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Rodrigo
Winter S |
Raúl
Fuentes U |
Pursuant to Article 3 of the Chilean Income Tax Law (ITL),
Chilean taxpayers are taxed on their worldwide income, thus for
their Chilean and foreign source income. The foregoing produces
a problem of international double taxation in case of a Chilean
resident earning foreign-sourced income subject to taxation
abroad.
To tackle such a problem, the legislation has set forth a
unilateral (applicable in case Chile has not entered into a
double taxation agreement) and bilateral tax credit (applicable
in case Chile entered into a double taxation agreement). Please
bear in mind that in accordance with bilateral remedies the
total available foreign tax credit is capped at 35%, but for
unilateral remedies the cap is limited to 32%.
Regarding the bilateral credit, it covers all the types of
incomes that are included in the tax treaty. On the other hand,
a unilateral remedy only applies over certain types of income
which were, prior to Law No. 20.956 of 2016 (Productivity Law)
the following:
- Dividends and profits sharing;
- Permanent establishment and CFC; and
- Trademarks, patents, formulas, technical
assistance and other similar services rendered abroad.
However, the Productivity Law, published in the Official
Gazette on October 26 2016, introduced two new types of income
that will be entitled to unilateral tax credit: exportation
services and income from employment and independent personal
services. These new tax credit provisions have been in force
since February 1 2017.
These new provisions will allow, for instance, that Chilean
employees that were sent abroad and have to pay taxes in Chile
and abroad, will be entitled to credit in Chile a part of the
tax that was withheld in the foreign country.
The goal of the Productivity Law, pursuant to the bill sent
by the government, is to deepen the financial system and to
promote the exportation services. In this sense, exportation
services during the past 10 years have grown significantly,
representing around 13% of the total exportation and more than
4% of the GDP. Moreover, among the exportations, professional
services, consulting, technical services and IT services that
represented $1 billion in 2004 in 2014 were nearly $3
billion.
In this order of things, new tax credits and the other
measures of the Productivity Law are in line with the strategy
of Chile to allocate it in the global networks of value and
enhance a knowledge economy, by making the exportations more
competitive.
Rodrigo Winter S (rodrigo.winter@cl.pwc.com)
and Raúl Fuentes U (fuentes.raul@cl.pwc.com)
PwC
Tel: +56 229400155
Fax +56 2 940 0588
Website: www.pwc.com/cl