CHILE LAW AND PRACTICE Contributed by: Fernando Lathrop Aubert, Francisco Cárcamo Valdés, Jimena Illanes Diez, Joyce Jankelevich Mayer, Macarena Jaramillo Solís, Michelle Niedbalski Ramírez, Nicolás Maldonado Leyton and María Fernanda Heusser Errázuriz, Lathrop Mujica Herrera & Diez Abogado
9.2 Withholding Taxes on Dividends, Interest, Etc Interest and dividends paid to a foreign investor are subject to a withholding tax known as additional tax. The general rate of this tax is 35%. However, this rate can be reduced or even eliminated if there is a dou - ble taxation treaty between Chile and the investor’s country. As for share ownership or the holding period, these are usually not determining factors for the application of withholding tax rates. In relation to “treaty shopping” or the use of tax trea - ties to reduce the tax burden, Chile has measures to prevent these practices. These measures may include limitations on the availability of treaty benefits for entities that do not have a substantial presence or a legitimate commercial purpose in their country of residence. 9.3 Tax Mitigation Strategies There are certain special incentives or franchises established in the law that allow companies in Chile to mitigate their tax payments. These include the fol - lowing. • Special incentives for technology investments (R&D) – Business income taxpayers reporting their taxable income based on full accounting records and investing in research and development (R&D) may credit amounts invested in R&D against the business income tax liability. • Loss relief – In general, losses are deductible as an expense against the profits of the tax year and could be set off against undistributed profits. If the profits are not sufficient to offset the losses, the losses can be carried forward indefinitely. However, carry-back of losses is no longer available. • Imposed limits on deduction of interest – In gen - eral, there are no limits for the deduction of interest for a company, except for the excess indebtedness provision (thin capitalisation rule) of Article 41F of the Income Tax Law, which states that a company incorporated in Chile will be deemed to be in such position when the company has a debt ratio of 3:1 in relation to its financial equity.
choose between simple and complete account - ing records, with a fixed 25% corporate tax rate. Shareholders and/or quotaholders will be taxed on a receipt basis and may deduct 100% of the business income tax paid by the enterprise as a tax credit against their personal tax liability. (It should be noted that between the 2025 and 2028 tax years, a reduced tax rate will apply. On 11 July 2025, Law No 21,755 introduced a temporary reduction in the income tax rate applicable to this type of taxpayer. Specifically, the First Category Income Tax (IDPC) rate is reduced to 12.5%, together with a 50% reduction in Monthly Provi - sional Payments (PPM) for Pro Pyme taxpayers, applicable to tax years 2025, 2026 and 2027. For the 2028 tax year, a transitional rate of 15% will apply. These reductions will only be applicable provided that, at the end of each fiscal year, the employer social security contribution rate estab - lished in the Fourth Transitional Article of Law No 21,735 corresponds to 1% for 2025, 3.5% for 2026, 4.5% for 2027 and 5% for 2028.) • Fiscal transparency regime (Article 14D(8) of the Income Tax Law) – This tax regime is also focused on small and medium-sized entities (SMEs) whose owners are final taxpayers (individuals with or with - out tax residence in Chile or non-resident compa - nies established abroad). In this case, the company will be exempt from corporate income tax and the taxpayers will be taxed with personal income tax according to their residence status in Chile or abroad. The taxation also depends on whether the company is domestic or foreign. Domestic companies are gen - erally taxed on all their income, regardless of where it is generated. Foreign companies are generally only taxed on income generated within Chile. However, dividends or profits remitted to foreign investors are subject to a withholding tax, known as additional tax, at a general rate of 35%. This can be reduced by the application of double taxation treaties in force between Chile and the investor’s country. The type of entity or how it is organised as a corpora - tion or partnership is not a determining factor for the application of tax regimes.
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