows you to go back relatively easily. 

You have all the benefits of being able to live in Chile, as well as the citizenship and tax benefits while you’re getting started.

You do, however, have to put in time to live there, but this is a high-quality passport for a very respectable country. Walk around Santiago, and you could easily be in Vancouver, with advanced Western-style living that feels like Canada in some ways. 

If you don’t want to spend time there, this isn’t going to be for you. This is an alternative to citizenship by investment programs in Portugal, Cyprus, and Malta. You are putting time rather than money into a relatively tax-friendly country with a high-quality passport. It may not be a long time, it’s not a ten or twenty-year process like in other countries of equal quality, and it’s a great place to live.

Why You Should Consider Chile 

We’ve heard Chile is like Canada when it comes to lifestyle, so it’s attractive for Canadians who like the lifestyle but don’t like the taxes there. It’s also an excellent passport for American citizens who renounce their citizenship to enjoy the lifestyle and tax benefits and still be able to visit the States for up to six months at a time.

Truthfully, this only makes sense if you plan to be there long-term. If that doesn’t put you off, and like many, you like the prospect of living in a Spanish-speaking Latin American country, you could do far worse than Chile. 

If you want to get out from under your own country’s tax system, for example, you’re a US citizen who renounces, you may want something other than a European passport. If that’s the case and proximity and access to America matter, then the high-quality Chilean passport makes total sense. Alternatively, you may want access to the top-tier countries your current passport can’t offer. 

Whatever the case, this is all about choosing your own tax rate and legally reducing your taxes while living your desired lifestyle. 

At Nomad Capitalist, we call it our tax-friendly quadrant – to legally reduce your tax bills, diversify and protect your assets, become a global citizen, and maximize your freedom.

With proper planning, all of that can be achieved as part of a bespoke strategy. 

Nomad Capitalist is a turnkey solution for offshore tax planning, dual citizenship, asset protection, and global diversification. We have helped 1,500+ HNWI clients, and we can help you, too. Find out how here.