As mentioned earlier this year, the new legislation puts to
an end a lot of uncertainty regarding the tax treatment
applicable for these types of instruments, which until now have
only been regulated by administrative jurisprudence issued by
the Chilean tax authorities.
Among other things, foreign investors need to consider the
following, when trading Chilean derivatives.
Types of instruments
The new law expressly regulates forwards, futures, swaps,
options, and a combination of any of these. However, the new
legislation will also be applicable to other financial
agreements whose values derive from the value of an underlying
transaction, fulfilling the following joint requirements: its
settlement value is determined over one or more variables; it
does not require an initial investment or it is significantly
lower than investing directly in the underlying assets; and the
settlement of the instrument is performed at a future date.
Nevertheless, certain instruments are not covered by the new
legislation, regardless of whether they fulfill with above
requirements, such as insurance contracts, stock options, and
Source of income
As a general rule, income derived from assets located within
the country or activities developed in Chile are considered to
be Chilean source income. The new regulation for derivative
instruments provides for a sourcing rule based on the
taxpayer’s domicile, where only revenues obtained
by Chilean residents or by a permanent establishment of foreign
taxpayers in Chile are subject to taxes in Chile. Instruments
settled by means of physical delivery of shares or quotas in
Chilean companies are also subject to Chilean taxes, regardless
of the taxpayer’s domicile.
As a consequence, the law puts an end to a long-term
discussion not solved by administrative jurisprudence. Foreign
investors obtaining revenues upon cash settlement of derivative
instruments will not be subject to taxation in Chile.
Gain or loss recognition
In principle, taxpayers will have to recognise a gain or
take a loss on cash basis, unless subject to the business
profits tax. In such a case, recognition will be on accrual
basis by reference to the instrument’s fair
Provided most business taxpayers are required to follow
international financial reporting standards to reflect the
instrument’s fair value, this market-to-market
rule is intended to avoid an additional burden. However, those
taxpayers not bound by this financial accounting method will
need to find the information at an additional cost to assess
the accrued gain or loss for the period.
The new legislation is considered to be an important
advancement for the local capital market industry and new
administrative regulation is expected in the near future.
Francisca Middleton (firstname.lastname@example.org)
& Benjamín Barros (email@example.com)
Tel: +56 2 9400155
Fax +56 2 940 0503