Electronic Report Book: Implications for Tax Compliance

The electronic compensation book (hereinafter, “LRE”) arises as a way to comply with the obligations of employers to carry a compensation book but adapted to today’s digital reality. Its creation is given by the Labor Directorate (hereinafter, “DT”) through Opinion 877/0061 of March 10th, 2021, which replaces the obligation to carry the remuneration book physically to an electronic format counting from March 2021 with the enabling of the platform on the DT website.

The obligation to carry a record of remunerations is established in article 62 of the Labor Code, which establishes the obligation to carry an Auxiliary Remuneration Book (hereinafter, “LAR”) for every employer with five or more workers. The LAR must be previously numbered and stamped by the Chilean Internal Revenue Service (hereinafter, “IRS”) and the remunerations registered in said book will be the only ones considered as an expense for the employer for the remuneration concept.

Given that the validity of LAR was given by the stamps before the IRS, it became necessary to replace the stamp with a digital form. Thus, on March 9th, 2021, with Exempt Resolution number 292, the IRS pointed out that it is understood that the information has been sent to the DT and its receipt in accordance.

The LRE corresponds to an electronic platform available on the DT website so that employers report monthly in a standardized way the remuneration payments, which is equivalent to the obligation contained in article 62 of the Labor Code. Therefore, this electronic record fully and irrevocably replaces the LAR as of the first day of the employer’s enrollment calendar year and must be reported monthly on the DT platform named “MiDT” at the latest the fifteenth day of the following month that in which the effective payment of the remuneration was verified.

Currently, registration in the LRE is in the voluntary phase until the entry into force of Law 21,327 on the Modernization of the Labor Directorate (October 1st, 2021), when it is expected that with its validity and the insurance of the Regulation indicated in the incorporated article 515 of the Labor Code, the registration of the LRE is contemplated within the obligations in electronic format on the “MiDT” site. At the moment, the DT has only ruled indicated to officially report the date in which the registration becomes an obligation for the employers indicated in article 62 of the Labor Code, but it is expected to be within 2021.

Among the benefits of moving from a LAR to LRE we can highlight the saving of physical space, not having to perform in person stamping, and record keeping in a more accessible and durable way. There is still the challenge of adapting to the form of declaration and complexities and/or errors that might occur using the established system, although this has plenty of similarities with the IRS’s sworn declaration system. 

Changes in compliance DJ 1887

On August 31st, 2021, the IRS issued Exempt Resolution number 103, which establishes the creation of the “Annual Register on withholdings made in accordance with articles 42 No. 1  and 74 No.1 of the Income Tax Law” for those taxpayers who are obligated to present the Affidavit 18875 on income of art. 42 No.1 (salaries), other components of the remuneration and withholdings of the second category single tax of the Income Law (hereinafter, “DJ 1887”). This register will be prepared by the IRS based on the information shared by the DT6 regarding the LREs uploaded by the taxpayers to the “MiDT” platform.

The purpose of creating the aforementioned registry is that with it, the IRS will be able to carry out the automatic confection of the DJ 1887 as of March 16th of each year or business day with the information regarding the previous year.  In this way, the obligation to present the sworn statement will be understood to have been fulfilled, however, the taxpayer will be able to choose to present this sworn statement previously, this being the one considered for tax compliance purposes.

This change in the obligation to present the DJ 1887 applies from the 2021 business year, being applicable  for the first time in the 2022 tax year.

What happens to employers with less than 5 workers?

The creation of the LRE, and the automatic declaration of the DJ 1887 by the IRS, is of great help for the employer and is consistent with the digital tools available nowadays. However, there are employers who would not benefit from the obligation to carry the LRE. The above is due to the fact that, as indicated, the obligation of the LRE will be for employers of five or more workers (replaces the LAR). Without prejudice to this, the DJ 1887 must be declared by all taxpayers who have paid salaries to  workers. In this way we find taxpayers who, being employers, must declare the DJ 1887 but not carry a LRE as they have less than five workers, therefore the IRS could not make the declaration of the DJ for them as they do  not have the data in the DT.

In this regard, the DT has indicated that although there is no obligation to carry the LRE for employers with less than 5 workers, there is also no restriction, thus allowing all employers to use the platform available to present the LRE regardless of the number of workers they have. 

In this way, it is up to the employer, with less than five workers, whether to benefit from the monthly declaration of the LRE in the DT, and have the IRS preparing their DJ 1887 or keeping control of their remuneration.

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