CHILE Law and Practice Contributed by: Javier Cortés, Juan Pablo Márquez and Gonzalo Pérez, Cortés Del Río Tax & Legal
Reduced rates apply in several circumstances, such as a reduced 4% for loans granted by foreign banks or foreign and international financial institutions. Treaty rates apply a reduced 10% or 15% WHT rate. Chile has set forth thin capitalisation (“thin cap”) rules under which companies that are paying interest at reduced rates and that exceed a 3:1 debt-to-equity ratio may be subject to a thin cap tax of 35% over the amount of interest deemed excessive. Neverthe - less, interest is still tax deductible according to the general rules. Royalties Royalties are generally subject to a 30% WHT rate, but a reduced 15% rate is available for payment for the use of invention patents, trade marks, industrial drawings and tailor-made software, among other intel - lectual property rights. Software that qualifies as standard software under the law may be exempt from WHT in Chile. However, pay - ments made from Chile to overseas countries, while exempt from WHT, are still subject to 19% VAT. 3.4 Capital Gains Capital gains on the disposal of assets by Chilean residents are considered Chilean source income and are therefore subject to 35% WHT. Reduced rates are available under a few of Chile’s tax treaties. The tax must be withheld and paid by the buyer at an interim rate of 10% over the purchase price or 35% over the gain. It is possible to request the Chilean IRS to certify the taxable gain. The foreign beneficiary will have the obligation to file an annual tax return and declare and pay the taxable gain using the WHT as a credit against its tax liability. Chile has an indirect transfer provision according to which, gains derived from the disposal of shares or interests in foreign entities may be taxable if certain conditions are met or thresholds are exceeded. The Chilean-source portion of the gain is subject to income WHT at 35%. This rule has important implica - tions for cross-border M&A and private equity trans -
actions involving the indirect transfer of Chilean com - panies, as buyers and sellers must consider potential Chilean tax exposure even in a case where all the par - ties are non-Chilean. 3.5 Employment Income Non-resident individuals who obtain income from employment are generally subject to income WHT at 15% on their Chilean-source employment income. Where there is a DTA, Article 15 standard applies to short-term assignments if: • remuneration derived by a resident of the other contracting state in respect of employment exer - cised in Chile is exempt from Chilean tax if the employee is present in Chile for 183 days or fewer in any 12-month period beginning or ending in the fiscal year concerned; • the remuneration is paid by an employer not resi - dent in Chile; and • the remuneration is not borne by a PE of the employer in Chile. Chile does not have specific legislation addressing the tax treatment of remote work in cross-border scenari - os. The Chilean IRS has issued limited administrative guidance acknowledging that the place where employ - ment services are rendered determines the source of income; accordingly, work performed remotely from Chile by a resident for a foreign employer is consid - ered Chilean-source employment income subject to employment tax. 3.6 Other Income Any Chilean-source income which does not have a specific treatment is generally taxed at a 35% with - holding tax rate. The treaties signed by Chile usually allow for the source country to tax other income if the income originated in the source country. 4. OECD/G20 Global Tax Reform 4.1 Pillar One – Amount B As an OECD member and adherent to the BEPS Inclu - sive Framework, Chile has committed to applying Amount B as a simplified and streamlined approach
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