Chile

Dividends paid to a non-resident recipient are subject to a 35% withholding of ‘additional’ tax, with the FCT paid at the corporate level being totally or partially creditable against this WHT, depending on the income tax system to which the source entity is subject to. This credit is added to the amount that is distributed to form the taxable base for Additional WHT. Consequently, the tax burden for a non-resident recipient of dividends, including taxes at the company level, is 35% if subject to the SME regime or resident in a DTT country and 44.45% in case it is subject to PIS and it is not resident in a DTT country.

If the entity is subject to the SME regime, the foreign recipient of the dividends will be able to credit 100% of the FCT paid at the entity level. If the entity is subject to the PIS and the foreign recipient of the dividends is resident in a country with which Chile has a DTT in force, the foreign taxpayer will be able to credit 100% of the FCT paid at the entity level against its Additional WHT. Consequently, their total Chilean tax burden will be 35%.

On the contrary, if the entity distributing the dividend is subject to the PIS, but the foreign recipient of such dividends is not domiciled in a country with which Chile has a DTT in force, the taxpayer will be able to credit against its Additional WHT only 65% of the FCT paid at the entity level. Thus, foreign taxpayers in this situation will have a total Chilean tax burden of 44.45% (see the Taxes on corporate income section).

Branches are subject to a 35% WHT rate on amounts remitted or withdrawn, less the FCT credit. See the Branch income section for more information.

Interest paid to non-residents is subject to WHT at a general 35% rate. Interest on loans granted by foreign banks or financial institutions is subject to a sole 4% WHT. Thin capitalisation rules requesting a 3:1 debt-to-equity ratio become applicable when the debt generating interest subject to the lower than 35% rate is secured by related entities.

Royalties paid to non-residents are subject to the WHT at a 30% rate. Royalty payments in connection to software are subject to Additional WHT at a 15% rate, unless the software is non-customised or standard, in which case it is exempted. Such rate is increased in case the beneficiary of the payment is resident in a tax haven. The Productivity Law eliminated the rate increase in case software-related payments were made to related parties.

Tax treaties

The following table shows the higher and lower rates of WHT applicable by Chile and the countries with which DTTs exist. The application of one or the other rate will depend on the specific provisions of each treaty.

Please note that at the end of 2023 the DTT between Chile and the United States was finally approved after years of processing and entered into force on 19 December 2023. 

As for the effective dates, with respect to taxes withheld at source, the treaty is effective for amounts paid or credited on or after the first day of the second month following the date of entry into force, thus effective on 1 February 2024. With respect to other taxes, the treaty is effective for taxable periods beginning on or after 1 January of the calendar year immediately following the date of entry into force, i.e. 1 January 2024. Information exchange provisions are effective from the date of entry into force.

Among other matters, the DTT will reduce the WHT rates on dividends, interest, and royalties paid from the United States to Chile, and vice versa.

Please note that Chile has in all its DTTs the so-called ‘Chilean Clause’, pursuant to which, Chile does not grant any remedy regarding WHT on dividends as long as the corporate tax can be fully creditable against the WHT on dividends. Consequently, WHT rules on dividends are fully applicable in DTT scenarios.

Notes

1. 15% as a general rule. 4% or 12%, depending on the interest source. If the most favoured nation clause applies, the general rule rate of 15% cannot be reduced further than 12%.
2. 5% if the interest is paid to a financial institution. 10% in all other cases. However, Chile may tax interest arising in the country at a 15% rate. Most favoured nation clause just commands to start negotiations.
3. 15% as a general rule. Interest arising from bank or insurance company loans, bonds, some securities that are regularly negotiated on stock markets, and credit sales of industrial equipment is taxed at a 5% tax rate. Most favoured nation clause with OECD members (10% and 4%, respectively, in case of Ireland and United Kingdom).
4. 15% as a general rule. If the most favoured nation clause applies, the rate cannot be reduced further than 10%.
5. 4% if the beneficiary is a bank or an insurance company. 15% in all other cases. Please note that, as of 2019, a 10% rate will apply, which will trigger the application of several most favoured nation clauses.
6. 5% if the beneficiary is a bank or an insurance company. 15% in all other cases. In case of Czech Republic, the interest WHT rate is 4% and 10%, respectively, due to the application of most favoured nation clause.
7. 15% as a general rule. It could be 5% by the application of the most favoured nation clause. In case of Denmark and Poland, the interest WHT rate is 10% and 4%, respectively, due to the application of the most favoured nation clause.
8. 10% by the application of the most favoured nation clause. 15% in all other cases.
9. 4% if the beneficiary is a bank, an insurance company, a financial institution, or arising from indebtedness arising as part of the sale on credit of machinery or equipment. 15% in all other cases. Please note that, as of 2019, a 10% rate will apply, which will trigger the application of several most favoured nation clauses.
10. The most favoured nation clause applies only if the other country decides to exempt interests.
11. 15% as a general rule. If the most favoured nation clause applies, 10% as a general rule, 5% if interest is paid to a bank.
12. 15% as a general rule. 10% if interest is paid to banks or insurance companies, or if the most favoured nation clause applies. If the most favoured nation clause applies, rate cannot be reduced further than 10%.
13. 10% if the beneficiary is a bank or an insurance company. 15% in all other cases. Most favoured nation clause is applicable with some restrictions.
14. 15% as a general rule. 5% for interest derived from bonds and some securities that are regularly negotiated on stock markets. 10% for interest arising from bank or insurance company loans and credit sale of machinery or equipment. The foregoing is reduced to 5% by most favoured nation clause when Portugal applies a Directive of the EU Council.
15. 5% if the beneficiary is a bank or an insurance company. 15% in all other cases. In case of South Korea, the interest WHT rate is 4% and 10%, respectively, due to the application of the most favoured nation clause.
16. 10% if the beneficiary is a bank or an insurance company. 15% in all other cases.
17. 15% as a general rule. 3% for the use of, or right to use, news. 10% for the use of, or the right to use, any copyright of literary, artistic, or scientific work, or for the use of, or the right to use, a patent, brand, design or model, blueprint, formula or secret procedure, or for the use of, or the right to use, industrial, commercial, or scientific equipment, the foregoing just in case the beneficiary is the author or the author’s heirs.
18. 10% as a general rule. 5% is applicable for the use of, or the right to use, some equipment. Most favoured nation clause just commands to start negotiations.
19. 10% as a general rule. 2% is applicable for the use of, or the right to use, some equipment. Most favoured nation clause with OECD members.
20. 15% as a general rule. If the most favoured nation clause applies, rate cannot be reduced further than 10%.
21. 10%. Most favoured nation clause applies.
22. 10% as a general rule. 2% is applicable for the use of, or the right to use, some equipment. Most favoured nation clause (doesn't apply automatically).
23. 15%. Most favoured nation clause may reduce rates until 10%.
24. 15%. Most favoured nation clause may reduce rates until 5%.
25. 15%. Most favoured nation clause applies.
26. Most favoured nation clause applies with limitations.
27. 15% as a general rule. 5% is applicable for the use of, or the right to use, some equipment. Most favoured nation clause with OECD members.
28. 10% as general rule. 5% is applicable for the use of, or the right to use, some equipment.
29. 15% as a general rule. 10% is applicable for the use of, or the right to use, some equipment. Most favoured nation clause with OECD members.
30. 15% as general rule. 10% for the use of, or the right to use, any copyright of literary, artistic, or scientific work, or for the use of, or the right to use, industrial, commercial, or scientific equipment.
31. 15% as a general rule. Interest arising from bank or insurance company loans, bonds, some securities that are regularly negotiated on stock markets, and credit sales of industrial equipment is taxed at a 5% tax rate.
32. 10% as general rule. 2% is applicable for the use of, or the right to use, some equipment.
33. 4% if the beneficiary is a bank, an insurance company, a financial institution, or derived from indebtedness arising as part of the sale on credit of machinery or equipment. 15% in all other cases. Most favoured nation clause applies.
34. 4% if the beneficiary is a bank, an insurance company, a financial institution, or derived from indebtedness arising as part of the sale on credit of machinery or equipment. 10% in all other cases.
35. 5% if the beneficiary is a bank, an insurance company, gross income derived from the active and regular conduct of a lending or finance business involving transactions with unrelated persons, where the enterprise is unrelated to the payer of the interest, or from indebtedness arising as part of the sale on credit of machinery or equipment. 15% in all other cases.
36. The DTT between Chile and the United States generally permits taxation of interest at a 10% rate (15% for the first five years after the interest provisions enter into force), except that a 4% rate will apply in certain cases. The 4% rate does not apply to ‘back-to-back’ loans.
37. According to the DTT between Chile and the United States, royalties may be taxed at a 2% rate for payments made as consideration for the use of, or the right to use, industrial, commercial, or scientific equipment. The rate is 10% for payments made as consideration for the use of, or the right to use, any copyright of literary, artistic, scientific, or other work (including computer software, cinematographic films, audio or video tapes or disks, and other means of image or sound reproduction), any patent, trademark, design or model, plan, secret formula or process, or other like intangible property, or for information concerning industrial, commercial, or scientific experience.
38. 10% as a general rule. 2% is applicable for the use of, or the right to use, some equipment.

Please note that notwithstanding most DTTs provide that interest paid to a bank or financial institution will be subject to a 5% or 10% WHT, as Chile applies a 4% Additional WHT rate to interest paid to foreign banks or financial institutions, the local tax rate is applied instead of the treaty rate, as local law is more favourable.

Please also note that an Exchange of Information Convention with Bermuda, Guernsey, Jersey, and Uruguay, as well as a Multilateral Convention, is in force.