On 17 October 2016, the Chilean and Argentinean governments announced that the tax treaty signed by both countries will enter into force on 1 January 2017. The press release can be found here.
The treaty follows the OECD model and is intended to avoid double taxation on income receive by residents of each contracting state arising from the other contracting state. Key aspects of the treaty are outlined below:
- Business profits: exempt of taxes subject to the beneficiary not having a permanent establishment in the other contracting state.
- Dividends: payments made to Argentinean resident shareholders will be capped at a 35% tax. Payments made to Chilean resident shareholders will be capped at a 10% withholding tax rate if the shareholder has at least 25% of the equity of the company, and at a 15% tax rate if this threshold is not met.
- Interest: depending on the type of credit and who the lender is, the applicable tax rates will be capped either at 4%, 12% or 15%.
- Royalties: depending on the type of royalty, tax rates will be capped at either 3%, 10% and 15%. It is worth noting that income associated with technical assistance will be treated as royalties.
- Capital gains: taxation on gains arising from the direct or indirect sale of real estate will not be limited. Taxation on gains arising from the sale of shares will not be limited, unless the shareholder holds an interest below 20% in the equity of the company in which case a cap of 16% tax will apply.