Effective 1 January 2020, Chile introduced the definition of a permanent establishment in the domestic tax law. A permanent establishment is defined as a place used for permanent or habitual operation of all or part of the business or activity of a person or entity without domicile or residence in Chile, whether or not used exclusively for this purpose. The definition largely follows the OECD Model and includes:
- An office;
- A facility;
- A construction project;
- A branch; or
- An agent who has the authority to conclude contracts of the foreign enterprise, plays a leading role in the conclusion of such contracts, or negotiates the essential elements of contracts if these are concluded without substantial modification by the non-resident principal.
However, a place of business will not be considered to constitute a permanent establishment of a foreign enterprise in Chile if:
- A person or entity without domicile or residence in Chile performs exclusively auxiliary and preparatory start-up activities in the country; or
- Economically and legally independent agents carry out activities in Chile in their ordinary course of business, with powers to execute acts or contracts with specific purposes, for a fixed term or for a specific project.
The law does not specifically define a ‘service PE’. A number of Chilean treaties, for e.g., those with Australia, Austria, Canada, France, Italy, and Russia specifically provide for a service PE concept, but all of these require the physical presence of an employee or personnel of the non-resident company for a prescribed period (of more than 183 days) within any 12-month period in Chile. The tax treaty with Brazil does not include a specific service PE clause.