Americans who move to Chile for work, family, or retirement quickly discover that two governments are tracking their income: the Servicio de Impuestos Internos and the IRS back home. US expat taxes in Chile now come with a relatively new advantage, because a comprehensive US-Chile income tax treaty entered into force on December 19, 2023. Because Chile taxes its residents on worldwide income and the United States taxes its citizens and green card holders no matter where they live, an American living in Chile typically owes a filing obligation in both countries every year, and the treaty now sits alongside the Foreign Tax Credit and Foreign Earned Income Exclusion as part of the planning picture, even though the two countries still have no totalization agreement covering social security.
Do US Citizens Living in Chile Have to File Both SII and US Tax Returns?
Yes, in almost every case. Chile taxes individuals who qualify as tax residents, generally meaning they are domiciled in the country or present there for a qualifying period, on their worldwide income through the Servicio de Impuestos Internos. The United States separately taxes its citizens and green card holders on worldwide income no matter where they live, a rule tied to US citizenship or immigration status rather than Chilean residency.
That means the two filing obligations run independently, even with a tax treaty now in force between the two countries. Filing and paying tax in Chile does not excuse you from filing a US Form 1040, and filing a US return does not excuse you from your Chilean obligations. The Foreign Earned Income Exclusion, the Foreign Tax Credit, and now the US-Chile tax treaty work together on the US side to prevent the same income from being taxed twice.
How Does Chile Tax Residents on Worldwide Income?
Chile applies its individual income tax on a worldwide basis to residents, using progressive rates that rise with income, and that is the starting point for figuring out what an American in Chile actually owes there before turning to the US return. As a general rule, a newly-arrived foreign resident is taxed only on Chilean-source income for the first three years of residency, and on worldwide income after that transition period ends, though the current-year rules on this transition should always be confirmed before relying on it.
Employers generally withhold tax directly from Chilean payroll throughout the year, and residents reconcile the full year on an annual return filed with the Servicio de Impuestos Internos. Foreign-source income without a Chilean withholding agent typically has to be reported and accounted for separately. Because Chilean tax rules and rates are updated periodically, confirm the current-year rules before treating any specific rate or bracket as settled, since a stale figure can throw off both the Chilean calculation and the US Foreign Tax Credit that depends on it.
Should You Claim the FEIE or the Foreign Tax Credit on Chilean Income?
For Americans earning income in Chile, the choice between the Foreign Tax Credit and the Foreign Earned Income Exclusion is a genuine year-by-year comparison rather than an automatic default, because Chile's progressive rates do not consistently run higher than the comparable US rate on the same income.
The Foreign Tax Credit on Form 1116 credits Chilean income tax paid, computed by category under IRC Sections 901 and 904, dollar for dollar against US tax, and unused credit carries back one year and forward ten years on Schedule B. The Foreign Earned Income Exclusion on Form 2555 instead excludes foreign earned income up to an annually indexed maximum, for example $130,000 for 2025, under IRC Section 911. The FEIE does nothing for self-employment tax, can disqualify the refundable Additional Child Tax Credit for a family with kids, and once revoked generally cannot be re-elected for five years without IRS consent, so the Foreign Tax Credit is often the more durable choice for a higher Chilean earner. Our FEIE versus Foreign Tax Credit comparison walks through the decision in more detail.
What Does the US-Chile Tax Treaty Do for Double Taxation?
Unlike many other Latin American countries, Chile now has a comprehensive income tax treaty with the United States. The treaty entered into force on December 19, 2023, the first new comprehensive US bilateral income tax treaty to take effect in over ten years, and it is effective for withholding taxes on amounts paid or credited on or after February 1, 2024, and for other taxes for tax years beginning on or after January 1, 2024.
Like nearly every US income tax treaty, it contains a saving clause, meaning the United States continues to tax its own citizens and green card holders largely as if the treaty were not in effect, with only limited exceptions. That means the treaty does not replace the domestic Foreign Tax Credit and Foreign Earned Income Exclusion mechanisms described above for an American living in Chile. Instead, the treaty provides foreign-tax-credit relief and coordinates other cross-border issues between the two countries, layered on top of the domestic tools that still do the bulk of the day-to-day double-tax work. Because the treaty is still relatively new, any position relying on a specific treaty provision should be checked against the current treaty text before you file.
Does the US-Chile Totalization Agreement Cover Social Security?
No, and this is where Chile diverges from the treaty picture. The United States and Chile have no totalization agreement in force, so there is no mechanism to stop a worker from paying into both countries' social security systems on the same earnings at the same time. A self-employed American working in Chile can face both the Chilean system and US self-employment tax on the identical income, with no certificate of coverage available to eliminate the overlap.
Without a totalization agreement, a self-employed American in Chile should assume both systems could apply and plan accordingly, rather than assuming one automatically defers to the other. Our guide to totalization agreements and self-employment tax abroad explains how the certificate of coverage process works in countries where an agreement does exist, and why that relief is not available for Chile.
How Are Chilean Pensions and Retirement Accounts Taxed by the US?
Not automatically. Chile's mandatory pension system, built around individually owned accounts administered by private pension fund managers known as AFPs, along with any voluntary retirement savings, is not, by itself, tax-deferred for US purposes just because it receives favorable treatment under Chilean law.
US law starts from a default position, grounded in IRC Sections 401(a) and 402(b), that a US person is taxed each year on income building up inside a foreign retirement arrangement unless a specific treaty provision steps in to defer it. Whether the new US-Chile tax treaty provides that deferral for a Chilean AFP account is a fact-specific question that has to be analyzed against the actual treaty text rather than assumed, particularly given how recently the treaty took effect. Our foreign pension US tax treatment guide walks through the four questions that determine the answer for any foreign plan: whether growth is taxed as it accrues, whether a treaty defers it, what has to be reported, and how distributions are taxed.
Are Chilean Investment Funds Taxed as PFICs?
Usually, yes, which catches many Americans off guard the first time they open a brokerage account in Santiago. A Chilean fondo de inversion, mutual fund, or other pooled investment vehicle typically meets the definition of a passive foreign investment company under IRC Section 1297, with Sections 1291 and 1298 governing the tax treatment. That classification is a matter of US tax law, does not turn on how the fund is taxed inside Chile, and applies regardless of the new tax treaty.
PFIC status triggers one of the harshest default regimes in the US tax code: without a timely election, gains and certain distributions get allocated across your entire holding period, taxed at the top rate for each of those years, and charged interest as though the tax had been owed all along. Each PFIC generally requires its own Form 8621 filing, even in a year where no tax is actually due, which is why Americans in Chile are usually steered toward US-domiciled brokerage accounts and US-based index funds rather than a local fondo through a Chilean bank.
What Else Do You Have to Report to the IRS?
Filing an accurate income tax return is only part of the picture, since Chilean bank accounts, brokerage holdings, and investment funds trigger separate reporting duties that exist independent of any tax owed and unaffected by the new treaty. These filings are enforced on their own terms, and the penalties for missing them are typically far larger than any tax that would have been due.
The Chile Reporting Stack
Reference- FBAR (FinCEN Form 114). Required when the combined balance of your Chilean bank, brokerage, and pension-related accounts exceeds $10,000 at any point during the year. See our FBAR filing guide.
- Form 8938 (FATCA, IRC §6038D). A separate filing threshold, higher for Americans living abroad, that can require you to list the same Chilean accounts directly on your federal tax return. See our Form 8938 guide.
- Form 8621 (PFIC). Generally required for each Chilean fondo de inversion or other pooled fund that qualifies as a passive foreign investment company. See our PFIC and Form 8621 guide.
Whether you even count as a US tax resident in the first place, if your situation is more complicated than straightforward citizenship, such as someone taxed only on Chilean-source income during the first three years of residency before the move to Chile became permanent, is a separate question governed by the substantial presence test.
Bottom Line
Living in Chile does not simplify your US tax picture, though the new US-Chile tax treaty, in force since December 19, 2023, does add a layer of relief that was not available before. The Servicio de Impuestos Internos and the IRS still operate independently, the treaty's saving clause means the Foreign Tax Credit and Foreign Earned Income Exclusion continue to do most of the actual work, and with no totalization agreement in place, a self-employed American in Chile has to plan carefully for social security exposure in both countries. Pensions, investment funds, and foreign accounts each carry their own reporting rules on top of the income tax analysis, and because the US-Chile treaty is still new enough that established practice has not caught up to it, leaning on assumptions borrowed from an older or different treaty is the surest way to get the analysis wrong.
Have questions about US expat taxes in Chile? Contact TS CPA for a free consultation. We respond within the same day.
Official IRS and Government Sources
- IRS, Chile Tax Treaty Documents
- IRS, United States Income Tax Treaties A to Z
- IRS, Foreign Earned Income Exclusion
- IRS, Foreign Tax Credit
- IRS, US Citizens and Resident Aliens Abroad
- Social Security Administration, Totalization Agreements Overview
- FinCEN, Report of Foreign Bank and Financial Accounts (FBAR)
- IRS, About Form 8621
- IRC Section 911, Citizens or Residents Living Abroad