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ENIllustrative, fictional case. A project manager, a foreign national and habitual resident of a country with no treaty with Chile, settles in Santiago. She has three income streams at once: (1) a salary her employer back home keeps paying her, (2) dividends from a company she owns in that same country, and (3) fees for a consulting service she physically provides in Chile to a Chilean company. To her, "it's all foreign income" because most of the money still arrives from abroad.
Why each income stream must be separated, not lumped together
Each of the three income streams is classified separately, because each follows a different source rule:
| Income | Source | Why |
|---|---|---|
| Foreign salary | Depends on where the service is performed, not who pays | The source depends on where the service that salary pays for is actually performed, not on the contractual relationship or the payer's country of domicile. If the work is still carried out from her home country, the income is foreign-source; if it starts being carried out from Chile at some point, that portion would become Chilean-source |
| Dividends from the foreign company | Foreign | Profits of a company incorporated and operating abroad are generally foreign-source income |
| Consulting fees in Chile | Chilean (art. 10 LIR) | The service is physically performed in Chile for a Chilean client — it does not matter that she sends part of that payment abroad or keeps a prior tax domicile |
The effect of establishing residence in Chile
If she exceeds 183 days in Chile (art. 8 No. 8 Tax Code) and establishes domicile or residence, she enters the first-3-years benefit: during that period, she is taxed in Chile only on her Chilean-source income (the consulting fees), while the foreign-source salary and dividends stay outside the Chilean tax base. Once the 3 years expire, without an extension, all three income streams — including the foreign salary and dividends — become taxable in Chile as worldwide income.
Why no treaty helps her here
Since her home country has no treaty with Chile, any double taxation on the salary or dividends (if her home country also taxes them) is resolved only through the unilateral credit under article 41 A of the LIR, not through a treaty's allocation rules.
Related articles
- Start with the central guide to Chile's 183-day tax residency rule.
- Continue with a related article in this series.
Frequently asked questions
No; each income stream is classified by its own source, regardless of what proportion of the total it represents.
That particular income stream would stop being generated; while she provides it, it remains Chilean-source income from day one, even within the 3-year period.
No; the benefit covers only foreign-source income. Chilean-source income is taxed in Chile from day one, whether or not she is within the 3-year period.
Do you need an assessment of your situation?
Each case depends on the dates, income types, country of origin and any applicable treaty. Izquierdo Deramond Consultores prepares tax opinions for foreigners who work or settle in Chile.
- Book a meeting: calendly.com/izquierdoconsultores
- WhatsApp: +56 9 8892 5401
- Email: gregorio@consultoresid.cl
This case is fictional and for informational purposes only. It does not constitute tax advice and does not reflect a real client's situation. The classification of each income stream depends on its specific facts and the law in force. To assess your situation, request a tax opinion with IDC.
OFFICIAL SOURCES CONSULTED
- Art. 3, 8 No. 8 (Tax Code), 10 and 41 A of the Income Tax Law
- SII Circular No. 31 of 2021.