On 19 December 2023, the U.S. Department of the Treasury announced the entry into force of a comprehensive income tax treaty between the United States and Chile. The Chile tax treaty is the first new comprehensive bilateral tax treaty signed by the United States to enter into force in over ten years.
The Chile tax treaty will reduce tax-related barriers to cross-border investments between the United States and Chile and is only the second U.S. comprehensive bilateral tax treaty in force with a South American country.
The Chile tax treaty was approved by an overwhelming majority in the U.S. Senate on 22 June 2023, and President Biden signed the instrument of ratification in December. The treaty entered into force today when the United States notified Chile that it had satisfied its applicable procedures for bringing the treaty into force.
The main provisions of the Chile tax treaty include:
- Reduced source-country withholding tax on certain payments of dividends as well as payments of interest and royalties.
- A prohibition against source-country taxation of business profits of an enterprise in the absence of a so-called “permanent establishment.
- Beneficial rules for individuals, including provisions that govern the taxation of income from employment, payments to students and trainees, and pensions and social security payments.
- A comprehensive limitation on benefits provision.
- A comprehensive provision allowing for full exchange of information between the U.S. and Chilean tax authorities.
For taxes withheld at source, the Chile tax treaty will have effect for amounts paid or credited on or after 1 February 2024. For all other taxes, the Chile tax treaty will have effect for taxable periods beginning on or after 1 January 2024.
