VAT on Services in Chile: A Simple Guide to Recent Changes

What changed, and who's still exempt

If you operate a business in Chile, hire freelancers, or engage professional services such as consulting, legal, or design work, you may have noticed that invoices that were previously tax-free now include an additional 19%. This change is not an error, it is the result of a significant, yet understated, modification to Chilean tax law in recent years.

This article explains the reasons behind these changes, outlines what has occurred, and highlights which services remain exempt from VAT (IVA, Impuesto al Valor Agregado) as of today.

The old rule: most services were VAT-free

Until the end of 2022, Chile's VAT law applied only to services categorized under specific commercial or industrial activities (namely, “Article 20 N°3 and N°4” of the Income Tax Law). Consequently, a substantial portion of the economy, including independent professionals, consultants, lawyers, architects, advertising agencies, and IT contractors, billed clients without adding VAT. Their income was subject to income tax rather than value-added tax.

This created inconsistencies: for example, a graphic designer operating through a company might charge VAT, while an independent professional issuing a boleta de honorarios typically did not. As a result, two individuals performing the same work could face different tax treatments.

What changed: Law 21.420

Law 21.420, enacted in February 2022, fundamentally altered the VAT regime. As of January 1, 2023, the default position reversed: VAT now applies to all services rendered in Chile unless a specific exemption applies. The reform aimed to simplify the tax system and to help finance Chile's universal pension supplement (PGU).

Businesses that previously issued VAT-free invoices were required to register their economic activity as “VAT-affected” with the tax authority (SII) and begin charging the standard 19% VAT on services such as consulting, engineering, legal advice, marketing, IT services, and other professional work performed through a company.

Who didn't change: individual freelancers

A key point of confusion merits clarification: individuals who invoice as independent professionals using a boleta de honorarios were not affected by the reform. Lawyers, accountants, designers, and consultants working independently (not through a company) and invoicing under personal income tax rules continue as before, no VAT is added.

The reform primarily targeted companies and incorporated entities, rather than individual professionals operating independently outside a corporate structure.

What's still exempt from VAT

Despite the new “tax everything by default” approach, the law preserved, and in some cases expanded, a list of specific exemptions. The principal exemptions include:

• Passenger transport. Urban, interurban, interprovincial, and rural transport of people remains VAT-free, as it always was.

  
  

• Education. Schools, preschools, and universities remain exempt, as before the reform.

  
  

• Outpatient health services. This is one of the genuinely new exemptions: medical, dental, psychological, psychiatric, kinesiology, and imaging consultations performed without hospitalization, food, or inpatient treatment are now explicitly VAT-free.

  
  

• Professional partnerships (sociedades de profesionales). Certain companies may still operate VAT-free if they meet strict criteria: they must be structured as a sociedad de personas (corporations and SpAs do not qualify), all partners must be natural persons actively engaged in the practice, and the partners' professions must be identical, similar, or closely related. Companies composed of unrelated investors merely collecting professional fees do not qualify.

  
  

• Individual freelancers with boletas de honorarios. As noted above, unchanged.

  
  

• Cultural services. A later law (21.622) extended similar treatment to cultural associations and entities, exempting services tied to research, training, production, and dissemination of arts, culture, and heritage.

  
  

• Unfurnished real estate rentals, financial and insurance services, and a handful of other activities that were already exempt under the general VAT law, and remain so.

  
  

• Pre-existing government contracts. If a company signed a service contract with a public institution before January 1, 2023, that specific contract can keep its VAT-free status, but only as long as its terms aren't substantially modified afterward.

  
  

Why this matters in practice

For businesses, the practical impact has included registering the appropriate economic activity codes with the SII, transitioning from VAT-free invoices to standard invoices with a 19% VAT charge, and notifying clients of the effective price increase (or alternatively absorbing the additional cost).

For professional partnerships, it has become essential to pay close attention to corporate structure. Failure to comply with the requirements for a “sociedad de profesionales” (such as having the incorrect legal form, the wrong composition of partners, or involving capital-only investors) results in loss of the exemption and the obligation to charge VAT like any other company.

For individual freelancers, nothing has changed. Those billing independently with a boleta de honorarios are generally unaffected by these reforms.

The bottom line

Chile has transitioned- as of January 2023 -  from a system where most services were VAT-exempt to one in which nearly all services are affected. Some exceptions remain, but are very limited to specific activities: Health, education, transport, qualifying professional partnerships, and individual freelancers are the primary categories still outside the scope of the tax, everyone else must now add 19% VAT to their invoices.