Chile is one of South America’s most stable economies. It’s known for low inflation, steady GDP growth, and strong financial policies. Over 97% of the population can read and write, and many workers possess highly skilled expertise across various industries. This makes it easier for businesses to find quality talent. Hiring in Chile requires understanding the country’s tax system. The Chilean tax system is managed by the Servicio de Impuestos Internos (SII). 

There are two major tax obligations in Chile. The first is the cotizaciones previsionales, and the second is the Impuesto Único de Segunda Categoría (IUSC). Understanding both types of payments is key for companies doing business in Chile. It also helps workers know what they’re earning and how their benefits are being funded. The rest of this guide breaks down all you need to know about Chile’s payroll and income tax laws.

What Is Payroll Tax in Chile?

In Chile, cotizaciones previsionales are required monthly payments that fund the country’s social security system. The money is specifically used to protect workers through public programs. These contributions cover a range of important benefits, including retirement pensions, health insurance, unemployment support, coverage for work-related injuries or illnesses, and financial help in cases of disability or death. 

Most employees in Chile pay these contributions, and employers are responsible for calculating and submitting them every month. But it’s not just full-time employees who are covered. Under Law No. 21.133, independent workers, like freelancers or contractors who issue boletas de honorarios (fee invoices), are also required to contribute. Their payments are usually handled once a year through their income tax return.

Key Institutions Managing Cotizaciones Previsionales

Aside from the SII, several public and private institutions help manage and distribute these contributions:

  • Administradoras de Fondos de Pensiones (AFPs): Private pension fund managers that handle each worker’s retirement savings account.
  • Fondo Nacional de Salud (FONASA): Chile’s public health insurance provider, which offers healthcare coverage to a large part of the population.
  • Instituciones de Salud Previsional (ISAPREs): Private health insurance companies that employees can choose instead of FONASA.
  • Administradora de Fondos de Cesantía (AFC): Manages unemployment insurance for eligible workers.
  • Instituto de Seguridad Laboral (ISL) and Mutuales de Seguridad: Provide insurance coverage for workplace accidents and occupational diseases.

Additionally, there’s the PreviRed online platform, where employers declare and pay social security contributions. 

Chile’s social security system can be complex to manage because many different agencies are involved. For companies hiring in Chile, especially from abroad, working with a Chile Employer of Record service like Remote People can make the process easier and help avoid penalties for late or incorrect filings.

Employee and Employer Contributions

Chile’s payroll payments are based on the employee’s remuneración imponible (taxable income), and each type of contribution has its own rules, rates, and income limits (Table I). These income limits, called topes imponibles, help define the maximum amount of income that can be used to calculate contributions. For workers earning more than these limits, the actual percentage of their salary going to social security is lower, which also affects the amount of benefits they might receive later on.

Employee Payroll Deductions

Contribution TypeEmployee ContributionNotes
Retirement Fund (AFP)10% of taxable incomeManaged by a private pension fund administrator (AFP)
Health Insurance7% of taxable incomeMandatory contribution for public healthcare
Unemployment Insurance0.6% of taxable salaryOnly applies to employees on indefinite contracts; for fixed-term/project-based contracts, employer pays full 3%

Employer Payroll Contributions

Employers cover social protection costs paid on top of an employee’s gross salary and are also based on taxable income, up to specific legal caps.

Contribution Type Employer Contribution Notes
Unemployment Insurance 2.4% (indefinite contracts) or 3% (fixed-term/domestic workers) Combined with employee’s 0.6% for indefinite contracts; full 3% paid by employer for others
Unemployment Insurance (long-term incentive) 0.8% Reduced rate for indefinite contracts active over 11 years
Work Accident & Illness Insurance 0.90% base + 0%–3.4% risk surcharge Rate depends on industry-specific risk classification
Disability and Survivorship Insurance (DSI) 1.78% Applies as of May 2025
SANNA Program ~0.03% Supports paid leave for parents of seriously ill children

2025 Employer Payroll Contributions in Chile

ContributionRateTaxable BaseNotes
Unemployment Insurance (AFC – Indefinite Term)2.40%131.9 UF (CLP 5,169,088) 
Unemployment Insurance (AFC – Fixed Term)3.00%131.9 UF (CLP 5,169,088) 
Work Accident & Professional Illness (ATEP)0.90%87.8 UF (CLP 3,440,834)Plus an additional 0%-3.4% based on activity risk
Disability & Survival Insurance (SIS)1.78%87.8 UF (CLP 3,440,834)To be integrated into new pension contribution structure
SANNA Levy0.03%87.8 UF (CLP 3,440,834) 
New Pension Reform Contribution (Employer)1% (from Aug 2025)87.8 UF (CLP 3,440,834)First step in gradual increase to 7% (plus SIS)

Each type of contribution has a maximum income limit that defines the highest amount of income on which contributions can be calculated. Anything earned beyond these limits is not subject to additional deductions or employer costs.

Pension, health, and disability contributions are capped at 87.8 UF (Unidad de Fomento), which is about CLP 3,440,834 (Chilean Pesos) in May 2025. Unemployment Insurance is capped at 131.9 UF (roughly CLP 5,169,088).

Payroll calculations are sensitive, and it’s important to get them right from the start. For full payroll support, compliance, and contribution management, you can depend on Remote People’s PEO service in Chile.

Personal Income Tax (PIT) in Chile

Employees in Chile also pay a direct income tax on their salary called the Impuesto Único de Segunda Categoría, or the Second Category Tax. The IUSC is a progressive tax on net taxable income calculated and withheld monthly. Employers are responsible for withholding the correct amount of IUSC and sending it to the SII based on the official monthly tax tables released by them.

The IUSC helps provide a clearer understanding of employee benefits in Chile. It uses a tiered tax table where the rate depends on your income level. Each income bracket has a set marginal rate and a corresponding fixed deduction. 

Monthly Income (CLP) Tax Rate Amount to Deduct (CLP)
Up to 939,748.50 0% 0
939,748.51 – 2,088,330.00 4% 37,589.94
2,088,330.01 – 3,480,550.00 8% 121,123.14
3,480,550.01 – 4,872,770.00 13.5% 312,553.39
4,872,770.01 – 6,264,990.00 23% 775,466.54
6,264,990.01 – 8,353,320.00 30.4% 1,239,075.80
8,353,320.01 – 21,579,410.00 35% 1,623,328.52
More than 21,579,410.00 40% 2,702,299.02

Also see our guide on average salary in Chile to learn what tax brackets your employees will fall under, which may inform how you structure your workers’ comp.

Chile’s 2025 Pension Reform

Chile’s payroll system is undergoing a major transformation with the 2025 Pension Reform. Starting in August 2025, employers must begin contributing an additional 1% toward pensions, gradually rising to 7% over nine years. Combined with the existing 1.78% Disability and Survivorship Insurance (DSI), total employer pension-related costs will reach approximately 8.5% of an employee’s taxable income. 

Once fully rolled out, the 8.5% total employer pension contribution will be divided as follows: 

Contribution AllocationPercentagePurpose
Individual AFP Account4.5%Goes directly into the employee’s personal pension fund
Seguro Social (Social Insurance)2.5%Supports new public social insurance programs
— Aporte Diferido con Rentabilidad Protegida1.5%Provides additional benefits based on years of contribution
— Women’s Pension Support1.0%Addresses pension inequality due to gender-based workforce gaps
Disability and Survivorship Insurance (DSI)1.5% (≈1.78%)Integrated into the total employer pension contribution

Navigating the new Pension Reform requires caution and attention to detail. Remote People’s Global Payroll Calculator helps you estimate your hiring costs and plan for the changes.

You should also visit our Chile services page for a more complete insight into how our experts can support your business set-up and expansion.