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Chile, with a population of around 19 million people, is considered one of the most reliable countries in South America, making it an appealing choice for multinationals looking for new locations. Furthermore, the Chilean government is welcoming incoming foreign direct investment.
The country of Chile stretches along South America's Pacific coast, and has the fourth largest GDP in South America, with approximately 317 billion US dollars. Chile, with a workforce of approximately 9.6 million people, provides international employers with a sizable talent pool. If you are an employer in Chile, there are certain obligations that you must meet while processing payroll in Chile. The Chilean Peso (CLP) is the national currency of Chile. The minimum wage has been set at CLP 400,000 per month since August 2022 for the payroll process in Chile and employees should not be paid below this.
Payroll Cycle and Working Hours in Chile
In Chile, the payroll cycle is the period for which an organization pays its employees, which can vary depending on the pay frequency chosen by the organization. The employees are compensated monthly according to the Chile payroll cycle. As per payroll laws Chile, a typical work schedule is 45 hours long, split into 5 or a maximum of 6 workdays. A typical workday should not exceed 10 hours.
Social Security Contributions for Payroll Tax in Chile
For payroll tax in Chile, affiliation to the social security system is required under payroll laws Chile from the time an individual begins providing services under an employment agreement.
To contribute to the social security system for payroll tax in Chile, the employee must be enrolled in the Chilean Pension Fund Administrator (AFP), private health insurance or public health insurance [FONASA], accident and disability insurance, work-related accidents and professional illness insurance, and unemployment insurance for payroll in Chile.
As per payroll laws Chile, the employment cost is low approx. 5% is calculated over the worker's gross salary as compared to the employee cost for payroll in Chile which is the majority of the social security (approximately 18% of gross salary).
- Disability and Survival Insurance (AFP, SIS) - Employers pay for this insurance for their employees to cover expenses in the event of disability (partial or total) or death, and provide a survivor's pension, as per payroll laws Chile. The only rate to be paid by employers is 1.99% for SIS for the payroll process in Chile. The SIS ensures the financial protection of the employees’ families in the event of employee death, accident, illness, or disability by providing a pension and covering pre-existing diseases.
- Occupational Accident Insurance – The goal of this insurance is to provide monetary support to the worker from an accident at work, or a professional illness while performing his work. The employee is eligible for this insurance from the moment he starts his employment, even if he did not sign a contract or contributed to social security. As per payroll laws Chile, the employer contribution is around 0.93% of the employee’s monthly salary to this fund. The employer contribution depends on the level of risk involved in the job, i.e. in case of professional illness, the maximum rate is 3.4% of the employee's salary.
- Unemployment Insurance – For social security contributions in Chile, both employer and employee contribute to unemployment insurance to provide financial support to the employee if he is out of work due to involuntary unemployment. Employees contribute 0.6% of their pay to unemployment insurance. This includes the employer's mandatory 2.4% contribution. These contributions are calculated based on the employee's taxable income for the payroll process in Chile.
- Health Insurance - Assists with medical expenses, including hospitalization, surgery, and prescription drugs. Employee contribution is 7% of their monthly wages for health insurance. Employers must deduct these contributions from employees' paychecks and pay the insurance while processing their payroll in Chile.
- Pension Fund – The social security contribution for payroll tax in Chile requires all employees to deposit 10% of their monthly salary or income into a personal account with a Pension Fund Administrator (AFP). These resources are intended to fund the future pension that the individual will receive upon retirement.
Employer Payroll Contribution in Chile (2022)
Employee Payroll Contribution in Chile (2022)
Employers must withhold employees' contributions and submit them to social security authorities in Chile, along with their contributions. Employees bear the majority of the social insurance contributions.
Income Tax in Chile
The fiscal year for payroll in Chile is the calendar year i.e. from 1st January to 31st December. Income tax in Chile is levied at a progressive rate varying from 0% to 35% and the tax is collected by the Internal Revenue Service. Monthly contributions must be made to the tax authority between the 10th and 12th of each month. The typical penalty for late submission and payment of tax contributions ranges between 2% and 5%.
Employee Income Tax in Chile :
Individuals who are residents in Chile for tax purposes are taxed on their worldwide income, while non-resident individuals are taxed only on their Chilean-source income.
