On December 19th, 2023, the Treaty to Avoid Double Taxation signed between Chile and the United States (the “Treaty”) came into force, after the latter notified Chile of the completion of the approval procedure.
The provisions of the Treaty have different effective dates: regarding taxes withheld for amounts paid or accrued, it will be from February 1st, 2024; for other taxes or operations, January 1st, 2024; and the information exchange obligations have already come into force, regardless of the tax period to which it refers.
Among others, the Treaty establishes preferential rates for remittances made for different concepts, such as dividends, royalties, interests, services, capital gains, among others. Regarding dividends paid from the US to Chile, a rate is established as a general rule of 15%, and 5% if the investor owns at least 10% of the entity. Regarding dividends paid from Chile to the US, the total charge of 35% is maintained, with the possibility of using 100% of the First Category Tax paid in Chile as a credit, against the Additional Tax that tax these dividends. This benefit was valid only until 2026 with respect to agreements signed but not in force, as was the case of the Chile-US Treaty, which has been settled after its entry into force.
Regarding interest, the withholding rate is limited from 35% to 4% or 10%, depending on the type of creditor, considering a transition period with a rate of 15%. Also, a general tax rate of 10% is established for royalties and 2% in the case of payments for the use, or the right to use, industrial, commercial or scientific equipment.
In relation to capital gains, the rate to be applied will depend on the type of asset to be sold, establishing a general rate of 16% in the case of shares, with certain exceptions, for pension funds, institutional investors and disposals with a stock market presence.
It should be noted that in cases in which capital gains obtained by a resident of a contracting state come from the sale of shares, bonds or other instruments with a stock market presence acquired and sold on the stock market, they will not be subject to additional tax, which It will be a tremendous opportunity to attract investors to Chile.
Additionally, services provided by a US company in Chile will be exempt from Additional Tax, except in cases where permanent establishments are set up.
It is important to highlight that the Treaty establishes, in the case of pension funds, certain advantages that could help their profitability. For example, with respect to dividends received by pension funds, the Convention establishes that they can be received free of withholding taxes, as in the case of capital gains obtained in the sales of shares or rights of a company resident in said country.
All this is very good news, given that it will allow our country to be more competitive and generate incentives for investment and trade between both countries. It is important to highlight that currently the US has only signed this type of agreement with Mexico and Venezuela, which positions Chile very well when opting for an investment center in Latin America.
