CHILE Law and Practice Contributed by: Javier Cortés, Juan Pablo Márquez and Gonzalo Pérez, Cortés Del Río Tax & Legal
• Interest – generally speaking, interest is subject to 35% WHT. However, interest paid to foreign or international financial institutions or banks may be subject to 4% WHT under a domestic provision. • Royalties – these are generally subject to a 30% WHT rate. Nevertheless, a reduced 15% rate is available for payment for the use of invention patents, trade marks and other intellectual property rights, including software. Software that qualifies as standard software under the law may be exempt from WHT in Chile. • Technical services – these are generally subject to 15% WHT. The rate increases to 20% if the recipi - ent of the payment is a resident of a country con - sidered to have a preferential tax regime according to the ITL. These rates may be reduced or eliminated under appli - cable DTAs. For the application of DTA reduced rates the beneficiary must evidence its residence through a tax residence certificate. Other formalities are also required. 2.5 Tax Residence of Legal Entities A legal entity is considered to be resident in Chile and therefore subject to Chilean corporate tax on its worldwide income if it is incorporated in Chile. Chile does not recognise the “place of effective man - agement” as a criterion to determine the residence of legal entities, though the concept may be relevant in the interpretation of treaty tie-breaker rules for entities that could be considered resident in two jurisdictions under their respective domestic laws. 2.6 Definition of Permanent Establishment Chile introduced a statutory definition of PE through a tax reform in 2020. Prior to this reform, the concept was applied primarily through treaty provisions and the Chilean IRS administrative guidance. The domestic definition broadly follows Article 5 of the OECD Model, stating that a PE means a fixed place of business through which the business of an enter - prise is wholly or partly carried on, whether or not it is used exclusively for such purpose, such as a branch of a foreign company, facilities, construction sites, or a factory, etc.
A PE is also deemed to exist where a person is acting in Chile on behalf of a foreign company and, in doing so, habitually concludes contracts, or habitually plays the principal role leading to the conclusion of con - tracts that are routinely concluded without material modification by the enterprise. Chile’s more recent treaties, and those modified by the MLI, incorporate the post-BEPS PE provisions, including the anti-fragmentation rules and the revised dependent agent standard. Older treaties may retain more traditional definitions. 3. Taxation of Cross-Border Income 3.1 Income From Immovable Property Income derived from immovable property located in Chile, including rental income and gains from the sale of real estate property, is Chilean-source income and is subject to Chilean tax. For resident individuals or legal entities, rental income from Chilean real estate property is, generally speak - ing, considered ordinary income and therefore must be included in their respective taxable bases. Capital gains are generally taxable – however, indi - viduals may benefit from specific treatment of capital gains from the disposal of real estate: • Capital gains on the sale of real estate property may be exempt from income tax up to 8,000 UF, or approximately USD360,000 (a UF or • unidad de fomento is a specific unit of currency used in Chile for finance, banking and real estate). This benefit may be used by taxpayers in one or multiple transactions in the disposal of property, until the total exempt amount is exhausted during the lifetime of the taxpayer. • Once the exemption is exhausted, any gain will be taxed at 10% income tax, subject to requirements. • Some residential immovable property enjoys additional tax benefits, such as an exemption on rental income, exemption from inheritance tax and reduced stamp tax where the property is acquired through a loan. These benefits apply to property
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