Chile

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  • Publicado : 2 de diciembre de 2010
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Chile: Limits, benefits and interpretation of the new Income tax treaty between Chile and the US.

In a ceremony celebrated in Washington D.C. on February 4th, 2010, the authorities of Chile andthe US signed a tax treaty to avoid double taxation which will benefit individuals and enterprises that invest or have business relationships in one or the other country. In case of the US, this isonly the second tax convention subscribed with a South American country.
Even though the treaty has not yet entered into effect, which will happen after it is approved by the Chilean Congress and the USSenate, once it concludes its proper legislative process taxpayers from both countries will strongly benefit from this agreement.
In the same way as most treaties do, the convention between Chileand the US limits the maximum withholding tax rate applicable to certain payments. This is expressed, for instance, in the limitation of the withholding tax on dividends (15% in general cases, and 5% ifthe beneficial owner is a company that owns directly at least 10% of the voting stock of the company paying the dividends), interests (10% in general cases, and 4% when the beneficial owner is abank, an insurance company, a financial institution on transactions with unrelated parties, an enterprise that sells machinery or equipment for the credit of such machinery or equipments, or any otherenterprise that generates more that 50% of its liabilities from the issuance of bonds or from taking deposits on interests, and more than 50% of the assets consist of debt-claims against unrelatedparties) and royalties (10% in general cases, and 2% for the use of industrial, commercial or scientific equipment).
Even though the convention is intended to be binding for both parties, there is anexception in case of dividends distributed by a Chilean corporation to a US tax resident. In this case, the limitations on dividends mentioned in the previous paragraph will not be applicable, because of...
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