International Treaties to Avoid Double Taxation in Effect in Chile

According to information published on the Servicios de Impuestos Internos SII website, Chile has 37 Double Taxation Avoidance Agreements (DTAs) currently in force. Among the most notable are treaties with Argentina, the People’s Republic of China, Italy, Japan, the Czech Republic, and South Africa.

These international agreements aim to prevent the same income from being taxed by two countries, fostering trade, investment, and international economic relations. The principles underlying these DTAs include:

 

Key Principles:

• Avoiding Double Taxation: Clear rules determine which country has primary taxing rights over specific income types—such as dividends, interest, or royalties—and how the other country should provide a credit or exemption to prevent double taxation.
• Allocation of Taxing Rights: DTAs allocate the rights to tax various types of income between the contracting countries, based on criteria such as residency or source of income.
• Non-Discrimination: These agreements ensure that citizens or residents of one country are not treated less favorably than locals in the counterpart country under similar circumstances.
• Transparency and Dispute Resolution: They establish mechanisms for resolving tax disputes between countries through mutual consultations between tax authorities.
• Exchange of Information: DTAs promote the exchange of tax-related information between signatory countries to prevent tax evasion and avoidance.

Key Benefits:

• Reduction of Tax Rates: DTAs often set limits on withholding tax rates applicable to dividends, interest, and royalties, reducing the tax burden for international investors and companies.
• Avoiding Effective Double Taxation: They allow residents of one country to credit taxes paid abroad against their domestic tax obligations.
• Encouraging Foreign Investment: By reducing tax burdens and providing regulatory clarity, DTAs promote cross-border investment and trade.
• Legal Certainty: DTAs establish clear rules and predictability for taxpayers, reducing the risk of international tax disputes.
• Facilitation of International Business: They help multinational companies and professionals avoid tax barriers, enabling more efficient operations in contracting countries.
• Prevention of Tax Abuse: The treaties include provisions to curb aggressive tax planning and treaty abuse.

Under these treaties, from a Chilean tax perspective, reduced or exempt withholding tax rates are determined for services, interest, royalties, and capital gains. Additionally, DTAs allow resident investors in these countries to benefit from a maximum dividend tax rate of 35% under Chile’s partially integrated tax regime. They also address permanent establishment rules and the taxation of residents from both states on income generated in the other state.

 

Countries with DTAs in Effect with Chile

According to the SII, Chile’s DTAs include treaties with Australia, Austria, Belgium, Brazil, Canada, Colombia, South Korea, Croatia, Denmark, Ecuador, the United Arab Emirates, Spain, the United States, France, India, Ireland, Malaysia, Mexico, Norway, New Zealand, the Netherlands, Paraguay, Peru, Poland, Portugal, the United Kingdom, Sweden, Switzerland, Thailand, and Uruguay.

For businesses resident in these countries receiving payments from Chile for services, interest, royalties, or capital gains, it is advisable to verify whether reduced rates or exemptions apply under the relevant treaty provisions.

For more information on the benefits available to investors and business owners under Chile’s DTAs, consult SCK Abogados & Consultores Tributarios, our member firm in Chile, for expert guidance.