The Inward Investment and International Taxation Review: Chile


Throughout the last four decades, Chile has achieved remarkable growth, driven by its political and economic stability, alongside an institutional opening to foreign investment, the signing of several free trade agreements (FTAs) and double tax treaties.

Chile's main activities are both metallic (copper) and non-metallic (lithium) mining, forestry products, fishing and agriculture and viticulture, among others. Likewise, infrastructure projects (public work concessions), solar energy plants2 and construction have been boosting areas of growth throughout recent decades.

However, as with most countries, Chile has faced a complex economic scenario caused by the covid-19 pandemic. This unprecedented situation led the Chilean government to modify the fiscal budget planned for both 2020 and 2021 as well as to redefine public priorities.

From a tax viewpoint, on 24 February 2020, Law 21,210 on 'tax modernisation' was enacted to make effective several changes seeking to increase the fiscal budget. Nonetheless, two weeks later the country reported its first covid-19 case, leading to a dramatic increase in contagions and to a public health lockdown, which brought unimaginable damage upon the domestic economy. This situation resulted in the implementation of several short-term mitigation measures and the enaction of Law No. 21,256 in September 2020, which consolidated an instant depreciation scheme for fixed assets, tax relief for small and medium-sized enterprises (SMEs), and an unprecedented tax amortisation regime for intangibles, among other provisions aimed to encourage the domestic economy. In addition, during 2021, both government and the Chilean (bicameral) Congress agreed to grant direct cash transfers to approximately 80 per cent of the population through a public policy named Family Emergency Income (known as IFE). In parallel, between 2021 and 2022, the Chilean Congress approved three constitutional reforms aiming to authorise the population to withdraw 10 per cent of their individual pension fund accounts, amounting to a total sum of over US$50 billion. Thereby, the considerable injection of circulating cash triggered by these measures as well as the high rates of vaccination against covid-19 (16 million people out of 18 million are vaccinated) boosted the Chilean economy in 2021, which is expected to grow over 11 per cent GDP, allowing the country to recover its pre-pandemic status.

Notwithstanding its economic recovery and successful vaccination policies, Chile must still face several challenges arising from the pandemic: compensation of high fiscal indebtedness (caused by public aid and cash transfers); controling the current inflationary rates increase (produced by the current levels of circulating cash and imported inflation); unemployment rate reduction; and achieveming a balanced economic growth from 2022 onwards (when governmental cash transfers and aids will be cut off or reduced).

On the other hand, Chile is going through several political changes that have brought a general feeling of uncertainty. Namely, there is a current ongoing constitutional convention aiming to draft a new political constitution in 2022 while a new government will be forming from March 2022 in a polarised political environment. This uncertain scenario and the current boost in inflation have caused a devaluation of the Chilean peso.

Therefore, it can be said that Chile has gone through the pandemic successfully. However, the main challenges derived from the pandemic's effects and the current uncertainty arising from the ongoing and approaching political changes have delineated a complex scenario for the next government to assume, as both political and economic stability will be required.

Within this context, any tax reform that is likely to come from a new government will not be able to ignore all the surrounding challenges and complexities for the future.

Common forms of business organisation and their tax treatment

i Corporate

Commonly, businesses in Chile are developed through corporate vehicles as having limited liability. The main corporate vehicles are as follows.

  1. Limited liability companies (SRLs). These entities require a minimum of two partners and a possible maximum of 50 partners. SRLs' share capital is divided into equity rights, held by partners in proportion to their contributions, and requiring unanimous consent of partners to sell their equity rights to third parties and to make any corporate amendment. SRLs are generally used in family businesses, given the importance of the partners' identity and rigidness. On the other hand, Chilean law also recognises a figure known as individual limited liability enterprises, which are required to have an individual as the sole partner. For this reason, this last figure is never used by foreign investors.
  2. Stock corporations (SA). These entities require a minimum of two shareholders and no maximum, though their share capital is divided into shares, which can be traded without the consent of the remaining shareholders, notwithstanding the preferential purchase rights they may have. These are managed by a board of directors appointed by the shareholders. SAs can be either private or listed.
  3. Company by shares (SpA). This is the only type of legal entity able to be incorporated by a single shareholder and subsisting as such. SpAs have the same attributes as SAs, although having more flexibility for their management (either board of directors or individuals) and corporate amendments.

All SRLs, listed or private SAs and SpAs are regarded as opaque for tax purposes.

Finally, the Chilean Income Tax Law (CITL) levies Chilean-resident taxpayers upon their worldwide-source income, irrespective of their corporate organisation. Thus, the corporate vehicle chosen by an investor does not determine the tax treatment applicable.

ii Non-corporate

Funds are hybrid entities,3 considered as a 'patrimony of affectation' without their own legal personality, created to obtain passive income and managed by a Chilean stock corporation known as a 'fund manager'. There are two kinds of funds.

Regulated investment funds (RIFs) are regulated by the Chilean Securities and Exchange Commission (SEC), incorporated by either 50 quota holders or one 'institutional investor' as a minimum. From a tax viewpoint, RIFs are not levied with corporate income tax4 (henceforth referred to as first category income tax (FCIT)) upon their income, whatever the source. On the other hand, dividends from RIF to its non-resident quota holders are subject to a single 10 per cent withholding tax (WHT), the same as capital gains obtained by quota holders if selling their participation in the RIF.

Private investment funds (PIFs) are required to have a minimum of eight quota holders and are not supervised by the Chilean SEC. PIFs are not levied with FCIT upon their income either. However, unlike with RIFs, dividends to non-resident quota holders are not subject to the reduced 10 per cent WHT but the general 35 per cent rate instead, which also applies on capital gains obtained by non-resident quota holders for selling their participation. Both regulated and private investment funds may be regarded as transparent entities because their profits are not taxable until distributed either to non-resident quota holders or to a resident individual.5

Direct taxation of businesses

i Tax on profits

Chilean-resident entities are annually levied with FCIT6 upon their net income. Corporate taxes can be applied pursuant to three regimes: (1) the general regime; (2) the small and medium enterprises regime (pro-SMEs regime); and (3) the transparent pro-SMEs regime.

  1. General regime: taxpayers whose annual income exceeds 75,000 UF7 must determine their net income accrued in a calendar year on the basis of full accounting records, subject to 27 per cent FCIT. The FCIT taxable base must be calculated by deducting direct costs and expenses from the taxpayer's gross income accrued by 31 December. Furthermore, taxpayers must apply inflationary adjustments and other specific aggregates and deductions.
  2. Pro-SMEs regime: taxpayers whose annual income does not exceed 75,000 UF, subject to a 25 per cent FCIT8 upon net profits determined by simplified accounting records. To calculate the income cap to be eligible as an SME, taxpayers must add the sales or income obtained by their related parties. However, the FCIT was reduced to 10 per cent for SMEs during 2020, 2021 and 2022, as part of the covid-19 measures set by Law 21,256 (2020). Under this regime, taxpayers are levied with FCIT upon an accrual basis.
  3. Transparent SMEs regime: applicable to enterprises exclusively owned by individuals, by which companies are not subject to FCIT while their owners are taxed9 only upon a cash flow basis, unlike both the general and pro-SMEs regimes, which are levied on an accrual basis.

Chilean-resident companies are taxed upon their worldwide-source income. However, there may be differences between both Chilean and foreign-source income, with regard to the moment at which taxation applies; namely, Chilean-source income triggers FCIT on an accrual basis, while foreign-source income is levied with FCIT on a receipt basis, except when deriving from a permanent establishment (PE) abroad or a controlled foreign corporation (CFC).

Taxpayers can deduct expenses from their FCIT gross income, provided that they are able to produce current or future income, related to the taxpayer's business line, recognised in the year they are paid or owed, reliably proven and not recognised as asset-costs. Conversely, disallowed expenditures may be subject to these sanctions: (1) a single 40 per cent penalty tax on the disallowed disbursement; (2) to be aggregated as taxable income in FCIT taxable base; or (3) either global complementary tax (GCT) or WHT plus 10 per cent surtax.

In addition, Article 31 of the CITL lists several deductible expenses, for instance:

  1. tax-loss carry-forwards;
  2. writing-off of non-collectible receivables;
  3. corporate social responsibility disbursements and donations required by environmental impact projects;
  4. royalties, interest and service fees paid to third parties, either resident or not;
  5. start-up expenses, which may be deferred up to a six-year term counted from the year of disbursement or such where the taxpayer begins to produce income;
  6. certain domestic taxes (municipal tax, stamp tax and non-recoverable value added tax (VAT) credit, among others);
  7. R&D expenses, even if non-related to the taxpayer's business;
  8. advertisement and promotion expenses;
  9. wages and remunerations; and
  10. depreciation: straight-line amortisation of physical assets throughout their useful life, accounting them at a nominal value of one Chilean peso once concluded. The main depreciation regimes are:
    • ordinary depreciation: straight-line scheme for depreciation of assets is determined by the Chilean Internal Revenue Service (CIRS);
    • accelerated depreciation: useful life of assets is reduced to a third of such determined by the CIRS, exclusively upon new or imported assets;
    • extraordinary depreciation: useful life scheme is proposed by the taxpayer to the CIRS of its authorisation;
    • instant depreciation: taxpayers are entitled to amortise in a single year the entire value of fixed assets purchased from 1 June 2020 onwards (this exceptional regime shall be in force by 31 December 2022); and
    • depreciation of intangible assets: from 2020 onwards, intangible assets are amortisable, provided that they correspond to industrial property rights, intellectual property rights and new vegetal varieties.

Chilean law only applies taxes on income, thus treating share capital as non-taxable. In this regard, equity or share capital contributions are tax free for both the investor and recipient entity.

Losses can be indefinitely carried forward throughout the years until wholly offset with the taxpayer's taxable income (whatever it may be: active, passive, capital gain or any other), with no statute of limitations for their use, provided that they are compliant with the same requirements as any tax expense.

The use of tax losses corresponds exclusively to the taxpayer that generated them, as losses are not transferrable. For instance, for both mergers and demergers, the tax-loss company must necessarily survive to keep using said loss.

On the other hand, any change of ownership of a tax-loss company may prevent the use of tax losses if within a 12-month period (pre- and post-purchase). This entity changes or widens its business activity, turns into a 'shell company' or only receives passive income from operative companies (as a holding company).

However, even if one of these scenarios take place, tax losses shall remain able to carry forward if the change of ownership occurs within a group business reorganisation context.10

Annual taxes, such as FCIT, must be declared and paid by 30 April each year, by means of Form No. 22 of the CIRS. Monthly taxes such as VAT must be declared and paid within the first 20 days of the month following that in which a VAT-taxable event took place.

Tax consolidation is not available in Chile. However, a de facto consolidation scenario may take place when a holding company records a tax loss and receives a dividend from a subsidiary, so the distributed profit gets absorbed by the tax loss. If so occurring, the holding company may recover the FCIT paid at the subsidiary's level upon the profits absorbed by its tax losses.

However, Law 21,210, enacted in February 2020, repealed this 'de facto consolidation rule' accordingly to a gradual elimination scheme by 2024. Thereby, 90 per cent FCIT shall be recoverable for 2020, 80 per cent for 2021, 70 per cent for 2022, 50 per cent for 2023 and zero per cent from 2024 onwards.

ii Other relevant taxes


Habitual sales of movable and immovable goods (when constructed or built up on real estate), services comprised in Nos. 3 and 4 of Article 20 of the CITL (whether habitual or not), and imports are levied with VAT rated at 19 per cent. VAT is declared and paid on a monthly basis, so being payable by the 20th day of the subsequent month. If the project has ended in December (for example), VAT must be declared and paid in January.

Likewise, digital services rendered by non-residents are subject to VAT provided that they are non-taxed or exempt from withholding tax, either by a domestic law provision or a convention for the elimination of double taxation.

Municipal tax

Municipal tax is a business licence fee calculated as a percentage of a company's tax equity,11 determined by 31 December each year, which must be annually paid to municipalities or councils. Exceptionally, in the first business year, municipal tax is calculated upon the share capital contributed to a company at its incorporation. The applicable rate may vary depending on the municipality or council, from 0.25 per cent to 0.5 per cent, being a capped sum of 8,000 monthly tax units12 (US$494,150 per year approximately).

Stamp tax

Stamp tax levies the issuance of documents containing credit obligations granted in Chile, as well as credit operations agreed abroad when registered in a Chilean-resident debtor's accounting. Stamp tax rate may vary depending on the length of the levied credit operation, from 0.066 per cent monthly to a maximum cap of 0.8 per cent upon the whole debt. Documents issued at sight or without maturity date are subject to a 0.332 per cent tax rate.

Stamp tax must be paid upfront at the issuance of the loan as a one-time obligation. Commonly, the borrower or debtor is liable to pay the stamp tax.

Tax residence and fiscal domicile

i Corporate residence

The Chilean Tax Code13 considers as resident any person (individual or legal) who uninterruptedly stays in Chile for one or more periods exceeding a 183-day term, within any 12-month period. In this regard, for legal persons (for instance, corporations), Chile determines the tax residence of entities and legal persons accordingly to their 'place of incorporation', without having specific rules to set or modify tax residence upon a 'place of management' basis or any other criterion, notwithstanding the PE rules.

ii Branch or permanent establishment

The CITL14 defines PE as a place used for the permanent or habitual development of a business or activity, wholly or partially, by a non-Chilean resident individual or entity, either exclusively used for this purpose or not, such as offices, agencies, plants, construction projects and branch offices. Likewise, the presence of an agent on behalf of a non-resident, being entitled to close contracts (or to lead to their conclusion) or to negotiate their essential elements, constitute a PE, unless as acting by independent agents.

In addition, double tax treaties signed by Chile deepen the scope of what is understood as a PE, requiring a 183-day presence in a calendar year for its constitution.

PEs are subject to FCIT as any other Chilean-resident entity, while distribution of profits to their non-resident head office are taxed as dividends (35 per cent WHT).

Tax incentives, special regimes and relief that may encourage inward investment

i Holding company regimes

Holding companies are FCIT-exempt upon dividends received from other Chilean-resident entities. However, capital gains, interest and any other income shall be taxed at holding company level with FCIT (27 per cent) upon a net taxable base, as expenses of the business may be deducted.

ii IP regimes

IP does not have a special tax regime. However, capital gains obtained by the author or creator for the alienation of any IP are regarded as non-taxable income.

iii State aid

State aid is not available in tax matters.

iv General

Investors interested in developing any mining, energy, infrastructure or any other activity where the purchase of high-cost capital assets is essential may be attracted by these regimes:

  1. extreme-zones FCIT credit: Chilean law provides a tax credit upon the values incurred in the purchase and import of fixed assets for taxpayers who reside in extreme zones of Chile;
  2. instant depreciation regime;
  3. free trade agreements (FTAs): Chile has signed several FTAs with the United States, the European Union, China and other European, South American and Asian countries. FTAs allow taxpayers to import several goods at a zero custom duties rate; and
  4. special VAT exemption on import of capital goods: the VAT Law provides an exemption to Chilean-resident companies receiving foreign investment on the import of capital goods to develop mining projects, industry, forestry, energy, infrastructure, telecommunications, investigation and technology development, and medical and scientific areas, among others, whenever the foreign investment reaches a minimum sum of US$5 million.

Withholding and taxation of non-local source income streams

i Withholding outward-bound payments (domestic law)


Dividends are subject to a 35 per cent WHT receipt by a non-resident beneficiary. The FCIT (27 per cent) paid by the Chilean operational company may be either fully or partially offset against the WHT levied on the non-resident beneficiary as described below:

  1. FCIT's partial imputation: shareholders or effective beneficiaries residing in a jurisdiction that does not have a double tax treaty in force with Chile can only use 65 per cent of the FCIT paid (27 per cent) as a credit; and
  2. FCIT's total imputation: shareholders who reside in a jurisdiction with a double tax treaty in force with Chile are entitled to use 100 per cent of the FCIT as a credit against WHT. Exceptionally, residents in countries that have a 'signed' double tax convention with Chile that is not in force yet can also use the entire credit (by 2026). This is the case for residents in the United States, India, the United Arab Emirates and the Netherlands.


Non-resident creditors are subject to 35 per cent WHT on interest paid by Chilean-resident borrowers, while principal payments are tax free. However, CITL unilaterally applies a reduced 4 per cent WHT if interest derives from: (1) loans granted by a foreign bank, foreign financial institution (FFI), foreign pension fund or foreign insurance company; or (2) bonds or debentures issued abroad by a Chilean-resident debtor in favour of a non-resident creditor.


Non-resident beneficiaries are subject to a general 30 per cent WHT. Royalties paid for the use or exploitation of software programs are levied with 15 per cent WHT but increasing to 30 per cent if paid to a tax haven or preferential tax regime jurisdiction resident. Royalties for the use of standardised software are WHT-exempt, but subject to VAT.15

Service fees

Service fees are subject to a general 35 per cent WHT;16 nonetheless, fees paid to non-residents for engineering, technical and professional services as well as those rendered by providing an advice, report or draft, either carried out in Chile or abroad, are subject to a 15 per cent WHT, increasable to 20 per cent if the beneficial owner resides either in a tax haven or preferential tax regime jurisdiction.

ii Domestic law exclusions or exemptions from withholding on outward-bound payments

In addition to the exemptions described above and those granted by tax treaties, SMEs are WHT-exempt upon service fees paid to non-residents.

iii Double tax treaties

Investments from double tax treaty countries may be considerably more effective to obtain tax efficiency in relation to dividends, interest, royalties and service fees.

  1. Dividends paid to a double tax treaty country resident are eligible to use the whole FCIT paid by the Chilean entity as a credit. This applies to all the tax treaty countries, without exceptions.
  2. Interest may be levied with a reduced 10 per cent WHT when paid to residents in double tax treaty jurisdictions, even if not paid to foreign financial entities. For instance, Canada, China, Spain and the United Kingdom, among others. Likewise, double tax treaties may even set lower rates, akin to the 4 per cent WHT domestically applied on interest deriving from FFIs and bonds or debentures.
  3. Royalties: unlike as occurred with the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention, Chile levies royalties by applying reduced WHT rates that may be 5 per cent, 10 per cent or 15 per cent in certain cases. For instance, the Chile–United Kingdom double tax treaty applies a 5 per cent WHT on royalties for the use of, or the right to use, any industrial, commercial or scientific equipment, while any other royalty is subject to a maximum 10 per cent WHT.
  4. Service fees: exempting WHT in Chile, accordingly to Article 7 on 'business profits', unless that income derives from services rendered through a permanent establishment in Chile. However, it is necessary to analyse any tax treaty in detail, as there might be exceptions.17

Currently, Chile has 33 double tax treaties in force with these countries: Argentina, Australia, Austria, Belgium, Brazil, Canada, China, Colombia, Croatia, the Czech Republic, Denmark, Ecuador, France, Italy, Ireland, Japan, Malaysia, Mexico, New Zealand, Norway, Paraguay, Peru, Poland, Portugal, Russia, South Africa, South Korea, Spain, Sweden, Switzerland, Thailand, Uruguay and the United Kingdom.

In addition, Chile has signed double tax treaties, which are not in force yet, with India, the United States, the United Arab Emirates and the Netherlands.

iv Taxation on receipt

Dividends and income flows from Chile to non-resident beneficiaries are subject to WHT on a receipt basis when paid, credited into account or made available. The same treatment applies on interest, royalties and service fees, except that no tax credit applies on them.

On the other hand, dividends between Chilean entities are FCIT-exempt.

Finally, foreign-source income is levied with FCIT upon a receipt basis, except profits deriving from PEs and CFCs, which are taxed upon an accrual basis. To solve double-taxation issues on foreign-source income distributed as dividends, Chile follows the 'credit method', by granting a credit offset against FCIT, equivalent to the taxes18 applied in the foreign jurisdiction up to a 35 per cent limit.

Taxation of funding structures

In Chile, entities are usually funded by means of a mix between equity and debt contributions. Nonetheless, any equity or debt scheme requires consideration of the requirements and effects deriving from thin capitalisation rules, transfer pricing provisions and stamp duty levied on credit operations.

i Thin capitalisation

Thin capitalisation rules19 apply on interest payments made by a Chilean-resident debtor either to a non-resident related party or to a tax haven resident, if subject to a reduced WHT by virtue of a domestic law provision or a double tax treaty (for instance, either 4 per cent or 10 per cent WHT). Thereby, Chilean-resident debtors' annual indebtedness shall not exceed three times its tax equity (3:1 debt-to-equity ratio).

For purposes of calculating the 3:1 ratio, all debt with both related and unrelated parties must be included, except short-term liabilities with unrelated parties (i.e., liabilities lesser than 90 days' maturity). If exceeded, surplus interest payments shall be subject to a 35 per cent WHT, chargeable to the borrower. However, the reduced WHT20 paid within the 3:1 limit is creditable against the 35 per cent thin cap taxation.

On the other hand, interest shall remain as a deductible expenditure even if paid in excess of thin capitalisation rules.

ii Deduction of finance costs

Finance costs, including interest paid exceeding thin capitalisation rules, is deductible as an expense if compliant with the requirements set by Article 31 of the CITL.

iii Restrictions on payments

Dividend payments are limited by the actual existence of financial profits available for distribution, in accordance with the entities' financial statements and accounting.

iv Return of capital

Return of capital is a non-taxable event. Nonetheless, Article 14 of the CITL sets certain 'allocation rules', by which companies are obliged to distribute all retained profits first, upon which the 35 per cent WHT on dividends shall apply while FCIT credit shall be available as long as said tax was paid by the company upon those profits. Finally, once all the profits are distributed, the owner can return capital on a tax-free basis.

Acquisition structures, restructuring and exit charges

i Acquisition

Generally, foreign investors incorporate a holding company that purchases shares of a local entity or contributes share capital in a new entity.

This structure enables investors to control cash flows and debts at the holding company's level, by paying both loan interest and principal (if a debt contribution takes place) and dividends to shareholders. In parallel, investors may decide to retain cash flows at the holding company level.

ii Reorganisation

Mergers are tax neutral whenever the assets transferred to the subsisting entity remain at the same tax cost as registered in the absorbed entity's accounting books, without giving rise to a capital gain. The same requirement applies for demergers, where new companies must keep the tax cost of the assets assigned to them, such as recorded in the demerged entity.

The CIRS shall be unable to exert its tax assessment faculties on compliant mergers and demergers, regarded as tax-free reorganisations, which are implemented by simple procedures ruled by Chilean corporate law.21

Mergers between non-resident and resident entities are recognised as having the same effects as one occurring between local entities.

Finally, mergers between non-resident entities are also recognised by tax authorities provided that they have the same attributes and effects as a local-entities merger.

iii Exit

An investor may finalise his or her investment in Chile by means of returning share capital and ceasing business or by selling the investment.

Return of capital and ceasing business

Return of capital shall be tax free, although all taxable and non-taxable profits (if any) must be distributed as dividends first.

In addition, the company shall inform the 'cease of business' to CIRS, by filing a termination balance sheet and a final tax return, to be examined in a six-month period, after which the procedure is concluded.

Sale of business

A non-resident investor may decide between selling one or more Chilean entities directly or indirectly.

  1. Direct transfer of Chilean entities: non-resident seller subject to 35 per cent WHT upon the proceeds (sale price minus readjusted acquisition cost). Taxes on capital gains may be reduced by a double tax treaty.
  2. Indirect sale of Chilean entities: capital gains obtained by a non-resident from the alienation of at least 10 per cent of shares, equity rights or securities representing the capital of an entity residing or incorporated abroad is subject to 35 per cent WHT in either case:
    • when at least 20 per cent of the total market value of the foreign shares or ownership interest transferred, derives from Chilean underlying assets; or
    • when current value of the underlying assets, in the proportion that corresponds to the indirect participation that the foreign transferor has on them, if higher than approximately US$155 million.

This transferral may be tax free if made within a corporate group reorganisation, whenever the underlying assets remain registered at their tax value, without generating any capital gain. In this case, the CIRS is unable to assess the transaction.

Anti-avoidance and other relevant legislation

i General anti-avoidance

General anti-avoidance rules (GAAR) are comprised in Articles 4 ter, 4 quáter and 4 quinquies of the Chilean Tax Code. These norms aim to prevent both tax avoidance and aggressive tax planning through 'abusive' and 'simulated' figures. GAAR represents an exceptional mechanism because they are applicable only on default of other specific measures. For instance, disallowed expenditures and transfer pricing rules, among others, are matters excluded from GAAR's scope.

These rules define 'abuse' provided that these circumstances are met: (1) total or partial avoidance of a taxable event; or (2) a tax reduction or a tax deferral by means of one or more actions not economically relevant for the taxpayer or a third party, but executed with solely a tax purpose.

There is 'tax avoidance' in simulated acts or businesses disguising a taxable event, the elements around the nature of tax obligations, the actual amount of a tax duty or the date of its accrual.

ii Controlled foreign corporations

According to CFC rules,22 a foreign entity is controlled when a Chilean resident has 50 per cent or more of the capital, profits or voting rights; can elect the majority of the directors; or have unilateral faculties to modify the by-laws of a non-resident entity.

If a foreign-controlled company obtains 'passive income' (dividends, interest, royalties and capital gains, among others), CFC rules apply by taxing the Chilean-resident owner upon the profits accrued by the controlled entity, even though no income has been received yet. Nonetheless, losses generated by a CFC are not recognisable as expenses by the Chilean-resident owner.

Entities resident in tax havens or preferential tax regimes are presumed to be CFCs; however, taxpayers can discard that presumption by proving the absence of control.

iii Transfer pricing

Chilean transfer pricing rules23 apply on cross-border operations with related parties, where purchase prices and service fees must be charged accordingly to arm's-length principles (ALPs). For this purpose, ALPs may be determined in accordance with both traditional and transactional methods:24 comparable unit price, resale, cost plus, transactional net margin and transactional profit split.

In addition, Chilean-resident entities must inform their cross-border transactions with related parties through an annual sworn statement, to be submitted by the last business day of June.

iv Tax clearances and rulings

The director of the CIRS is entitled25 to construe the scope and sense of tax rules with mandatory effect for all the employees of this institution, by means of circular letters and rulings. Within this context, taxpayers can request the CIRS to issue a tax ruling to obtain his or her interpretation on a certain matter or issue on which the literal drafting of a tax law seems not to be clear.

Thereby, tax rulings constitute a sort of safe harbour for taxpayers, as any course of action taken in accordance with a ruling is regarded as being in 'good faith',26 which can cease only if the CIRS publishes a change of interpretation. Nonetheless, retroactive tax collections due a change of criterion are not allowed.

Year in review

During 2020, the tax environment has been determined by both covid-19 measures and the implementation of the 'tax modernisation bill', within the pandemic context and the need to reactivate the domestic economy.

Outlook and conclusions

Covid-19 vaccinations have given a positive boost to the nation, reaching over 16 million people (out of a total population of 18 million) and helping Chile achieve 11 per cent GDP growth. There are, however, several challenges and adverse consequences deriving from the pandemic that will require solutions. For instance, fiscal indebtedness and inflationary control are matters to be prioritised in 2022, as well as keeping acceptable rates of economic growth.

Given this context, both the needs of increasing the fiscal budget and developing the Chilean economy in a balanced way are likely to be the main challenges that the Chilean tax system will face in 2022. In this regard, the appointment of a new government should give rise to tax reform discussions, which obviously will require consideration of all the challenges to be faced in the future, as from this mechanism the outcomes might be desirable or disastrous. Wisdom will be required for this purpose.


1 Francisco Javier Allende D is a partner and Mauricio Carloza C is a senior associate at Allende Bascuñán & Cía.

2 According to the 'climatescope' report, published by Bloomberg NEF on 9 December 2020,
Chile was ranked No. 1 as the most attractive for investment in renewable energies:

3 Ruled by Law No. 20,712 (known as the Unified Funds Law).

4 Chilean corporate income tax is commonly known as FCIT, ruled in Article 20 of the CITL.

5 According to Article 39 of the CITL, Chilean entities are exempt of corporate income tax or FCIT upon dividends received from other Chilean-resident entities.

6 FCIT is the corporate tax applied in Chile, ruled by Article 20 of the CITL.

7 UF is an inflationary unit applicable in Chile.

8 FCIT paid by SMEs shall be fully creditable against the taxes applied on dividend distributions to their owners.

9 GCT applied on Chilean-resident individuals.

10 'Business reorganisations' are referred by Article 96 of the Law No. 14.045 (known as the Stock Market Law), which defines 'business group' as a 'set of entities linked on their ownership, management or a credit liability, that led to presume that both economic and financial behaviours of their members are guided by or subordinated to the group common interest, or when existing common financial risks either in the loans granted or debentures issued'. Moreover, Article 96 provides that the following are members of the same business group: (1) a company and its controller; (2) all the companies that have a common controller; and (3) any other entity so determined by Financial Market Committee.

11 Tax equity is defined by Article 2 No. 10 of the CITL, as the 'set of goods, rights and obligations expressed in tax values, held by a company'.

12 A Chilean inflationary unit commonly applied for public-law purposes.

13 Article 8 No. 8 of the Chilean Tax Code.

14 Article 2 No. 10 of the CITL.

15 As digital services rendered by non-residents are subject to VAT, unless WHT applies. Conversely, if a WHT exemption is met, 19 per cent is applicable, according to Articles 8(n) and 12(e) No. 7, both of the VAT Law.

16 Article 59, Paragraph 4, No. 2 of the CITL.

17 For instance, Argentina applies a withholding tax of 15 per cent on certain technical and professional services.

18 Either corporate or withholding taxes applied abroad.

19 Comprised in Article 41(f) of the CITL.

20 For example, 4 per cent or 10 per cent.

21 Law No. 18046 of 'stock corporations' and Chilean Code of Commerce.

22 CFC rules are comprised in Article 41(g) of the CITL.

23 Transfer pricing rules are set in Article 41(e) of the CITL.

24 Following the OECD's TP Guidelines (2017).

25 Article 6(a) No.1 of the Chilean Tax Code.

26 Article 26 of the Chilean Tax Code.

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