All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Chile: Tax credit regarding Chilean sourced income subject to withholding tax in a foreign jurisdiction



Loreto Pelegrí

Ignacio Burrull

On September 29 2014, Law No. 20.780 was published in the Chilean Official Gazette ("the Tax Reform"), which introduced several modifications to the Chilean taxation system. Among other modifications, and as a useful complement of a previous reform made which entered into force on January 1 2014, which increased the amount of credit that could be used for taxes paid abroad, either from treaty or non-treaty countries, and also established that the credit balances could be carried forward until its full extinction (while the previous regulation did not allow its use in case of tax losses), the Tax Reform introduced a subtle yet relevant modification to articles 41 A and 41 C of the Chilean Income Tax Law (Chilean ITL), which contains various provisions that aim to avoid international double taxation.

In fact, before the Tax Reform, said articles established that Chilean resident or Chilean domiciled taxpayers who obtained incomes from abroad were allowed to use a foreign tax credit. A contrario sensu, the Chilean IRS, interpreted in several rulings that a Chilean entity receiving Chilean-sourced income subject to withholding taxes in a foreign jurisdiction (for example, remuneration for services rendered in Chile to a non-domiciled entity) was not allowed to use a foreign tax credit.

The Tax Reform modified the heading of said articles, eliminating the phrase 'from abroad' from its content. The purpose of this elimination is to widen the scope of application of the provisions that seek to avoid the double taxation of incomes, since, before this elimination; the aforementioned provisions were only applicable to foreign-sourced income that had been taxed abroad as well.

In such a situation, if a Chilean resident or Chilean domiciled taxpayer had to render a service to a non-resident or non-domiciled taxpayer, it was more convenient to travel abroad and render it outside Chile, so that the income received was considered as foreign income, hence not subject, as a general rule, to Chilean taxes.

Accordingly, as per the new heading of articles 41 A and 41 C, the provisions that aim to avoid the international double taxation are now, also, applicable to incomes that fulfill the following cumulative conditions:

  • Obtained in Chile or abroad; and

  • Have been taxed abroad.

Therefore, with this new provision, the Chilean resident or Chilean domiciled taxpayer, in the example above, will be able to use, with certain limits, as a credit against the corporate income tax (CIT) levied in Chile, the taxes paid abroad for the income received for the rendering of its services, even if they are performed within Chilean territory (Chilean-sourced income).

As per the modification explained above, the Tax Reform, which was vastly criticised by many sectors of the Chilean economy, envisaged a change that is actually beneficial for taxpayers, allowing, and promoting, an easier and more transparent way to continue or expand its operations abroad.

Loreto Pelegrí ( and Ignacio Burrull (



more across site & bottom lb ros

More from across our site

The Dutch TP decree marks a turn in the Netherlands as the country aligns its tax policies with OECD standards over claims it is a tax haven.
Gorka Echevarria talks to reporter Siqalane Taho about how inflation, e-invoicing and technology are affecting the laser printing firm in a post-COVID world.
Tax directors have called on companies to better secure their data as they generate ever-increasing amounts of information due to greater government scrutiny.
Incoming amendments to the treaty could increase costs on non-resident Indian service providers.
Experts say the proposed minimum tax does not align with the OECD’s pillar two regime and risks other countries pulling out.
The Malawian government has targeted US gemstone miner Columbia Gem House, while Amgen has successfully consolidated two separate tax disputes with the Internal Revenue Service.
ITR's latest quarterly PDF is now live, leading on the rise of tax technology.
ITR is delighted to reveal all the shortlisted firms, teams, and practitioners for the 2022 Americas Tax Awards – winners to be announced on September 22
‘Care’ is the operative word as HMRC seeks to clamp down on transfer pricing breaches next year.
Tax directors tell ITR that the CRA’s clampdown on unpaid taxes on insurance premiums is causing uncertainty for businesses as they try to stay compliant.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree