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A platform for regional investment with a moderate tax impact

Chile

Law No. 20154, published on 9 January 2007

This Law modifies how Additional Tax is charged on payments made to persons or entities not domiciled or residing in Chile for the use or enjoyment of certain intangible goods by including the tax applicable to interest rates and professional services, reducing the applicable rate, and making certain rules more flexible.

In relation to patents, software, utility models, diagrams and designs, the applicable tax rate is halved from 30% to 15%, except in cases where the foreign entity is domiciled in a tax haven or is related to the Chilean entity.

As for the taxation of interest, the scope of the rules applying to cases in which interest paid abroad qualifies for a reduced 4% tax rate has been broadened. Note that, in general, the applicable tax rate is 35%.

Similarly, the Additional Tax rate applicable to fees paid for engineering or general technical advisory services has been cut from 20% to 15%, except in cases where the foreign entity is domiciled in a tax haven or is related to the Chilean entity.

Law No. 20171, published on 16 February 2007

This Law introduces modifications to unilaterally mitigate the effects of double taxation with a country that has not signed a tax treaty with Chile.

Accordingly, effective 1 January 2007, dividends received or profits withdrawn by a Chilean company from a foreign company will qualify for a credit against Chilean taxes, subject to a maximum limit of 30% for taxes paid abroad.

At corporate level, the tax credit limit is 17% (equal to the Chilean corporate income tax rate) and the 13% difference can be taken against the shareholders' personal taxes or the Additional Tax which affects foreign shareholders when profits are withdrawn.

This rule does not apply to other types of income, namely, capital gains or income from movable or immovable property.

It is worth mentioning that the Chilean tax authorities have not yet made any rulings in connection with this statutory modification.

Taxand's Take

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