The State of Crypto Adoption in Chile
Source: Freepik
Chile has significantly advanced in cryptocurrency adoption in 2024. The countries rose from 89th to 24th place in global rankings in 2024, as noted in a report by Triple A. This rise indicates a significant increase in both awareness and usage of digital currencies within the country.
The Central Bank of Chile has stated that crypto-assets are not considered legal tender or recognized as foreign currency. Despite this, cryptocurrencies are widely used across the country.
"The user penetration rate, which measures the proportion of the population using cryptocurrencies, is projected to be 18.68% in 2024 and is expected to increase to 18.73% by 2025." - Statista.
Several factors contribute to Chile's growing embrace of cryptocurrencies. This growth is driven by government initiatives, regulatory advancements, and significant investments.
The Central Bank of Chile has also discussed the possibility of creating a Central Bank Digital Currency (CBDC) in May 2022.
"From objectives linked to the needs of the public, financial stability, and effectiveness of monetary policy, the Central Bank will define, at the beginning of 2022, a proposal with options and requirements for the eventual issuance of a digital peso in Chile," Central bank president Mario Marcel told lawmakers.
The Bank established the “Blockchain Observatory,” an internal body tasked with investigating the complexities and implications of adopting a CBDC in Chile. However, no concrete plans have been implemented yet.
The government allows citizens to buy, sell, and trade crypto, but it operates under the oversight of existing financial laws.
Crypto Law in Chile
Source: Freepik
Chile passed a new FinTech law in 2023 that addresses crypto assets. This law aims to foster a more competitive and inclusive financial system by integrating innovation and technology into the oversight of financial services. It came into effect on January 4, 2023, although its full implementation is still underway.
Under the Fintech Law, crypto-assets and "virtual financial assets" are defined as "digital representations of units of value, goods or services, with the exception of money, whether in national or foreign currency, which can be transferred, stored or exchanged digitally."
These assets can be digitally transferred, stored, or traded. The law comprehensively regulates all activities involving crypto assets. It recognizes them as both financial instruments and means of payment.
The legislation, scheduled to be fully implemented by February 2025, aims to bring clarity and encourage growth within the crypto industry. It requires cryptocurrency service providers, such as exchanges and digital wallet operators, to register with the CMF and follow established guidelines to ensure consumer protection and market stability.
The Fintech Law also updates banking regulations to recognize digital representations, including those using distributed ledger technology, as valid means of payment if their value is directly tied to money, whether in national or foreign currency.
Taxation of Cryptocurrencies in Chile
Source: Freepik
Chile's approach to cryptocurrency taxation aligns closely with traditional income tax principles, applying consistent rates to capital gains and other income types. Chile's tax authority, Servicio de Impuestos Internos (SII) considers cryptocurrencies taxable assets.
The Chilean Internal Revenue Service (SII) has issued specific guidelines regarding the taxation of cryptocurrencies.
Ruling No. 963/2018
Issued in May 2018, SII recognized cryptocurrency as a digital or virtual asset. Under this ruling:
- Income tax is required on capital gains from cryptocurrency transactions.
- The cost of acquiring cryptocurrency can be deducted from the income earned upon its sale.
- Cryptocurrencies are considered incorporeal, so they are not subject to Chile’s 19% Value-Added Tax (VAT). However, taxpayers must issue invoices and receipts when trading cryptocurrencies.
Ruling No. 1,474
Released in August 2020, this ruling provided further clarification for individual taxpayers involved in cryptocurrency transactions.
Guidance was provided on pricing transactions, deducting commissions from costs, and handling losses from cryptocurrency trading.
SII confirmed that cryptocurrencies do not qualify as legal tender or foreign currency under Chilean law but are categorized as digital assets.
Tax Classification
According to Article 20/5 of the Income Tax Law, income from cryptocurrency sales is subject to First Category Tax (for businesses), Global Complementary Tax (for individuals), and Additional Tax (for remittances).
Income tax applies when cryptocurrencies are used to buy goods or services, acquire other cryptocurrencies, or receive payments.
Profits from their sale or trade are taxed as part of the individual's or entity's total income, rather than subject to a separate capital gains tax. These earnings fall under the standard income tax brackets, which vary based on overall income levels.
The marginal rate for personal income tax ranges from 0.4% for those earning more than Chilean Peso 8 million to 35% for those earning over Chilean Peso 71 million annually.
Tax Rates and Corporate Regimes
Under the 2020 Tax Modernization Law, companies under the general corporate regime face a 27% profit tax rate. Small and medium-sized enterprises (with annual sales of up to Chilean Peso 200 billion or approximately USD 2.6 million) may qualify for a reduced tax rate of 25%.
SII also requires exchanges and brokers to report cryptocurrency transactions annually. Crypto Asset exchanges in Chile must also file the Annual Affidavit No. 1891. This includes reporting on the buying and selling of shares, securities, and digital assets.
These exchanges must fulfill several obligations as first-category taxpayers. They must declare the start of activities and determine their taxable base based on actual income. They must also keep records, submit affidavits and monthly payments, and file an annual tax return.
Some businesses can opt for a transparent tax regime, where only shareholders are taxed on profits.
Those offering services related to crypto assets must apply Value Added Tax (VAT) to commissions on activities like trading, transferring, or storing digital assets. Invoices or receipts reflecting the relevant VAT for these services must be issued.
Crypto Regulations in Chile
Source: Freepik
Cryptocurrency in Chile is subject to regulation, with the country actively shaping a legal framework for digital assets.
Regulatory Bodies
In Chile, the primary regulatory bodies overseeing cryptocurrency are the Financial Market Commission (Comisión del Mercado Financiero) and the Central Bank of Chile. These institutions supervise and regulate the cryptocurrency market to ensure adherence to laws and standards.
In addition to these regulatory bodies, several associations also influence the cryptocurrency landscape in Chile. Key organizations include the Crypto Valley Association, the Chilean Association of Venture Capital, and the CFA Society Chile.
Compliance Framework for Crypto Asset Providers
Crypto Asset providers must meet compliance standards set out in Ley Fintech and NCG 502. These regulations establish guidelines for corporate governance and risk management, tailored to the unique nature and scale of each provider's operations.
The level of requirements depends on factors like business volume, client base, transaction frequency, and the amount of assets managed.
The Chilean Financial Market Commission (CMF) reviews the registration application within a 30-day timeframe. The process involves paying a fee of approximately USD 400, as stated in Article 33 of Decree Law No. 3,538.
Key compliance areas include the responsibilities of the board or its equivalent, the creation of policies and control mechanisms, and the definition of roles for risk management and internal audits. This structured approach allows providers to adapt governance practices to fit their services and scale.
Additionally, cryptoasset service providers often register under the Registry of Reporting Entities of the Financial Analysis Unit (UAF) as either entities authorized to receive foreign currency or as money transfer companies. This registration subjects them to the regulations in Law No. 19.913 (Anti-Money Laundering Act) and Law No. 20.393, which outlines corporate criminal liability.
These regulations require providers to:
- Implement Know Your Client (KYC) procedures.
- Identify ultimate beneficial owners.
- Maintain manuals to prevent money laundering and terrorist financing.
- Report suspicious activities to the UAF.
- Report cash transactions to the UAF.
- Appoint a compliance officer.
- Continuously monitor for individuals on international blacklists or politically exposed persons.
- Develop a certified crime prevention model.
- Designate a crime prevention officer.
Currently, there are no specific regulatory guidelines for borrowing within the crypto sector in Chile. Yield-related activities, like earning interest on crypto holdings, also remain unregulated in the country.
Practical Usage of Crypto in Chile
Source: Freepik
Cryptocurrencies are being gradually integrated into various industries. here are some of the practical applications of cryptocurrency across various sectors in Chile
Remittances
Crypto is widely used for sending money across borders in Chile. It offers a cheaper and faster alternative to traditional remittance services. This is especially useful for families receiving money from abroad, as cryptocurrencies can bypass high fees and long wait times.
E-commerce
Some online retailers and businesses in Chile accept cryptocurrency payments. This is particularly helpful for international purchases and for those seeking an alternative to conventional banking systems.
Investment
Cryptocurrencies like Bitcoin and Ethereum are seen as alternative investment assets. Chileans who are looking to diversify their portfolios often include crypto for potential long-term growth.
Tourism
Some hotels, travel agencies, and restaurants in tourist-heavy regions in Chile are beginning to accept cryptocurrencies as payment. This caters to international tourists who find it easier to pay with crypto rather than dealing with currency exchanges.
Challenges of Crypto Adoption in Chile
Source: Freepik
The adoption of cryptocurrencies in Chile faces several challenges. They include;
Banking Restrictions
Some Chilean banks have closed accounts related to cryptocurrency exchanges, citing concerns over compliance and anti-money laundering measures. These restrictions limit the ease with which users can convert fiat money into cryptocurrencies and vice versa.
Limited Merchant Acceptance
Although some businesses accept crypto payments, widespread adoption still needs to be improved. Until more retailers and service providers integrate crypto as a payment option, its use as a currency remains restricted.
Cybersecurity Concerns
Hacks, scams, and thefts are a significant concern for cryptocurrency holders in Chile. The risk of losing funds due to poor security practices or fraudulent schemes makes people wary of entering the crypto market.
Lack of Financial Literacy
Understanding of how cryptocurrencies work and their potential risks are still low among the general population in Chile. This lack of knowledge discourages people from investing or using crypto in their daily lives.
Potential Benefits of Crypto Adoption in Chile
Source: Freepik
Cryptocurrency adoption in Chile offers several benefits. They include;
Financial Inclusion
Cryptocurrencies provide access to financial services for people who are unbanked or underbanked. Digital wallets can be used without needing a traditional bank account, helping more Chileans participate in the economy.
Inflation Protection
Cryptocurrencies can act as a safeguard against the devaluation of the Chilean peso. By holding digital assets, people can protect their savings from losing value in an inflationary economy.
Investment Opportunities
Cryptocurrencies open up new avenues for investment, providing opportunities beyond traditional assets like stocks and real estate. Investors in Chile can diversify their portfolios and potentially achieve higher returns.
Global Market Access
Cryptocurrencies enable Chileans to participate in global financial markets without barriers. This access allows individuals and businesses to engage in international trade and investment more easily.
Conclusion
Chile's cryptocurrency adoption has experienced a significant surge in recent years. As it is driven by government initiatives, regulatory advancements, and increased awareness.
The country's proactive approach to regulating digital assets, exemplified by the FinTech Law, has created a conducive environment for crypto adoption. However, hurdles such as limited merchant acceptance and cybersecurity risks remain to be addressed.
Chile is poised to further solidify its position in the global crypto market if it capitalizes on the potential benefits of cryptocurrencies.
The country can anticipate increased financial inclusion, inflation protection, and investment opportunities for its citizens as its crypto adoption continues to grow.
With ongoing support from government initiatives and a focus on technological advancements, Chile is well-positioned to expand its presence in the global crypto market in the coming years.
