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EY
Mail address:
Presidente Riesco 5435
Fourth Floor Las Condes
Santiago Chile
Street address:
Presidente Riesco 5435
Eighth Floor Las Condes
Santiago Chile
Principal Tax Contact
+56 (2) 2676-1260
Fax: +56 (2) 2676-1017
Maria Javiera Contreras +56 (2) 2676-1679 Email: maria.javiera.contreras@cl.ey.com
International Tax and Transaction Services – International Corporate Tax Advisory
Felipe Espina +56 (2) 2676-1136 Email: felipe.espina@cl.ey.com Juan Pablo Navarrete +56 (2) 2676-1136 Email: juan.navarrete@cl.ey.com Nicolas Brancoli +56 (2) 2676-1681 Email: nicolas.brancoli@cl.ey.com
International Tax and Transaction Services – Transfer Pricing
Janice Stein +56 (2) 2676-1193 Email: janice.stein@cl.ey.com
International Tax and Transaction Services – Tax Desks Abroad
Sofia Hernandez +1 (212) 773-5528 (resident in New York) Email: sofia.d.hernandez@ey.com Matías Moroso +44 (20) 7903-0261 (resident in London) Email: matias.moroso@uk.ey.com
Business Tax Advisory
Alicia Domínguez
+56 (2) 2676-1207
Email: alicia.dominguez@cl.ey.com
Pablo Greiber +56 (2) 2676-1372
Email: pablo.greiber@cl.ey.com Victor Fenner +56 (2) 2676-1442
Tax Policy
Maria Javiera Contreras
Tax Controversy
Carlos Martinez
Global Compliance and Reporting
Email: victor.fenner@cl.ey.com
+56 (2) 2676-1679
Email: maria.javiera.contreras@cl.ey.com
+56 (2) 2676-1000
Email: carlos.martinez.c@cl.ey.com
Juan Antonio Rivera +56 (2) 2676-1217
Email: juan.antonio.rivera@cl.ey.com
International Tax and Transaction Services – Transaction Tax Advisory Maria Javiera Contreras
People Advisory Services
Juan Andrés Perry
Indirect Tax
+56 (2) 2676-1679
Email: maria.javiera.contreras@cl.ey.com
+56 (2) 2676-1191
Email: juan.andres.perry@cl.ey.com
Maria Javiera Contreras +56 (2) 2676-1679 Email: maria.javiera.contreras@cl.ey.com
Legal Services
Pedro Lluch
A. At a glance
+56 (2) 2676-1945 Email: pedro.lluch@cl.ey.com
Corporate Income Tax Rate (%) 27 (a)
Capital Gains Tax Rate (%) 35 Branch Tax Rate (%) 27 (a)
Withholding Tax (%)
Dividends 35 (a)(b)(c)
Interest 35 (b)(d)
Royalties from Patents, Trademarks, Formulas and Similar Items 0/15/20/30 (b)(e) Technical Services 0/15/20 (f)
Other Fees and Compensation for Services Rendered Abroad 35 (b) Branch Remittance Tax 35 (a)(g)
Net Operating Losses (Years) Carryback 0 Carryforward Unlimited
(a) For further details, see Section B. (b) The tax applies to payments to nonresidents. (c) The 35% tax applies to the amount of the grossed-up dividend. One hundred percent of the corporate tax paid by the company can be used as a credit against the withholding tax, with specific rules depending on the type of company and residence of the foreign shareholder or partner.
(d) A reduced rate of 4% applies to certain interest payments including, but not limited to, interest paid on loans granted by foreign banks, insurance compa nies, financial institutions, and interest paid with respect to import operations. (e) No withholding tax is imposed on payments related to standard software if certain requirements are met. A reduced withholding tax rate of 15% applies to payments with respect to the following:
• Invention patents
• Models
• Industrial drawings and designs
• Layout sketches or layouts of integrated circuits
• New vegetable patents
• Use or exploitation of computer programs (software)
The reduced tax rate does not apply to payments made to companies resident in jurisdictions considered to be preferential regimes. As a result, the with holding tax rate for such payments is 30%. A reduced withholding tax rate of 20% applies to payments for television broadcasting and cinematographic materials.
(f) A 15% rate applies to payments for engineering, technical assistance, profes sional and other technical services rendered in Chile or abroad. However, if the payments are being made to a company domiciled in a jurisdiction considered to be a preferential regime, the withholding tax rate is 20%. Exceptionally, payments abroad made as consideration for technical assistance may be exempted from withholding tax if ruled by Customs to be linked to the exporta tion of services.
(g) The 35% tax applies to the amount of the grossed-up dividend. One hundred percent of the corporate tax paid by the branch can be used as a credit against the withholding tax, with specific rules depending on the type of company and residence of the foreign shareholder or partner.
B. Taxes on corporate income and gains
Corporate income tax. Chilean resident entities and branches of foreign entities are subject to income tax on their income from worldwide sources. A resident entity is one that is incorporated in Chile. Corporate income tax is applied annually to accrued net income, with the exception of foreign-source income, which is generally computed on a cash basis. Taxable results of foreign branches and passive income of controlled foreign corporations (see Section E) are recognized on an accrual basis.
Rates of corporate tax. The corporate income tax rate is 27%. Small to medium-size entities are subject to corporate income tax at a rate of 10% (for the 2021 and 2022 calendar years) and at a rate of 25% for the following calendar years (certain requirements need to be met).
Corporate tax paid by a company is creditable against the with holding tax applicable to the distribution of profits to the com pany’s partners or shareholders.
Dividends. Dividends received from foreign subsidiaries are taxed as ordinary income. A foreign tax credit is available with respect to such dividends.
Dividend distributions between resident entities are exempt from tax.
Dividends paid by a Chilean company to a nonresident share holder or partner (entity or individual) are subject to a 35% with holding tax.
Corporate tax paid by the company is creditable against the divi dend withholding tax.
For distributions abroad, it is possible to use 100% of corporate tax paid by the company (27%) with the following distinctions:
• On dividend distributions to shareholders or partners who are resident in a non-tax treaty jurisdiction, 35% of the corporate tax credit is refunded to the treasury (in the manner of a higher resulting withholding tax), which translates to an overall tax of 44.45%.
• On dividend distributions to shareholders or partners resident of a tax treaty jurisdiction, no corporate tax credit refund is applicable, which translates to an overall tax of 35%.
For these purposes (that is, the refund of 35% of the corporate tax credit depending on country of residence of shareholder or partner), tax treaties signed before 1 January 2020 and not yet en forced will be deemed valid tax treaties until 2026.
For small and medium-size entities, it is possible to use 100% of the corporate tax paid by the company (10% for the 2021 and 2022 calendar years; 25% onward) with no corporate tax credit refund obligation, regardless of the jurisdiction of the residence of the shareholder or partner (overall corporate tax of 35%).
This withholding tax rate and structure are not reduced or modified, respectively, by Article 10 of valid tax treaties (“the Chilean clause”).
Mining tax. A special tax on mining activities is imposed on individuals or legal entities that extract minerals subject to concession and sell these minerals in any state of production. The tax is imposed at progressive rates ranging from 0% to 14%, depending on the amount of the sales and the operational margin of the taxpayer. The tax base is corporate income with certain adjustments.
Sales made by related mining entities are attributed to the tax payer for purposes of determining the tax rate.
The mining tax is imposed in addition to the income tax. However, the mining tax may be deducted as an expense for income tax purposes for the year in which the tax is due.
Capital gains. In general, capital gains recognized by foreign investors are subject to a 35% tax. As a general rule, direct or indirect transfers of Chilean shares must be done at fair market value.
Sales of shares of companies listed on the stock exchange are exempt from income tax under certain conditions. Under certain double tax treaties, the tax rate on capital gains related to direct transfer of shares may be reduced to 20%, 17% or 16%.
Indirect transfers of Chilean shares are subject to capital gains tax at a rate of 35% if a nonresident entity transfers its indirect inter est in Chile under either of the following conditions:
• The nonresident seller transfers at least 10% of its shares in the indirect holding entity and either of the following circumstanc es exists:
— At least 20% of the fair market value of the total shares held by the seller derives from the fair market value of the Chilean underlying assets.
— If, at the date of the transfer, the fair market value of Chilean underlying assets is equal to or greater than approximately USD180 million proportionally.
• The seller is incorporated in a jurisdiction considered preferen tial (with certain exceptions).
Tax-free reorganization rules (among the same economic group) are available for both direct and indirect transfers if certain requirements are met.
Administration. All accounting periods in Chile must end on 31 December. Income taxes must be paid during the month of April.
Provisional monthly payments on account of final annual income tax are due on the 12th day of each month.
Foreign tax relief. A foreign tax credit may be claimed up to a limit of 35% of the foreign-source income, depending on the nature of the income and the existence of a tax treaty.
C. Determination of trading income
General. Taxable income, determined in accordance with gener ally accepted accounting principles, includes all profits, with the exception of specified items that are not considered income for tax purposes.
In general, all expenses that have the capability of producing income (in the corresponding calendar year or potentially in the future), duly sustained and justified, may be deducted to determine taxable income. Disbursements related to transaction contracts between unrelated parties (to prevent litigation or settle an existing one) are deductible. Bad debts over 365 days between unrelated parties are deductible.
Interest associated with investment in Chilean companies is deductible for corporate tax purposes.
In general terms, expenses are deducted on an accrual basis. However, cross-border disbursements to foreign related parties are deductible on a cash basis and only after the respective with holding tax is declared and paid.
Royalty payments to a related party abroad (a relationship strict ly for the purposes of the application of this rule) may be subject to additional deductibility restrictions.
Inventories. For inventory valuation, the first-in, first-out (FIFO) method and the weighted average cost method are accepted by law. A corresponding monetary correction must be added to cost.
Monetary correction. The Income Tax Law contains monetary adjustment rules. These rules, known as monetary correction, require taxpayers to revalue certain assets and liabilities annually based on the changes reflected in the consumer price index (CPI) and in foreign-exchange rates. The different indices that are used to adjust assets and liabilities may result in taxable profits or losses.
The following adjustments must be made for monetary correc tion purposes:
• The initial net value of fixed tangible assets is restated based on the change in the CPI, which is fixed monthly by the National Statistical Service. Depreciation is computed on the value of the assets after restatement.
• Inventories existing at the balance-sheet date are restated to their replacement cost.
• Credits, rights and liabilities that are in a foreign currency or linked to price indices are adjusted based on the change in the foreign-exchange rate or the relevant index. Investments in for eign entities are treated as foreign-currency denominated assets.
Depreciation. Depreciation must be calculated using the straightline method. The tax authority has established the following normal periods of depreciation.
Manufacturing industry and trade Years
Machinery
Heavy tools
Light tools
General installations
Cars, pickups, station wagons and buses
computer systems, peripherals and similar items
Building and mining industries Years
Solid buildings 80
Semisolid buildings 20 to 50
Buildings of light materials
Bulldozers, tractors, Caterpillars and other machines employed in heavy construction
Drilling equipment, internal combustion engines, soldering equipment and similar equipment
Machines employed in mining activities (general rate)
Annual depreciation rates must be applied after the revaluation of fixed assets according to the rules of monetary correction (see Monetary correction). Accelerated depreciation may be applied to new or imported fixed assets and to imported fixed assets with normal useful lives of three years or more. The accelerated method allows the calculation of depreciation based on a useful life for an asset equivalent to one-third of the normal useful life established by the Chilean tax authorities. However, accelerated depreciation may be used only in determining trading income for corporate tax purposes.
One hundred percent of the value of fixed assets acquired during the period of 1 June 2020 to 31 December 2022 may be claimed as depreciation in the first year of the assets’ useful life. Other transitory depreciation regimes and depreciation benefits are available depending on the size of the company and nature of the assets.
Relief for losses. Losses may be carried forward without a time limit. If a qualified change of ownership occurs, accumulated tax losses may not be deducted from income generated after the own ership change.
The carryback of losses is not available.
D. Value-added tax
Value-added tax (VAT) applies to sales and other transactions regarding tangible personal property, as well as to payments for certain services. It also applies to the habitual sale of real estate. The general tax rate is 19%. VAT is imposed under a credit-debit system.
E. Miscellaneous matters
Foreign-exchange controls. The Central Bank of Chile must be informed of all transactions exceeding USD10,000. Other annual information requirements are imposed.
Taxpayers must report annually (by a sworn statement that must be filed each year) their permanent investments in foreign com panies, investments in foreign branches and details regarding their foreign-source income.
Individuals or entities domiciled or resident in Chile must inform the Chilean Internal Revenue Service (IRS) if they become trust ees or administrators of trusts created in accordance with foreign law.
Transfer pricing. Chilean transfer-pricing regulations are in line with the Organisation for Economic Co-operation and Development (OECD) guidelines.
Acceptable transfer-pricing methods include the following:
• Comparable uncontrolled price
• Resale price
• Cost-plus
• Profit-split
• Transactional net margin
Any other method may be used if none of the above methods applies to the transaction. The most suitable method should be used, taking into account the facts and circumstances of each related-party transaction.
Taxpayers must file an annual sworn statement identifying relatedparty transactions and transfer-pricing methods, and providing other information requested by the Chilean IRS through regula tions. In addition, taxpayers must keep all relevant information supporting compliance with the transfer-pricing rules.
County-by-Country (CbC) regulations have been in force in Chile since 2017.
In addition, Master File and Local File Sworn Statements must be submitted to the Chilean IRS if certain conditions are met.
Debt-to-equity rules. Excess indebtedness exists if the “debt” of a Chilean entity exceeds three times its tax equity (capital propio tributario; financial equity with certain adjustments). “Debt” includes all debt, regardless of whether it is foreign or local or related or unrelated, as well as the debt at the level of the com pany’s permanent establishments abroad.
If excess indebtedness is triggered, a 35% surtax applies on inter est if both of the following circumstances exist:
• The interest is paid abroad due to related-party (or deemed related-party) debt.
• The interest benefits from a reduced withholding tax rate (4% under domestic law or tax treaty rate).
In this case, the applied withholding tax may be used as a credit by the Chilean debtor who must bear the 35% penalty tax. The concept of relationship also includes any type of guarantee.
Controlled foreign corporations. In general, foreign-source income is taxed on a cash basis. However, under the controlled foreign corporation (CFC) rules, Chilean resident taxpayers are taxed on an accrual basis on passive income received or accrued by a CFC.
Under the CFC rules, passive income includes the following:
• Dividends or profit distributions from non-controlled entities
• Interest (unless the controlled entity is a bank or financial insti tution)
• Royalties (unless derived from research and development proj ects)
• Capital gains
• Income from the lease of real property (unless the exploitation of real property is the principal activity of the controlled entity)
• Income from the assignment of certain assets
• Specified Chilean-source income
Control of a foreign entity is deemed to exist in any of the fol lowing circumstances:
• 50% or more of the capital, profit or voting rights is directly or indirectly owned by a Chilean taxpayer.
• The Chilean taxpayer has a decisive influence on the adminis tration of the foreign entity.
• The foreign entity is domiciled in a country or territory with a preferential tax regime, unless proven otherwise (that is, a for eign entity is deemed controlled if it is domiciled in a tax haven or preferred jurisdiction, unless the Chilean taxpayer demon strates that it does not control it).
F. Treaty withholding tax rates
The table below lists the withholding tax rates under the Chilean treaties in force. All of these treaties are based on the OECD model convention.
Patent and know-how
Dividends Interest (f) royalties % % %
Argentina 10/15 (a) 4/12 (b)(d) 3/10/15
Australia 15 (a) 5/10 (b)(d) 5/10 (c)
Austria 15 (a) 4/5/10 (b)(d) 2/10 (c)(d)
Belgium 15 (a) 4/5/15 (b) 5/10 (c)
Brazil 10/15 (a) 15 15
Canada 10/15 (a) 10 (b)(d) 10 (c)(d)
China Mainland 10 (a) 4/10 (b)(d) 2/10
Colombia 0/7 (a) 5/15 10 (c)
Croatia 5/15 (a) 5/15 5/10
Czech Republic 15 (a) 4/10 (b)(d) 5/10
Denmark 5/15 (a) 4/5/10 (b)(d) 2/10 (c)(d)
Ecuador 5/15 (a) 4/10 (b)(d) 10 (c)
France 15 (a) 4/5/10 (b)(d) 2/10 (c)(d)
Ireland 5/15 (a) 4/5/10 (b)(d) 2/10 (c)(d)
Italy 5/10 (a) 4/10 (b)(d) 2/10 (c)(d)
Japan 5/15 (a) 4/10 (b) 2/10 (c)
Korea (South) 5/10 (a) 4/5/10 (b)(d) 2/10 (c)(d)
Malaysia 5/15 (a) 15 (b) 10
Mexico 5/10 (a) 5/10 (b)(d) 10 (c)(d)
New Zealand 15 (a) 10 (b) 5/10 (c)
Norway 5/15 (a) 4/5/10 (b)(d) 2/10 (c)(d)
Paraguay 10 (a) 10/15 (b) 15 (c)
Peru 10/15 (a) 15 15 (c)
Poland 5/15 (a) 4/5/10 (b)(d) 2/10 (c)(d)
Portugal 10/15 (a) 5/15 (b) 5/10 (c)
Russian Federation 5/10 (a) 15 5/10
South Africa 5/15 (a) 5/15 5/10
Spain 5/10 (a) 4/5/10 (b)(d) 2/10 (c)(d)
Sweden 5/10 (a) 4/5/10 (b)(d) 2/10 (c)(d)
Switzerland 15 (a) 4/5/10 (b)(d) 2/10 (c)(d)
Thailand 10 (a) 10/15 10/15
United Kingdom 5/15 (a) 4/5/10 (b)(d) 2/10 (c)(d)
Uruguay 5/15 (a) 4/15 (b) 10
Non-treaty jurisdictions 35 (f) 4/35 (g) 15/30 (e)
(a) With respect to Chile, the treaty withholding tax rates for dividends do not apply to the 35% withholding tax applicable under domestic law as long as the corporate tax is creditable against the withholding tax. The 35% tax applies to the amount of the grossed-up dividend. One hundred percent of the corporate tax paid by the Chilean company is creditable against the withhold ing tax borne by a nonresident shareholder.
(b) These treaties have a most-favored nation (MFN) clause with respect to interest.
(c) These treaties have an MFN clause with respect to royalties. In the case of the Peru treaty, the clause applies after a five-year period beginning on the effec tive date of the Chile-Peru treaty.
(d) The rates have been expressly ratified by respective countries as a result of the applicability of an MFN clause.
(e) The withholding tax rate is reduced to 15% for payments with respect to the following:
• Invention patents
• Models
• Industrial drawings and designs
• Layout sketches or layouts of integrated circuits
• New vegetable patents
• The use or exploitation of computer programs (software)
The reduced tax rate does not apply to payments made to companies resident in jurisdictions considered to be preferential regimes. The withholding tax rate for such payments is 30%.
(f) The 35% tax applies to the amount of the grossed-up dividend. Up to 100% of the corporate tax paid by the Chilean company is creditable against the withholding tax borne by the nonresident shareholder, depending on the tax regime of the Chilean company.
(g) Under Chilean domestic law, a reduced 4% tax rate applies to the following interest payments:
• Interest paid on loans granted by foreign banks, financial institutions and insurance companies
• Interest paid on bonds
• Interest paid with respect to import operations
Chile has signed a tax treaty with the United States, which is awaiting ratification by the United States. Chile has also signed tax treaties with India, Netherlands and the United Arab Emirates, for which ratification is pending.