Recently, the Internal Revenue Service (IRS) issued two separate Rulings 59 and 2546 to clarify the taxation of dividends and interest by resident and nonresident taxpayer. The two rulings separately discussed in below:
Taxation of dividends
Ruling 59, explains the taxation of dividend income paid by a financial institution to resident and non-resident taxpayers under the Income Tax Act (ITL). If, according to the IRS justification, a financial institution pays a dividend equal to corporation taxable income (CIT), the beneficiary receives a tax credit. However, a distinction must be made between dividends paid to resident taxpayers, in which case a special exemption from income tax applies. Similarly, the case of dividends paid to non-resident taxpayers subject to regular ((35% WHT) withholding tax rules.
Taxation of interest
Ruling 2546, clarifies the taxation of interest paid to a Chilean corporate taxpayer (CIT), which relates to bonds issued by a foreign-based foreign company. According to the statements of the IRS, any interest received by a Chilean resident abroad is subject to cash or accrual, depending on the activities performed by the taxpayer. The IRS also clarified that capital gains generated by the issue of bonds by a foreign company are not subject to withholding tax if the bonds are purchased from a resident taxpayer in Chile who keeps complete accounting records.
