Dividends paid by a resident company to its resident shareholders are not subject to withholding tax. Normally, dividends paid to nonresidents are subject to a final withholding tax of 35%. However, a credit is given for first category tax paid on the profits from which the dividends derive. The tax actually withheld is calculated by applying a rate of 35% to the grossed-up dividend (the dividend plus a credit equal to 17.65% of the dividend) and deducting the credit from the result.

Foreign investors that make their investments under Decree Law No. 600 of 1974 (see "INVESTING IN CHILE" under "Investment Incentives") may choose an alternative withholding tax system. A provision can be written into the investor's contract with the government that guarantees a fixed aggregate tax rate of 42%, comprising first category tax and withholding tax, for ten years (extendible to twenty years in some cases). No credit is given for first category tax against the withholding tax. An investor may elect at any time to return to the normal withholding tax system, but this election is irrevocable.

Table B presents simplified examples of the normal system and the alternative system.


                        Normal System         42% Alternative
                            (Ch$)                System

Pretax profits of payer        100                100

Less first category tax at     (15)               (15)

Net distributable income        85                 85
Less withholding tax:

35% on 100 (that is, on 85 
plus 17.65% of 85)             (35)                -

27% on 100                      -                 (27)

Tax credit                      15                 -

Net dividend received by        65                 58
nonresident investor


A Chilean branch of a foreign company must deduct a remittance tax from profit remittances made to its head office abroad generally in accordance with the rules described above for dividend payments made to nonresidents.


Interest paid on loans from abroad is generally subject to a withholding tax of 35%. This is normally a final tax. The rate is 4%, however, if the interest is paid on a loan granted by a foreign or international bank or a duly registered financial institution. Foreign lenders should also be aware of the stamp tax on foreign loans and the compulsory interest-free deposit or loss-of-interest fee that has to be paid to the central bank (see "OTHER TAXES" under "Miscellaneous Taxes").


Royalties and assistance fees paid abroad are subject to a withholding tax of 35%, which is normally a final tax. Under a proposed bill, the deduction of outbound royalties will be limited and the rate will be reduced to 30%. Payments for technical assistance or engineering services rendered by a nonresident foreign entity, either in Chile or outside Chile, are subject to a withholding tax rate of 20%. This 20% tax also applies to payments for engineering services rendered outside Chile.

Royalties include payments for the right to use a patent, trademark, industrial design, and manufacturing process or formula. They also include any fees, traveling expenses, and other expenses that a licensor must incur to provide assistance in connection with a license or to control the use of the license.

Royalties for editing and authors' rights are subject to withholding tax at 15%.


Chile has only one comprehensive double tax treaty, that with Argentina. The treaty does not reduce the rates of Chilean withholding tax on dividends, interest, and royalties paid to residents of Argentina. The treaty provides that income earned in one country is to be subject to tax only in that country; income is exempt from the other country's taxes when it is repatriated. In computing his or her complementary tax liability, a Chilean resident must include Argentine-source income only for determining the tax rate applicable to other income. Chile also has several limited treaties with other countries covering maritime or air traffic.

The information in this article was correct as of 9 July 1996.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information contact Anthony Cook, Deloitte & Touche, Santiago, Chile on Tel: +56 2 638 4186, Fax: +56 2 639 1522.