Chile: Corporate migration

December 14 2017

The concept of corporate legal migration, i.e. the change of domicile of any legal entity, is not included in the Chilean tax law. Thus, its effects depend on the concept of legal residency given by the country from which the company migrates, as well as by the country to which the company moves to.

Under the extent that the country from and to which the company legally migrates recognise the legal migration, no tax effects are expected to be triggered in Chile. Otherwise, the operation could be deemed as a direct or indirect taxable disposal of assets located in Chile, and be subject to capital gains tax in Chile.

For the aforementioned to work, both countries must ensure the company's continuance. They cannot consider that the legal migration implies an alienation of assets or a termination of the migrated entity, but more likely both countries need to see the operation as a deregistration and reregistration. As a consequence of the above, the migrating entity should also have moved its fiscal residence.

Regarding the latter, the legal migration is not the only way to move the fiscal residence.

The concept of fiscal migration is not recognised by the Chilean tax law either. Its effects would also depend on the concept of fiscal residence given by each country.

Entities may also migrate their fiscal residence by means of changing the location of where management is conducted. Nevertheless, it is key that moving the effective place of management is not seen as an extinction of the legal personae, broadly speaking, in the country from which the company is migrated.

The Chilean IRS has analysed this topic in the past few years as a consequence of migrations carried out abroad. The IRS has mainly been motivated by the increase in the tax burden that entities face when they are not a tax resident in a country that has a double taxation agreement (DTA) in force with Chile, but then migrate to a country that has a DTA in force with Chile, by means of recognising the new tax residence.

Consequently, in principle, the fiscal migration occurring abroad should have no tax effects in Chile, and the migrated company should be entitled to claim the benefits set forth therein, as a consequence of being a tax resident such a treaty country. However, the Chilean authorities may always refute the said tax resident qualification if they do not agree with it.

In this regard, have in mind that one of the main purposes of a DTA is to avoid the double taxation. Nevertheless, a DTA also purports to prevent tax elusion and evasion. As a consequence, the corporate migration should be supported by other reasons than only tax reasons.

In consequence, to the extent that either the corporate legal or fiscal migration is not seen as a disposal of assets located in Chile and that the operation is not only supported by tax reasons, no material Chilean tax implications are expected to rise in Chile as a result of acquiring tax residency in a new country.