Chile’s tax authority issued Ruling No. 578/2026 on March 6, 2026, confirming that payments from Chilean distributors to U.S. software providers are not subject to Chilean withholding tax (WHT), consistent with prior guidance. This treatment applies regardless of where the end customer is located.
These payments are generally characterized as business profits rather than royalties, yet the value added tax (VAT) exemption does not generally apply. Note, however, that onward distribution to nonresident customers may qualify as an export of services and allow for VAT credits.
U.S. Income Tax Implications
U.S. residents should exercise caution and consider the application of articles 7 (Business Profits) and 12 (Royalties) of the Chile-U.S. tax treaty. If the payments are characterized as royalties under other relevant tax treaties, Chilean WHT may apply.
Taxpayers should also consider filing Form 8833 (“Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)”) when relying on a treaty-based position.
Additional Resources:
The observations and comments presented herein are based on fact-specific information used by MGO for purposes of this communication and have not been independently verified for completeness and accuracy. This content is for general informational purposes only and does not constitute tax, accounting, or legal advice.
Certain items discussed may have implications under ASC 740 (Income Taxes) and related financial reporting considerations; however, the applicability of such guidance will depend on the specific facts and circumstances of each taxpayer. Readers should consult their advisors before acting on this information.