INCOME TAX ON NONREDIDENTS

Nonresident individuals and entities are subject to tax on Chilean sourced income. Tax is withheld at source by the payer with rates that vary according to the income that is paid, and must be submitted up to day 12 of the month that follows payment, using form 50. In some situations, the payee will be required to submit a tax return.

  1. Distribution of profits to nonresident shareholders

    Dividends paid by entities resident of Chile to non-resident shareholders (individuals or entities) are subject to tax of 35%, but non-residents are eligible to credit against their tax liability the business income tax paid by the entity that distributes the profit (imputation system), in which case, the tax base must be increased in an amount equivalent to such credit.

    In addition, tax liability arises either at the time of distribution (distribution regime) or when the profits are derived by the entity resident in Chile that issued the shares held by the non-resident (attribution regime). The corporate tax rate is 27% or 25% in each case. Finally, the distribution regime requires a restitution of 35% of the credit unless the shareholder is resident of a tax treaty country in which case the restitution is not required.

  2.  

    Attribution regime Distribution regime
    Taxation at level of the entity    
    Business income tax rate 25% 27%
    Tax base 100 100
    Business income tax paid 25 27
         
    Taxation at level of the shareholder    
    Tax liability The same year the entity submits the tax base The year of distribution
    Dividend distribution 75 73
    Increase   25     27  
    Tax base 100 100
    Withholding tax 35% 35 35
    Credit -25 -27
    Restitution   0     9  
    tax payable 10 17

     

    Nonresident shareholders of resident entities are exempt from paying tax on the following transactions:

    1. Distribution of retained nontaxable earnings;

    2. Stock distribution arising in the capitalization of retained earnings. This has the effect of increasing the number of shares, lowering the price of each one of them;

    3. Capital remitted abroad;

    4. Distribution of shares of one or more new companies resulting from the division of a stock company.

    Nonresident shareholders must submit a tax return, unless the resident entity is a stock company subject to the distribution regime.


  3. Capital gains from the disposition of shares of entities incorporated in Chile

    Capital gains on the disposition of shares are subject to tax of 35% retained by the payer. If unaware of the gain in the transaction, the payer must retain 10% of the purchasing price. The payee will be required to submit a tax return. Notwithstanding, he may request to the Tax Administration (SII) an assessment of the tax base, and pay the tax of the sale transaction up to 5 days following the assessment.


  4. Royalties

    Royalties paid abroad are subject to withholding tax of 30% and must be retained by the payer. The rate is decreased to 15% in relation to the following intangibles:

    • Industrial property;

    • Computer software, but only in respect of payments for the right to use the copyright in the program (i.e. to exploit the rights).

    The payee is not required to submit a tax return.

    Royalties paid to acquired copyrights limited to those necessary to enable the user to operate the program are exempt from withholding tax.


  5. Interest

    Interest payments are subject to withholding tax of 35% and must be retained by the payer. The rate is decreased to 4% in relation to the following instruments:

    • Deposits;

    • Loans granted abroad by financial entities, whether related or not;

    • Balance of instalment purchases;

    • Bonds or debentures issued by the State, Central bank or entities incorporated in Chile;

    • Latin American bank acceptances;

    • Public offering of debt instrument (under certain conditions).

    The payee is not required to submit a tax return.

    Interest paid by a financial entity are exempt from withholding tax, provided the financing for which interest is paid, is used by such entity to grant a loan abroad.


  6. Fees for the provision of services

    Payments for the provision of services, whether in Chile or abroad, are subject to withholding tax of 35% and must be retained by the payer. The rate is decreased to 15% or 20% in relation to the following services:

    • Engineering or technical services, provided in Chile or abroad: 15%. If the payee is resident of a jurisdiction with a preferential tax regime, this rate is increased to 20%.

    The payee is only required to submit a tax return regarding the payment of fees for the provision of general services in Chile.


  7. Other income

    Nonresidents are also subject to withholding tax on other categories of income described below which must be retained by the payer. Some exemptions may apply:

    • Insurance premiums: 22%;

    • Reinsurance premiums: 2%;

    • Maritime freight: 5%;

    • Rent for capital goods used in the production of good and services: 1,75%.

    The payee is not required to submit a tax return.