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HMRC internal manual

Double Taxation Relief Manual

HM Revenue & Customs
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Double Taxation Relief Manual: Guidance by country: Chile: Dividends

Chilean tax deducted from dividends paid by a Chilean company at the agreement rate of 15 per cent (5 per cent if the dividend is paid to a UK resident company which controls directly or indirectly at least 20 per cent of the voting stock of the company paying the dividend) qualifies for credit as a direct tax (see INTM164010(c)). The reduction to the above rates is not given where the dividends are effectively connected with (see INTM153110, fifth sub-paragraph) a permanent establishment which the recipient has in Chile.

Where a dividend is paid to a UK resident company which controls, directly or indirectly, at least 10 per cent of the voting power in the company paying the dividend, relief is also due under the agreement for underlying tax (see INTM164010(d) and Article 21(2)(b)).

Note that Chile does not currently deduct any direct tax from dividends paid by a Chilean company. Chile has an integrated tax system under which it imposes a 35 percent tax on company profits at two levels. Companies resident in Chile are subject to the First Category Tax at a rate of 17 percent. Dividends paid to non-resident shareholders are then subject to the Additional Tax at a rate of 35 percent on the gross amount of the dividend with a credit for the First Category Tax paid. The Additional Tax (see DT4851) paid at the time of the distribution is not a direct tax on the income of the beneficial owner of the dividends but a tax on the profits of the paying company payable at the time they are distributed. As a result, credit for such tax is not due to portfolio shareholders.