Chile: New thin capitalisation rules

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

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

Chile: New thin capitalisation rules

pelegri.jpg

winter.jpg

Loreto Pelegrí


Rodrigo Winter

On September 29 2014, Law N° 20.780 was published in the Official Gazette of the Republic of Chile, amending several tax provisions contained in the current Chilean Income Tax Law, as well as several other tax provisions. Among the changes contained in the law are the new thin capitalisation rules applicable to loans granted from January 1 2015 onwards. Thus, loans granted before January 1 2015 will continue to be subject to the old thin capitalisation rules.

Nevertheless, the Law provides that the new thin capitalisation rules are also applicable to loans granted before 2015 whenever such loans have been amended, in the sense that they have been transferred, the debtor has been changed, the principal or interest amount have been modified, or whenever the liability has been directly or indirectly transferred to a related party.

Please bear in mind that under the old thin capitalisation rules, a sole 31% tax was applicable over the interest related to the excess indebtedness at the Chilean debtor level in cases where three joint requirements are met: i) loan has been granted by a related party; ii) loan would be subject to the reduced 4% withholding tax on interest; and iii) debt-to-equity ratio exceeds 3:1.

Also, under the old thin capitalisation provisions, the excess of indebtedness position was calculated only once, that is, in the year when a related loan was granted, such 31% tax being deductible from the debtor's net taxable income. This 31% tax is independent from the 4% withholding tax on interest paid to the foreign creditor.

Pursuant to the new thin capitalisation rules, not only interest is subject to the thin capitalisation rules, but also commissions or fees, financial expenses, and any other disbursement related to the loan. Also, the excess of indebtedness position must be calculated on a yearly basis and consider all loans (local and offshore loans, both related and unrelated).

Under the new thin capitalisation rules, an 'excess of indebtedness tax' of 35% must be paid by the Chilean debtor, the 4% withholding tax being creditable against such aforementioned tax, which continues to be deductible for the Chilean debtor.

When determining the tax base of this 35% excess of indebtedness tax, and provided that the 3:1 debt-to-equity ratio is exceeded, only interest, commissions, financial expenses, and any other disbursements should be subject to this tax, if and when: i) the loan was granted by a related party, and ii) such disbursements were subject to the 4% withholding tax.

Finally, the concept of 'related party' included in the old rule has been broadened by the new law.

This new thin capitalisation regime will imply a significant challenge for Chilean companies, and also for the Chilean Internal Revenue Service.

Loreto Pelegrí (loreto.pelegri@cl.pwc.com) and Rodrigo Winter (rodrigo.winter@cl.pwc.com)

PwC

Tel: +56 229400155

Website: www.pwc.cl

more across site & shared bottom lb ros

More from across our site

Canadian Prime Minister Mark Carney and US President Donald Trump have agreed that the countries will look to conclude a deal by July 21, 2025
The firm’s lack of transparency regarding its tax leaks scandal should see the ban extended beyond June 30, senators Deborah O’Neill and Barbara Pocock tell ITR
Despite posing significant administrative hurdles, digital services taxes remain ‘the best way forward’ for emerging economies, says Neil Kelley, COO of Ascoria
A ‘joint understanding’ among G7 countries that ‘defends American interests’ is set to be announced, Scott Bessent claimed
The ‘big four’ firm’s inaugural annual report unveiled a sharp drop in profits for 2024; in other news, Baker McKenzie and Perkins Coie expanded their US tax benches
Representatives from the two countries focused on TP as they met this week to evaluate progress under a previously signed agreement – it is understood
The UK accountancy firm’s transfer pricing lead tells ITR about his expat lifestyle, taking risks, and what makes tax cool
Dolphin Drilling intends to discuss the final liability amount and manner of settlement with HM Revenue and Customs
Winning the case against the 20% VAT imposition was always going to be an uphill challenge for the claimants, UK tax advisers argue
A ‘paradigm shift’ in Chile’s tax enforcement requires compliance architecture built on proactive governance, strategic documentation and active monitoring of judicial developments
Gift this article