Reporting on investments in Chile and abroad
As of 1 January 2017, FCT payers, regardless of the tax system they choose, have the duty to report their local and foreign investment to the Chilean IRS.
Chilean foreign investment
The taxpayer has to file an annual affidavit, informing all the investments performed during the previous year, pointing out the amount, kind of investment, country, purpose, and any other additional information the Chilean IRS may require.
If the affidavit is not filed, the Chilean IRS will presume (except where the taxpayer proves otherwise) that such amounts constitute withdrawals of assets or amounts subject to the penalty tax established in Article 21, not being entitled to deduct the disbursement as expense for FCT purposes.
Investment in Chile
Companies or entities incorporated, resident, or domiciled in Chile and obtaining passive income are not entitled to use such investments in an abusive manner in order to reduce or defer final taxation of their owners, partners, or shareholders.
If the Chilean IRS determines the existence of abusive conduct, such investments will be subject to the penalty tax established in Article 21 of the Chilean Income Tax Law.
In order to qualify as a low-tax jurisdiction or preferential tax regime, the relevant territory must comply with two or more of the requirements set forth in new Article 41 H of the amended Income Tax Law. The Chilean IRS issued Resolution N° 124 of 2017, which provides a list of countries considered as low-tax jurisdictions or preferential tax regimes that fall under Article 41 H.
Please note that OECD member countries will never be considered as low-tax jurisdictions or preferential tax regimes.
Foreign Account Tax Compliance Act (FATCA) agreement
On 5 March 2014, Chile entered into a bilateral intergovernmental agreement (IGA) with the United States (US) in order to comply with FATCA.
Chile signed a Model 2 IGA, which is a non-reciprocal exchange of information agreement. The execution of this agreement will imply that Chilean financial institutions with US account holders, in order to avoid paying the 30% rate WHT that FATCA establishes, will have to register with the US Treasury and US IRS and sign a Foreign Financial Institutions Agreement with them in order to be FATCA compliant.
In this context, each Chilean financial institution that enters into these agreements with the US tax authorities will be required to report to the US IRS directly the individual US account holder’s information.
In accordance with the Chilean Bank Secrecy Law, Chilean financial institutions, in respect to those account holders that do not authorise them to disclose their account information to the US IRS, will only be able to disclose their information in aggregate. This will mean that the US IRS, in order to obtain the specific information of those US account holders, will need to request it directly from the Chilean IRS, under the terms of the treaty between both countries.
Taxation applicable to funds
Investment funds and mutual funds are not considered as FCT payers, but their managing entities need to keep a number of registries in order to determine the taxation applicable to their quota holders regarding the amounts attributed or distributed by the fund.
Taxation of funds is similar to taxation of shares of a stock corporation. In this sense, dividends distribution would be treated as a distribution from a stock corporation subject to PIS. In case of capital gains, it would be considered as an alienation of shares of a stock corporation, in this sense, alienation could be tax exempted if funds are regularly traded or 90% or more of their portfolio is invested in regularly traded securities.
Please bear in mind that quota holders that are not domiciled or resident in Chile are just subject to a sole tax rated 10% or tax exempted in case they invest in funds that have 80% of their assets located abroad.