A taxpayer recently requested a ruling from the Tax Department on the treatment of gains from cryptocurrency transactions for income and value added tax (VAT) purposes, as cryptocurrencies are not specifically regulated in Chile or recognised as legal tender or foreign currency.

The Tax Department analysed the case and started from the viewpoint that, in general terms, cryptocurrencies:

  • are intangible assets supported by the unique digital register blockchain;
  • are deregulated, disintermediated and uncontrolled by a central issuer; and
  • have their price determined by supply and demand.

Further, the Tax Department assumed that the taxpayer requesting the ruling was engaged (or will be engaged) in the direct purchase and sale of cryptocurrencies and not in intermediation or brokerage activities.

The department's analysis reflected the broad definition of 'income' in Article 2 of the Income Tax Act (ITA) and the fact that there is no specific exemption or favourable treatment given to these specific gains. Instead, the Tax Department considered that such gains would fall under Article 20(5) of the ITA, thus making gains realised in the sale of cryptocurrencies taxable at the corporate income tax rate applicable to the taxpayer's regime (ie, 25% or 27%, depending on whether the taxpayer is using the so-called 'attributed regime' found in Article 14A of the ITA or the 'partially integrated regime' found in Article 14B). The department considered that in due course, such gains will be affected by the personal income taxes applicable to the shareholders of the entity engaged in the cryptocurrency operations.

The Tax Department also confirmed that the acquisition value of the respective cryptocurrency may be deducted as a direct cost in the determination of the gain. This should be proven using, for example, the electronic transfer vouchers or respective invoices, as applicable.

Regarding VAT, the Tax Administration pointed out that, as a general rule, only the sale of tangible assets is subject to VAT, unless there is an express provision rendering the sale subject to VAT. As a result, the sale of cryptocurrencies is not subject to VAT.

Gains realised in the sale of cryptocurrencies are subject to income tax and their purchase or sale is not subject to VAT.

For further information on this topic please contact Omar Morales at Montt y Cia SA by telephone (+56 22 233 8266) or email (omorales@monttcia.cl). The Montt y Cia SA website can be accessed at www.monttgroup.com.

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