By Felipe Salinas, Acting Partner at CCL Auditores Consultores
Read the column in El Mercurio Legal.
With the beginning of a new year, and amid the legislative debate—almost a battle—focused heavily on pensions, it is important to remember that, as of January 1, 2025, independent taxpayers issuing Electronic Fee Receipts are subject to a 14.5% withholding rate, instead of the 13.75% applied until December 2024, thus increasing by 0.75%.
This is because the law established that, starting in 2019, these withholdings would gradually increase by 0.75% annually from 2020, culminating in a 17% rate by 2028, when the final 1% increase is applied.
This recurring adjustment in the withholding percentage applies to all issuers of Fee Receipts, as well as issuers of Third-Party Service Receipts, affecting more than 1,000,000 people in Chile. For example, in the public sector alone, there are more than 300,000 workers paid under fee arrangements. Exceptions apply to receipts issued by company directors for their board fees, where the withholding rate remains fixed at 10%.
The purpose of this increase—where directors are excluded, as they represent a small group and their social security situation was considered relatively resolved—is clear: independent workers were falling behind in social security systems. While employees under labor contracts must contribute to pension funds (AFP), health systems (Fonasa or Isapre), and various insurance schemes, independent workers previously had the discretion to decide whether to contribute. This reform mandates contributions to institutions such as health systems, disability and survivorship insurance, pension funds, and access to family allowances, among others.
Is it positive for social security? Negative because it reduces workers’ immediate cash flow? That likely depends on each reader’s perspective. However, in my view, it is important to focus on two key aspects. First, it is beneficial for both employees and independent workers to contribute to social security. In a country with nearly 2,000,000 micro-entrepreneurs—according to 2024 studies by the National Institute of Statistics (INE)—what happens to their social security coverage? Second, and equally important, at a time when political debate is centered on increasing mandatory pension savings—from 10% to 16% according to current proposals—regardless of who pays or whether the funds are allocated to individual, collective, or mixed accounts, a key question arises: will the 17% withholding rate for independent professionals by 2028 be sufficient to meet these new social security standards? It is worth noting that it took nearly 40 years since the creation of the current AFP system to incorporate fee-based workers, and today, we may once again fall short.
The message is clear and multifaceted. On one hand, companies must once again adjust their policies and parameters to account for this progressive increase in withholding rates. On the other hand, individuals must consider this higher withholding in their financial planning. Additionally, we must remain attentive to whether future social security standards currently under discussion in Congress will be extended to these instruments, especially considering that, as history has shown, increasing mandatory retirement savings is a long-term process.