After the modification of the fact taxed service by Law No. 21,420, the extension of the exemption of No. 8 of letter E of Art. 12 LIVS for income generated by professional societies (“SP”) of art. 42 No. 2 of the LIR and the administrative regulation contained in Circular 50/2022 (the “Circular”), the Chilean Internal Revenue Service (“IRS”) has instructed the implementation of two procedures for the registration of the SP through Exempt Resolution No. 115 of 2022:
- Extraordinary procedure (valid from 01.01.2023 to 06.30.2023):
Aimed at companies that want to be classified as SP and that (i) began activities in the first category, without complying with the instructions of Circular No. 21 of 1991; (ii) carry out activities classified in the second category and did not choose to pay taxes in the first category.
The company must meet the following requirements: (a) be a partnership; (b) that the partners are natural persons or other professional societies; (c) not having issued documents subject to VAT since January 1st, 2022.
To register as a SP and benefit from the first category regulations, companies must complete the procedure on the IRS web platform once, through the Extraordinary Registry of Professional Societies (“RES”). If they were registered as first category companies, the economic activities of said category will be eliminated and the corresponding second category ones will be assigned to them.
When reporting their status as SP, they can indicate that they will be subject to the rules of the first category, an irrevocable option whose effect will be retroactive to January 1st, 2023. Having presented the background information in accordance with the resolution, the company will be classified as SP, being able to invoke the exemption contained in art. 12 Letter E No. 8 LIVS for the entire business year 2023.
It is important to note that capital companies, EIRLs and Sole Proprietors, who want to restructure to qualify as SP, may access the procedure, provided they previously modify their bylaws, comply with the regulations of the new company type, and notify the SII via the web. of its transformation or through the Companies Registry of the Ministry of Economy.
- Ordinary Procedure Registration of Professional Societies:
For SP who after the validity of this resolution (November 30th, 2022) want to declare their income in accordance with the first category regulations.
2.1. Professional companies that start activities: Exercise the option in the following 2 months after starting second category activities, stating their willingness to declare income in the first category in the DJ of start of activities or by means of an Administrative Petition on the IRS website, within the same term and with the social and professional background that the Circular requires for this purpose.
In this case, the option to declare under the first category will apply irrevocably from the start of activities. If not exercised, they will be considered to pay tax in the second category.
2.2. Professional companies that exercise the option after the start of activities: They must exercise the option in the first 3 months of the business year in which they intend to start declaring income under the rules of the first category (January 1st to March 31st of the respective year), presenting Administrative Petition as “Registry of Professional Societies”, with the social background and respective tax determinations indicated in the resolution. The option to declare under first category rules takes effect irrevocably as of January 1st of the business year in which it is exercised.
If the Petition is submitted after the deadline, it will be rejected outright, and they will be obliged to declare their income under the rules of the second category for that business year.
2.3. Companies that are reorganized to be taxed as SP: Capital companies, EIRL and Sole Proprietors can transform into a partnership to qualify as SP. For this purpose, the resolution establishes that they must: (i) Report their transformation via the web to the IRS within a period of 2 months from the modification or from the respective registration in the Commercial Registry; (ii) Accompany social and professional background; (iii) Accompany DJ indicating the will to register as SP, indicating whether he will be taxed under the rules of the first or second category.
A change of line of business of a company that carries out activities classified in the first category to pay taxes in the second category, or the elimination of the line of business of an activity classified in the first category, requires carrying out the procedure for the end of line of business of said activity. After completing the end of business, to register as an SP it is necessary to present an Administrative Petition according to 2.1. or 2.2. of the ordinary procedure or follow the extraordinary one already detailed.
As of January 1st, 2023, all SPs that pay taxes in the first category must issue invoices or electronic receipts not subject to or exempt from VAT. Now, the SPs that have chosen to pay taxes under the first category before said date, and that currently issue fee receipts, may extraordinarily continue issuing BHE until June 30th, 2023, considering the complexity of the system change in the issuance of tax documents.
Preventive inspection actions: Regarding taxpayers who do not use the procedures described, and whose first category activities are taxed with VAT after the legal modification under analysis, the following actions will be carried out by the IRS: (a) centrally it will modify the classification of its activities from not subject to VAT, without the intervention of the taxpayer; (b) Taxpayers only from exempt activities will be enabled to issue electronic invoices and electronic sales and service receipts and will be able to issue documents without the need to request verification of current activities.
As expressed on December 21st by the IRS Director in various media, this special procedure to benefit from the rules of the SP, and in addition to access the VAT exemption for professional services, seeks to give operational continuity to companies so that they can adapt to the requirements to be SP if they so decide, being able in the interim time to continue invoicing their professional services exempt from VAT as they have been doing up to now, since the change will operate retroactively.
In the event that a company that does not meet the requirements to be SP and does not regularize its situation until June 30th, 2023, the IRS may settle and/or retroactively withdraw the VAT that they stopped paying from on January 1st, so it is of vital importance that companies adapt to the SP regime before June 30, 2023 in order to continue billing their VAT-exempt services from January 1st, 2023 without subsequent inconveniences.