CHILE Law and Practice Contributed by: Macarena Ravinet and Federico Espinosa, Cuatrecasas
beneficiary who would not be entitled to the reduced tax rate had they made the loan directly. Applicable double taxation treaties may also lower the effective rate. Chile has a wide network of income tax treaties. Currently, there are more than thirty-five tax treaties in effect, including treaties with the United States, the United Kingdom, China, Japan, and most economies in Europe and Latin America. Chile’s tax treaties can reduce the tax burden of foreign lend- ers resident in a tax treaty jurisdiction, particularly in relation to withholding taxes. Careful review of treaty benefits eligibility is common in cross-border loan structuring. The tax treatment of other payments to foreign lend- ers, such as fees or commissions, depends on the specific nature of the payment and must be deter- mined on a case-by-case basis. Chilean borrowers are responsible for withholding and remitting the tax to the tax authority at the time of payment. In practice, loan documentation typically includes gross-up clauses that require the borrower to cover any withholding tax, ensuring the lender receives the full agreed-upon amount. 4.2 Other Taxes, Duties, Charges or Tax Considerations In addition to withholding tax on interest, lenders should be aware of stamp tax obligations in Chile. All credit operations documented in Chile, including loans, promissory notes, and similar instruments, are subject to a stamp tax calculated as a percentage of the principal amount, which is collected upon execu- tion of the loan documentation. For term loans, the tax applies at a rate equal to the lesser of: • 0.066% per month or fraction of a month until maturity; and • 0,8%. Loans payable on demand or with no stated maturity are subject to stamp tax at a rate of 0.332%. This tax is generally borne by the borrower, but it is a relevant cost for structuring financings.
Thin capitalisation rules can also increase the cost of borrowing. Interest payments made in a year by a Chilean borrower to a foreign lender that is a related person are generally subject to a thirty-five per cent tax in the portion related to the amount of debt that is in excess of a three-to-one debt-to-equity ratio measured at year’s end. This tax is imposed on the borrower and not the foreign lender. The borrower can deduct the amount of tax withheld from the tax pay- able on the excess interest payments. Security interests also trigger formal requirements. Mortgages over real estate must be executed before a notary and registered in the Real Estate Registry, which involves registration fees. Pledges and other forms of collateral may require registration in spe- cialised registries, such as the Civil Registry or the Registry of Commerce, with fees payable for each fil- ing. These costs are relatively modest but must be factored into transaction planning. Guarantees granted by Chilean entities are not subject to additional taxes beyond the registration charges associated with the underlying collateral. However, all parties must comply with anti-money laundering obligations and reporting requirements to the Cen- tral Bank for cross-border transactions exceeding the statutory threshold. A loan may be deemed to be issued by a related person if it is guaranteed by a foreign person that is related to the borrower. Thin capitalisation and trans- fer pricing rules may apply in such a case. 4.3 Foreign Lenders or Non-Money Centre Bank Lenders Interest, commissions, and fees paid to foreign lend- ers in Chile are generally subject to a 35% withholding tax, which may be reduced to 4% if the lender is a recognised foreign bank or financial institution meet- ing specific regulatory and reporting requirements. Non-bank lenders typically face a higher rate unless a double taxation treaty provides relief. Additionally, a stamp tax applies to credit operations documented in Chile, increasing financing costs. Mitigation strate- gies include leveraging tax treaties, ensuring lender qualification for reduced rates, and utilising gross-up
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