Inquiry about the way of invoicing the “co-payment” in the electronic sale of “bonos” done by a magnetic resonance center.
According to your presentation, you represent a magnetic resonance center that sells National Health Fund (FONASA) ”bonos” to provide the services. In this system, the patient acquires the “bono” at the center by making a “co-payment” which corresponds to half of the cost of the service. The other half is paid by FONASA and an exempt invoice is issued for its collection.
Regarding the “co-payment”, FONASA informs that the tax documentation must be issued in the name of said institution, being the “bono” the support of the attention for the patient, consulting if this is correct as indicated by FONASA or if the documentation should be issued to the patient directly.
According to Resolution Ex. No. 6 of 2001, this Service authorized FONASA to use a new system for the sale of health care “bonos” whereby the “bonos” can be issued by health care providers registered in the free choice system at the same place where the health care is received.
Under this system, the provider collects directly from the beneficiary the amount of the co-payment and is not required to issue a “boleta” for these amounts.
However, Resolution No. 4 of the aforementioned resolution stipulates that professionals and professional associations of the second category of the Income Tax Law (LIR) that uses this system must issue a monthly Professional Fees Bill for the total co-payments received based on the “bonos” collected, which will be done under the name of FONASA.
These professionals must declare and pay on their own the PPM 10% of the value of these co-payments.
On the other hand, professional partnerships or companies taxed in the first category of the LIR must issue monthly to FONASA a “boleta” or invoice indicating in detail the total amount corresponding to the “bonos” collected, informing in the same document the co-payments received directly by the provider, resulting the difference between both, the value to be paid by FONASA.
During the meeting all type of offers made and the treatment that should be given to each of them were analyzed, with the aim of minimizing possible risks when facing a possible control of the Value Added Tax (“VAT”) by the Internal Revenue Service (SII).
Regarding the Consumer Protection Law, given that in these cases the advertising content in brochures or APP associated with promotions is reviewed, it should be kept in mind that the Consumer Protection Law imposes information duties on any supplier or commercial establishment that carries out promotions or offers.
A promotion is a commercial practice by which the respective commercial establishment offers the public its goods or services on more favorable terms than usual (i.e., “For the purchase of 2 products X gift product Y”). If the most favorable condition offered is a price reduction on a temporary basis, this practice is an offer.
All commercial establishment must inform the public of the following aspects in the case of all kinds of promotions or offers:
a) The term or duration of the promotion or offer (e.g., “Promotion valid from December 1, 2021 to December 3, 2021”).
b) The terms and conditions of the promotion or offer. The bases consist of the description of the mechanics of operation of a promotion or offer, including in an outstanding way the conditions or restrictions imposed to enjoy the benefit associated with the promotion or offer. In the event where there are certain geographic locations, days or items excluded from the promotion or offer, this must be expressly indicated in the dissemination of the promotion or offer (i.e., “Promotion valid only for metropolitan region” or “Offer valid only for purchases over $10,000”).
c) Specific Stock: In cases where the validity of the offer or promotion is intended to be associated with the run-out of stock of the respective products, it should be noted that a defined period of validity of the promotion must always be reported, and in case of being conditioned to the run-out of the stock, the number of units or products that make up the corresponding stock must be indicated.
In each of the advertising media (brochures, catalogs, APP, website, flyers, others) in which an offer or promotion is disseminated, the legal texts related to the information of duration and bases of the offer and promotion must be included.
It consists of the sale of two, three or more products of the same nature and characteristics, at a preferential price. The marketing of this offer should be made with the phrase for example “Take three packs of Triton cookies for the price of two” or “For the purchase of 2 packs of Triton cookies take one for free”).
VAT is applied on the selling price of each of the products, but the taxable amount of this tax is lower.
In order to minimize a possible contingency resulting from the SII considering that the word “Free” refers to a free delivery for promotional purposes and not a volume discount, it is considered advisable to comply with the following copulative conditions:
a) Add an asterisk (*) after the word “Free” and a note indicating that:
i) This is a “Promotional Offer” consisting of a purchase volume discount, or
ii) “The bases of the promotion are before the public notary yyy (Any promotion of free delivery must go through a Public Notary). In the respective terms and conditions for the Notary it must be explained that it is a volume discount for an amount equivalent to the price of a product and not a free delivery for promotional purposes.
b) The sales documentation (dispatch guides, slip, invoices, etc.), must indicate the total amount of products sold and apply VAT on the unit price of each of them.
Regarding the Consumer Protection Act, the statement “Free” is a benefit for consumer in terms of receiving the product at no additional cost of any kind. Therefore, the value of the other products that make up the product pack that includes a “free” one for the consumer (“three Triton Cookie Packs”) must be maintained and unchanged, so that the assertion that the product benefiting from the promotion (“Third Free Package”) is actually free is met.
Care must be taken that the information describes the mechanics of the promotion is legible and understandable, in terms of making these legal texts available for the consumer. In this context, although the use of the asterisk is not prohibited, it is recommended to favor the inclusion of the information associated with the promotion in the best possible way. The size, location, and contrast of the asterisk and corresponding texts must be clear and legible enough to avoid a reproach of lack of legibility by the authority.
It involves the sale of a product, which is the pack, and which is composed of two or more products of the same or different nature and characteristics, at a certain price (“Pack Offer”).
VAT is applied on the price of the Pack.
In order to minimize a possible contingency resulting from the SII considering that the word “Free” refers to a free delivery for promotional purposes and that, therefore, the free product is not included in the sale price of the Pack as a single product as a whole, it is considered appropriate to comply with the following conditions:
a) Add the phrase “Pack Offer” in the advertising.
b) The products must be packaged as one unit (within the same container with plastic paper, or joined through a tape or promotional strip, in example). In the case it is not possible, it is recommended that, at least, the promotion in the APP has to be presented as a Pack.
c) The sales documentation (dispatch order, sales receipt, invoices, etc.) must be managed with a valued “Master” Line number and an unvalued component line number.
Regarding the Consumer Protection Law, because it is an Offer, the term of validity of this commercial benefit for the consumer must be included in all these cases.
It should be noted that according to the needs of Merchandising, there is the possibility of showing the word “FREE” in the promotion, but this must be accompanied by an asterisk (***), which must be explained in a note where the word Free appears and the explanatory phrase must indicate that: “Pack Offer in which you take offered products together, for the amount indicated.”
The Free Sample Offer involves the free delivery of a sample of a product for the purchase of another product of the same or different nature and characteristics (“For the purchase of product xxx, take a free sachet of xxx or yyy”).
In this case, it is a free delivery for promotional purposes and must therefore be taxed with VAT.
Regarding the Consumer Protection Law, because it is an Offer, the term of validity of this commercial benefit for the consumer must be included in all these cases.
The write-off or deduction as loss of the cost value for tax purposes of those foods that have been destroyed because their expiration date has expired or because their commercialization has become unviable due to defects in their manufacture, labeling, wrapping or others, will proceed in accordance with the general rules, this because they are losses of the business or company, in this case, the legal norm mentioned must be complied with, especially with regard to its reliable accreditation before this Service. For such accreditation, the procedure contained in document “Circular No. 3 of 1992” must be applied (in case of loss of stocks in the inventory from fortuitous event or majeure force, the taxpayer must give notice to the Service Unit corresponding to his address, within 48 hours of the occurred event. Such ullage or losses must be verified and qualified by an official of the Service, for the purposes of authorizing its reduction (economic loss) in the taxpayer’s accounting books.) Justifying the deduction as an expense of the cost value of the destroyed products, without prejudice to the rules that said instruction imparts for the purposes of Value Added Tax (VAT).
However, in addition to the write-off or deduction as loss of the cost value of expired or defective products that are destroyed, in the case of those foods whose expiration date has not expired, but which have lost their commercial value for the company because their commercialization has become unviable, it is necessary to establish the criteria of which this Service will understand that the respective loss has been reliably proven when they are delivered to non-profit institutions that distribute food free of charge to low-income people.
When the stocks cannot justify their exit from the taxpayer’s inventories, then, the special taxable event (equated to sales) by “withdrawal” referred to in article 8, letter d) of the Sales and Service Tax Law, except in unforeseen cases or majeure force (it is assumed that in this case the taxpayer gave written notice to the Service, recorded the fact in the accounts and has the documents that justify it). This taxed fact equates the shortage to sales, that is, we are in the presence of a sale, so on the date of its departure or withdrawal it is accrued and / or affected by the Value Added Tax (19%). The price that is considered in these cases is the own value that the taxpayer has assigned to the goods or their market value, if the last mentioned were higher, as determined by the Internal Revenue Service (SII).
For the above, every time you have expired or damaged products, and they have not been due to majeure force (fire, earthquakes etc.) you must reduce the inventory and at the end of the month invoice the products as losses or inventory difference or make proof of internal consumption if the products correspond to Yogurt, beverages etc. for a few units that can still be consumed because they are on the day of expiration and will be delivered to workers for their consumption in such a way as to lead to “reduction for internal consumption” and not pay VAT.
It should be kept in mind that you cannot simply destroy or reduce merchandise without the SII considering the difference in inventory as a withdrawal of a partner, taxing it with 19% VAT and 40% as a rejected tax.
Whenever a foreign company want to incorporate a business entity in Chile, for tax purposes, it must first designate a Chilean resident as its representative in Chile and grant a special power of attorney to such person or entity; in your case, your legal representative is Andrea Dawson.
In regard to the partners or shareholders of the company, there are no nationality requirements.
The articles of incorporation for the aforementioned entities take the form of notarized public deeds (escrituras públicas). The articles of incorporation must contain references such as the company’s name and domicile; specific purpose; names, domicile and professions of initial shareholders or partners; duration; initial capital structure; administration and oversight mechanisms; profit distribution; dispute resolution mechanisms; and names of the directors (in the case of corporations).
An excerpt of the incorporation deed, with basic information such as the company’s name, domicile, management structure, initial capitalization, and shareholders or partners names, must be published in the Chilean Official Gazette (Diario Oficial). A copy of this excerpt is then registered in the Registry of Commerce (Registro de Comercio) that pertains to the company’s domicile.
After the incorporation, the law also requires that the business entity (there are some exceptions) must pay, twice a year, a municipal or county business license. The yearly price of this license goes from 0.025% to 0.05% of its capital. Every Municipality (Local Government) establishes its own price within this range. In this sense, it is recommended that the capital of the entity should be kept at the lowest amount possible in order to reduce the amount of the business license.
The transfer of foreign capital into Chile must be done using one of several legal statutes. The statute most frequently used is:
– Title I, Chapter XIV of the Chilean Central Bank’s Compendium of Foreign Exchange Regulations.
• These regulations are applied to investors who make foreign exchange operations related to credits, deposits, investments and capital contributions coming from abroad. The procedure is applied to the operations whenever the amount is greater than USD10, 000 or their equivalent in other foreign currencies.
• Foreign currencies must be brought into the country through the Formal Exchange Market (FEM), composed of banks and authorized exchange houses. The foreign investor must inform the Chilean Central Bank of the investment, through a commercial bank or the intervening financial institution, according to the terms and conditions contained in the Chapter XIV regulations
As to comply with the current regulation, any entity that carries out activities in Chile must meet the following monthly obligations (among others):
• Monthly preparation and calculation of official payroll receipts, commissions and/or bonus slips for your employees, in accordance with the Chilean Labour regulations
• Monthly accounting: sales and purchase journals, payroll entry and professional fees retention among others. In your case would applied the payroll records.
• Preparation of the monthly payroll legal book in order to be included into the accounting and preparation of monthly tax declaration (F. 29).
• Monthly payroll will generate an account to payable to the employees (registered in your monthly accounting)
• Monthly preparation of a Balance Sheet according to the Local GAAP.
• It is common in Chile that Large Enterprises requires the confirmation of the employees’ social security payment as a condition to pay their supplier’s invoices.
• Withholding tax for payments of professional services contracted abroad. This fee will be subjected to current Treaties to Avoid Double Taxation.
According to the previously expressed and considering that you will not have income in Chile, you must see how you will pay all your monthly costs and expenses.
You have the following options:
Loan: The lender shall pay on demand all costs and expenses incurred by the borrower in connection with payroll‘s expenses, accounting services, legal services among others.
Issuance of documents containing credit obligations are subject to Stamp Tax at a 0, 066% per month or fraction thereof, between disbursement and maturity, with a maximum of 0.8%. The rate will be of 0.332% on documented credit operations payable when no fixed maturity is established.
This tax affects all credit operations as loans with third parties related or not. It is applied on the capital amount which is written at the loan agreement for once and has a maximum annual rate of 0.8%: (0.8/12: 0.0667% per month). For example, if your agreement is for 4 months: 0.0667*4: 0.2667%: rate to apply to your amount of loan once.
As general rule, interest on loans coming from abroad is subjected to a withholding tax of 35% (loan from related parties) if there is a Treaty to Avoid Double Taxation, the withholding tax can be 15%. However, the tax decreases to 4% when the loans have been granted from a foreign or international bank located abroad or financial institution, as well as by certain foreign pension funds and insurance companies. (This will only applies for interests’ payment).
The payment of capital, loan’s interest and other obligations related to the loan, must be informed through a commercial bank.
Monthly Bill: If a Chilean company provide services to its headquarter, Chile should generate a profit margin according to the new regulations on transfer pricing, particularly the risk of severe penalties, even in the case of unintentional deviations from the principle of independent parties (arm’s length principle). For these purposes, both Companies should make an agreement and Chile should monthly invoice to its headquarter for the concept of expenses reimburse plus a markup (usually is 4% or 6% but this this depend on you )
In order to avoid possible contingencies with the IRS, I suggest making a mix between loan and monthly invoice.
Capital Contribution: In order to comply with the business license payment you must have an initial capital. You can also add more capital contributions every now and then.