Withholding Taxes

DIVIDENDS

Dividends paid by a resident company to its resident shareholders are not subject to withholding tax. Normally, dividends paid to nonresidents are subject to a final withholding tax of 35%. However, a credit is given for first category tax paid on the profits from which the dividends derive. The tax actually withheld is calculated by applying a rate of 35% to the grossed-up dividend (the dividend plus a credit equal to 17.65% of the dividend) and deducting the credit from the result.

Foreign investors that make their investments under Decree Law No. 600 of 1974 (see "INVESTING IN CHILE" under "Investment Incentives") may choose an alternative withholding tax system. A provision can be written into the investor's contract with the government that guarantees a fixed aggregate tax rate of 42%, comprising first category tax and withholding tax, for ten years (extendible to twenty years in some cases). No credit is given for first category tax against the withholding