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.

Following a conversion from a branch, a subsidiary cannot use the pre-conversion losses of the branch. Also, accumulated value added tax credits may be lost. In principle, the tax authorities could adjust the values assigned to assets transferred from the branch to the subsidiary if these are significantly out of line with market values. Transfer taxes of up to 1.5% affect transfers of certain used vehicles. Inventory transferred is subject to value added tax at 18%, although the subsidiary can claim credit for the tax paid.

The information in this article was correct as of 9 July 1996.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information contact Anthony Cook, Deloitte & Touche, Santiago, Chile on Tel: +56 2 638 4186, Fax: +56 2 639 1522.