Quick Answer
The UAE-Chile double tax treaty is signed, ratified and fully in force: signed 31 December 2019, entered into force 28 July 2022, applied from 1 January 2023. It caps withholding tax at 10% on dividends (5% for a 25%+ shareholding held six months or more, 0% for qualifying pension funds), 4% on qualifying interest (10% otherwise), and 2% on equipment royalties (10% otherwise). A UAE tax resident claims these rates in Chile by presenting a UAE Tax Residency Certificate to the Chilean payer or tax authority.
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Current Status: Signed, Ratified and In Force
The Chile-UAE income tax treaty is not a proposal or a pending negotiation. Chile and the UAE signed it on 31 December 2019, completed domestic ratification in December 2022, and exchanged ratification instruments so it entered into force on 28 July 2022. It has applied in practice from 1 January 2023 onward, meaning withholding taxes and income and capital gains taxes generally apply under the treaty from that date, consistent with the standard “taxable period beginning on or after 1 January following entry into force” rule most UAE treaties use.
For general background on how a double tax treaty works, including residency, permanent establishment and relief mechanisms, see our guide to how UAE double tax treaties operate. This article stays focused on the Chile-specific terms.
Who and What the Treaty Covers
The treaty applies to income and capital gains tax imposed by either state: Corporate Tax under Federal Decree-Law No. 47 of 2022 on the UAE side, and Chile’s First Category Tax and Global Complementary or Additional Tax on the Chilean side. An entity or individual is a treaty resident of a state if liable to tax there by domicile, residence, place of incorporation or place of management. A UAE-incorporated company is generally UAE-resident for this purpose; an individual holding a UAE Tax Residency Certificate is treated the same way.
Permanent Establishment Under the UAE-Chile Treaty
A permanent establishment (PE) is a fixed place of business through which an enterprise carries on all or part of its activity, such as an office, branch, factory, workshop, mine, quarry, or oil/gas well. A construction or installation project creates a PE once it exceeds 6 months; service provision through employees or other engaged personnel creates a PE once the same or a connected project exceeds 183 days within any 12-month period. A UAE business nearing either threshold in Chile should track days on the ground, since crossing the line triggers a Chilean taxable presence.
Withholding Tax Rates Under the UAE-Chile Treaty
These are the maximum rates Chile can withhold on outbound payments to a UAE resident. The UAE itself applies 0% domestic withholding tax on outbound payments under its Corporate Tax Law, so the practical benefit runs mainly one way, protecting UAE-based recipients of Chile-source income:
| Income type | Treaty rate | Condition |
|---|---|---|
| Dividends | 0% | Beneficial owner is a recognized pension fund with no business activity and no associated-enterprise relationship with the payer |
| Dividends | 5% | Beneficial owner directly holds at least 25% of the voting power in the paying company for a minimum of 6 months |
| Dividends | 10% | All other cases |
| Interest | 4% | Beneficial owner is a bank, insurance company, finance company, or the seller of machinery/equipment on credit |
| Interest | 10% | All other cases |
| Royalties | 2% | Payment is for the use of, or the right to use, industrial, commercial or scientific equipment |
| Royalties | 10% | All other cases (patents, trademarks, know-how, software, etc.) |
Worked example: dividend withholding under the treaty
A UAE holding company owns 30% of the voting shares of a Chilean operating company, held for over a year, and receives an AED 2,000,000 dividend distribution. Because the stake exceeds the 25% threshold for at least 6 months, the treaty caps withholding at 5% instead of the 10% default: AED 2,000,000 x 5% = AED 100,000 withheld. The UAE parent needs a valid UAE Tax Residency Certificate on file with the Chilean payer at the time of distribution to lock in the 5% rate.
Capital Gains Under the Treaty
The treaty gives the state where the asset sits, or where the underlying value sits, the right to tax gains on: immovable property located in that state; movable property forming part of the business assets of a permanent establishment there; shares or rights deriving more than 50% of their value, directly or indirectly, from immovable property in that state; and shares or rights representing at least 25% of the capital of a company resident there. An exemption applies to gains from selling shares or rights in a company listed on a recognized stock exchange in either state, provided the seller’s holding does not exceed 5% of the shares or rights sold within the 12 months preceding the sale.
Residency Tie-Breaker and How to Claim Relief
If an entity qualifies as a resident of both the UAE and Chile under each country’s domestic law, the treaty does not use a single fixed rule such as place of effective management to break the tie. Instead, the competent authorities of both states must resolve the dual-residence question by mutual agreement, weighing place of effective management, place of incorporation and other factors. If the authorities cannot agree, the entity is denied treaty benefits for the relief it was seeking. A UAE entity at risk of dual residency, for example one with Chilean directors making key decisions from Santiago, should keep board minutes and governance records that support a single, defensible residency position.
To claim the reduced treaty rates above, a UAE-resident recipient of Chile-source income should obtain a UAE Tax Residency Certificate from the Federal Tax Authority, provide it to the Chilean payer before or at payment, and retain documentation (shareholding percentages, holding periods, loan or licensing agreements) proving the rate conditions were met. A Chile-resident recipient of UAE-source income follows the mirror process through Chile’s Servicio de Impuestos Internos. Where double taxation still arises, relief is generally claimed as a foreign tax credit; see our guide on foreign tax relief under UAE tax treaties for the mechanics.
Frequently Asked Questions
Is the UAE-Chile double tax treaty currently in force?
Yes. Signed 31 December 2019, entered into force 28 July 2022, applied to income and withholding taxes from 1 January 2023 onward. It is not a pending or proposed agreement.
What is the withholding tax rate on dividends paid from Chile to a UAE company?
10% is the default rate, dropping to 5% if the UAE recipient directly holds at least 25% of the voting power in the Chilean company for a minimum of 6 months, and to 0% for a qualifying pension fund with no business activity.
Does the UAE itself withhold tax on payments to Chile?
No. UAE Corporate Tax Law currently applies 0% domestic withholding tax on outbound dividends, interest and royalties, regardless of the treaty. The treaty’s rate caps mainly protect UAE residents receiving Chile-source income.
How does a UAE company prove residency to claim the reduced rate in Chile?
By obtaining a UAE Tax Residency Certificate from the Federal Tax Authority for the relevant period and submitting it to the Chilean payer or tax authority alongside evidence that the specific rate condition (shareholding, lender type, or equipment royalty) is met.
What happens if a company is a tax resident of both the UAE and Chile?
The treaty has no automatic tie-breaker for companies. The competent authorities of both states must agree on a single residence; without agreement, the entity gets no treaty benefit for the item in dispute.
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How Tax Consultant Dubai Can Help
Structuring a shareholding, loan or licensing arrangement to genuinely qualify for the treaty’s reduced rates, and securing the Tax Residency Certificate that backs the claim, both require getting the technical conditions right the first time.
Contact Tax Consultant Dubai today to confirm your treaty eligibility and secure your UAE Tax Residency Certificate before your next cross-border payment to or from Chile.
