/ Entry into force of the International Double Taxation Agreement between Chile and the United States
November 16, 2023Franco Gorziglia
Partner
Alessandri Abogados
On November 15, 2023, the Chilean Congress approved the agreement amending the International Double Taxation Agreement between Chile and the United States. Once it is enacted by the President of the Republic of Chile and the exchange of diplomatic notes takes place, it will successfully complete its processing, which was pending signature in February 2010.
Consequently, its entry into force is expected in the next few days, even though some of its benefits will be applied on the first day of the month following that date and, in its entirety, as of January 1, 2024.
What are the consequences of the application of the Agreement?
- Application of taxes in only one State. The payment for certain cross-border services or activities (business profits or benefits) could only be subject to income tax in the country of residence of the provider and not in the country from which they are paid.
- Possibility of using as credit the taxes paid or withheld in the other State, even with respect to investments from a third country.
- Limitation of rates to certain income.
- Interest paid will have a maximum rate of 10% (15% during the first two years of validity), which without the Agreement could amount to 30% or 35%;
- Royalties for the use of industrial property such as patents, trademarks, models, formulas and similar are limited to a rate of 2% or 10% depending on the case;
- Capital Gains. It is limited to 16% compared to the current rate of 35%.
- Dividends. Dividends paid by an American company to a Chilean company could be limited to 5% or 15%. Regarding dividends paid from Chile to the United States, although the 35% rate is maintained, the right is granted to use all of the credit for Corporate Tax paid, eliminating the partial integration regardless of the type of company that generates them.
The tax area of Alessandri Abogados specializes in the comprehensive support to both foreign and local clients with investments abroad, including the application and use of international tax regulations that may be of interest to them.