Chile: Law with changes in Chilean foreign tax credit system published

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Chile: Law with changes in Chilean foreign tax credit system published

benedetto.jpg

zaidan.jpg

Sandra Benedetto


Adriana Zaidan

On January 31 2014, Law No. 20.727 (the law) was published, amending several tax rules on different subjects. Among such amendments, the law brought some improvements to the system of unilateral and bilateral foreign tax credits (FTC), with retroactive application to January 1 2014. Traditionally, Chilean the FTC system has been subject to several limitations. In brief, (i) unilateral FTC has only been available in case of certain types of income, that is dividends (direct and indirect FTC), royalties, technical assistance services and PE income; (ii) broadly speaking, for dividends, the amount of FTC was limited to the lower amount between 30% of the taxpayer's foreign income and 30% of its foreign source net income (FSNI). In the other cases, unilateral FCT was limited to the lower between the amount of first category tax paid on taxpayers' foreign income and 30% of its FSNI; (iii) only a two tier indirect FTC was available; and (iv) credits were extinguished in case the taxpayer registered tax losses in the year where FTC were paid or in the following years (in case a carry-back of losses applied).

As illustrated below, the law reduces some of the limitations mentioned above, although it does not extend unilateral FTC to other concepts (such as capital gains and interest).

Accordingly, the law increases the unilateral FTC limits from 30% to 32% of the FSNI. Only in case of dividends, there is an increase in the FTC limitation that considers the foreign income received by the taxpayers (from 30% to 32%). In what concerns bilateral FTC, the limits of 30% of the total taxpayer income and 30% of the taxpayer's FSNI were increased to 35% in case the beneficial owner of the relevant income is a Chilean resident. As a result of such differences between unilateral and bilateral FTC limits, Chilean taxpayers will now have to calculate two types of FSNI: one considering foreign income derived from treaty countries and the other taking into account foreign income sourced in non-treaty countries.

Additionally, the new rules grant to Chilean taxpayers unilateral indirect FTC reaching as many tiers as may exist, to the extent that all the subsidiaries are resident of the same country of the first tier subsidiary and that the first tier subsidiary owns, directly or indirectly, more than 10% of the shares of the other subsidiaries.

In what concerns the use of FTC when the Chilean taxpayer receiving the foreign income is in a loss situation, the law introduces a rule that allows unlimited carry-forward of FTC received in connection with dividends. However, in a contradictory manner, a previous rule stating that FTC were totally extinguished if obtained in a period where the Chilean beneficiary presented a tax loss was not revoked by the new legislation.

No reference is made to the treatment of unilateral FTC received by companies in a tax loss position in connection with other concepts of income or to the credits received as a result of double tax treaties.

Sandra Benedetto (sandra.benedetto@cl.pwc.com) and Adriana Zaidan (adriana.zaidan@cl.pwc.com)

PwC

Tel: +56 2 940 0155

Website: www.pwc.com/cl

more across site & shared bottom lb ros

More from across our site

Despite garnering significant revenues from multinationals, Italy’s digital services tax presents pressing double taxation issues, say Stefano Simontacchi and Francesco Saverio Scandone of BonelliErede
ITR’s research shows that in-house tax counsel in Asia also feel underserved by their advisers’ international networks
World Tax global head of research Jon Moore tells ITR how his team spots standout submissions, and gives early statistical insights into this year’s entries
Australia’s conservative opposition will repeal controversial tax agent reporting rules if elected in the country’s May general election
Shapley would be the fourth person to hold the job this year; in other news, UK tax advisory firm MHA raised fewer funds than expected from its London IPO
The US needs to be involved in pillar one for there to be more international acceptance of the project, Michael Masciangelo says
The UK regulator is investigating EY’s auditing of the national postal service as it relates to the high-profile Horizon scandal, which saw hundreds wrongfully convicted
The directive will extend cooperation and information exchange around pillar two, according to the Council of the EU
Audit engagement partner Christopher Voogd has also been hit with a £32,500 charge over the firm’s work with Stirling Water Seafield Finance
China’s largest overhaul of its tax administration system in 24 years, featuring enhanced enforcement powers, is underway, says Abe Zhao of FenXun Partners
Gift this article