Comprehensive Guide: AFP Fund Withdrawal for Foreign Employees in Chile

Understanding Law 18.156 for HR Managers: Key Exemption for Foreign Professionals

 

Chile's social security system typically requires all employees to contribute to the national pension fund. However, Law 18.156 (from July 1988) offers a unique exemption for foreign technical professionals under specific conditions.

 

          I.     UNDERSTANDING LAW 18.156 (Exemption Criteria)

 

To qualify for the exemption, foreign employees must:

 

  1. BE CERTIFIED PROFESSIONALS: Holding specialized technical or professional qualifications, which can be accredited through educational documents justifying specialized or professional studies officially legalized, and if necessary, translated by the Ministry of Foreign Affairs in Chile.

 

  1. MAINTAIN FOREIGN SOCIAL SECURITY COVERAGE: The foreign employee must be enrolled in a social security and/or pension system outside of Chile, of any legal nature, that provides coverage for critical life events (including at least illness, disability, old age, and death). This requirement must be proven through properly legalized certification from the corresponding social security institution or representing authority (for instance, consulate in Chile).

 

  1. CONTRACTUAL DECLARATION: In the employment contract, the foreign employee explicitly states his/her intention to maintain affiliation with the social benefits system of their country of origin.

 

This exemption covers both pension and health insurance contributions in Chile, but does not exempt from employee's compensation insurance against work-related accidents and occupational diseases (Law 16.744) or unemployment insurance.

 

        II.     POSSIBILITY OF WITHDRAWING FUNDS CONTRIBUTED IN CHILE

 

While the objective of the exemption is to avoid pension contributions in Chile at all, it is true that many foreigners avail themselves of Law 18.156 but still contribute in Chile, either to gain quick access to healthcare and be covered in case of medical/sick leave for instance.

 

For this reason, Article 7 of the same law 18.156 grants the right to request the full withdrawal of the accumulated AFP funds, subject to the specific conditions mentioned above in the exemption clause.

 

      III.     REQUIRED DOCUMENTATION

 

To process the AFP fund withdrawal, the foreign employee must submit the following documents:

 

  1. Professional or technical degree/certification through a university degree or similar, apostilled or legalized by the Chilean Consulate in the country of origin and by the Ministry of Foreign Affairs in Chile.
  2. Certificate of affiliation to a social security pension system abroad, which provides benefits in cases of illness, disability, old age, and death, and covers the entire period of contribution in Chile.
  3. Employment contract or Appendix, expressing the enrollment to a social security system abroad (Clause of Law 18.156).
  4. Pension fund withdrawal request form provided by the specific AFP (most companies have an online application system in place). This request can be submitted by a representative, who must prove their status as a proxy through a power of attorney granted by the affiliate before a Public Notary, explicitly authorizing the withdrawal of pension funds.

 

Important: Documentation must be properly legalized or apostilled; otherwise, the AFP cannot process the withdrawal request under Law 18.156.

 

      IV.     IMPORTANT CONSIDERATIONS

  • One-time withdrawal option: The AFP funds withdrawal can only be requested once per employer.
  • Subject to Second Category Unique Tax (Income Tax): Once the fund withdrawal is approved, the AFP will charge the Second Category Unique Tax and deposit the net amount after income taxes. To calculate the individual tax impact, please refer to SII website.
  • Cannot be repeated if future contributions are made: If the employee were to contribute again in Chile, they could no longer request a refund of those new contributions.
  • The documentation presented by the affiliate will be analyzed by the AFP´s Legal Department, which must give its response no later than the five business days from the date of submission of the request.
  • If the request is approved, within the next three days, the Administrator must provide the funds in the personal account available to the affiliate, communicated by email to the affiliate. If the request is rejected, the affiliate will be notified by email within the same period.

 

        V.     PRACTICAL ADVICE FOR HR MANAGERS

  • Ensure comprehensive documentation for foreign technical employees: If any employee wishes to be exempt from contributing in Chile, ensure you have proof that the employee is effectively covered by a social security system abroad, as according to Circular No. 533 of the Superintendency of Pensions in Chile. The employer must be prepared to prove the exceptional situation of the employee at any time to the corresponding administrative body or Pension Funds Administrator.
  • Include explicit Law 18.156 clause in employment contracts for all foreigner employees in your company, meeting the requirements of Law 18.156.
  • Be prepared to support employees through the withdrawal process as it is part of the HR benefits portfolio and can be an important evaluation criteria for foreigners.

 

      VI.     POTENTIAL CHALLENGES

Foreign workers and HR managers may encounter complexities such as:

  • Document legalization requirements
  • Tax implications
  • Timing of withdrawal processes
  • Differences in international social security systems

    VII.     CONCLUSION

Law 18.156 provides a flexible mechanism for foreign technical professionals working in Chile to manage their social security contributions. Proper understanding and meticulous documentation are key to successfully navigating this process.

Need Professional Guidance?

If you find the AFP fund withdrawal process challenging or require detailed assistance, do not hesitate to contact us.