January 27, 2021
Chile and the Netherlands sign double tax treaty
Investors resident in the Netherlands should continue to follow the approval process of the treaty as once it is in force, as they will be able to fully credit the corporate income tax paid in Chile against the dividend withholding tax applicable to dividend distributions.
On January 25, 2021, Chile's Ministry of Finance announced the new double tax treaty (DTT) between Chile and the Netherlands was signed. The DTT is duly aligned with the OECD model and BEPS guidance.
The DTT will enter into force after parliamentary ratification and the exchange of ratification instruments.
No immediate effects in Chile for dividend distributions
According to Chilean domestic regulations, residents in the Netherlands will still be subject to the partially integrated regime (i.e., deemed as non-treaty investors, regardless of the signing status) because the treaty is not yet in force. As such, only 65% of the corporate income tax may be creditable against the 35% dividend withholding tax, resulting in an effective tax burden of 44.45% for dividend repatriation out of Chile to Dutch investors.
Investors resident in countries with a DTT in force, however, may fully credit the corporate income tax against the 35% dividend withholding tax, resulting in a 35% effective tax burden.
Also, due to a transitory domestic provision, the ability to fully credit the corporate income tax against the dividend withholding tax temporarily applies until 2026 to investors resident in countries with DTTs signed with Chile before 2020 that are not yet in force, including the US-Chile DTT (2010) and UAE-Chile DTT (2019). This special regime, however, does not extend to residents in the Netherlands.
Chile's current DTTs network
Currently, Chile has 33 DTTs signed and in force and four pending ratification.
The following list includes the countries with DTTs in force with Chile:
The DTTs pending ratification and not yet enforceable are those with the United States, United Arab Emirates, India and the Netherlands.