Tax Treatments Of Branches And Subsidiaries Compared

Chilean branches and subsidiaries of nonresident companies are subject to very much the same tax treatment. They both pay first category tax at the same rate (currently 15%). A remittance tax is levied on profits remitted by a branch to its foreign head office at the same rate as the withholding tax levied on dividends paid by a subsidiary to its foreign parent. On the other hand, a subsidiary is liable for first category tax on its worldwide income, while a Chilean branch of a nonresident company is liable for first category tax only on Chilean-source income. Since, however, the law is not altogether clear on the tax treatment of fees and interest paid by a branch to its head office or of imports and exports between a branch and its head office, it is generally preferable for tax purposes to establish a subsidiary.