We invite you to read the opinion column written by our partner Rodrigo Albagli and director of TrIbutario Group, David Ancelovici, who discussed the main advantages and tax implications of the Double Taxation Avoidance Agreement between Chile and the United States.
After more than ten years of processing, finally the Convention to Avoid Double Taxation and to Prevent Fiscal Evasion with Respect to Income and Wealth Taxes, together with its respective Protocol, got the green light in Congress. Being approved unanimously at the end of 2023, it finally entered into force in Chile after its publication on january 27, 2024 in the Official Gazette. With this, we are undoubtedly sending a relevant and solid signal regarding the interest in deepening the economic integration between Chile and the United States.
In this sense, the entry into force of the Agreement is a key step in favor of strengthening and increasing investment in the United States -especially in strategic markets in Chile- and the benefits it will also have for Chilean investors in that country.
It should be noted that Chile already has a free trade agreement with the United States. According to official data, the investment of US companies in Chile exceeds US$ 27 billion. However, the truth is that the double taxation agreement is a key step to strengthen the bilateral economic and investment relationship between both countries. Above all, due to the amount of capital that has left Chile for abroad -mainly the United States- as of 2019. According to Bloomberg, during 2019 US$ 1,693 million left Chile, while by 2022 it reached US$ 10,433 million. These amounts are still relevant for a GDP like Chile’s, so granting greater security and regulation to Chilean investors through the Agreement complements the different tools that taxpayers have to invest in the United States.
Among the main advantages and tax implications, it is worth mentioning the reduction of the additional tax rates associated with capital gains (35% to 16%, meeting certain requirements), dividends paid from the United States to Chile (30% to 5%, meeting certain requirements) and interest paid from the United States to Chile (30% to 15% or 10%, as appropriate). These are some of the benefits included in the Agreement, which also provides for the rendering of services in general and the payment of royalties, among others.
These benefits allow the interaction between both countries to be much more fluid and economical. The above, either for Chilean taxpayers who invest in financial instruments whose profitability is passive, as well as for operating companies that have operations in the United States or contract services installed in that jurisdiction. However, the Convention also provides for different matters that different investors must take into account, such as, for example, the principle of Limitation of Benefits or the Protocols for the Exchange of Information between the competent authorities of each Contracting State.
Thus, the entry into force of the Agreement makes Chile a more competitive country for U.S. companies. This, taking into account the tax benefits that the agreement entails in relation to the different markets that both countries seek to explore together. Proof of this is the increase in investments made by Chilean high net worth individuals since the entry into force of the Agreement, according to data published by this same media. However, the use of the Agreement must always be accompanied by a complete understanding of the agreement, taking into account the different legal implications of investing in a country such as the United States.