Chile cancels cross-border parcel tax exemption, Chinese sellers welcome a new compliance milestone

Another tax reform update,the Chilean tax authorities announced that starting from October 25, the exemption policy for small cross-border parcels will be fully abolished. All imported goods valued between 0-500 USD will be subject to a 19% value-added tax.

This move marks the end of the era of unregulated growth for cross-border e-commerce in Chile and officially ushers in a new phase of standardized supervision.

On a deeper level, this reform advances the “tax collection checkpoint.” By shifting the fulfillment of tax obligations from “customs” to “platforms,” the Chilean government aims to ensure tax collection at the source and thoroughly resolve previous logistics bottlenecks caused by tax inspection and payment.

Image source:ey

Tax Reform Content: End of the Tax-Free Era, Comprehensive Taxation on Cross-Border Parcels

The core of this Chilean tax reform is the complete end of the tax-free history for cross-border parcels valued under 41 USD. Starting October 25, this threshold will be abolished, marking the entry of Chilean cross-border trade into a “zero-threshold taxation” era.

The new regulation strictly stipulates that all direct mail orders valued within 500 USD must uniformly pay a 19% value-added tax, achieving comprehensive tax coverage for small cross-border transactions.

For parcels valued at 500 USD and above, in addition to the 19% value-added tax, an extra 6% customs duty must also be paid.

It is worth noting that some medium-value goods will actually see a reduction in tax burden. Previously, imported parcels valued between 41-500 USD had to pay both value-added tax and import duties, but under the new regulation, only value-added tax needs to be paid, with import duties exempted.

Example of buyer prepaying value-added tax Image source: Facebook

Reform Background: Surge in Parcel Volume, Government Seeks Fair Competition

This tax reform is not without reason; behind it is the explosive growth in the number of cross-border parcels in Chile.

Data shows that the number of international direct mail parcels imported into Chile soared from 500,000 per year in 2020 to 20 million in 2023, a 40-fold increase in just three years.

More notably, 74% of these parcels were declared at a value below 41 USD, taking advantage of the then tax exemption policy.

The Chilean Ministry of Finance pointed out that a large number of low-priced goods have flooded the market by taking advantage of the tax exemption policy, placing enormous competitive pressure on local retailers and creating an unfair market environment.

The Chilean government has clearly stated three core demands for this reform: first, to resolutely plug tax loopholes and combat tax evasion; second, to promote the modernization and upgrading of the logistics system; and third, to reconstruct a fair competitive environment between cross-border e-commerce and local retailers.

It is estimated that this new tax policy could bring the Chilean government about 40 million USD in additional tax revenue annually.

 Image source:Internet

Collection Method: Platform Withholding and Payment, Optimized Customs Clearance Process

The Chilean tax reform not only involves tax rate adjustments but, more importantly, a change in the method of tax collection.

According to the new regulation, value-added tax will be withheld and paid by cross-border e-commerce platforms at the time of consumer order placement, rather than being collected and verified by customs during the clearance process as in the past.

This change in tax administration means that if the value-added tax has already been withheld by the platform during the sales process, no further tax procedures are required when the goods arrive for customs clearance in Chile, and they will enjoy fast release.

For consumers making cross-border purchases through unregistered platforms or merchants, value-added tax must still be paid at customs clearance, and these parcels will face longer customs release times.

Image source:ey

Platform Response: AliExpress and Other Platforms Launch Multiple Support Measures

In response to Chile's tax policy changes, major cross-border e-commerce platforms have quickly responded and launched various measures to help merchants cope with the challenges.

AliExpress's response strategy demonstrates a clear compliance and operational approach.

On the compliance side, the platform has achieved automated compliance procedures for merchants through system upgrades to enable withholding and payment of value-added tax. On the operational side, the platform directly helps merchants offset part of the new tax burden through special subsidies.

More importantly, the platform is directing strategic resources to overseas warehouse sellers, encouraging merchants to upgrade their supply chain models through the “local delivery” label and priority marketing activities.

Image source: AliExpress

AliExpress, Mercado Libre and other platforms have quickly responded, launching a combination of platform withholding, special subsidies, and overseas warehouse traffic support to help sellers get through the policy adjustment period.

Looking at the whole of Latin America, from Mexico raising tariffs to 33.5% to Brazil's comprehensive tax burden reaching 44.5%, a tax compliance storm targeting cross-border e-commerce is sweeping across the region.

For sellers seeking long-term development, this transformation brings not only challenges but also an opportunity to shift from price competition to value creation.