TAX LAW

AGREEMENT TO PREVENT DOUBLE TAXATION BETWEEN CHILE AND THE UNITED STATES

This agreement positions Chile in an advantageous place compared to its South American peers and gives it tax benefits for trade with the world's leading economy. But almost a year after its implementation, it is still little known in the country, so the corporate and investment structures it offers are not being used well.

ENTRY INTO FORCE

After almost fourteen years of rest in the US Senate, the long- awaited agreement between Chile and the United States that put an end to double taxation came into force. Indeed, since February 4, 2010, when it was signed in Washington D.C., and having passed through our country five administrations, its application is now a reality. This positions Chile in an advantageous place compared to its South American peers, while trading with the world's leading economy, which complements the current Free Trade Agreement.

However, since its entry into force on January 1, 2024, it is striking that legal and accounting advisors, and the business fabric, with some exceptions, have made little use of it, in circumstances that this agreement represents 10.9% of Chilean foreign investment, and can be used from large-scale capital to mere personal service providers.

MAIN BENEFITS

Among the main benefits is the mitigation of the tax impact. In figures, the US federal system establishes a corporate tax of 21%. With the remaining 79%, a difference occurs with the agreement. Previously, there was a Withholding of 30%, which is now reduced to 5%. Thus, the final tax burden decreases from 44.7% to 24.95%. If we compare it with the complementary global tax of 35%, there is an advantage of just over 10 points. Of course, it will be necessary to make case-by-case analyses, such as State Tax Rates, but the advantage is abysmal.

NEED TO REVIEW LEGAL STRUCTURES

In the first place, it is necessary to review the current investment structures. Among the current cases, we find someone who wants to invest in real estate in the United States. One way is through direct investment, without corporate structures. In this case, there will be three types of problems; Estate Tax, with the colossal inheritance tax; Firpta, a law that taxes the sale of real estate by foreigners with 15%; and, finally, the null option of claiming expenses for the complementary global tax.

However, this situation could be improved with the agreement if the investor is structured through a Limited Liability Company (LLC) -with a check the box (CTB)-, thus avoiding the payment of Estate Tax and Firpta, and being owned by an SpA or SRL, both considered corporations for US purposes. In summary, the agreement would allow the benefit of the aforementioned 5% withholding.

A similar application of the agreement could be used by investors with investment accounts. Therefore, it is necessary to review the investment cases, since heavy structures could generate high costs, and in return, light structures could produce tax carelessness and civil exposure.

INCENTIVE FOR INVESTORS

The spirit of the treaty is to encourage investments, but without Treaty Shopping or abusive conduct. Proof of this are the authorizations of article 24, which, although it establishes a limitation on benefits, by LOB clause, allows its use through “qualified person”; tests, with the substance of the operation predominating. Therefore, by complying with the established requirements, it would allow access to foreign investors, encouraging international trade.

CURRENT BENEFITS

In summary, we appreciate that the agreement provided legal certainty through the establishment of clear and permanent rules, essential for long-term wealth planning. From this we derive the necessary review and rethinking of current corporate structures, so that they can be used by all investment ranges, including those on a smaller scale.

Finally, the agreement and current times require legal and accounting teams to have an adequate understanding of foreign regulations and even the formation of alliances with foreign firms, in order to provide a comprehensive service and thus determine the most suitable structures to prevent potential legal and tax conflicts and to guarantee relations on a transnational horizon.

Grimaldi Alliance, studio legale internazionale con 12 sedi in Italia e uffici diretti a New York, Lugano, Bruxelles, Londra e Parigi, oltre a un network attivo in oltre 60 giurisdizioni, guidato dal Managing Partner Francesco Sciaudone, rafforza la sua presenza in Sud America consolidando la partnership con Vivanco & Vivanco e aprendo nuove sedi in Cile e Perù.

GA potra’ cosi affiancare i clienti - grazie ai colleghi di con VIVANCO & VIVANCO - con team dedicati sia in Peru’ che in Cile.

Questa collaborazione rappresenta un passo avanti strategico per Grimaldi Alliance, che si conferma leader globale nell’assistenza legale per l’internazionalizzazione delle imprese anche in Sud America. GA offre infatti un supporto mirato per facilitare la crescita delle aziende nei mercati più dinamici del continente americano.

L’attività di GA in Perù sarà coordinata da Javier Bedoya Denegri, avvocato con oltre 15 anni di esperienza in ambito amministrativo, societario, contenzioso e infrastrutturale, conta su un team di 30 professionisti presenti nelle città di Lima e Ica.

L’attività in Cile sarà coordinata da Diego Guerrero, esperto in diritto societario con una solida formazione accademica internazionale, che potrà contate su un team di professionisti con competenze multidisciplinari, offrendo servizi full service che includono il diritto civile, commerciale, societario, del lavoro e dell’immigrazione.

"L'ingresso di Cile e Perù e la rafforzata collaborazione con Vivanco & Vivanco, consentono a Grimaldi Alliance di proseguire la nostra strategia di espansione sui mercati dell’America latina", ha dichiarato Francesco Sciaudone, Managing Partner di Grimaldi Alliance. “Grimaldi Alliance si conferma un ponte strategico per tutti gli imprenditori che desiderano espandere le loro attività all'estero. Siamo pronti per ampliare ulteriormente la nostra capacità di accompagnare le aziende nell’enorme mercato sud-americano, garantendo loro un supporto legale su misura e basato su una profonda conoscenza del contesto locale."