Law No. 21,420 (hereinafter, the “Reform”) modified the taxable event “service” contemplated in the Law on Sales and Services Tax (“VAT Law”), eliminating the reference to numerals 3 and 4 of the Article 20 of the Income Tax Law (“LIR”). Thus, as of January 1st, 2023, all services will be subject to Sales and Services Tax (“VAT”), except for those expressly exempt.
At first sight, this modification would imply taxing with VAT activities that historically were not affected by this tax, such as professional services.

However, the same Reform expressly exempted the income of the professional societies referred to in article 42, No. 2 of the LIR, even when they have chosen to pay taxes in accordance with the first category regulations. Likewise, it maintained the exemption applicable to income obtained by natural persons for the provision of professional services, whether dependent or independent (article 12, letter E, No. 8 of the VAT Law).

Therefore, professional services should not be taxed with VAT as they are provided by natural persons or by professional companies, in the latter case, even when they are taxed according to first category regulations.

Regarding professional societies, it is worth reviewing the conditions for a society to qualify as such. In the absence of a legal definition, the Chilean Internal Revenue Service (“SII”) has indicated the following (Circular No. 21 of 1991):

1. It must be a partnership (for example, limited liability companies), not capital (for example, corporations or joint stock companies).
2. The partners must be professional natural persons, that is, they must have the aptitude or title that certifies and enables them to practice the profession to which they are dedicated, which must be identical, similar, related or complementary to the profession of the other partners.
The partners can also be other professional societies dedicated to providing the same services as the company of which they are members.
3. Its exclusive purpose must consist of the provision of services or professional advice. That is, those activities where physical or intellectual effort predominates over capital.

In line with this last requirement, the final paragraph of article 42 No. 2 of the LIR, excludes from the treatment established in said regulation the income of professional companies that carry out some of the activities classified in article 20.

Then, the income obtained by companies that meet the above requirements and that do not carry out first-class activities should be exempt from VAT.

Thus, despite the extension of the taxable event “service”, in most cases, professional services could be exempt from VAT due to the nature of the service provider.