On March 6th, the Chilean Internal Revenue Service (“SII” for its initials in Spanish) issued Exempt Resolution No. 30, which establishes the list of territories or jurisdictions that have a preferential tax regime for the purposes of Article 41 H of the Income Tax Law (“LIR” for its initials in Spanish).
With this resolution, the SII provides certainty regarding which territories or jurisdictions meet the requirements of Article 41 H, according to its new wording, allowing taxpayers to know in advance the implications of investing through certain foreign jurisdictions. In general, being classified as a preferential tax regime results in the loss of certain tax benefits—an element to consider before conducting transactions in these territories.
New requirements under Law 21.713
Law 21.713, enacted in October 2024, introduced several amendments to the LIR, including Article 41 H, which sets the criteria for a country to be considered as having a preferential tax regime. The law establishes two cumulative requirements:
- The country has not signed an agreement with Chile that allows for the exchange of tax-related information, or if it has, the agreement is not in force or contains limitations preventing effective information exchange.
- The country does not meet the conditions to be considered compliant or substantially compliant in terms of transparency and exchange of tax-related information.
Regarding the second requirement, the determination of whether a jurisdiction is compliant or substantially compliant will be based on evaluations conducted by the Global Forum on Transparency and Exchange of Information for Tax Purposes or another international body that replaces it, provided that Chile is a permanent member. To check whether a country meets transparency and information exchange standards, a link is provided for consultation.
Since both requirements must be met simultaneously, if a jurisdiction either has an effective information exchange agreement with Chile or is considered compliant in terms of transparency, it will not be classified as a preferential tax regime.
Implications for foreign investments
The inclusion of a territory or jurisdiction on the preferential tax regime list carries several consequences for those with foreign investments. One of the key provisions is found in Article 41 G of the LIR, which presumes that an entity is controlled for tax purposes if it is incorporated, domiciled, or resident in a country with a preferential tax regime.
If an entity is considered controlled under Article 41 G, the controlling taxpayer must recognize passive income as accrued or received, regardless of whether it has been effectively received. This is an exception to the general rule in Article 12 of the LIR, which states that foreign-source income is recognized on a cash basis. However, the presumption of control in Article 41 G is purely legal and can be rebutted with evidence. In the event of an audit, taxpayers must provide proof to the SII demonstrating that their entity is not controlled, showing that none of the Article 41 G conditions apply (for example, they do not own 50% or more of the capital, voting rights, profit rights, or have control overboard appointments or statute amendments).
Additional tax effects
Other consequences of a jurisdiction being classified under Article 41 H include:
Indirect Sales:
Article 10 of the LIR taxes capital gains from the sale of shares or securities of a foreign entity that owns underlying assets in Chile. Normally, such a sale is taxed if:
- At least 10% of the foreign entity is sold.
- The Chilean underlying asset represents at least 20% of the foreign entity’s market value or has a market value exceeding 210,000 UTA.
However, if the foreign entity is domiciled in a jurisdiction listed under Article 41 H, the sale will always be taxed, regardless of whether these thresholds are met. The only way to avoid taxation on the capital gain is to prove to the SII that:
(a) No Chilean residents hold, directly or indirectly, at least 5% of the shares, quotas, securities, or rights being sold, and
(b) The controlling shareholders (holding at least 50% of capital or profits) are domiciled in jurisdictions that do not qualify under Article 41 H.
Annual reporting to the Chilean IRS:
Entities subject to Article 14 A of the LIR (which declare effective income based on full accounting records) must report foreign investments made in the previous fiscal year. If an investment is in a jurisdiction listed under Article 41 H, additional reporting is required, detailing the status of the investments, any increases or decreases, the use of funds by the receiving entity, and any other information requested by the SII.
Additional tax under Article 59 LIR:
Article 59 of the LIR provides preferential tax rates for payments such as royalties for patents, software, and other intellectual property. These preferential rates do not apply if the recipient is located in a jurisdiction classified as a preferential tax regime, reverting to a standard 30% tax rate.
The resolution and the official list of jurisdictions classified as having a preferential tax regime are attached to this report.