Chilean Tax System: Direct & Indirect Taxes, VAT, & PPM
Chilean Tax System
True or False
V Debit notes issued are recorded at the book sale and increase the VAT tax debit.
F Companies decide if taxed in the first or second category.
V Depending on the difference between allowances paid during the year and the amount payable on such income tax, the taxpayer must pay to the tax or obtain a refund whose total income does not exceed 13.5 UTA.
F Second-rate tax only affects taxpayers whose total income does not exceed 13.5 UTA.
V The Chilean tax system is based on a multiple tax system.
V Global complementary tax affects taxpayers who also have an overall net income that exceeds 13.5 UTA.
F The more provisions are made, the more the first category tax decreases.
V Dependent workers should not participate in the annual income tax return only if they receive income from their job as a dependent.
V If the purchase price is greater than the selling price, there is a remaining amount for the taxpayer.
V The VAT is charged on the higher value that is added to a product or service in each of its stages of production, distribution, and final sale.
F Debit tax is the tax amount recharged during the period for purchases.
F In issuing a bill, the VAT sales tax credit increases.
F Issued credit notes are recorded in the book of purchase and increase the VAT credit.
V Tax Credit is the amount of taxes that have been burdened by purchases.
V The monthly pension payments are values that the company pays, on account of income tax, payable in the following year.
F Debit notes received are recorded in the book purchases and reduce the VAT tax debit.
V Ticketing fee is fond of the second-tier flat tax.
F For sales under $180, no ticket is issued, and they are exempt from tax.
1) Name of Direct and Indirect Taxes
Direct Taxes
Direct taxes are those that directly affect the incomes of individuals.
- Income Tax First Category: Affects the income coming from capital.
- Second Category Tax: Affects the income coming from physical or intellectual effort (income over 13.5 UTA).
- Global Complementary: Affects income over 13.5 UTA and taxed at the Chilean sources of people residing in Chile.
- Additional Tax: Levied on business done in Chile by individuals without residence in the country (i.e., they have investments in Chile but live abroad).
Indirect Taxes
Indirect taxes are levied through third parties and are also known as sales tax.
- Sales and Service Tax (VAT)
- Tax on Luxury Goods (luxury items, leather, jewelry, diamonds, etc.)
- Tax on Alcoholic Beverages, Non-alcoholic, and Similar Products (13%)
- Specific Tax that Applies to the Export of Vehicles
- Tax on Tobacco
- Fuel Tax
- Tax on Legal Acts (law and tax documentary stamps)
- Tax on Foreign Trade
2) Loan Repayment
Scenario: The company is due 2 loans on September 29, 2009, both for $100,000,000. The oldest has been renewed since January 2008, most recently in January 2009. The company has the resources to pay one of the loans, including interest. Which loan should be paid, and why?
Answer: The company should repay the older loan. This is because renewing the old loan would require the payment of taxes (stamp duty and stamp tax).
3) Insufficient PPM
Question: What should the company do when the amount of the PPM (Provisional Monthly Payments) has been insufficient with respect to the first category tax paid?
Answer: The rate used to calculate the monthly PPM should be adjusted.
4) Types of Contributors and Their Income
First Category Taxpayers: These are individuals or entities who receive income from capital, such as investments, rental income, and interest.
Second Category Taxpayers: These are individuals who receive income from their work, either through physical or intellectual effort. This category applies to those whose income exceeds 13.5 UTA.
5) PPM Accounting Entry
Scenario: The PPM in December 2008 amounts to $38,540. Perform the accounting entry.
Accounting Entry:
Debit: PPM Payable $38,540
Credit: Bank $38,540
6) VAT as a Multistage Tax
Explanation: VAT (Value Added Tax) is a multistage tax because it is applied at each stage of the production and distribution process. It is a tax on the value added to a product or service at each stage, rather than on the total value of the product or service. This means that the VAT paid on inputs can be credited against the VAT charged on outputs, resulting in a tax on the final consumption of the product or service.
VAT is also known as a plurifásico or multistage tax because it taxes the value added at various stages: producer, manufacturer, wholesaler, and retailer. Each of these stages generates a VAT credit when buying and a VAT debit when selling. Ultimately, the final consumer bears the burden of the tax.