Changes to the withholding rates on interest and royalties and to the independent personal services Article in the Canada-Chile Tax Convention

Effective January 1, 2004, the withholding rate on interest described in paragraph 2 of Article 11 of the Canada-Chile Tax Convention was lowered from 15 percent to 10 percent on the interest derived from:

  • loans granted by banks and insurance companies;
  • bonds or securities that are regularly and substantially traded on a recognized securities market; and
  • sale on credit paid by the purchaser of machinery and equipment to a beneficial owner that is the seller of the machinery and equipment.

Effective January 1, 2004, the withholding rate on royalties described in paragraph 2 of Article 12 of the Canada-Chile Tax Convention was lowered from 15 percent to 10 percent.

Also, effective January 1, 2004, paragraph 1 of Article 14 will be read as:

"Income derived by an individual who is resident of a Contracting State in respect of professional services or other activities of an independent character performed in the other Contracting State may be taxed in that other State if the individual is present in the other State for a period or periods amounting to or exceeding in the aggregate 183 days in any 12 months period but the tax so charged shall not exceed 10 per cent of the gross amount of that income unless the individual has a fixed base regularly available in that other State for the purpose of performing the activities. If the individual has or had such a fixed base, the income may be taxed in the other State in accordance with the law of that state, but only so much of it as is attributable to that fixed base."

These changes occur as a result of the "most-favoured-nation" provisions in paragraphs 1 and 2 of the Protocol to that Convention. Chile has confirmed that it is in agreement with the changes.

  • In circumstances where the withholding rate on interest and royalties has been in excess of the above rate since January 1, 2004, a Chilean resident taxpayer can complete form NR7-R to apply for a refund of non-resident Part XIII tax withheld and send the application to the International Tax Services Office, Non-Resident Withholding Division, 2204 Walkey Road, Ottawa, Ontario, Canada, K1A 1A8

  • Where, since January 1, 2004, a withholding has been made for independent personal services where such services are, by virtue of the new paragraph 1 of Article 14, only taxable in the Contracting State where the individual is resident, a Chilean resident taxpayer can complete the Income Tax and Benefit Return for Non-Residents and Deemed Residents of Canada to obtain a refund of non-resident tax withheld and send the return to the International Tax Services Office, 2204 Walkey Road, Ottawa, Ontario, Canada, K1A 1A8.

  • In circumstances where the withholding rate on interest and royalties has been in excess of the above rate since January 1, 2004 or where, since January 1, 2004, a withholding has been made for independent personal services where such services are, by virtue of the new paragraph 1 of Article 14, only taxable in the Contracting State where the individual is resident, a Canadian resident taxpayer can complete form N° 2117 (Chilean form) to apply for a refund of any tax withheld in excess and present the application to the Regional Director who has the jurisdiction over the domicile of the taxpayer who paid the income.
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