Chile: Taxpayers able to obtain credit on income from non-treaty countries
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Chile: Taxpayers able to obtain credit on income from non-treaty countries


Rodrigo Winter

Bernardita Parodi

On October 26 2016, the Productivity Law (Law N° 20,956) was published in the Official Gazette to promote Chile's productivity by establishing a series of measures intended to achieve this goal.

Among the several measures established in Law N° 20,956 is the promotion of service exportation from Chile, as well as services rendered abroad by Chilean individual residents.

In this context, the Productivity Law provides that taxpayers exporting services to foreign countries will be entitled to use the income taxes paid abroad on those services as a credit against the corporate tax paid in Chile. This will apply regardless of the taxpayer's country of residence. In addition, Chilean resident individuals rendering services abroad will be enabled to use the taxes paid abroad in respect of such services as a credit against Chilean personal income taxes.

Before the enactment of Law N° 20,956, taxpayers resident in Chile rendering services abroad could use the income taxes paid abroad as credit against local income taxes, but this was only permitted if the income's source country had a double tax treaty in force with Chile. Therefore, the Productivity Law broadens Chile's unilateral tax credit system for the relief of international double taxation.

For the purposes of using taxes paid abroad as credit against the first category tax, Chilean taxpayers will need to comply with a number of requirements already established by law. For example, tax paid abroad on income from the use of trademarks, patents, formulas, technical assistance and other similar services are now also applicable to export services, as well as the requirement of being qualified as an export service under the terms of the VAT Law.

On the other hand, for income derived from personal services rendered in countries with which Chile does not have an effective double tax treaty, these taxpayers will benefit from the same tax benefits as Chilean residents rendering services in treaty countries. This is available on the condition that these services do not make the individuals lose their Chilean residency. The measure will entitle them to credit against their employment income tax (article 42 of the Chilean Income Tax Law) or against its global complementary tax (article 52 of the Chilean Income Tax Law).

In both cases, the tax credit cap will be set at 32% of net foreign income. Therefore, the Productivity Law, keeps the difference between the 32% of net foreign income cap applicable to non-treaty country source income, whilst applying a 35% of net foreign income cap to income coming from treaty countries.

Finally, according to the provisions of the Productivity Law, these new set of rules will be applicable to income deriving from export services or personal services rendered from January 1 2016.

Rodrigo Winter ( and Bernardita Parodi (



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