Request Accounting in Foreign Currency, the Law in Chile establishes an “option” to register your operations in foreign currency (USD, Euro, Yen, etc.) when the currency that defines your operations is mainly “a foreign currency” and predominates over the Chilean pesos.
1 | General rule:
The general rule is that a company that is created in Chile, keeps its accounting and tax payment declarations in the local currency that are “Chilean pesos” which is very logical, since most companies have only local transactions. This rule is established in article 18 number 1 of the Tax Code:
“Establish for all tax purposes, the following rules to keep the accounting, file tax returns and make their payment:
1) Taxpayers will keep accounts, submit their returns and pay the corresponding taxes, in national currency. “Source: https://www3.sii.cl/normaInternet/#ListadoArticulo722
2 | Accounting in Foreign Currency:
But what happens when the company has “significantly” operations in “foreign currency” and these represent the largest number of operations? The Law establishes an option to carry “Accounting in Foreign Currency” whatever this may be, it can be USD, Euro, Yen, etc.
This “option” is established in article 18 number 2 of the Tax Code:
“Notwithstanding the foregoing, the Service may authorize, by founded resolution, that certain taxpayers or groups of taxpayers keep their accounting in foreign currency, in the following cases:”
a) When the nature, volume, habituality or other characteristics of its foreign trade operations in foreign currency justify it. b) When their capital has been contributed from abroad or their debts have been contracted with the outside mainly in foreign currency. c) When a certain foreign currency fundamentally influences the prices of the goods or services of the taxpayer’s business, as well as, in the case of first-category taxpayers who determine their effective income according to complete accounting, when said foreign currency influences in a way determining or majority in the composition of the taxpayer’s capital stock and its income. d) When the taxpayer is a subsidiary company or permanent establishment of another company or company that determines its results for tax purposes in foreign currency, provided that its activities are carried out without a significant degree of autonomy or as an extension of the activities of the parent or company. Source: https://www3.sii.cl/normaInternet/#ListadoArticulo722
3 | And what is the benefit of taking advantage of Accounting in Foreign Currency ?:
From the tax point of view, having investments in foreign currency causes tax effects in the Determination of Income Taxes, at the end of each fiscal year.
Let’s see an example:
Suppose that in January of this year the company made an investment of USD 1,000,000 at an exchange rate of $ 694.77 (in the accounting records it is recorded in Chilean pesos equivalent to $ 694,770,000) .- During the whole year the investment remained intact, the balance of the investment of USD 1,000,000 is maintained.- As of December 31 of the same year, the exchange rate closed at $ 744.62 (in the financial records of the company this is equivalent to $ 744,620,000 and for tax regulations, an increase is recognized for the exchange difference).
What happened then:
Financial effects: During the year the investment was maintained at USD 1,000,000 (there was no increase in equity in USD currency). Tax effects: Only for tax purposes there was an exchange rate readjustment of $ 49,850,000 (Final investment in CLP – Initial investment in CLP). The problem is that this tax utility pays First Category tax, suppose the general rate of 25%, this is equivalent to paying $ 12,462,500 only for the fact of keeping accounting in Pesos and not in Foreign Currency.
4 | Who do I ask for authorization ?:
The Request for Authorization to keep Accounting in Foreign Currency must be submitted to the “Directorate of the Chilean Internal Revenue Service” in which the taxpayer is domiciled.
5 | When is the Request made before the SII and since when does it come into force ?:
a) At the time of the Commencement of Commercial Activities and it begins to govern from that same date; and b) During the course of the life of the company (if I did not do so at the time of the start of activities) and it begins to govern the business year following the application.
6 | What is the period of stay ?:
Taxpayers who have been authorized by the SII to keep Accounting in Foreign Currency must remain in said regime for at least 2 consecutive business years.
7 | How long does the process take ?:
The terms vary depending on each SII Unit, the total term of the process can be between 2 to 6 months approximately.
CONTACT:
This Blog has been prepared exclusively to share information of national interest
