This content is from: Chile

Chile: New instructions regarding provisional withholding on capital gains

Loreto Pelegrí
Javiera Bullemore
In May 2015 the Chilean IRS issued three new resolutions (No. 42, 43 and 48) which establish the procedures that shall be followed by withholding agents in order to be released or become subject to a lower withholding obligation upon the transfer of certain assets.

These resolutions imply great news for foreign investors, as they make possible the elimination or reduction of the economic burden that the provisional withholding represented in many cross-border transactions, in cases where no additional tax (withholding tax) was actually triggered or lower rates were applicable.

The current withholding provisions set forth by article 74 No.4 of the Chilean Income Tax Law were introduced by Law No. 20.630 of September 2012.

Regarding the transfer of Chilean shares or quotas held by an entity not domiciled norr resident in Chile, such provision establishes that, as a general rule, the acquirer of Chilean shares or quotas shall perform a provisional withholding which shall be declared and paid to the Chilean Treasury within the first 12 days of the month following the transaction.

The provisional withholding shall be performed with different rates depending if the capital gains are subject to the general tax regime, or to the first category tax (corporate tax) as a sole tax, and depending on whether or not it is possible to determine a capital gain as a result of the transaction.

The law establishes that exceptionally, withholding agents may be released of performing the relevant withholding, if they are able to prove, by the procedure established in a resolution by the Chilean IRS , that: (i) the relevant additional tax was duly paid by the beneficiary of the income; (ii) the income obtained constitutes a nontaxable or exempted income; (iii) a tax loss was triggered as a result of the transaction; or (iv) no additional tax or a lower rate shall be applied due to the application of a double tax treaty (DTT).

Thus, until the issuance of such resolution, in cases where – as a result of the transfer of the Chilean shares or quotas – a tax loss was triggered for the transferor, or a lower tax rate was applicable due to the application of a DTT, the payer or acquirer of the shares or quotas was obliged to perform the provisional withholding anyway, even though no capital gains were obtained by the foreign transferor, or a lower rate was applicable.

In such cases, the transferor or beneficiary of the income supported the economic burden of the provisional withholding, being entitled to request the refund of the amounts provisionally withheld in excess during April of the year following the transaction.

This problem was solved by Resolution No. 42, 43 and 48 which gave applicability to the provisions of Article 74 No.4 of the Chilean ITL, by establishing the procedure that shall be followed by the withholding agents in order to be released from their withholding obligations in the cases previously mentioned, or to perform the withholding with a lower rate, as the case may be.

Loreto Pelegrí ( and Javiera Bullemore (
Tel: +562 29400155

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