International Double Tax treaty between Chile and the United States kicks in  

Franco Gorziglia,  November 29, 2023

On November 15, 2023, the Chilean Congress approved the agreement amending the International Double Taxation Agreement between Chile and the United States. Once it is enacted by the President of the Republic of Chile and the exchange of diplomatic notes takes place, it will successfully complete its processing, which was pending signature in February 2010.

Consequently, its entry into force is expected in the next few days, even though some of its benefits will be applied on the first day of the month following that date and, in its entirety, as of January 1, 2024.

What are the consequences of the application of the Agreement?

Double Taxation. As with other treaties on this matter, it implies a series of measures that seek to solve the problem of double taxation with respect to income that has its source in a State whose beneficiary is resident or domiciled in the other State, among which we can highlight:

Application of taxes in only one State. The payment for certain cross-border services or activities (business profits or benefits) could only be subject to income tax in the country of residence of the provider and not in the country from which they are paid.

Possibility of using as credit the taxes paid or withheld in the other State, even with respect to investments from a third country.

Limitation of rates to certain income:

1. Interest paid will have a maximum rate of 10% (15% during the first two years of validity), which without the Agreement could amount to 30% or 35%;
    
2. Royalties for the use of industrial property such as patents, trademarks, models, formulas and similar are limited to a rate of 2% or 10% depending on the case;
    
3. Capital Gains. It is limited to 16% compared to the current rate of 35%.
    
4. Dividends. Dividends paid by an American company to a Chilean company could be limited to 5% or 15%. Regarding dividends paid from Chile to the United States, although the 35% rate is maintained, the right is granted to use all of the credit for Corporate Tax paid, eliminating the partial integration regardless of the type of company that generates them.

Dispute resolution. The Agreement establishes specific definitions of what is considered a resident, permanent establishment and other material aspects, establishing a dispute resolution system with respect to any of these points in order to provide legal certainty.

Exchange of Information. An efficient information exchange procedure is formalized for the tax authorities of both countries, with broad powers and few limitations.

The tax area of Alessandri Abogados specializes in the comprehensive support to both foreign and local clients with investments abroad, including the application and use of international tax regulations that may be of interest to them.


By Franco Gorziglia, Partner at Alessandri Abogados

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