Chile Eyes Compliance with US Treasury Department Regulations
Boosting Transparency and Cooperation
In an effort to enhance its reputation as a transparent and cooperative nation, Chile’s government has taken significant steps to ensure compliance with the regulations set forth by the US Treasury Department. Specifically, this involves meeting the requirements for foreign investment reporting.
Foreign Investment Reporting Requirements
Under Chile’s income tax law, taxpayers are required to submit an annual affidavit detailing all investments made during the previous year. This information must include:
- The amount invested
- Type of investment
- Country where the investment was made
- Purpose of the investment
This data is used by Chilean authorities to track and report on foreign investment flows into the country.
Designated Low-Tax Jurisdictions
Chile has designated certain jurisdictions as “low-tax” or “preferential tax regimes,” which are subject to additional reporting requirements under Article 41 H of its income tax law. To be eligible for this designation, a territory must meet at least two of the criteria outlined in the article.
FATCA Compliance Agreement with the US
Chile has signed a bilateral intergovernmental agreement (IGA) with the US to comply with the Foreign Account Tax Compliance Act (FATCA). Under this agreement, Chilean financial institutions with US account holders must:
- Register with the US Treasury
- Sign a Foreign Financial Institutions Agreement to avoid paying a 30% withholding tax
To facilitate compliance, these institutions will be required to report individual US account holder information directly to the US Internal Revenue Service (IRS). However, in cases where account holders have not authorized disclosure of their information, Chilean institutions can only provide aggregate data to the IRS. In such instances, the IRS may request specific information from the Chilean tax authority under the terms of the bilateral treaty between the two countries.
Taxation of Funds
The Chilean government has clarified its stance on taxation applicable to funds, including public investment funds, private investment funds, and mutual funds. These entities are not considered foreign currency transfer (FCT) payers but must maintain registries to determine taxation applicable to their quota holders.
Taxation of fund distributions is similar to that of stock corporation dividends, with capital gains treated as an alienation of shares subject to tax-exempt conditions if regularly traded or 90% of the portfolio is invested in such securities. Quota holders not domiciled or resident in Chile may be subject to a sole tax rate of 10% or exempted from taxation in certain cases.
Conclusion
As Chile continues to navigate its compliance obligations with the US Treasury Department, it remains committed to transparency and cooperation with international authorities to ensure a stable and secure investment environment for both domestic and foreign investors.