US-Chile Tax Treaty Takes Effect

The comprehensive income tax treaty between the United States and Chile entered into force yesterday, according to the Treasury Department.

The Chile tax treaty is the first new comprehensive bilateral tax treaty signed by the United States to enter into force in over ten years. The treaty will reduce tax-related barriers to cross-border investments between the United States and Chile and is only the second US comprehensive bilateral tax treaty in force with a South American country.

The treaty entered into force December 19 when the United States notified Chile that it had satisfied its applicable procedures for bringing the treaty into force.

Provisions in the Chile tax treaty include:

•  Reduced source-country withholding tax on certain payments of dividends as well as payments of interest and royalties.
•  A prohibition against source-country taxation of business profits of an enterprise in the absence of a so-called “permanent establishment.”
•  Beneficial rules for individuals, including provisions that govern the taxation of income from employment, payments to students and trainees, and pensions and social security payments.
•  A comprehensive limitation on benefits provision.
  A comprehensive provision allowing for full exchange of information between the U.S. and Chilean tax authorities

With respect to taxes withheld at source, the Chile tax treaty will have effect for amounts paid or credited on or after February 1, 2024. For all other taxes, the Chile tax treaty will have effect for taxable periods beginning on or after January 1, 2024.