Cost per project and VAT up to date, with no surprises in each payment statement.

VAT on a project is paid when payment is received, not when the project is completed.

A common mistake in construction is treating VAT as if it accrued upon physical progress of the work. VAT law applies to general construction and specialized installation contracts, but the tax accrues when payment is received for each invoice, not when the work is performed—this is confirmed by the Chilean Internal Revenue Service (SII) itself regarding invoices for invoices in lump-sum contracts. The taxable base is the total amount of the invoice, without deducting the retention guarantee, because this guarantee is not subject to VAT as it does not constitute remuneration for a sale or service itself. Incorrectly following this procedure—invoicing before receiving payment, or deducting the guarantee from the VAT base—generates discrepancies that the SII detects when comparing your tax returns with those of your clients.

Operation	When is the invoice issued?	On what amount	Legislation
General construction contract (lump sum or by administration)	Upon receiving payment for each payment statement, regardless of when that payment is made	Total amount of the payment statement	DL 825, art. 8 letter e), art. 9 letter f) and art. 55 paragraph 2
Contract for the installation or manufacture of specialized products	Same criterion: upon receiving payment	Total amount of the payment statement	DL 825, art. 8 letter e) and art. 55 paragraph 2
Guarantee retention deducted from payment statement	No invoice is issued upon retention; it is issued upon release.	It does not reduce the taxable base of the payment statement	DL 825, art. 16 letter c) · SII Official Letter No. 897 of 04-23-2026
Sale of the completed home	A separate operation from the construction contract, with its own accrual	Property sale price	DL 825, art. 8 and art. 9 letter f)

Subcontracting entails legal responsibility, not just tax responsibility.

If you subcontract part of the work, Law 20.123 (Labor Code, Art. 183-A et seq.) makes you jointly liable for the labor and social security obligations of your subcontractors' workers—wages, contributions, and severance pay. This liability decreases from joint and several to subsidiary only if you actively exercise your right to information and withholding regarding each subcontractor's compliance (Art. 183-C), which in practice means requesting social security compliance certificates before each payment, not at the end of the project. Furthermore, independent subcontractors who invoice via fee-for-service slips currently have a withholding tax of 15,251 TP3T (2026), which is gradually increasing until 2028—a factor that affects the project's monthly cash flow.

If as the principal…	Your responsibility is	What does it mean in practice?	Legislation
You do not exercise the right to information or the right to retention	Solidarity	The subcontractor's employee can sue you directly, without going through their employer first.	Labor Code, art. 183-B
You exercise both rights before paying each bill	Subsidiary	The subcontractor responds first; you only respond if he fails to comply.	Labor Code, arts. 183-C and 183-D
In either case, what does it cover?	Remuneration, social security contributions and legal compensation for termination of contract	Limited to the time and work in which the worker provided services for you	Labor Code, art. 183-B

The special credit for construction companies ends on 01-01-2027

The tax credit under Article 21 of Decree Law 910 remains in effect, but today it's worth a quarter of what it was: 16,25% of the tax liability, compared to the original 65%. And the decisive factor isn't the date of sale of the property, but rather the date of the building permit and the date of the start of construction. A contract signed in 2026 retains the benefit only if the permit was obtained and construction began before January 1, 2027; if either of those dates is pushed back to the following year, the project loses its funding. For a portfolio of pending projects, this translates an administrative task—expediting the permit—into a monetary benefit: 16,251 TP3T of the tax liability, capped at 225,000 UF per dwelling.

Project status	Tax credit against tax liability	Limit per dwelling	Maximum value of the property
Building permit requested before 30-04-2023	65%	225.00 UF	2,000.00 UF (2,200.00 UF with subsidy)
Contract entered into between 01-01-2023 and 31-12-2024, with permit and works started before 01-01-2025	32.5%	225.00 UF	2,000.00 UF (2,200.00 UF with subsidy)
Contract entered into between 01-01-2025 and 31-12-2026, with permit and works started before 01-01-2027	16.25%	225.00 UF	2,000.00 UF (2,200.00 UF with subsidy)
From 01-01-2027	No credit	—	—

Frequently asked questions

When is VAT invoiced and paid for a construction contract?

Invoices are issued when payment is received for each invoice, not when the work is completed. The basis for invoicing is the total amount of the invoice, before deducting the performance bond. Issuing an invoice before receiving actual payment for the invoice generates a tax liability without the corresponding cash inflow, a discrepancy that should be avoided by carefully planning the invoicing cycle for each project.

What happens if my project has a housing subsidy from MINVU?

It may be fully or partially exempt from VAT; we assess this based on the specific financing of each project. Each subsidy agreement has its own exemption conditions, so we review the contract and the specific project resolution before determining how to invoice, instead of applying a general criterion to the entire portfolio of projects.

Is the special credit for construction companies still in effect?

Yes, although it's decreasing by law and projected to be completely eliminated by 2027; each project needs to be reviewed to determine if it still applies and to what extent. The benefit is calculated on the tax debit from the sale of homes and has a property value cap, so it's advisable to check each project individually to see if the unit sold still qualifies under the current discount schedule. And there's a change that's already law: the tax reform 2026 (Law No. 21,850) allows the seller to optionally exempt from VAT the first sale of a new home with final municipal approval prior to October 17, 2026, between December 1, 2026, and December 1, 2027. And the seller does not lose their tax credit: the exemption «no afectará el derecho del vendedor a utilizar como crédito fiscal el impuesto al valor agregado soportado en la adquisición de bienes y servicios destinados a la construcción, desarrollo y/o comercialización de la vivienda» (fourth transitional article, second paragraph). The details are in our Analysis of the VAT exemption for new housing.

Am I responsible if my subcontractor does not pay their workers' social security contributions?

You can be, unless you exercise your right to information and retention regarding each subcontractor before paying them; we help you implement this control. The right to information and retention is formally exercised before the Labor Inspectorate, and keeping this process up to date—not just informally requesting the certificate—is what effectively transfers the risk from joint and several to subsidiary liability.

How is cost accounting handled for each project?

By separating revenue, materials, labor, and subcontracts by project, you can see the true profit margin for each job, not just the company's overall result. This project-by-project control also allows you to decide in a timely manner whether to renegotiate a contract or adjust the budget for ongoing projects, instead of only discovering the true results at the end of the fiscal year.

What happens to retained earnings in accounting?

These amounts are not subject to VAT at the time of withholding; they are treated as a liability until their release, and we help you avoid confusing them with income for the period. Only when the guarantee is released (usually upon satisfactory completion of the work) is it necessary to invoice it and declare the associated VAT, so an incorrect accounting entry can unduly advance or delay this tax payment.

Do you serve companies that work both as contractors and as clients?

Yes, we assess your situation in both roles, as the obligations and risks change depending on your role in each contract. In that case, it's also advisable to ensure that the contracts for both roles are clearly separated in your accounting records, to avoid mixing the payment statements you receive as the contractor with those you issue as the client to your own subcontractors.

What happens if I have invoices from suppliers that the SII (Chilean Internal Revenue Service) questions?

We'll assist you with the documentation for every transaction. The construction sector is frequently audited due to long subcontracting chains, so it's essential to maintain organized records from the outset, rather than having to reconstruct them in the event of an audit. Keeping purchase orders, delivery slips, and material receipts for each construction site—not just the invoice—is what allows you to quickly prove a transaction is legitimate when the Chilean Internal Revenue Service (SII) questions it.