Royalties, technical assistance and interest

The foreign currency required to pay royalty fees, can be purchased either in the FEM or in the informal market. However, the payments must be made through the FEM (Banks).

Taxes on royalty payments

In accordance with Chilean tax law, all royalties paid abroad are subject to a withholding tax at the rate of 30%, except where royalties are paid to persons resident or domiciled in countries with which Chile has executed a treaty to avoid double taxation, in which case the treaty provisions will apply. However, as of January 1, 2007, certain royalty payments enjoy a reduced rate of 15%. Such is the case for royalties related to the use and exploitation of patents, industrial models, industrial designs and drawings, integrated circuit designs and routings, new varieties of vegetation, and computer programs on any type of physical support. The reduced rate does not apply if the payment is to a tax haven or to a related party. The person or entity that pays, credits to account, or places at the disposal of the licensor any amount relating to this item, must withhold and pay in the 30% tax, without deductions. The tax withheld must be paid to the Treasury within the first twelve days of the following month.

Tax deductibility of royalty payments made to related companies is limited to a 4% of total sales and services for the year, unless the tax applied on royalty payments in the beneficiary’s country is 30% or more. The part of the royalties which exceeds the 4% limit and is deemed nondeductible is not subject to the 35% penalty tax.

Payments made abroad to nonresidents, for engineering and technical work and for professional and technical services resulting in advice, reports or plans, are subject to a 15% tax rate. However, the rate increases to 20% if paid to a tax haven or to a related party.

The withholding tax on technical assistance services related to exports of goods and services may be recovered as an estimated tax payment, provided that certain requirements are met.

Certain services rendered abroad related to foreign trade may be exempt from the withholding tax, provided certain requirements are met (this does not refer to royalties, technical assistance and interest).

Royalties paid to film and video producers or distributors are also subject to the withholding tax at the 20% rate. Royalties paid for authors' rights and edition rights are subject to the withholding tax at a 15% rate.

Taxes on interest on loans

As a general rule, interest on loans coming from abroad is subject to a withholding tax of 35%. However, the tax decreases to 4% when the loans have been granted from abroad by a foreign or international bank or financial institution, as well as by certain foreign pension funds and insurance companies. This tax must be withheld and paid to the Chilean Treasury in the same way as the tax on royalty payments.

In the event that "excess indebtedness" exists, consistent in a debt-equity ratio exceeding 3 x1, the interest on the excess indebtedness is subject to an additional 31% tax payable by the borrower.

Chilean tax law establishes the conditions under which excess indebtedness is understood to exist, for details please contact us.