The economic relationship between Chile and the United States (U.S.) has experienced significant growth in recent decades, to the point where the U.S. now holds the second position as an importer from and exporter to Chile. In this context, the Double Taxation Agreement between Chile and U.S. (DTA) has become a key topic to facilitate business activities and protect taxpayers from double taxation.
The DTA was signed between both countries in 2010 and ratified in Chile in 2015. However, it wasn’t until June 2023 that the U.S. Senate approved the Treaty. With this, it is expected that the final text will be approved in the coming months in the Chilean Congress and enter into force, potentially making Chile a hub for investment and a gateway for U.S. capital into Latin America, competing with Mexico.
The DTA contains specific provisions that directly impact withholding tax rates on dividends, interest, and royalties. These changes play a key role in attracting investors and protecting taxpayers.
The withholding tax rate on dividends is currently 35% and will be reduced to 15% with the implementation of the DTA. This will make investments in Chile more attractive to U.S. investors, increasing their net income.
Regarding interest, the maximum rates currently in effect in Chile are 35%, and 30% in the U.S. With the DTA in effect, the rate will be reduced to 10%, possibly going as low as 4%. It benefits both lenders and borrowers, as it reduces the tax burden on both sides and promotes investments in bonds.
Royalties, which involve the transfer of technology and intellectual property, also benefit from a reduced withholding tax rate of 10%, currently at 15%. This promotes technological collaboration and knowledge transfer, innovation, and development between the two countries.
In summary, the DTA between Chile and the U.S. provides greater legal certainty and reduces the tax burden, promoting investment and trade between both countries and facilitating a freer flow of capital and technology.