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9.1. Unilateral and Treaty Based Methods Available for the Elimination or Mitigation of Double Taxation

To avoid double taxation, the tax paid abroad may be deducted from the taxes to be paid in Chile. The credit is available only in respect of foreign income that is also taxable in Chile.

The maximum foreign tax credit is 35% with respect to income taxes paid in other countries. Effective 1 January 2020, this cap applies for both the unilateral credit for taxes in countries without a tax treaty with Chile and the bilateral credit for taxes in countries that do have a tax treaty with Chile.

For providing a tax credit, a distinction is made between income from countries with which Chile has signed a tax treaty that is in force and income from countries that do not have a tax treaty with Chile. In general, for foreign taxes on income from countries with a current tax treaty in force, a credit may be claimed in respect of all income that is covered by the respective treaty. In these cases, the treaty must be in force on the date of receipt of the income or its accrual, when applicable, and the treaty must be applicable to the taxpayer claiming a credit (the treaty with the US is presumed to be in force until 31 December 2026). In the event that certain income is not covered by an applicable treaty, the credit is only allowed if the income is within the scope of the rules for non-treaty countries.

Where foreign taxes are incurred on income from a country that does not have a tax treaty with Chile (or income not covered by the treaty), a unilateral credit is available but is limited to the following income types:

  • Dividends and withdrawals of profits;
  • Income for the use of intangible assets such as trademarks, patents, etc. (i.e., royalties), although income from the alienation of such intangible assets is excluded;
  • Income for the provision of professional or technical services;
  • Income from a permanent establishment located abroad; and
  • Passive income resulting from the application of the provisions relating to CFCs (see Sec. 13.3.).

A foreign tax credit may be used in Chile for income received from a foreign subsidiary through an intermediary resident in a third country, provided that:

  • At least 10% capital of the subsidiary is owned by the foreign intermediary; and
  • Both, the foreign intermediary and subsidiary are domiciled in the same country, or the subsidiary is domiciled in a country with which Chile has a tax treaty or other agreement that provides for the exchange of information for tax purposes.

Below is a summary of the available methods for various income tax streams based on domestic law.

Royalty Copyright OC
Capital Gains NC
Dividends IC
Interest NC
Royalty Patent OC
Sales OC
Service Management OC
Service Technical OC
Royalty Trademark OC

The credit column shows the type of foreign tax credit granted when the receiving country receives a payment.  Four abbreviations are used for the type of foreign tax credit available:

  • NC means no credit but foreign withholding taxes can be deducted.
  • OC means ordinary credit, i.e., credit for foreign withholding taxes (e.g., withholding taxes).
  • IC means indirect credit, i.e., credit for underlying corporate taxes as well as foreign withholding taxes.
  • ND means no credit and no deduction for any foreign withholding taxes incurred.