Chile Economy

Chile Economy


  • Basic data
  • Public finances and the state budget
  • Banking system
  • Tax System

Basic data

Chile is relatively more resistant to economic shocks than other countries in the LA region due to its principled macroeconomic policies, savings of state funds, low level of public debt and good access to international financial markets, but the still lingering effects of the social crisis and the coronavirus pandemic have negatively affected economic growth and increased unemployment. Due, among other things, to bold measures aimed at economic recovery and trade facilitation by joining multilateral initiatives, Chile’s economy has managed to avoid a deep recession and economic growth is forecast for the coming years. Rating agencies Fitch and Standard & Poor’s (S&P) therefore changed the level of credit risk back to stable after being rated as negative in 2020. Forecast of the economic development of Chile for the year 2023: a decrease in real GDP of 2%, unemployment of 6%, consumer price growth of 20.42% and a slight deficit of 0.7% in the current account. The IMF projects that Chile will reach the level of USD 30,000/capita by 2026, which would also be the first time in history that any of the major Latin American economies would exceed this value. Check ebizdir for economical facts of Chile.

Due to its high dependence on foreign trade, Chile implements a consistent pro-export policy with the support of so-called non-traditional exports (mainly goods of the manufacturing industry with higher added value, but also food and beverages). Main exports: copper and its concentrates, molybdenum, grapes, wine, wood, cellulose, fishmeal, salmon, apples and saltpeter. Chile has not yet succeeded in diversifying the commodity structure of its exports – more than half of its exports are copper and copper products. The main import commodities include oil and natural gas, some raw materials, investment products, chemicals, electronic equipment and devices, durable goods, machine tools and means of transport.

Table from MOP + additionally balance of payments, indebtedness/GDP.

Pointer 2019 2020 2021 2022 2023
GDP growth (%) 1 -6.2 11.8 3 1.6
GDP/population (USD/PPP) 27,006.70 25,100.00 28,820.00 30,880.00 32 170.0
Inflation (%) 2.3 3.1 4.5 8,9 3.2
Unemployment (%) 7.1 10.3 7.2 6.8 6.5
Export of goods (billion USD) 70 71.8 92.6 103.2 109.4
Import of goods (billion USD) 70.7 59.1 90.1 98 102.2
Trade Balance (Billion USD) 4.2 18.4 10.9 14.4 16.8
Industrial production (% change) -0.1 -4.5 4.5 3.6 3.9
Population (millions) 19 19.1 19.2 19.3 19.3
Competitiveness 42/63 38/63 44/64 ON ON
OECD export risk ON ON ON ON ON

Source: EIU, OECD, IMD

Public finance and state budget

Public finance 2021
State budget balance (% of GDP) -8.7
Public debt (% of GDP) 36.8
Current account balance (billion USD) -11.2
Taxes 2022

In 2021, the Chilean economy grew by 11.7%, which is mainly caused by a significant drop in GDP in the first pandemic year of 2020 (in the third quarter of last year, growth even reached 18%). At the end of 2021, the public debt reached EUR 97.185 billion, which corresponds to 36.1% of GDP, so this is a slight increase in total debt compared to the previous year, when it reached 32.5% of GDP. The main expenditure item was the government’s fiscal transfers.

Total revenue for 2021 showed an increase of 33% compared to 2020, making up 23% of GDP overall. This year-on-year change is mainly attributed to the gradual post-pandemic reactivation of the economy after the pandemic and especially the amount of taxes collected related to the mining industry, which increased by 120% in real terms. Favorable copper prices resulted in a 267% year-on-year increase in revenues from copper mining.

On the contrary, total state expenditure increased by 32% compared to 2020. The deficit thus amounts to a total of 7.6% of GDP. The deficit is caused by increasingly higher expenses spent on mitigating the effects of the economic and social crisis caused by the Covid-19 pandemic (the country was in lockdown for almost 5 months) and, on the other hand, by lower income to the state treasury, which, although it increased significantly year-on-year, still did not compensate for the economic losses.

As of the 4th quarter of 2021, the current account recorded a deficit of USD 20.3 billion, but the current account balance has been declining since the beginning of the year. In particular, the structure of trade in goods and services and a relatively significant increase in imports were reflected in it; also a decline in volumes on the side of services, current transfers and revenues.

For 2022, a recovery in economic activity and GDP growth of 3.5% is expected due to a global improvement in the outlook for international trade and stabilization of economic growth, stable high copper prices exceeding 4 USD per pound, the lifting of quarantine restrictions and the positive impact of macroeconomic policies of outgoing and newly elected government. However, economic growth in the coming years is predicted to be only moderate, around 1.5%. In the current year, total government revenues are expected to decrease by 7% and, according to the budget plan for 2022, expenditures by 3.7%, which will have to cover the running-up of social and economic support approved by the previous government. Higher expenses associated with the reform of the pension system are also expected.

Banking system

The current financial system of Chile is made up of a total of 27 institutions, of which there are 9 national private banking institutions, 16 foreign banks, 1 Chilean state bank (Banco Estado de Chile) and 1 state financial company (CORFO), which, unlike commercial banks, may not operate with clients’ current accounts or finance foreign business activities.

The largest bank in terms of assets is the Chilean branch of the Spanish bank Santander, followed by the traditional Banco de Chile, in which Citigroup has an ownership stake.

According to the ranking of the safest banks in Latin America, the four safest banks are from Chile (BancoEstado, Banco de Chile, Santander Chile, Banco de Crédito e Inversiones). According to the Central Bank, Chilean financial institutions are sufficiently equipped with capital to overcome possible worsening market conditions. Chilean and foreign banks are regulated by the same regulations and standards in terms of operation, amount of capital and supervision.

The foundations of the current legal regulation of the banking system in Chile were created in 1986 with the approval of Law No. 18,576 on the New Chilean Banking Legislation. It was subsequently modified in 1989 and 1997, when banks were given the opportunity to expand the range of financial services offered. The goal of these changes was to create a system that would guarantee the stability and transparency of the banking sector. Banks have been prescribed mandatory indicators that they are obliged to provide to a control body called SBIF (Superintendencia de Bancos e Instituciones Financieras). At the same time, clear standards and rules were established for the classification of the deposit portfolio, management and regulation of the volume of loans.

The activities of the central bank (Banco Central de Chile) are regulated by Law No. 18,840 of 1989. The central bank is headed by the president (governor), who directs the banking board consisting of 5 members. Currently, the President of the Central Bank of Chile is Rosanna Costa.

Tax system

The tax system in Chile is fairly standardized and corresponds to systems in industrialized countries. In general, it can be stated that the tax burden is not high in Chile. Corporate income tax (the so-called first category tax or capital income tax, determined by the nature of the business rather than the entrepreneur himself) is assessed in two stages. In the first phase, their net income is taxed at a uniform rate of 25% or 27% depending on the type of activity. In the second stage, all parts of the income that are distributed are additionally taxed at 35%. The fiscal year in Chile ends on December 31st, and companies must file tax returns by April 30th.

The tax corresponding to our personal income tax (the so-called second category tax) is progressive from 5% to 40%. For determining the tax, it is decisive whether it is a resident or not. The resident pays tax on the full extent of his income, regardless of its origin (even for income earned abroad). Conversely, a foreigner who resides in Chile for less than 3 years pays tax only on his Chilean income and has a flat rate of 35% (athletes, scientists and artists only 20%). After three years, he pays taxes to the same extent as a resident, unless he requests an exceptional extension. Persons with an income of up to CLP 652,765 per month do not pay the tax, which is 82% of the total number of employees.

A value added tax of 19% is applied to every business transaction (import, manufacturing, wholesale, retail, services, transport, property rental, construction contract, etc.). It is not collected when selling real estate, exemption from this tax is also possible for the import of investment equipment intended for export production using domestic raw materials. When the goods are exported, it is returned to the extent that corresponds to the value of the exported goods. It represents more than 40% of all tax revenues of the state.

There are duty-free zones in the north of the country in Iquique and in the south in Punta Arenas, in which all activities are exempt from paying tax of the first category (other taxes must be paid). In addition, VAT does not have to be paid on the sale of goods and the provision of services for all entities that have their headquarters in the given area. Areas with special tax treatment are extended to entire regions, i.e. Arica and Parinacota in the north and Magallanes in the south. Residents of Easter Island also have a special tax exemption.

Chile Economy