Chile Withholding Tax: Rates and Requirements

In Chile, a withholding tax requires a domestic entity to deduct tax from payments made to a foreign person or company. This system is administered by the tax authority, the Servicio de Impuestos Internos (SII), to collect taxes on income from activities or assets within Chile paid to a non-resident. The obligation for tax collection is placed directly on the Chilean-based payer, who acts as a withholding agent for the government. This approach, common in international tax systems, captures revenue at the point of payment before funds leave the country, protecting Chile’s tax base.

Payments Subject to Withholding Tax

Chilean tax law specifies that payments to non-residents are subject to withholding if the income originates from assets in the country or activities performed within its territory. This broad definition covers many common cross-border transactions.

Payments for services rendered by a non-resident often fall under this regime. The law distinguishes between different types of services, such as technical, engineering, or professional services. General services are also included, covering a wide range of consulting and advisory arrangements. The location where the service is utilized can be a determining factor for the withholding requirement.

Royalties represent another significant category. These payments are for the right to use intangible assets, including patents, trademarks, and proprietary formulas. Payments for the use of custom software are also treated as royalties. An exemption exists for payments made for a license to use standard, non-customized software, which are not subject to withholding tax.

Interest paid on loans from foreign lenders to a Chilean resident is also subject to withholding, applying to various forms of debt financing obtained from abroad. The tax is calculated on the gross amount of the interest payment, with no deductions permitted for the foreign lender.

Profit distributions, such as dividends paid by a Chilean corporation to its foreign shareholders, are taxed through withholding. This tax, known as the Foreign Shareholder Tax, is applied when profits are remitted to investors abroad. Capital gains realized by a non-resident from the sale of shares in a Chilean company are also subject to withholding.

Applicable Tax Rates

The tax rates on payments to non-residents vary by income type. Chile’s general withholding tax rate, the “Impuesto Adicional” or Additional Tax, is 35%. This default rate applies to any payment not eligible for a specific, lower rate, including capital gains from the sale of shares.

Profit distributions to foreign shareholders are subject to the 35% withholding tax. However, Chile’s integrated tax system allows the shareholder a credit for the corporate income tax (currently 27%) already paid by the company. Shareholders in a treaty country can use 100% of this credit, while those in non-treaty countries are limited to 65%. An optional regime for a substitute tax on historical profits was available until early 2025.

Payments for engineering or technical services are taxed at a 15% rate, which can increase to 20% if the provider is in a jurisdiction with a preferential tax regime. Royalties for patents and trademarks face a 30% tax, while royalties for custom software are taxed at 15%. This lower rate can increase to 30% if the recipient is in a tax haven.

Interest payments have a tiered structure. The general rate is 35%, but a 4% rate applies to interest on loans from foreign banks or qualified financial institutions. Other payments, like those for maritime freight or certain equipment rentals, have unique rates of 5% and 1.75% respectively.

Role of Double Taxation Treaties

Chile’s domestic withholding tax rates can be modified by international agreements known as Double Taxation Treaties (DTTs). Chile maintains an extensive network of these treaties. The purpose of these agreements is to prevent the same income from being taxed by two different countries.

DTTs often result in lower withholding tax rates for residents of treaty partner countries. For instance, a DTT might reduce the 30% withholding tax on certain royalties to 10% or 15%, and the treaty rate for interest can be lower than domestic rates. To benefit from a reduced treaty rate, the non-resident must provide a certificate of tax residency from their home country’s tax authority. The Chilean payer is responsible for applying the correct treaty rate once this documentation is received.

A specific provision in many of Chile’s treaties, the “Chilean Clause,” preserves Chile’s right to apply its domestic rules for taxing dividends. Because of this, the dividend withholding tax system, including the credit for corporate taxes paid, generally applies even when a DTT is in place.

The Withholding and Remittance Process

The responsibility for deducting and paying the withholding tax rests with the Chilean resident making the payment. This entity is designated as the “withholding agent” and is legally obligated to perform the tax calculation, deduction, and payment to the Chilean Treasury on behalf of the non-resident.

To report and pay withheld amounts, the agent must file Form 50, “Declaración Mensual y Pago Simultáneo.” The filing and payment must be completed electronically through the online portal of the Servicio de Impuestos Internos (SII).

The withheld tax must be declared and paid by the 12th day of the month following the month the income was paid or credited to the non-resident’s account. Failure to meet this deadline can result in penalties and interest charges, for which the Chilean withholding agent is liable.