US-Chile Tax Treaty Ratified, Further Strengthening Economic Ties

On December 19, 2023, the U.S. Treasury Department announced that the U.S.-Chile Income Tax Treaty is now in force.  The treaty provides for reduced withholding tax rates on interest, dividends, and royalties, as well as seeking to eliminate double taxation.  The treaty is effective for taxable periods beginning on or after January 1, 2024, or for withholding taxes on source income on or after February 1, 2024.  It is the first tax treaty signed by the United States and entered into force in more than ten years.

According to the International Trade Administration, in 2022 bilateral trade in goods and services between the United States and Chile totaled nearly $49 billion. The large majority of trade between the two countries is mineral fuels, machinery, transportation, copper, and agricultural products. This treaty comes at a key time when the demand for copper is expected to rise significantly due to applications in the technology, transportation, and construction sectors.

Key Provisions

Dividends (Article 10):  The Treaty limits the dividend withholding tax rate to 15% for dividends paid from a resident company to a beneficial owner who is a resident of the other country.  The withholding tax rate is reduced to 5% in cases where the beneficial owner is a company which owns directly or indirectly at least 10% of the voting stock.

Interest (Article 11):  The Treaty initially reduces the withholding tax rate on interest to 15% for a period of five years until the lower 10% rate goes into effect.  The rate is further reduced to 4% for certain entities such as banks, insurance companies, lending institutions, and other specific businesses.

Royalties (Article 12): The Treaty limits the withholding tax rate on royalties to either 2 or 10% depending on the type of royalty.  For royalty payments made for consideration for the use or right to industrial, scientific, or commercial equipment, the withholding tax rate is 2%.  For other royalty payments, the withholding tax rate is 10%.

There are numerous other important provisions such as permanent establishment and the limitations of benefits articles that provide needed clarity.  Taxpayers that have economic activities in or with Chile should consider how the Treaty could potentially apply to them and any next steps they will need to take.  Let our team of experienced professionals help you analyze the potential tax benefits.  Call us to schedule a consultation.

For additional information concerning this alert, please contact:

Melody C. Horton at (864) 502-8311.

The information contained herein is of a general nature and should not be construed as professional advice. The reader should also be cautioned that the alert may not be specific to the reader’s exact circumstances and needs and may require additional information.  You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.