Dividends paid by Chilean companies are subject to tax at a rate of 35%. However, on distribution, a 17% tax credit for "first category tax" paid by the company may be credited against taxes paid on dividends.
Loans granted by related parties are limited to a 3:1 debt-to-equity ratio and a 4% withholding tax is applied on payments to related parties within the ratio limits. Interest paid in excess of the ratio is subject to a 35% withholding tax rate.
Payment of royalties is subject to a 30% withholding tax (20% for technical assistance). Deduction of such payments is limited to 4%of the business’s sales. If no relation exists between the beneficiary and the payer, the limit of deduction is not applied.
Despite the fact that the final tax burden on payment of dividends for treaty countries is the same as for non-treaty countries, consequences of foreign tax relief of such income in recipient’s country may be different.
In practice, even if dividends paid to treaty countries are subject to a higher withholding tax rate it is possible to obtain efficient foreign tax relief in the recipient’s country.
Chile has concluded double tax treaties with the following countries:
In addition to the double taxation treaties concluded above, Chile has also signed agreements with Croatia, Denmark and the United Kingdom, which are awaiting ratification by the Chilean Congress. Negotiations to sign tax treaties with France, Malaysia and New Zealand have concluded, while negotiations with Cuba, the Czech Republic, Finland, Hungary, Italy, the Netherlands Paraguay, Sweden, Switzerland, the United States and Venezuela are in progress. All of these treaties, which are based on the Organisation for Economic Cooperation and Development (OECD) model convention, provide special rules for the taxation of dividends do not apply to the Chilean withholding tax if the 17% corporate tax can be fully credited against the withholding tax.