On January 1 of this year, the agreement to avoid double taxation (DTA) between Chile and the United States came into force. The following are some relevant aspects:
1. Scope of application (Article 1) 2.
The agreement shall apply to income tax and wealth tax payable by each of the Contracting States.
2. Elimination of double taxation (Article 23).
According to the TDC, the United States will allow its residents or citizens to deduct income tax paid or accrued in Chile. Likewise, a resident of Chile who, in accordance with the provisions of the Agreement, obtains income that may be subject to taxation in the United States, will be able to deduct it from his income tax.
3. Corporate Income Tax (Article 7).
Under the TDC, the business profits of an enterprise of a Contracting State may be taxed only in that State, unless the enterprise carries on business in the other Contracting State through a permanent establishment.
4. Taxation of dividends (Article 10).
According to the TDC, dividends paid by a resident of a Contracting State to a resident of the other Contracting State may be subject to taxation in that other State.
However, such dividends may be subject to taxation in the Contracting State in which the paying company is resident and according to the law of that State. In the latter case, as a general rule, the tax due will be 15% and, in those cases where the beneficiary holds 10% of the voting shares of the company, the tax due will be 5%.
5. Interest tax (Article 11).
Under the TDC, interest arising in one Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
However, such interest may also be subject to taxation in the Contracting State from which it originates and under the law of that State. If the beneficial owner is a resident of the other Contracting State, the tax due may not exceed 10% (the CDT provides for a transition period of 5 years in which a tax of 15% is payable). In addition, there are certain exceptional cases in which the rate will be 4% (banks, insurance companies, financial institutions, etc.).
6. Taxation of royalties (Article 12).
Under the TDC, royalties originating in a Contracting State and paid to a resident of the other Contracting State may be subject to taxation in that other State.
However, these royalties may also be subject to taxation in the Contracting State from which they originate and in accordance with the laws of that State. If the beneficial owner of the royalties is a resident of the other Contracting State, the tax may not exceed 2% or 10% as the case may be.
7. Capital Gains Tax (Article 13).
Under the TDC, gains derived by a resident of a Contracting State from the alienation of real property situated in the other Contracting State may be taxed in that other State.
In the case of gains from the alienation of shares or other rights or participations representing the capital of a company resident in the other Contracting State, they may be taxed in that other Contracting State, but the tax thus levied may not exceed 16% of the amount of the gain.
8. Taxation of Independent Personal Services (Article 14)
Under the TDC, income derived by a resident of a Contracting State from professional services or other activities of an independent nature may only be taxed in that State.
Exceptionally, income may also be taxed in the other Contracting State in the following cases:
(a) if the resident of a Contracting State has in the other Contracting State a fixed base regularly available to him for the conduct of his activities.
b) if the resident of a Contracting State stays in the other Contracting State for a period or periods which in the aggregate total or exceed 183 days, in any twelve-month period.
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