Businesses usually adopt the following corporate forms:

• corporations (sociedades anonimas, or SAs);
• limited liability companies (sociedades de responsabilidad limitada, or SRLs);
• agencia de una empresa extranjera (a Chilean branch of a foreign corporation); and
• joint stock companies (sociedades por acciones, or SpAs).

Notwithstanding the foregoing, other corporate vehicles used to incorporate certain businesses include:

• limited companies (sociedades en comandita), which can be simple limited companies or companies limited by shares);
• contractual mining companies (sociedades contractuales mineras); and
• individual limited liability companies (ILLCs) (empresas individuales de responsabilidad limitada).

Generally, the same tax treatment applies to these legal entities: up to a 27% corporate income tax rate and a withholding tax rate of up to 35%. All these entities are taxed as separate legal entities and provide limited liability to their shareholders. Only in certain exceptional cases of bankruptcy or fraud (ie, in the fields of labour and tax law) may equity holders be held liable for the legal entity’s obligations.

Division of Corporate Capital

The corporate capital of an SA and an SpA is divided into shares, whereas ‒in the case of an SRL ‒ it is divided into quotas (the owners of the equity are named quotaholders). An SRL and an SA require the existence of at least two quotaholders or two shareholders, respectively. An SpA can be formed by one or more shareholders. Additionally, single-shareholder companies can be shareholders of other single-shareholder companies.

There is no minimum registered capital for creating an SA, SpA or SRL. However, depending on the activity to be engaged in by the company (eg, banking or insurance), it must have the approval of the Financial Markets Commission (Comisión para el Mercado Financiero, or CMF) and/or the Superintendency of Banks and Financial Institutions (Superintendencia de Bancos e Instituciones Financieras, or SBIF) to legally exist and this requires a minimum registered capital.

There are no restrictions with regard to the nationality of the partners, nor are foreign partners required to have their residence in Chile. However, an attorney domiciled or resident in Chile must be appointed for tax purposes.

Corporate Bodies

Legal entities have three corporate bodies:

• a management body (composed of directors or managers);
• a governing body (meetings of equity holders or quotaholders); and
• an audit body (external auditors or account inspectors, depending on the nature of the legal entity to be formed). 

An SA, by legal mandate, is managed by a board comprising at least three directors in the case of closed corporations. Meanwhile, in the case of open corporations, the minimum number of directors on each corporation’s board is five. Open corporations with assets in the stock exchange that are equivalent to or exceed the amount of UF1.5 million (approximately USD60 million) must have seven directors on each corporation’s board. UF stands for Unidad de Fomento; UF1 was approximately equivalent to USD40 in March 2025.

The board directors are essentially removable. The board of directors also exercises the judicial and extrajudicial representation of the corporation, without prejudice to the judicial representation that may be exercised by general managers (if general managers are appointed).

The initial management of a corporation is entrusted to a board of directors, which ‒ upon the company’s incorporation ‒ is unanimously elected by the founding shareholders. Such board of directors only lasts until the first shareholders’ meeting is held, whereupon the same directors may be confirmed or an entirely new board may be elected.

Directors may hold office for a tenure of up to three years when such term is mentioned in the company’s by-laws. However, at the end of the tenure, they can be re-elected indefinitely. If the company’s by-laws do not mention the duration of the director’s term, the law states that such director’s term may only last one year ‒ following which, a shareholders’ meeting will be necessary to elect a new board.

The management of an SRL is performed by one or more managers, who can act individually, jointly or organised as a board, depending on the provisions established in the SRL by-laws. Managers may hold office indefinitely.

The management of an SpA can be conducted by managers or a board of directors, depending on the provisions established in the SpA’s by-laws. Managers may hold office indefinitely. One of the managers must be appointed as the legal representative, especially before the Chilean Internal Revenue Service (Servicio de Impuestos Internos, or SII).

In all cases, the members of the management are not required to be equity holders.   

Meetings

At least annually, the equity holders of a legal entity will hold a meeting to:

• examine the company’s situation and the reports of the auditors and external auditors and the approval or rejection of the annual report, balance sheet and financial statements submitted by the directors or liquidators of the company;
• see to the distribution of profits for each financial year and, in particular, the distribution of dividends;
• elect or dismiss members and alternates of the board of directors, liquidators, and supervisors of the administration; and
• in general, discuss any matter of corporate interest that is not the subject of an extraordinary meeting.

Decisions of the equity holders of an SpA or an SRL may be obtained through written consent or in a public deed.

As a general principle, companies are legal persons and taxable entities. Therefore, there are no transparent entities for tax purposes under Chilean law, except for private investment funds or SMEs that opt to be treated as transparent. Private investment funds are usually not subject to corporate income tax; this is to encourage the asset management and financial advisory industry for investors and national and foreign securities issuers, offering new financial products for investors under a common legal frame (Law 20,712).

Companies incorporated in Chile are treated as residents. Companies and other legal entities organised abroad are treated as non-residents. Permanent establishments in Chile of non-residents are treated as separate entities for income tax purposes; they are also considered non-residents.

In general, the corporate income tax in Chile (impuesto de primera categoría, or IDPC) of the entity can be (partially or fully) credited against the shareholder’s or quotaholder’s tax liability. According to the tax reform introduced by law, corporate tax has several regimes according to the size, billings, assets or investments allocation of the business, as follows.

• Large businesses (Article 14A of the Income Tax Law (Ley Impuesto a la Renta, or LIR) ‒ this tax regime is based on full accounting records where the shareholders or quotaholders are taxed on an accrual basis. They can deduct a partial amount (65%) of the corporate income tax paid up by the company as tax credit against its individual tax liability (eg, personal income tax (impuesto global complementario, or IGC) for Chilean tax residents or withholding tax (impuesto adicional, or IA) for non-residents).
• SMEs (Article 14D(3) of the LIR) ‒ this allows taxpayers to choose between simple and complete accounting records, with a fixed 25% corporate tax rate. Shareholders and/or quotaholders are taxed on a receipt basis and may deduct 100% of the business income tax paid by the enterprise as a tax credit against its personal tax liability (IGC for Chilean tax residents or IA for non-residents). It should be noted that SMEs during the Tax Years (TYs) 2025, 2026, 2027 and 2028 should be subject to a corporate income tax rate of 12.5% (“Tax Bill”). As of TY 2029, the regular IDPC rate of 25% should resume.
• Fiscal transparency regime (Article 14D(8) of the LIR) ‒ this tax regime is also focused on SMEs whose owners are final taxpayers (individuals with or without tax residence in Chile or non-resident companies established abroad). In this case, the company shall be exempt from corporate income tax and the taxpayers shall be subject to personal income tax according to their residence status in Chile or abroad.

Taxable income is defined as gross income minus the direct costs of goods and services and necessary expenses to produce that income, adjusted for inflation and corrected as provided by law. Chilean-sourced income is calculated on cash or accrual basis. Foreign-sourced income is generally calculated on a received basis; however, income derived by permanent establishments of resident companies located abroad is calculated on an accrual basis under controlled foreign company (CFC) rules if the Chilean resident has an equity interest of 50% or more in the foreign corporation. 

On a general basis, taxable profits are calculated on an accrual basis in the case of an incorporated business. Exceptionally, for SMEs (subject to the SME tax regime), profits are calculated on a receipt basis.

Law 20,241 (2008), as amended by Law 20,570 (2012), establishes that business income taxpayers reporting their taxable income based on full accounting records and investing in R&D may credit amounts invested in R&D against the business income tax liability.

The R&D investment must be made under a written R&D contract with a registered research centre (which must comply with certain conditions under Law 20,241 and Law 20,570) for an amount exceeding 100 monthly tax units (one monthly tax unit (unidad tributaria mensual, or UTM) equals approximately USD70, as of May 2024).

The corporate tax credit is 35% of payments made in the tax year under the R&D contracts. The annual credit is limited to 15,000 UTMs per year. Payments exceeding the maximum annual credit are considered deductible expenses. Any excess credit may be carried forward. Taxpayers can apply this benefit, complying with the legal procedures.

Partial payments, which are considered as credits or deductible expenses, shall not be considered as non-deductible expenses under Article 21 of the LIR.

Finally, Chilean tax law does not consider the establishment of a patent box or a special corporate tax regime for R&D investments with regard to the tax rate applied to those expenditures.

Under Chilean law, there are several incentives that apply to certain industries and transactions, such as:

• several taxation incentives from capital gains (eg, immovable property, shares);
• special regimes for income from bonds;
• R&D credit;
• regional incentives;
• financial leasing;
• credit for investments in tangible fixed assets; and
• training credits from the National Training and Employment Service (Servicio Nacional de Capacitación y Empleo, or SENCE).

In general, losses are deductible as an expense against the profits of the tax year and could be set off against undistributed profits. If the profits were not sufficient to offset the losses, the losses can be carried forward indefinitely. However, carry-back of losses is no longer available.

If losses were set off against non-distributed profits, the business income tax paid on such profits was treated as an advance payment and could be set off against income taxes (corporate income tax, individual income tax or non-resident income tax) or refunded.

Losses incurred by a company before the transfer of its shares or its rights to participate in the profits may not be set off against the income accrued or received after the transfer if:

• as a result of the transfer or during the 12 months before or after the transfer, the company changes its principal business purpose;
• at the time of the transfer, the capital assets or other assets of the company are not sufficient to carry out the company’s activity;
• the value of the assets is not proportional to the transfer price; or
• the company’s income will be derived only from its participation as a partner of, or shareholders in, other companies or from the reinvestment of its profits.

Finally, losses arising from the disposal of securities cannot be deducted from taxable income if gains arising from the disposal of the securities would be excluded from taxable income.

In general, there are no limits for the deduction of interests for a company, except for the excess indebtedness provision (“thin capitalisation rule”) of Article 41F of the LIR, which states that a company incorporated in Chile is deemed to be in such position when the company has a debt ratio of 3:1 in relation to its financial equity.

However, the payment of interests abroad for the concept of royalties is subject to withholding tax established in Article 59(1°) of the LIR of up to 4% of the company’s annual income.

Chilean tax law does not include provisions concerning taxation on a consolidated basis. Nevertheless, business group taxation is addressed through certain modifications enacted by Law No 20.713, such as the obligation to designate a common attorney for the business group and the option for such group to select a tax auditor or audit group from the Chilean Internal Revenue Service for all of the companies belonging to the group. These two new obligations to be fulfilled by the business group could lead to progress in the field of consolidated taxation of business groups, which does not yet exist under Chilean law.

Capital gains arising from the transfer of shares when derived by persons that are subject to business income tax on actual net income are subject to tax under the general rules. However, capital gains from the transfer of shares acquired before 1 January 1984 are never considered income for tax purposes and thus are not subject to income tax.

The LIR defines the taxable base for capital gains essentially as the “sale price” minus the “tax cost” of the shares. Tax cost is defined as the cost of acquisition of the shares adjusted for any capital increase or capital reduction, as appropriate.

Each amount involved in the determination of the tax cost should be indexed according to the Consumer Price Index (Indice de Precios al Consumidor, or IPC).

Rather than reliefs or exemptions, companies can be subject to a restructuring process (eg, mergers, acquisitions or a spin-off between related companies of an entrepreneurial group) in which shareholders can acquire shares from a company without taxation on possible capital gains accrued.

Incorporated businesses are subject to the following taxes on certain transactions, such as:

• VAT (impuesto a las ventas y servicios, or IVA);
• inheritance and gift taxes (impuesto a las herencias, asignaciones y donaciones, or IHAD);
• real estate tax (impuesto territorial);
• stamp duty (impuesto de timbres y estampillas);
• business licence (patente comercial) fee; or
• custom duties (impuestos aduaneros).

As of October 2025, the VAT exemption for imports under USD41 will be eliminated, following recent tax reform approved by Law No 21.713. Meanwhile, customs duties will only be paid for products whose value is greater than USD500.

It is worth bearing in mind that Chilean law does not consider the following aspects of incorporated businesses to be taxable, as there is:

• no capital duty on the formation of companies ‒ notwithstanding this, a business licence fee calculated on the company’s capital is required to be paid on an annual basis for tax purposes; and
• no net wealth tax.

Finally, in determined transactions, incorporated businesses are subject to the following taxes:

• a surtax on the real estate tax for owners of properties with a fiscal value of more than USD500,000; and
• a tax on luxury assets (such as helicopters, aircrafts, cars and yachts), which applies a 2% tax rate on the fiscal value.

Although closely held local businesses are formed by small groups of partners related by family or business bonds, they usually operate under a corporate form. Owing to the nature of these businesses’ partners or shareholders, they usually operate under one of the following corporate structures:

• an SRL;
• a closed corporation;
• a simple joint stock company.

The above-mentioned corporate vehicles are usually chosen because of their flexibility when it comes to corporate administration and their ability to establish provisions in the by-laws that include the shareholders or partners in matters such as dividend distribution, partner liability, and dispute resolution.

Residents or domiciled persons are liable to income tax on their worldwide income.

If individual professionals choose to be subject to corporate tax instead of taxing at individual rates under the personal income tax, they can organise their activities under one of the following corporate structures:

• individual limited liability company;
• simple joint stock company (SpA); or
• limited liability company (SRL).

Legal entities structured as SRLs formed solely by individuals performing exclusively professional services or consultancy are not subject to VAT taxes. Additionally, they may choose ‒ within the first three months of the commercial year ‒ to report their income under business income tax rules instead of the personal income tax rules. Once made, the election is irrevocable.

Notwithstanding the foregoing, if the corporate form used by the individual professional is deemed to be a scheme to conceal an employment or labour relation, the Chilean Internal Revenue Service can requalify the operation and liquidate the respective taxes on the individual under the general anti-avoidance rules. Also, there is a rule of deemed dividend for non-deductible expenses, subject to 40% to 50% of taxes.

As a general principle, there are no rules that prevent closely held corporations from accumulating earnings for investments purposes.

However, professional partnerships ‒ due to their purely business purpose ‒ can occasionally allocate earnings for the purpose of maintaining the available cash flow stock.

Dividends and capital gains derived from the sale of shares or quotas held by individuals in partnerships or other corporate structures are taxed under the general rules of the income tax law.

Capital gains derived from the sale of shares or held by individuals in publicly traded corporations are taxed at a 10% rate, under the special rule established in Article 107 of the LIR. Dividends from publicly traded companies obtained by individuals are taxed under the general rules established in the LIR.

Interest, dividends and royalties are subject to withholding tax under different rates according to several hypothesis established in the LIR. In this regard, interest paid up to non-residents is subject to withholding tax at the general 35% rate. Interest on loans granted by foreign banks or financial institutions is subject to a reduced withholding tax of 4%.

Royalties paid to non-residents are subject to a withholding tax rate of 30%. Royalty payments in connection to software are subject to a reduced 15% withholding rate, unless the software is non-customised or standard ‒ in which case, the full amount paid up is exempted from withholding tax. Such rate is increased if the beneficiary of the payment is resident in a tax haven.

Finally, dividends paid to non-resident recipients are subject to a 35% withholding tax. The foreign tax credit paid at the corporate level is totally or partially creditable against this withholding tax, depending on the income tax system to which the source entity is subject to.

Consequently, the tax burden for a non-resident recipient of dividends, including taxes at the company level, is:

• 35% if subject to the SME regime or resident in a DTT country; and
• 44‒45% if subject to a partially integrated system (PIS) regime and not resident in a treaty country.

In order for foreign investors to invest in local corporate stock or debt, Chile has a wide range of DTTs available to foreign investors. The provisions established in the following DTTs usually apply:

• Chile‒Argentina (2017);
• Chile‒Australia (2014);
• Chile‒Austria (2016);
• Chile‒Belgium (2011);
• Chile‒Brazil (2004); 
• Chile‒Canada (2000);
• Chile‒China (2017);
• Chile‒Colombia (2010);
• Chile‒Croatia (2005);
• Chile‒Denmark (2005);
• Chile‒Ecuador (2004);
• Chile‒United Arab Emirates (2023);
• Chile‒Spain (2004);
• Chile‒USA (2024);
• Chile‒France (2007);
• Chile‒India (2023);
• Chile‒Ireland (2009);
• Chile‒Italy (2017);
• Chile‒Japan (2017);
• Chile‒Malaysia (2009);
• Chile‒Mexico (2004);
• Chile‒Norway (2004);
• Chile‒New Zeland (2007);
• Chile‒Netherlands (2023);
• Chile‒Paraguay (2009);
• Chile‒Perú (2004);
• Chile‒Poland (2004);
• Chile‒Portugal (2009);
• Chile‒United Kingdom (2005);
• Chile‒Czech Republic (2017);
• Chile‒Russia (2017);
• Chile‒Sweden (2006);
• Chile‒Switzerland (2011);
• Chile‒Thailand (2011); and
• Chile‒Uruguay (2019).

As a general principle, if a person or company considers itself to be a tax resident of a certain state that has a standing DTT with Chile and has a residence certificate, Chile usually accepts such qualification as a tax resident ‒ even though that person was previously a tax resident of a state without a standing DTT with Chile.

Notwithstanding the foregoing, if Chile considers that such person does not comply with such conditions to be considered a tax resident (“beneficial owner”), Chile can challenge that qualification via the mutual agreement procedure established in the corresponding DTT with the other state.

Law No 21.210 introduced certain modifications to the Chilean transfer pricing (TP) regulations as of 1 January 2020.

In order to ensure that transactions between related parties are valued at market prices and to avoid tax base erosion, the Chilean Internal Revenue Service has strengthened its enforcement capacity through the Large Taxpayers Division, conducting audits on high-risk transactions with foreign related parties.

Penalties for non-compliance include significant fines, which can reach up to 300% of the evaded tax for the submission of false statements. In this regard, taxpayers are obliged to issue information regarding the so-called local file (DDJJ 1951), tax characterisation (DDJJ 1913) and the master file (DDJJ 1950), as well as the annual transfer pricing statement (DDJJ 1907).

Finally, according to the recent tax reform enacted by Law No 20.713, taxpayers are allowed to proceed with transfer pricing adjustments to values without affecting VAT and customs ‒ as long as the adjustment is made before the end of the calendar year.

Among the control actions usually deployed by the Chilean Internal Revenue Service, it frequently questions the use of related-party limited risk distribution agreements. The Chilean Internal Revenue Service carefully examines whether the income allocation reflects the risks, functions and assets involved in each case, so as to ensure its correspondence with the arm’s length principle.

In general, Chilean legislation has implemented transfer pricing rules according to the OECD standards. Nevertheless, it contemplates certain related-party rules and new types of transfer pricing methods (residual or alternate models of determining transfer pricing).

During the past year, the Chilean Internal Revenue Service’s approach towards transfer pricing has been more co-operative and oriented towards reducing the probability of certain liabilities regarding transfer pricing of intangibles and the market transfer of shares by taxpayers in certain economic sectors, such as private or public investment funds.

Also, the current tax administration is promoting the subscription of advanced transfer pricing agreements (APAs) in order to resolve transfer pricing issues with taxpayers and mutually agree on a market value price according to the risks, assets and functions involved in the transactions between related parties.

Notwithstanding the foregoing, since the establishment of the APAs through the tax reform of 2012, this tool has not been used much by taxpayers. 

On the other hand, mutually agreed procedures have been promoted by the Chilean authorities, particularly through the establishment of instructions by the Chilean Internal Revenue Service to resolve transfer pricing disputes between taxpayers and the respective tax administration.

The taxpayer must ensure to the satisfaction of the tax administration that its operations are carried out based on the arm’s length principle. Therefore, self-adjustments in price transfers are allowed in Chile. 

If this is not the case, the tax administration is empowered to make transfer pricing adjustments, by which means the Chilean Internal Revenue Service can increase the taxable base to a final tax rate of 40%. In addition, they can impose a fine equal to 5% of the balance.

Local branches of non-local corporations are not generally taxed differently to local subsidiaries of non-local corporations.

Non-residents are subject to non-resident income tax on their Chilean-sourced income. In general, Chilean-sourced income is income from assets located in Chile or activities carried out therein, including direct capital gains from the sale or transfer of shares.

However, Chilean-sourced income also covers capital gains from the indirect disposal of Chilean assets (shares of a non-local holding company that owns the stock of local corporations directly) made between non-residents that are taxed under very specific conditions. 

This income is subject to a withholding tax at the rate of 35% when one of the following scenarios are met:

• when at least 20% of the market value of the shares or quotas that the transferor possesses (directly or indirectly) in the foreign entity ‒ at the time of the transfer or during the previous 12 months to the transfer ‒ is derived from one or more underlying assets established in a), b) or c) and in corresponding proportion to the direct or indirect interest possessed by the foreign transferor valued at market price:
1. shares, rights, quotas or other shareholding titles in the property, control or profits of a company, fund or entity incorporated in Chile;
2. an agency or other permanent establishment in Chile of a non-resident or non-domiciled taxpayer in Chile, considering that such permanent establishment for tax purposes is an independent entity from its main office or parent company; and
3. any type of movable or immovable property located in Chile (or the titles regarding such properties) whose owner is a non-resident company or legal entity; and
• when the alienated shares, quotas, rights or foreign titles have been issued by a company or legal entity located in a preferential tax regime jurisdiction.     

DTTs to which Chile is a party do not specifically resolve the taxation on capital gains from the indirect disposal of Chilean assets. In this regard, a case-by-case analysis should be done by the foreign investor according to the applicable DTT between Chile and the other state. 

Under Chilean law, there are no change of control provisions. In this regard, indirect capital gains will be taxed regardless of how many companies there are in between the holding and the Chilean local corporation, if the transfer complies with the requirements stated in 5.3 Capital Gains of Non-Residents. Please also refer to the change of control provisions for loss relief in 2.4 Basic Rules on Loss Relief.

Nonetheless, the amendments to the new restructuring appraisal provision include:

• the incorporation of a definition of market value into the standard;
• the option for parties to submit valuation reports; and
• the incorporation of international restructuring in cases that are not recognised for tax purposes.

Formulas are mainly used in transfer pricing rules to provide an estimated arm’s length price for transactions between related companies or with entities located in preferential tax regime jurisdictions.

However, it is important to remember that these are just transfer pricing methodologies. Each company still needs to prepare its own independent financial statements for tax compliance and financial reporting purposes.

Usually, the standard applied is the “arm’s length principle”. Additionally, the deduction shall only be allowed once the payments are effectively made on a receipt basis. Expenses accrued with related parties abroad can only be deducted for the effective payment of such expenses on a cash basis.

Thin capitalisation rules apply to related-party borrowing by foreign-owned local affiliates paid to non-local affiliates at a 3:1 debt-to-equity ratio. When the taxpayer is in an excess of indebtedness position, a 35% sole penalty tax is levied on interests, commissions, services or any other financial disbursement associated with loans that are subject to withholding tax at a rate lower than 35% (eg, interest paid up from loans granted by foreign banks) or that have not been taxed under domestic law or owing to the application of a reduced rate under a DTT.

The excess of indebtedness is calculated on an annual basis. To determine whether the taxpayer is in an excess of indebtedness position, its total annual indebtedness takes into consideration all loans ‒ domestic or foreign ‒ from related parties or otherwise.

Finally, in the event that the company is in an excess of indebtedness position, the tax will apply only to cross-border loans granted by related parties and subject to the 4% withholding tax rate at a rate lower than 35% or that have not been taxed under domestic law or owing to the application of a reduced rate under a DTT.

Chile has a worldwide residence-based tax regime. In this respect, foreign income accrued or received by local corporations is subject to the corporate income tax (25‒27%).

Under Chilean law, there are no limitations imposed on local corporations regarding the deductible expenses attributed to income obtained from abroad.

Dividends from foreign subsidiaries of local corporations are taxed under the corporate income tax regime. Generally, taxes paid abroad for such distribution (or in the event the corporate income tax is paid by the foreign subsidiary) will be offset as a tax credit against Chilean corporate income tax, within certain limits and conditions according to the tax regime of the receiving company (foreign tax credit).

Intangibles developed by local corporations can be used by non-local subsidiaries throughout the duration of a licensing arrangement. Transfer pricing rules apply for determining the adequate price of the transference of the intangible or licence to related parties.

The fees paid up by the non-local subsidiaries to the local corporations are taxed under the corporate income tax. The amounts used in the R&D required to develop the intangible can be deducted by the local corporation as necessary expenses to determine their corporate income tax.

Effectively (but only with regard to the passive income obtained by local corporations from their non-local subsidiaries), if the local corporation has at least a 50% shareholding interest in the capital, profits or control of such company, the income from the non-resident companies shall be taxed on an accrual basis.

Additionally, profits derived by foreign branches are generally considered as foreign-sourced income for the local corporation, to which foreign tax credits may apply.

Chilean income tax law does not define such a concept nor establish any rules in that respect, unless general anti-avoidance rules apply in the case of lack of substance. Chile also applies the rules of the DTT, as well as the treaty shopping provisions of the OECD.

It has been understood that the substance of an affiliate consists of the organisation of human and material resources necessary for a company to conduct its economic activities.

Gains on the sale of shares in foreign subsidiaries by local corporations are subject to corporate income tax up to 27% ‒ the rate of which shall depend on the tax regime of such local corporation (SME or PIS). Tax credits rules will depend on the tax regime and whether a tax treaty applies.

Chilean law establishes a wide variety of local anti-avoidance rules, from general anti-avoidance rules to special anti-avoidance hypotheses, as follows.

General Anti-Avoidance Rules

Under Law No 20.713, the General Anti-Avoidance Rules (GAAR) (Articles 4.3 and 4.4 of the Tax Code) and their application have been amended. The main changes are as follows.

• GAAR application hypothesis ‒ prior to Law No 20.713, the GAAR only applied when there was simulation or abuse of legal forms. Following Law No 20.713, abuse or simulation can also be committed through “legal facts” (ie, not only acts or contracts of any kind, but any fact of legal relevance, such as death or birth).
• Specialty principle ‒ prior to Law No 20.713, where a special anti-avoidance rule was applicable, it was not possible for the Chilean Internal Revenue Service to apply the GAAR. Following Law No 20.713, the Chilean Internal Revenue Service can choose whether to use the general anti-evasion rule (norma general antielusiva, or NGA) or use the special anti-avoidance rules (normas especiales antielusivas, or NEA) at its discretion.
• Burden of proof ‒ prior to Law No 20.713, the burden of proof was on the Chilean Internal Revenue Service. Following Law No 20.713, the Chilean Internal Revenue Service must prove the elements that constitute the evasive act and the taxpayer must prove the economic reasons that justify such a scheme (“business purpose test”).
• Statute of limitations ‒ prior to Law No 20.713, as a general rule, there was a three-year limitation period (Article 200, paragraph 1 of the Tax Code). Following Law No 20.713, three years is still the general rule. However, in the case of a set or series of acts, the limitation period will be counted from the last act.
• Fines ‒ prior to Law No 20.713, only consultants who designed or planned the structure sanctioned under the GAAR could be fined. Following Law No 20.713, the taxpayer can also be fined in certain cases and there is now joint and several liability for corporate governance (directors, managers, principal executives, etc, can face a maximum fine of approximately USD200,000). 

The new procedure for applying the GAAR under Law No 20.713 is as follows.

• The procedure is triggered by a mandatory prior summons to the taxpayer and the audit will be carried out by the Chilean Internal Revenue Service’s Department of General Anti-Avoidance Rules.
• The taxpayer must prove the economic and legal reasonableness of the operation or the “economy of option”.
• The Department of General Anti-Avoidance Rules prepares a report with its conclusions and recommendations, classifying the facts as constituting avoidance or not.
• The report is submitted to the Chilean Internal Revenue Service’s Anti-Avoidance Committee, who will have 15 days in which to analyse the report and issue an opinion.
• The Chilean Internal Revenue Service’s Anti-Avoidance Committee may request the opinion of the Advisory Council.
• The Advisory Council will have 60 days to issue its (non-binding) opinion.
• The Chilean Internal Revenue Service’s Anti-Avoidance Committee then makes its decision. If it concludes that tax evasion has taken place, the Director of the Chilean Internal Revenue Service’s Anti-Avoidance Committee shall compel the tax court to declare the existence of a tax-avoiding scheme.
• There then follows a special claim process under Chilean law at the tax courts, whereby this is a possibility of conciliation.

Special Anti-Avoidance Rules

Special anti-avoidance rules have been established mainly in the LIR, including:

• CFC rules indicated in Article 41G of the LIR;
• transfer pricing rules established in Article 41E of the LIR;
• thin capitalisation rules indicated in Article 41F of the LIR;
• tax haven rules in Article 41H of the LIR; and
• indirect capital gains tax.

Generally, the Chilean tax system is one of self-assessment. The Chilean tax administration sets its audit policies according to each economic activity and, in particular, to each tax.

These policies are generally set at the beginning of each year and are made public by the Chilean tax administration. These audits are focused on large economic groups and other businesses with relevant revenue from both national and foreign sources.

As regards individuals, audits are generally conducted after the Chilean tax administration finds inconsistencies between the proposed tax returns and the information collected via several automatic information regimes, mainly through withholding agents such as banks, financial institutions, insurance companies, and employers.

Chile has implemented several of the base erosion and profit shifting (BEPS) recommendations recommendations issued by the OECD/G20 Inclusive Framework on BEPS, including the following.

• Action 3: Limiting Base Erosion Through Controlled Foreign Company (CFC) Rules ‒ Chile has adopted CFC rules and taxes income of foreign subsidiaries controlled by Chilean residents that is considered low taxed or not taxed, on an accrual basis where certain conditions are met.
• Action 5: Countering Harmful Tax Practices More Effectively ‒ Chile has taken steps to address harmful tax practices identified by the OECD, such as preferential tax regimes and lack of transparency. Among such measures, Chile has established under recent tax reform enacted by Law No 20.713 the enforcement of the Tax Avoidance Schemes Catalog (published annually by the Chilean Internal Revenue Service), providing a legal recognition for such catalog. 
• Action 13: Country-by-Country Reporting (CbC) ‒ Chile has completely adopted CbC reporting requirements, requiring multinational companies to report financial and tax information on a CbC basis.

Action 15: Multilateral Instrument ‒ Chile has ratified the Multilateral Convention to Apply Measures Related to Tax Treaties to Prevent Base Erosion and Profit Shifting (MLI/BEPS/OECD/G20) (the “Multilateral Instrument”, or MLI) and has proceeded to gradually implement the BEP recommendations.

Actions in Progress

Chile is still in the process of implementing the following recommendations.

• Action 1: Addressing the Tax Challenges of the Digital Economy ‒ Chile has already established a special taxable event in order to tax (with VAT) services provided by digital B2C platforms and other tech companies (such as Netflix and Spotify). In this regard, foreign non-resident companies are also subject to a voluntary registry (digital service providers must register with the Chilean Internal Revenue Service). 
• Action 2: Neutralising the Effects of Hybrid Mismatch Arrangements ‒ the main actions in this regard have been related to the prevention of structured deals in the case of payments of interest by national banks or financial institutions to non-resident foreign banks. The absence of such structured deal is deemed as a sine qua non condition for the withholding tax reduction under Chilean law.
• Action 6: Prevention of Tax Treaty Abuses ‒ Chile has signed tax information exchange agreements with various countries and the MLI.
• Action 7: Permanent Establishment Status ‒ following the enactment of Law No 21.210, Chilean legislation incorporates a clear definition of permanent establishment, which is based on the concept established in DTTs entered into by Chile with several states.
• Action 11: BEPS Data Analysis ‒ the Chilean Internal Revenue Service and other government agencies keep track of the necessary data that allows the adoption and implementation of BEPS recommendations at legislative and regulatory level.
• Action 12: Mandatary Disclosure Rules ‒ the tax reform approved by congress (Law No 20.713) during October 2024 includes provisions that enforce the burden of proof on taxpayers where the Chilean Internal Revenue Services declares the existence of a tax-avoiding scheme. In this regard, Chilean Internal Revenue Services requires certification of the existence of the acts configuring the avoidance scheme and the taxpayer must prove that such structure complies with their economic and financial background and was not only motivated by mere tax purposes.
• Action 14: Mutual Agreement Procedure ‒ such procedure has been established by administrative rulings and resolutions that indicate the conditions for taxpayers dealing with the tax administrations of both states involved in a DTT.

Non-Initiated Actions

The following actions have yet to be initiated in Chile.

• Action 4: Limitation on Interest Deductions ‒ Chile is implementing these actions via establishment of thin capitalisation rules indicated in the LIR.
• Actions 8‒10: Transfer Pricing Documentation and CbC Reporting for Tax Authorities ‒ Chile is implementing these actions through several reports that must be submitted by the taxpayers annually, especially information regarding multinational enterprises.

In May 2010, Chile became a full member of the OECD after a two-year period of compliance with the organisation’s mandates and rules. In this regard, the Chilean government has a generally positive attitude towards the BEPS recommendations. It has passed BEPS-related legislation and has ratified the MLI.

Such provisions have also entered into effect between Chile and countries such as Australia, Austria, Canada, South Korea, Croatia, Denmark, Spain, France, Ireland, Mexico, Norway, New Zealand, Poland, Portugal, South Africa, Thailand and Uruguay.

The reason behind such policies is to continue the permanent opening-up of Chile to international markets. This is why Pillar One and Pillar Two are within the purview of Chilean authorities. Nevertheless, to date, no Pillar Two provisions have been implemented by the Chilean government.

International tax has a high public profile in Chile, especially after the “Panama Papers” and “Pandora Papers” leaks and various investigations into non-declared offshore accounts. These issues are likely to influence the further implementation of BEPS recommendations.

The information that the Chilean Internal Revenue Service receives under Common Reporting Standard (CRS) and Foreign Account Tax Compliance Act (FATCA) agreements is quite relevant, owing to the prominent data that can be used to identify and pursue international tax evasion. (The Chilean Internal Revenue Service, through the provisions established under tax information exchange agreements, has obtained information regarding the set-up of financial accounts by Chilean taxpayers with investments abroad. Accordingly, the Chilean Internal Revenue Service has detected the existence of USD32 billion in financial accounts in which Chilean investors hold their investments abroad.)

Although Chile has passed several tax reforms that have increased tax rates levied up on corporations and high net worth individuals, it has yet to become a competitive jurisdiction for tax purposes, especially for foreign investor. This is due to the free foreign exchange market and the wide range of DTTs signed with several OECD and G20 members.

Despite the tendency of these measures to attract foreign investment and promote tax competitiveness, Chile has incorporated several BEPS principles into its legislation, such as thin capitalisation rules, CFC rules and transfer pricing rules.

Chile has terminated or reformed several DTTs that were vulnerable to treaty abuse by taxpayers, such as those with Argentina and the USA. This demonstrates the country’s commitment to preventing tax evasion and avoidance.

In addition, Chile participates in international tax information exchange arrangements. This has resulted in increased transparency in tax matters.

The best policy options for addressing hybrid instruments (such as convertible bonds, preferred shares and convertible notes) are the specific anti-avoidance rules and the rules specifically addressing hybrid mismatch arrangements, as recommended by the OECD. The GAAR could also be useful in this matter.

Chile has a residence-based, worldwide income tax regime. Chile has thin capitalisation rules established in Article 41F of the LIR, so as to discourage an excessive interest deductibility by the foreign corporation that invests in the local corporation. In that sense, it restricts the amount of debt on which interest is tax deductible to a predefined debt-to-equity ratio (3:1). Expenses accrued from related parties abroad are only deductible when they are effectively paid (cash basis).

Chile has a residence-based, worldwide income tax regime, but has transparency or CFC rules that make deferral clearly more cumbersome. However, in broad terms, companies with no Chilean controlling shareholders will not be subject to this rule.

The proposed DTT “limitation on benefits” or anti-avoidance rules were included in the recently approved DTT between Chile and USA, in treaties with other countries, and in the MLI.

Prior to the BEPS recommendations, Chile had certain transfer pricing rules in place since 1998. However, since 2012, Chilean transfer pricing legislation has been widely altered in accordance with OECD guidelines. IP is particularly difficult to price adequately, mainly because it is difficult to find an adequate comparison.   

As a general principle, proposals for transparency and CbC reporting are favoured. As mentioned in 9.8 Controlled Foreign Corporation Proposals, Chile has already included transparency rules in its local legislation. The CbC reports provide more detailed information to the Chilean tax administration, forcing the transfer pricing reports to be more thorough and to include other related-party transactions that would otherwise not be dealt with for these purposes.

The digital economy business is taxed under the VAT legislation (Article 8N), which has included clauses to tax B2C businesses operating from abroad (such as Netflix and Spotify).

Although the Chilean government is promoting a comprehensive tax reform bill, the project does not include new proposals relating to digital taxation.

There are no other provisions dealing with the taxation of offshore IP that is deployed within Chile. For the payment of royalties to non-resident beneficiaries (which could be reduced if a DTT applies), please see 4.1 Withholding Taxes.