United States-Chile Bilateral Tax Treaty In Force

A comprehensive bilateral tax treaty between the United States and Chile entered into force Tuesday.

The treaty, ratified by the U.S. Senate in June, was signed by President Joe Biden this month. The treaty entered into force when the United States notified Chile that it had completed the required procedures for bringing the treaty into force.

The Chile tax treaty will reduce tax-related barriers to cross-border investment between the United States and Chile, facilitating stronger bilateral business ties. Lower tax rates will allow entities doing business in both countries to save money. U.S. and Chilean companies and industry associations have long championed the passage of this tax treaty, which will make Chilean companies more competitive in the United States, and vice versa.

The United States remains the number one market for Chilean women-led and small and medium-size businesses. This treaty will reduce the cost of business for them, as well, according to the State Department.

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.

The treaty has a provision allowing 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, the U.S. Treasury Department said. For all other taxes, the Chile tax treaty will have effect for taxable periods beginning on or after January 1, 2024.

The United States has 57 comprehensive tax treaties, covering more than 60 nations around the world. The U.S.-Chile bilateral tax treaty is only the second comprehensive income tax treaty in force with a South American country.

The Chile tax treaty is the first new comprehensive bilateral tax treaty signed by the United States in more than ten years.

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